Fortress scores $200m from CalSTRS

CalSTRS committed to Wes Edens-led Fortress’ second Credit Opportunities fund, which is targeting $2bn.

Fortress Investment Group has been in the market trying to raise at least $2 billion for its second Credit Opportunities Fund, and recently scored a big commitment from the California State Teachers’ Retirement System.

In June, CalSTRS committed $200 million to the fund, which launched last year. The funds are private equity-style vehicles that focus on distressed residential credits, including whole loans, residential securities and other asset-backed securities, corporate and real estate loan origination and stressed and distressed loans and securities.

The first credit opportunities fund raised $3 billion in 2008, well over its target of $2 billion. The fund was generating a 0.92x cash-on-cash return and a 34.24 percent internal rate of return as of 31 May, 2010, according to performance documents from the University of Texas Investment Management Company.

Wes Edens

Other Fortress vehicles have not been performing as well. The Wes Edens-led firm’s fifth fund, which closed on $5 billion in 2007, was generating a negative 30 percent IRR as of 31 May, according to UTIMCO. The fourth fund, which closed on $2.5 billion in 2006, was producing a .03 cash-on-cash return and a negative 9.45 percent.

Fortress has gone back to limited partners for additional money to help support flailing investments in prior funds.

Earlier this year, the firm launched a follow-on fund to the Fortress Florida Preferred Fund targeting $325 million to pay down debt on existing investments and allow “Fortress to focus management’s efforts on the investment’s business plan and maximise the overall value of the underlying companies”, according to documents from the California State Teachers’ Retirement System.

In 2009, the firm approached existing investors in its $2 billion third fund asking for additional commitments to help the vehicle reduce its debt load.