Nov. 13 (Bloomberg) -- Fortress Investment Group LLC's hedge-fund clients have asked to pull more than $4.5 billion, or 25 percent of their money, over the next few months as the company reported its first quarterly loss since going public.

The redemption requests poured in as Fortress's Drawbridge Global Macro funds lost 13.5 percent this year through Sept. 30 and its Special Opportunities funds declined as much as 7.2 percent, the New York-based company said in a statement today. Hedge funds fell an average of 11.6 percent in the same period, according to the HFRX Global Hedge Fund Index.

The worst financial crisis since the 1930s is battering Fortress's primary businesses of taking companies private and running hedge funds. The company was forced to write down $50 million of private-equity holdings. Investors withdrew an estimated $60 billion from the $1.7 trillion hedge-fund industry in October, Singapore-based Eurekahedge Pte said today.

``The problems at Fortress have shifted from private equity to hedge funds,'' said Jackson Turner, an analyst at Argus Research in New York. Turner, who anticipated hedge-fund redemptions of less than 10 percent, recommends investors sell Fortress shares. ``Investors have lost faith in the franchise.''

Fortress said its third-quarter loss was $20 million, or 4 cents a share, compared with a profit of $111 million, or 26 cents, a year earlier. The average per-share estimate of 10 analysts surveyed by Bloomberg was a profit of 10 cents.

``The performance in the quarter is obviously something we're unhappy with,'' Chief Executive Officer Wesley Edens said on a conference call today. ``This is the type of environment that will eventually create enormous opportunity.''

Redemptions

Fortress said it received $2.6 billion in withdrawal requests payable through the end of January for its liquid hedge funds, which manage $9.1 billion in assets between the Drawbridge Global Funds and the Fortress Commodities Fund.

``We had a very disappointing quarter, as the returns show,'' said Fortress President Michael Novogratz, who runs the Drawbridge Global Macro funds. ``Part of that was getting caught in long assets in a market where liquidity had disappeared.''

Investors asked to pull $1.9 billion, effective Dec. 31, from its hybrid hedge funds. The Drawbridge Special Opportunities Funds and Fortress Partners Funds managed $8.2 billion as of Sept. 30. Those redemptions will be paid out over time as investments are liquidated, the company said.

Fortress's assets under management fell 2.1 percent during the quarter to $34.3 billion. Fortress's fund returns were hampered by the global credit shortage, which slowed the pace of leveraged buyouts, and falling stock prices.

Revenue Falls

Fortress took $69.2 million of impairment charges and reserves for private-equity funds where costs exceed asset values as of Sept. 30, according to a regulatory filing today. Since that point, ``values have generally deteriorated further,'' it said.

Fortress would incur additional losses and reserves of about $118.9 million if those funds were to be liquidated, the company said.

Revenue dropped by 25 percent to $185.1 million. The company reported a net loss of $57.4 million, or 66 cents a share, wider than a loss of $37.6 million, or 52 cents a share a year ago. That included $298 million in compensation to the firm's founders tied to the IPO. Fortress expects net losses for the next three and a half years because of the payments.

Same Boat

Earlier this week, Sparx, Asia's biggest hedge-fund manager, with $8.5 billion in assets, posted a first-half loss on redemptions and falling stock prices. Its assets under management on a preliminary basis were 839.1 billion yen ($8.8 billion) as of Oct. 31, compared with a peak of 2 trillion yen in August 2006.

Fortress joins rivals Blackstone Group LP and KKR & Co. LP in cutting the value of assets to match a global decline in prices. Blackstone, the world's largest private-equity firm, posted the biggest quarterly loss in 18 months as a public company on Nov. 6 as the financial crisis eroded the value of the businesses and real estate it has acquired.

Fortress was unchanged at $3.24 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 82 percent since its initial public offering in February 2007, the first by a U.S. manager of hedge funds and private equity. It raised $634 million in the IPO.

Fortress said in September it wouldn't pay a third-quarter dividend to shareholders, saying the money can be better spent by investing in financial companies.

Wall Street analysts base their profit estimates on what Fortress calls pretax distributable earnings, which don't conform with generally accepted accounting principles for net income. The figure excludes compensation from the IPO and other items.

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net

Last Updated: November 13, 2008 18:03 EST