* Firm announces quarterly dividend of $0.05 per share
* Profit in line with Street estimates
* Firm sees opportunities in U.S real estate
By Katya Wachtel
Aug 2 Fortress Investment Group's
operating profit got a boost in the second quarter as stronger
performance in some of its credit funds, hedge funds and private
equity portfolios led to higher incentive income.
New York-based Fortress, one of a handful of publicly traded
alternative asset managers, on Thursday reported pre-tax
distributable earnings rose 9 percent to $50 million, or 9 cents
per share, from $46 million, or 9 cents per share, a year
Fortress said pre-tax distributable income is the best way
to measure its performance because it excludes large quarterly
compensation costs stemming from the equity interest of
principals who took the company public in 2007.
The earnings were in line with Wall Street expectations,
according to Thomson Reuters I/B/E/S.
The company announced a second-quarter dividend of 5 cents
The asset manager reported net income attributable to Class
A shareholders of $5 million, compared with a year-earlier loss
of $95 million. It said the improvement was due mainly to a
reduction in costs associated with a Principals Agreement that
expired at the end of 2011.
Profits were lifted by incentive income from its credit,
hedge and private equity funds, party offset by lower management
fees, the firm said. Over the past year, some Fortress
portfolios, in particular its hedge funds, struggled to produce
big returns in often turbulent markets, reducing incentive fees.
But in the second quarter, there were gains across the
board, with the Drawbridge Special Opportunities credit fund
rising 3.3 percent, and the flagship Macro fund returning 1.7
percent. Private Equity fund valuations gained 5.4 percent, and
the credit funds have seen double-digit returns since inception.
Those gains contributed to incentive income of $47 million,
up from $20 million a year earlier. Pre-tax distributable
earnings in the firm's private equity and hedge fund businesses
did fall slightly.
Investors withdrew more than $600 million from the hedge
funds in the second quarter, about $400 million of it from the
liquidation of a commodities hedge fund that was shuttered in
May after several months of losses.
As of June 30, total assets under management were $47.8
billion, up 3 percent from $46.4 billion on March 31.
KEEPING CASH IN POCKET
At the end of the second quarter, Fortress had $7.4 billion
of so-called 'dry powder' -- money already committed by
investors to private equity vehicles that can be invested at a
later date, when it will help raise management income.
Peter Briger, who oversees Fortress' credit business, said
even though long-term opportunities in credit and broader
distressed markets "will be exceptional" because of global
deleveraging, current pricing is unattractive.
"Our general view is that risk is mispriced in Europe and
in Asia, against us," Briger said on an investor call Thursday
morning. "The pace of investing in credit has slowed, reflecting
what we feel about the market. We like to be investors when risk
premiums are high and when perceived risk is higher than actual
Briger said when compelling opportunities do arise, Fortress
will invest aggressively, but stopped short of predicting when
that could occur.
More near-term investment opportunities reside in the
mortgage servicing sector, Fortress managers said. The company
recently launched a dedicated mortgage servicing rights fund
that has raised $500 million, which they expect to close in
"The residential space in the U.S is a gigantic one," said
Wes Edens, who runs the private equity business. "I think from
kind of every twist and turn we think that things have either
bottomed or are doing modestly better ... The opportunity set
that is yet to play out in the recovery is very much still to
Peter Briger noted that real estate opportunities outside of
the United States are also on their radar.
"We would like to be bigger investors in Chinese real
estate, but we are keeping our cash in our pockets right now,"
Briger said, noting the firm is "very cautious about the risk
that exists in the real estate environment" in that country.
"But we are getting organized about China."
Fortress is currently building a senior housing property,
with other partners, in Shanghai.
Fortress shares were trading at about $3.90 in the midday
session. The stock closed at $3.91 on Wednesday and is up about
16 percent this year.