Friday, May 15, 2009

Wes Edens and G.B. Shaw on The Great Liquidation

When Fortress Investment Group reported  its first quarter earnings this month, it provided an occasion for the media to cite Fortress Chairman and CEO Wesley Edens' characterization of the Great Recession as "The Great Liquidation."

Here from the Wall Street Journal's report: Edens "said his firm expects to thrive [as the financial crisis grinds on]. Cash-strapped investors are still being forced to sell in 'The Great Liquidation,' as he and his partners call it, creating opportunities 'unlike anything we've seen in many, many years,' Mr. Edens said."

What Wes Edens said precisely about that was conveyed in his letter to shareholders in Fortress's 2008 annual report: "If this is the Great Recession of our lifetimes, then surely what will follow will be the Great Liquidation—first and foremost by the government, financial institutions, banks and insurance companies shedding 'toxic assets.' ... You have undoubtedly heard many comparisons to the RTC over the past year; those were great times to invest in financial assets, and we expect this market to eventually generate even greater opportunities. The scale and scope of this crisis is notably more extensive and complex—this is a crisis not only of real estate and financial markets but truly a crisis affecting virtually every business in the U.S. and around the world." 

Could Wes Edens be channeling playwright George Bernard Shaw? Shaw (pictured) knew something about Great Liquidations, as evidenced by this passage from "Heartbreak House," a play Shaw wrote in 1916 which I just saw performed on stage. 

The setting: a dysfunctional family gathering, into which enters a businessman by the name of Alfred "Boss" Mangan who, during the course of the play, makes the following admission of his methods:

"I don't start new businesses: I let other fellows start them. They put all their money and their friends' money into starting them. They wear out their souls and bodies trying to make a success of them. They're what you call enthusiasts. 

"But the first dead lift of the thing is too much for them; and they haven't enough financial experience. In a year or so they have either to let the whole show go bust, or sell out to a new lot of fellows for a few deferred ordinary shares: that is, if they're lucky enough to get anything at all.

"As likely as not the very same thing happens to the new lot. They put in more money and a couple of years more work; and then perhaps they have to sell out to a third lot. If it's really a big thing the third lot will have to sell out too, and leave their work and their money behind them.

"And that's where the real businessman comes in: where I come in."

Sounds like Nobel Laureate G.B. Shaw, writing 90 years ago, had a bead on being a Great Liquidation opportunist with the best of today's breed of PE investor and hedge fund trader. Who knew?