Nov. 28 (Bloomberg) -- Fortress Investment Group LLC, the private-equity and hedge-fund manager overseeing $40 billion, plans to start a commodities hedge fund after energy, metals and agriculture prices climbed to records.

The Drawbridge Commodities Fund will be managed by William Callanan, according to the fund's marketing documents. Fortress and its employees will invest a ``significant'' amount of capital in the fund, the documents said.

``Commodities are getting more and more mainstream,'' said Omar Kodmani, a London-based portfolio manager at Permal Group, which invests $35 billion in funds. ``Investors are still interested in the asset class; we're not just in a short-term bull market.''

Fortress is expanding into booming commodities as its shares have been pushed lower by concerns that rising credit defaults in the U.S. will damage prospects for investment companies. The stock has dropped 6.8 percent since a Feb. 8 initial public offering.

Lilly Donohue, a spokeswoman for New York-based Fortress, declined to comment on the fund.

Commodities have outperformed stocks and bonds this year, luring investors. Commodity hedge funds manage about $55 billion, up from $30 billion last year and $14 billion two years ago, according to Chicago-based Cole Partners Asset Management, which invests in such funds.

Shares Rebound

Fortress rose 89 cents, or 5.4 percent, to $17.25 as of 4 p.m. in New York Stock Exchange composite trading. The company said on Nov. 13 that third-quarter profit adjusted for certain expenses rose 66 percent to $111 million.

The new commodity fund will be the fourth hedge fund Fortress manages and will seek to return 15 percent to 20 percent annually, according to the documents.

Fortress's fund plans to trade futures contracts in energy, metals, agriculture, shipping and carbon emissions. It also will invest in commodity- and industrial-related equities, the documents said.

Callanan will lead a team of four analysts. He joined Fortress as a portfolio manager in August and previously was a chief investment officer at London-based hedge fund Rubicon Fund Management LLP, according to the documents. In 2000 to 2003, he was a managing director at Duquesne Capital Management LLC, and prior to that he was at Soros Fund Management LLC.

Asset Returns

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

The UBS Bloomberg Constant Maturity Commodity Index of 28 futures contracts has returned 19 percent this year, compared with a 3.6 percent gain in the Standard & Poor's 500 Index of stocks. U.S. Treasuries have returned investors 9 percent, according to Merrill Lynch & Co. indexes.

Oil rose to a record $99.29 a barrel on Nov. 21, while wheat climbed to $9.6175 a bushel on Sept. 28, its highest ever. Lead hit an all-time high of $3,890 a metric ton on Oct. 10.

To contact the reporter on this story: Saijel Kishan in London at skishan@bloomberg.net

Last Updated: November 28, 2007 16:38 EST