Fortress Liquidates Flagship Hedge Fund | Chief Investment Officer

Fortress Investment Group is shuttering its flagship hedge fund.

The investment firm announced Tuesday it would close the $2.3 billion Fortress Macro Fund and managed separate accounts. Fortress aims to return all investor capital by the end of the year.

Fund CIO and Fortress principal Michael Novogratz is set to retire from the firm and its board of directors at the end of the year. Novogratz founded Fortress’ liquid markets business in 2002.

The announcement came one week after reports that Bain Capital was liquidating its $2.2 billion Absolute Return Capital hedge fund.

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“This was a difficult decision given my confidence in both the research positions we hold and the talent of our team,” said Novogratz. “But we have had an extremely challenging two years, and I do not believe the current environment is conducive to achieving our best results.”

The macro fund had lost more than 17% so far this year as of the end of September, according to the New York Times. Requests for hedge fund redemptions totaled more than $1 billion in the past year, the Times reported.

Co-chairmen Peter Briger and Wesley Edens said in a joint statement with CEO Randal Nardone that they were “obviously disappointed” in the outcome.

“While we regret closing a fund that has been productive in the past, we also recognize the market’s reluctance to ascribe value to this strategy even in its best years,” they said.

In a 2014 regulatory filing, Fortress acknowledged liquidation of the macro fund could have a “material adverse effect” on its broader business.

“The occurrence of such an event with respect to any of our funds would, in addition to the significant negative impact on our revenue and earnings, likely result in significant reputational damage as well,” the filing said.

Investors in Fortress’s flagship fund included the Fire & Police Pension Association of Colorado, which approved an investment in the fund in 2014, according to minutes from a meeting with its board of directors.

As the investment chief of one large foundation told CIO, “This is a big deal.”

Three of the world’s largest sovereign wealth funds (SWFs) have sold billions of dollars in European equities this year as pressure on the oil price has forced them to reconsider their investment strategies.

Data from Nasdaq Advisory Services showed that the Norway Government Pension Fund—Global, the Saudi Arabian Monetary Agency, and the Abu Dhabi Investment Authority (ADIA) withdrew a combined $2.6 billion from European markets between May and September 2015.

“The buying activity of oil-rich SWFs across firms may well be something of the past.”—Alexander Free, NasdaqIn a report accompanying the data, Nasdaq Analyst Alexander Free said the recent sales could indicate a “change in momentum” among those sovereign wealth funds dependent on sales of oil for their revenues.

The price of oil collapsed in the second half of 2014, meaning the current price of roughly $50 a barrel is less than half its level 18 months ago, according to Bloomberg.

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Øystein Olsen, CEO of Norges Bank Investment Management, recently warned that the rate at which the Norwegian government was spending its oil revenue would soon exceed the amount of money it was raising from sales. Nasdaq’s Free said this scenario would “put further selling pressure” on the SWF. It has already sold $1.1 billion of European equities between May and September, and sold more than $500 million in the two previous four-month periods.

Meanwhile, the government of Saudi Arabia issued its first sovereign bond since 2007 in July this year in an effort to raise $4 billion, Free said. In addition, the International Monetary Fund recently warned that the country’s fiscal deficit was increasing, which could increase withdrawals from the Saudi Arabian Monetary Agency.

ADIA has acknowledged that it too may have to withdraw from its wealth fund, Free added.

“With the selling from oil dependent sovereign wealth funds showing no signs of abating, and with these funds suffering from more than solely the weak oil price, the buying activity of oil-rich SWFs across firms may well be something of the past,” Free said.

However, Nasdaq’s data from other SWFs—particularly those based in the Far East—indicated that these investors had been buying equities in Europe.

“There is an opportunity for emerging markets SWFs to start plugging the gap left by the oil dependent sovereign investors,” Free said.