Trader Lands $300 Million To Stay Put At Fortress

By PETER LATTMAN
August 11, 2008; Page C1

Eager to keep one of its key employees, publicly traded Fortress Investment Group LLC has lavished a $300 million share grant on one of its star traders, 38-year-old Adam Levinson.

Mr. Levinson, who also is the chief investment officer of one the firm's main funds, joins the private-equity and hedge-fund giant's five other controlling shareholders, who together hold some $3 billion of company stock. These executives haven't sold any shares since the company went public in 2007 and own 77% of the business.

Fortress has struggled mightily in its 18 months as a public company, losing two-thirds of its peak value amid brutal markets for financial firms.

Mr. Levinson's windfall -- which was alluded to in a May filing with the Securities and Exchange Commission -- highlights the quandary of publicly traded private-investment outfits. On the one hand, they must compensate elite traders and dealmakers richly enough so they don't leave for a competitor or start their own firms. The heads of large private hedge funds such as Citadel Investment Group and Paulson & Co. can -- and have -- earned billions of dollars in a single year.

But public firms also answer to shareholders, who often look down upon outsize pay packages. At least one analyst took a dim view of Mr. Levinson's 31-million-share grant, which based on Friday's stock-market close was nearly four times the size of the $84 million pay package commanded by the highest-paid U.S. chief executive last year, Merrill Lynch's John Thain.

Fortress declined to comment.

In a research note Thursday, Citigroup Inc. analyst Prashant Bhatia noted that the share grant hurts existing shareholders by increasing the number of shares outstanding by 7%.

"We can't rule out additional dilutive share grants to other senior employees down the road," he wrote.

Fortress shareholders do get something in return. In exchange for the shares, Mr. Levinson reduces his profit-sharing interests in certain Fortress funds, according to the SEC filing. Those forgone profits flow back to the company and its shareholders.

Nor can Mr. Levinson get his hands on the shares immediately; they vest over time as long as he continues to work for the firm.

From New York, Mr. Levinson helps oversee a staff of 170 in six offices around the globe that place bets on a range of investments including U.S. equities and Kazakstahn credit for the firm's $8.8 billion global macro hedge fund. One of Friday's discussions: the investment implications of the escalating violence between Russia and Georgia.

Global macro is a strategy that can be highly profitable, though returns can vary wildly. The Fortress fund has largely been successful, returning an average of 15% annually, with low volatility, since its 2002 inception. But it has had a tough time this year. The fund is down 2% for the first six months of 2008, while funds employing this strategy on average rose 6.5% over the same time, according to Hedge Fund Research, a Chicago-based research firm.

Mr. Levinson, a Cornell University graduate, joined the firm in 2002 from Goldman Sachs Group, where he worked with Fortress co-presidents Peter Briger and Michael Novogratz and spent time in Tokyo running a desk that traded the firm's capital.

A native of suburban Detroit, he remains a rabid and loyal Detroit Lions fan and flies back to the Motor City for the team's home games.

The sport of global-macro investing is a 24-hour business. Mr. Levinson wakes up at his downtown Manhattan loft at 5:10 a.m. each morning and does 20 minutes of Mysore yoga, a self-directed form of Ashtanga yoga named after the southern Indian city. He arrives at the office by 6:10 a.m. for calls with his Asian and London teams.

The only natural break comes at 4 p.m., when the U.S. market closes and Mr. Levinson heads to the gym. He returns to the office around 6 p.m. to prepare for the opening of the Asian markets. He's usually in bed by 10:30 p.m., but his sleep is typically interrupted.

"On a good day, it's a couple of calls overnight," he said. "On a bad one, it's seven."

A new father, Mr. Levinson says his wife jokes that although she had been worried their baby would keep them up at night, he's really the problem.

"Five months into it, the baby sleeps through the night but the calls keep coming," he says.