On Wednesday, my portfolio reminded me of a famous Edward Hopper painting called Nighthawks. The painting is almost entirely green except for a small lady in the middle wearing a bright red dress.
16 of the 17 names in my portfolio were up (green), and my little lady in red is Fortress Investment Group (NYSE:FIG). FIG was down 0.63%, but I'm happy to continue holding her as she provides important diversification and has other positive characteristics.
According to Jack Meyer (recent Harvard Endowment fund manager), "the most powerful tool an investor has working for him or her is diversification." Per the September 2007 edition of "SmartMoney" magazine, 13% of the Harvard Endowment fund is invested in Private Equity.
Up until recently, it was essentially impossible for individual investors to add private equity diversification into their own portfolios (because it is traditionally only available to the extremely wealthy). However, the recent wave of IPO's by alternative asset class firms (such as FIG) provides ordinary investors with important access to private equity. Check out Harry Markowitz's Modern Portfolio Theory for more information on the benefits of asset class diversification.
In addition to its diversification benefits, there are a variety of other reasons I own FIG. For example, FIG is demonstrating very strong AUM growth in all of its lines of business (private equity AUM grew 31% q/q, liquid hedge funds AUM grew 25% q/q, and hybrid hedge funds AUM grew 8% q/q).
Also, FIG's share price has unjustly taken a beating due to the current macroeconomic liquidity crisis; however, I view these macroeconomic conditions as an opportunity for FIG to profit by providing liquidity to other firms that are over-levered (FIG does not appear to be over-levered, check out their recent 8-K and conference call transcript for details).
Further, FIG's price decline over the last several months makes its dividend yield extremely attractive.
Disclosure: Author is long FIG