Fortress First-Quarter Profit Rises 75% on Fee IncomeDevin Banerjee
Fortress Investment Group LLC, the first publicly traded private-equity and hedge-fund manager in the U.S., said first-quarter profit rose 75 percent because of higher fees from managing funds.
Pretax distributable earnings, which exclude some compensation costs and other items, increased to $100 million, or 20 cents a share, from $57 million, or 11 cents, a year earlier, New York-based Fortress said today in a statement. Analysts had expected profit of 15 cents a share, according to the average of seven estimates in a Bloomberg survey.
A 6 percent gain in global stocks during the first three months of the year lifted the value of fund holdings and boosted the fees for overseeing them. Fortress’s macro hedge fund, which invests across products and geographies, returned 3.8 percent in the first quarter, and its Asia macro fund gained 2.8 percent, the firm said in a regulatory filing last month. Global hedge funds increased 1.4 percent on average, according to the Bloomberg Active Indexes for Funds.
“In our private-equity business we built on a four-year trend of substantial valuation gains in our main funds,” Randal Nardone, a Fortress co-founder, said on a conference call today with investors and analysts. The fund holdings appreciated $800 million during the quarter, reaching a record $16 billion net asset value, he said.
Fortress is being led on an interim basis by Nardone after former Chief Executive Officer Daniel Mudd resigned last year amid a government lawsuit stemming from his tenure as chief of mortgage financing company Fannie Mae. Fortress isn’t currently conducting a formal search for a new CEO, Nardone said on the call.
Fortress rose 1.8 percent to $6.65 in New York, bringing gains this year to 51 percent. By comparison, the 20-member Standard & Poor’s index of asset managers and custody banks has risen 17 percent. Fortress’s stock is down 64 percent since the company’s 2007 initial public offering, when it sold shares at $18.50 apiece to become the first U.S.-listed buyout and hedge-fund manager.
Fortress’s distributable earnings differ from U.S. generally accepted accounting principles. Under those rules, the company’s net income attributable to Class A shareholders was $14.3 million, or 5 cents a share, compared with a net loss of $29.5 million, or 16 cents, a year ago.
Blackstone Group LP, the world’s biggest private-equity firm by assets, last month reported its net income rose to $168 million from $58 million a year earlier. KKR & Co. reported first-quarter profit that increased to $193 million from $190 million a year earlier as strong performance in its buyout holdings boosted earnings. Both firms are based in New York.
Fortress’s private-equity holdings gained 5.2 percent during the quarter, compared with 7.9 percent at Blackstone and 5.9 percent at KKR. Apollo Global Management LLC, based in New York, and Washington-based Carlyle Group LP are scheduled to report first-quarter results next week.
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 after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments.
Fortress’s assets under management were $55.6 billion as of March 31, a 4 percent increase from the end of 2012, and the firm said it has $6.7 billion of committed capital yet to be invested, known as dry powder. Fortress plans to pay a dividend of 6 cents a share on May 17.
Robert Kauffman, one of three Fortress co-founders with Nardone and Wesley Edens, retired in December after 15 years at the firm. Kauffman’s decision was partly in response to higher tax rates on top earners that took effect at the beginning of the year, he said in an interview at the time. He most recently oversaw the company’s long-only fixed-income business, called Logan Circle Partners.