UPDATE 2-Fortress Investment profit drops, may cut dividend

(New throughout, adds CEO and analyst comments, adds byline)

By Jonathan Stempel

NEW YORK, Aug 7 (Reuters) - Fortress Investment Group LLC (FIG.N), one of the few publicly traded U.S. alternative asset managers, said on Thursday second-quarter profit fell 59 percent, hurt by lower incentive fees.

Excluding compensation for principals tied to its February 2007 initial public offering, Fortress said "pre-tax distributable earnings" fell to $58 million, or 13 cents per share, from $143 million, or 33 cents, a year earlier. Revenue declined 30 percent to $188.1 million from $268.1 million.

Analysts on average expected profit of 13 cents per share on revenue of $192.8 million, according to Reuters Estimates. Fortress manages private equity funds and hedge funds.

"Results demonstrate the difficult investing environment for hedge funds as well as the challenging monetization environment for private equity," wrote Roger Freeman, an analyst at Lehman Brothers Inc. "We expect share price appreciation to be challenged as long as the public company portfolio remains at depressed valuation levels."

Using generally accepted accounting principles, Fortress said it lost $55.6 million, or 67 cents per share, in the quarter, compared with a loss of $55.1 million, or 66 cents, a year earlier.

"These are difficult markets for the most part," Chief Executive Wesley Edens said on a conference call. He said New York-based Fortress might lower its 22.5 cents-per-share quarterly dividend.

Shares of alternative asset managers have been hit hard in the last year, hurt by the year-long strain on credit markets.

Blackstone Group LP (BX.N), the private equity firm, said on Wednesday profit excluding costs tied to its June 2007 IPO fell 86 percent from a year earlier to $99.9 million.

At Fortress, incentive income plummeted 91 percent from a year earlier to $15 million from $165 million. This more than offset a 27 percent rise in management fees to $150 million.

Though it ended the quarter with $35.1 billion of assets under management, it raised only $2.2 billion of new capital in the quarter, down 63 percent from a year earlier.

Shares of Fortress fell 41 cents to $10.88 in morning trading on the New York Stock Exchange. Through Wednesday, they had fallen 28 percent this year. (Editing by Derek Caney, Dave Zimmerman)