Fortress Third-Quarter Profit Rises 25% as Macro Fund Shutsby
Fortress Investment Group LLC said profit rose 25 percent during a period when the firm moved to close down its macro hedge fund business in the wake of trading losses.
Third-quarter pretax distributable earnings, increased to $69 million, or 15 cents a share, from $55 million, or 12 cents a share, a year earlier, New York-based Fortress said in a statement Thursday. The results missed the 16 cent average per-share estimate by five analysts in a Bloomberg survey.
Fortress, which oversees $74.3 billion in fee-paying private equity, credit and hedge fund capital, said this month it would disband its flagship macro fund after almost two years of losses and waves of redemptions that since 2007 had cut its assets to $1.8 billion from $8.1 billion. Michael Novogratz, who led the unit, will leave at year’s end, and Fortress said it will buy back his 13 percent stake in the company.
"We consider it a wise move to wind down the fund so that Fortress can put more resources behind its more successful strategies," Stephen Ellis, an analyst at Morningstar Inc. in Chicago, said in a note to clients.
Fortress Chief Executive Officer Randal Nardone, speaking on a conference call with analysts, said shutting the fund will have "no impact on our outlook for earnings, growth or value creation." The operation posted about an $8 million loss in the first nine months of this year.
Fortress differs from most of its publicly traded rivals in not using economic net income as its main income metric. In addition to cash income, ENI reflects up and downs in the values of firms’ investments, which last quarter dealt losses to Blackstone Group LP, KKR & Co. and other firms as stock prices plunged.
Distributable earnings, Fortress’s income measure, tallies cash that can be used to pay dividends.
The firm said its private equity fund valuations depreciated 3.9 percent in the quarter. Fortress’s biggest public stake, in consumer lender Springleaf Holdings Inc., fell by $161 million, or 4.8 percent. Shares it owns of mortgage servicer Nationstar Mortgage Holdings Inc. were down $197 million, or 17.4 percent.
Fortress fell 4.4 percent to $5.65 at the close of trading in New York. The stock has dropped 24 percent this year, including reinvested dividends. Fortress said it will pay shareholders a dividend of 8 cents a share on Nov. 13.
(An earlier version of this story was corrected to show earnings missed estimate in the second paragraph.)