Despite analysts' rave Fortress, Blackstone plunge
NEW YORK (Reuters) - Shares of "alternative" asset management firms Fortress Investment Group (FIG.N) and Blackstone Group LP (BX.N) have plummeted below their initial offering price despite bullish analysts' ratings.
Private equity firm and hedge fund Fortress's shares were down nearly 8 percent on Wednesday, while Blackstone's were off about 1 percent.
Since Fortress -- the first of these companies to go public -- debuted on the New York Stock Exchange in February, its stock has dropped nearly 50 percent from its initial price of $35, after gaining about 70 percent on the first day.
Analysts from Goldman Sachs, Deutsche Bank, Banc of America Securities and Lehman began covering Fortress on March 21 with "buy" or equivalent ratings. Goldman Sachs and Lehman were the lead underwriters; Banc of America and Deutche Bank were among the co-managers on the offering.
Fortress shares were already down from their initial offering price of $35, a fact many analysts have attributed to the deteriorating home loan and credit markets rather than weak fundamentals.
Deutsche Bank analysts Matthew Fischer and Mike Mayo, who have a $27 price target on Fortress, said "alternative asset management has favorable structural trends that should lead to 20 percent annual growth in this segment."
Deutsche Bank had put its coverage of Fortress on hold because their previous analyst left the firm, but resumed coverage on Wednesday with a "buy" rating.
Goldman Sachs analyst Marc Irizarry said he continues to have a "buy" rating on Fortress stock.
BLACKSTONE TO MIRROR FORTRESS?
Blackstone's stock, meanwhile, has dropped 23 percent from its initial offering price of $31.
Several top Wall Street firms on Wednesday started coverage of Blackstone, the private equity giant that went public in late June, mostly rating the stock "buy" on the company's earnings potential and ability to weather market storms.
Analysts from Merrill Lynch MER.N, Citigroup (C.N), Lehman Brothers LEH.N, Morgan Stanley (MS.N), Deutsche Bank (DBKGn.DE) , Credit Suisse (CSGN.VX) and Banc of America Securities all had a "buy," "outperform" or "overweight" rating on Blackstone.
"Blackstone is positioned to generate double-digit earnings growth driven by its superior over-the-cycle investment performance," Citigroup analyst Prashant Bhatia wrote in research note.
Wachovia Securities analyst Douglas Sipkin had a "market perform" rating on Blackstone, citing a more challenging environment for future investing.
"In addition, uncertainty around credit markets, taxation policies and valuation support our 'market perform' recommendation," Sipkin wrote.
Morgan Stanley and Citigroup were the lead underwriters for Blackstone's $4 billion IPO. Merrill Lynch, Credit Suisse Group, Lehman Brothers and Deutsche Bank also won coveted spots in the deal, which was underwritten by 17 banks.
Wachovia and Banc of America Securities had lesser roles.
Blackstone recently hired Joan Solotar, previously head of equity research at Banc of America Securities, to oversee its public investor relations.
There has been renewed concern about conflicts of interest between banks' investment banking and research divisions in covering newly public private equity firms and hedge funds, which are often important clients of the banks.
Private equity-related fees accounted for one-fifth of total global investment banking revenue in 2006, according to data provider Dealogic.
In 2003, U.S. regulators reached a settlement with the 10 largest Wall Street banks and erected strict walls between the two divisions to prevent such conflicts of interest.
Fortress shares were down $1.50 to $17.47 after touching their year's high of $35.49 soon after its IPO. Blackstone shares were down 24 cents to $23.77 in early afternoon trading on NYSE.
