Fortress Investment Profit Rises 37% as Holdings Gain With Market Rebound
Fortress Investment Group LLC, the buyout and hedge-fund firm run by Daniel Mudd, said third- quarter profit rose 37 percent as holdings in its credit funds rose and clients added money to hedge and credit strategies.
Pretax distributable earnings, which exclude some compensation costs and other items, were $78 million, or 15 cents a share, compared with $57 million, or 11 cents, a year earlier, the New York-based firm said today in a statement. The results beat the 11-cent average estimate of seven analysts surveyed by Bloomberg.
Earnings were boosted by $75 million in performance fees, mostly from the credit funds and liquid hedge funds, which rose above their previous peak asset values. Fortress has trailed competitors in lining up private-equity deals after a buying binge three years ago left it with little cash and investors cut back on new commitments during the financial crisis. The firm is trying to turn around some of its most troubled deals in an effort to return money to clients.
“It was a relatively quiet quarter for Fortress in terms of private-equity investment realizations,” Keefe, Bruyette & Woods Inc. analysts led by Robert Lee wrote in an Oct. 15 note to clients. “Dry powder along with incremental capital raising should allow the company to leverage its significant expertise in distressed investing.”
Credit Investments
Fortress said it raised $1.2 billion in outside money during the quarter, of which $551 million were added to assets under management, all of it in credit and hedge funds. The new money, together with a $1.3 billion increase in invested capital, brought assets to $44 billion at the end of the quarter, from $41.7 billion at the beginning.
“Our hedge funds produced significant incentive income,” Mudd said in the statement. “Our credit business remains in a sweet spot.”
Fortress rose 25 cents, or 5.3 percent, to $4.98 at 10:22 a.m. in New York Stock Exchange composite trading.
Assets in private-equity funds, Fortress’s largest business, gained less than 1 percent to $11.6 billion at the end of the quarter. Wesley Edens, who heads that unit, said the most recent buyout fund is almost fully invested, and he expects to raise new money in the “very near term,” without giving details.
Investor Cash
Fortress has 3.2 billion in unused capital commitments, with about $3 billion of that in the credit funds, Chief Financial Officer Daniel Bass said on a conference call.
Private-equity firms pool investor money to take over companies, financing the purchases with mostly debt, with the intention of selling them later for a profit. Hedge funds are lightly regulated pools of capital whose managers can buy or sell any asset. Managers of both types of funds receive a portion of investment gains, usually 20 percent.
Fortress has written down most of its $2.8 billion investment in the ski-resort operator Intrawest Corp., which owns slopes operated by Whistler Blackcomb Holdings Inc.
Intrawest skirted a lender takeover during the February Olympics after the company missed a final payment on a $1.4 billion loan. This week Intrawest sold three-quarters of its stake in Whistler in an IPO to pay down debt.
The company’s net loss widened to $95 million, or 62 cents a share, from $59 million, or 43 cents, a year earlier.
KKR Fundraising
Managers are trying to distribute profits to investors before some firms begin marketing their next large buyout funds in 2011. During the third quarter, private equity-backed companies made 190 exits, including sales and initial public offerings, valued at $56.7 billion, the most transactions at the highest dollar volume since the third quarter of 2007, according to London-based researcher Preqin Ltd.
Blackstone Group LP, the world’s largest buyout firm, said last week that third-quarter profit increased 23 percent as the value of its private-equity and real estate holdings rose. KKR & Co.’s profit fell 61 percent as it booked smaller gains on its private-equity investments, the firm said this week.
KKR is set to raise more than $2.5 billion for new funds in the second half of this year. The firm has said it may pitch its first large buyout fund since 2006 early next year. Blackstone earlier this year raised a $13.5 billion buyout fund.
To contact the reporter on this story: Laura Marcinek in New York lmarcinek3@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net.
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.
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