- Asset manager beats estimates on higher distributable earnings
- Profit rise comes as firm shuts macro fund, buys back shares
Fortress Investment Group LLC said profit rose 6 percent during a period when the firm shuttered a struggling hedge fund and bought back a large block of shares from the executive who ran it.
Fourth-quarter pretax distributable earnings increased to $130 million, or 30 cents a share, from $123 million, or 28 cents a share, a year earlier, New York-based Fortress said in a statement Thursday. The results beat the 23-cent average per-share estimate by six analysts in a Bloomberg survey.
Earnings increased despite lower fee income from asset sales as Fortress cut operating costs. Fortress folded its flagship macro hedge fund, led by Michael Novogratz, after almost two years of losses and a spate of redemptions since 2007 had cut its assets by three-fourths to $1.8 billion. The firm bought back Novogratz’s nearly 13 percent stake in Fortress in November, and he left in January.
“Lower than expected expenses” helped lift earnings above the estimates, Jefferies Group analyst Daniel Fannon said Thursday in a note to clients.
Fortress rose 3.5 percent to $4.50 at the close of trading in New York. The stock is down 12 percent in 2016 and 39 percent in the last year, including reinvested dividends. Fortress said it will pay stockholders a dividend of 8 cents a share on March 21.
Fortress isn’t the only alternative asset manager whose shares have dropped over the past year. Since October, in hopes of boosting their stocks by reducing share count, KKR & Co., Apollo Global Management LLC and Carlyle Group LP have announced stock repurchase plans collectively valued at more than $1 billion.
After retiring Novogratz’s interest for $255.6 million, Fortress this month initiated a tender offer to buy up to an additional 6 percent of its shares for $100 million. “At our current price, we believe Fortress is deeply undervalued, which presents a compelling case to buy back our shares,” Fortress Chief Executive Officer Randy Nardone said on a conference call Thursday with analysts.
Fortress, which oversees $70.5 billion in fee-paying private equity, credit and hedge fund assets, differs from most of its publicly traded rivals in not using economic net income as its main yardstick of income. In addition to cash income, ENI reflects ups and downs in the values of firms’ unsold investments. Distributable earnings, Fortress’s income measure, shows cash that can be used to pay dividends.
The firm’s credit arm reported a 6 percent drop in pretax distributable earnings to $76 million, as sales of holdings slackened. Its liquid hedge fund unit, including the now-disbanded macro fund, lost $2 million as choppy markets hurt fund returns.
The firm said its private equity fund valuations depreciated 3.1 percent in the quarter. Fortress’s biggest public stake was in consumer lender OneMain Holdings Inc. which fell by $160 million, or 5 percent over the quarter. Shares it owns of mortgage servicer Nationstar Mortgage Holdings Inc. were down $34.1 million, or 3.6 percent.
Earnings for Fortress’s fastest-growing segment, a group of six publicly traded private equity vehicles, doubled to $31 million after one of them, New Media Investment Group Inc., reaped a profit selling a Las Vegas newspaper to casino mogul Sheldon Adelson.