Fortress profits rise slightly in Q3, hedge fund losses hurt

Thu Oct 31, 2013 10:50am EDT

(Reuters) - Fortress Investment Group (FIG.N) on Thursday reported its profits rose slightly in the third quarter due to higher management fees across its various fund products but the firm was hampered by lower income fees in its hedge fund unit.

Fortress, one of a handful of publicly traded alternative asset managers, reported pre-tax distributable earnings inched up just over 1.5 percent to $65 million, or 13 cents per share, from $64 million, or 12 cents per share, a year earlier.

Pre-tax distributable income is the company's preferred way to measure performance because it excludes large quarterly compensation costs stemming from the equity interest of principals who took the company public in 2007.

The New York-based asset manager recorded its "highest first three quarters of distributable earnings since 2007," Chief Executive Officer Randy Nardone said in the earnings statement.

Management fees climbed to $136 million, from $116 million a year earlier, an increase of about 17 percent.

However, incentive income dropped 35 percent to $42 million, compared to $65 million a year ago. Fortress attributed the lower incentive income to losses in some of its hedge funds. The Fortress Macro Funds fell 3 percent in the third quarter and the Fortress Asia Macro Funds lost 1.1 percent.

"We gave back some returns in the third quarter, which is never acceptable to a team focused on delivering strong and consistent absolute returns" said Mike Novogratz, co-chief investment officer of the macro fund, in the earnings statement.

Those hedge funds are still in the black for the year, with the Macro Fund up 10 percent through September 30 and the Asia Macro Fund up 12.7 percent, beating the average 5.5 percent return of hedge funds over the same period.

Fortress announced a third-quarter dividend of 6 cents per share.

Assets under management rose 6 percent to $58 billion by the end of the third quarter.

(Reporting By Katya Wachtel; Editing by Nick Zieminski)

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