Fortress Second-Quarter Profit Rises on Private Equity
Fortress Investment Group LLC (FIG), the first publicly traded private-equity and hedge-fund manager in the U.S., said second-quarter profit rose 8.7 percent on higher incentive income.
Pretax distributable earnings, which exclude some compensation costs and other items, declined to $50 million, or 9 cents a share, compared with $46 million, or 9 cents, a year earlier, New York-based Fortress said today in a statement. Earnings matched the average of seven estimates in a Bloomberg survey of analysts.
Fortress follows KKR & Co. (KKR) in posting higher profit as strong-performing holdings drove earnings. Incentive income, which the firm earns depending on fund performance, more than doubled to $47 million from $20 million a year earlier, helped by its liquid hedge funds, credit hedge funds and private equity funds.
Fortress’s private equity valuations gained 5.4 percent gain during the quarter, beating declines in global markets. Assets under management rose 2.9 percent to $47.8 billion during the quarter.
Fortress rose 2.8 percent to $4.02 at 10:51 a.m. in New York, bringing gains this year to 19 percent. The stock is down 78 percent since Fortress’s February 2007 initial public offering, when the company sold shares at $18.50 apiece. The firm said it will pay a dividend of 5 cents a share on Aug. 20.
Global hedge funds declined 3 percent on average during the quarter, according to the Bloomberg Active Indexes for Funds, as the Standard & Poor’s 500 index fell 3.3 percent and the MSCI ACWI index declined 6.4 percent.
Fortress is being led by co-founder Randal Nardone after former Chief Executive Officer Daniel Mudd resigned in January amid a government lawsuit stemming from his tenure as the chief of mortgage financing company Fannie Mae.
Fortress’s alternatives business including hedge funds gathered $1.1 billion in investor capital during the quarter, bringing the amount raised for the year to $4 billion. Fortress raised $267 million for Newcastle Investment Corp. (NCT), a publicly- traded REIT, during the quarter and another $167 million since then. The firm expects to raise more than $500 million in August for a private equity fund that will make investments in mortgage-servicing rights.
KKR said last month that second-quarter profit more than tripled to $146.3 million as strong performance in its buyout holdings boosted earnings. Blackstone Group LP (BX), the world’s biggest private-equity firm, reported a 74 percent decline in profit. Both firms are based in New York.
Och-Ziff Capital Management Group LLC (OZM), the hedge fund run by Daniel Och, today reported a 0.7 percent drop in profit on higher taxes, and Apollo Global Management LLC (APO), Leon Blacks private-equity firm, said second-quarter profit fell 84 percent as global market declines hurt its share of profits from investments.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, overhaul and then sell them, and return the funds with a profit after about 10 years. Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on the price of assets.
Managers of both types of funds charge annual management fees, typically 1.5 percent to 2 percent, and receive a portion of investment gains, traditionally equal to 20 percent.
Fortress in May liquidated its $500 million commodities fund after losing almost 13 percent in the previous four months, according to a regulatory filing with the U.S. Securities and Exchange Commission. The vehicle lost 8 percent last year and was the third commodities hedge fund to shutter in a span of six weeks, returning money to clients.
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