Feb. 8 (Bloomberg) -- Fortress Investment Group LLC is generating strong investor interest in its plan to raise as much as $634.3 million in an initial public offering, the first by a U.S. manager of hedge funds and buyout funds.

``The first offering will be the darling,'' said Geoffrey Bobroff, an independent money-management consultant in East Greenwich, Rhode Island.

Fortress plans to sell as many as 34.3 million shares at $16.50 to $18.50 each, according to a Feb. 2 regulatory filing. The firm's five principals will control 78 percent of the company after the IPO, which is scheduled for later today. Fortress, which manages $29.9 billion, may have a market value of about $7 billion after the share sale.

The New York-based company was founded as a private-equity firm in 1998 and then branched into hedge funds, real estate and debt securities. The IPO will give it permanent capital, which unlike the money it gets from fund investors, can't be withdrawn. Investors seeking to buy into the Fortress offering include other hedge funds.

``This is the first time non-qualified investors will have the ability to gain exposure to that part of the marketplace,'' said Keith Wirtz, who helps oversee $21 billion as chief investment officer of Cincinnati-based Fifth Third Asset Management.

Individuals must meet certain net-worth requirements to qualify as hedge-fund investors. Fortress is selling stock in its management company, allowing investors to share in the profits it earns from its funds.

Fortress has 25 times more interested subscribers in its IPO than available shares to sell, the Financial Times reported today, citing an unidentified source close to the deal.

U.K. Pioneers

U.S. alternative-asset managers, such as those running hedge, buyout and real-estate funds, lag behind their London- based counterparts when it comes to selling shares to the public. A hedge fund that sells shares publicly is exposed to a level of scrutiny that private-investment firms usually avoid.

Man Group Plc, the world's largest hedge-fund manager, and 3i Group Plc, the world's largest publicly listed buyout firm, had IPOs in 1994.

In November, London-based hedge-fund manager BlueBay Asset Management LLC sold 189 million pounds ($364 million) of shares, allowing its backers to reduce or eliminate their stakes. In December, Marshall Wace LLP, another London-based hedge fund, raised 1.5 billion euros ($1.95 billion) to invest in two of its hedge funds.

New York-based buyout firms Apollo Management LP and Kohlberg Kravis Roberts & Co. last year raised money for publicly traded funds in Amsterdam. Apollo and KKR didn't sell shares in their management companies.

Shares of Apollo's AP Alternative Assets LP have fallen 2 percent since they began trading in August. KKR's fund, KKR Private-Equity Investors LLP, has declined 6 percent since it began trading in May.

After the IPO

``I'd be surprised if there was a big first-day price movement,'' said Jay Ritter, a finance professor at the University of Florida in Gainesville, who tracks the IPO market. ``It's kind of similar to closed-end funds and REITs in that you're paying $1 to buy 95 cents worth of assets.''

Fortress was started by Wesley Edens, 45, Robert Kauffman, 43, and Randal Nardone, 51, who came from Zurich-based UBS AG and New York-based BlackRock Financial Management Inc. Assets have more than doubled since March 2005, in part through investments from institutions like Oregon's public pension fund.

In 2002, Fortress hired former Goldman Sachs partners Peter Briger, 42, and Michael Novogratz, 41, whose backgrounds include management of fixed income, distressed debt, international commodities, currencies and real estate. Fortress once held $270 million in loans to singer Michael Jackson, secured partially by his 50 percent stake in the Beatles song catalog. Jackson restructured the debt in April.

The shares are expected to start trading on the New York Stock Exchange tomorrow under the ticker ``FIG.'' The sale is being managed by Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., along with Bank of America Corp., Citigroup Inc. and Deutsche Bank AG.

Fortress said having publicly traded shares would help it compensate employees, raise capital and provide currency for future acquisitions. Proceeds will help it start funds to invest in infrastructure, real estate and structured debt, and to ``selectively diversify our business,'' Fortress said in the filing with the U.S. Securities and Exchange Commission.

To contact the reporters on this story: Elizabeth Hester in New York at ehester@bloomberg.net; Jenny Strasburg in New York at jstrasburg@bloomberg.net.

Last Updated: February 8, 2007 11:11 EST