Fortress Investment Group LLC, the first publicly traded private-equity and hedge-fund manager in the U.S., said fourth-quarter profit rose 13 percent because of higher fees tied to fund performance.
Pretax distributable earnings, which exclude some compensation costs and other items, increased to $121 million, or 24 cents a share, from $107 million, or 20 cents, a year earlier, New York-based Fortress said today in a statement. The results beat the 19-cent per-share profit expected by analysts, according to the average of six estimates in a Bloomberg survey.
Two of the firm’s largest funds extended 2013 gains in the fourth quarter as global stock markets rallied. Fortress’s macro fund, which invests across products and geographies, rose 4 percent in the quarter and its Asia macro fund climbed 4.8 percent, the company said in the statement. Incentive income, which Fortress earns for fund performance above certain thresholds, rose 53 percent.
“Across virtually all funds and asset classes we had strong investment performance in 2013,” Chief Executive Officer Randy Nardone said today on a conference call with investors. “We had a disappointing January, but with 11 months remaining there’s a lot of runway to make up lost ground.”
Fortress’s macro fund lost 5.9 percent in the first month of this year, according to a regulatory filing. Macro hedge funds, which try to capitalize on macroeconomic trends by trading an array of assets, on average gained 2.1 percent in the fourth quarter, according to the global Bloomberg Active Indices for Funds.
Fortress fell 1.3 percent to $8.57 at the close of New York trading. The stock is down 54 percent since February 2007, when the firm sold shares at $18.50 apiece in an initial public offering. Fortress is the only U.S.-listed company trading below its IPO price among firms that run private-equity funds.
Fortress this month repurchased a 12 percent stake that Nomura Holdings Inc., the Japanese securities firm, took in 2006. Fortress said it paid $363.4 million in the buyback, valuing the company’s share repurchases from early investors over the past 14 months at $543 million.
The company’s distributable earnings differ from U.S. generally accepted accounting principles. Under those rules, known as GAAP, its net income attributable to Class A shareholders was $146 million, or 49 cents a share, compared with $102 million, or 24 cents, a year earlier.
Fortress was “relatively active” with the initial public offering of Springleaf Holdings Inc., a subprime lender on which the firm has made more than 16 times its investment, and IPO registrations for Intrawest Resorts holdings Inc., which sold shares last month, and New Media Investment Group Inc., Jefferies Group LLC analysts led by Daniel Fannon said in a report to clients before the earnings were released.
Fortress said it will pay shareholders a dividend of 8 cents a share on March 14.
Blackstone Group LP, the world’s biggest alternative-asset manager, last month posted record fourth-quarter earnings as profit more than doubled on heavy sales of private-equity and real estate holdings. KKR & Co. earlier this month said its profit in the quarter more than doubled as appreciation in its buyout holdings fueled paper gains and its funds sold investments at a profit. Both firms are based in New York.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit in a cycle that lasts about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.
Fortress’s businesses include private equity, credit, liquid hedge funds and a traditional asset-management unit called Logan Circle Partners, the largest by assets under management. The firm’s assets rose to $61.8 billion from $58 billion at the end of the third quarter.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.