BOSTON (Reuters) - Fortress Investment Group LLC FIG.N, one of the few publicly traded U.S. hedge fund groups, reported a narrower quarterly loss on surprisingly strong revenue Wednesday, and forecast improved demand for its portfolios in coming quarters.
Fortress executives said several funds delivered respectable returns in the first half the year, and they expect demand to pick up as financial markets recover.
But revenue declined in the second quarter as assets under management fell.
Fortress, whose shares were up 1 percent near midday, reported a net loss attributable to Class A shareholders of $44.6 million, or 41 cents per share, for the quarter, compared with a loss of $55.6 million, or 67 cents per share, a year earlier.
Fund management distributable earnings fell 29 percent to $53 million.
Like other hedge fund firms, Fortress was hit hard during the financial crisis as many investors tried to withdraw their money. At the end of the quarter the company managed $31 billion in assets, down from $34.9 billion a year earlier.
New York-based Fortress, which put some restrictions on investor redemptions, said clients withdrew $736 million in the second quarter, compared with $311 million a year earlier.
Managers expect wealthy investors to return after the firm’s Drawbridge Global Macro Fund gained 11.3 percent through June and the Fortress Macro Funds Offshore rose up 3.2 percent. The Fortress Commodities Fund gained 1.3 percent.
Hedge funds’ recent stronger returns, plus talk that pension funds are ready to commit more money to hedge funds in the second half of the year, suggest the worst may be over for the $1.4 trillion industry, which suffered its worst-ever returns and record redemptions last year.
When markets tumbled in 2008, Fortress and many hedge fund firms put up so-called gates preventing clients from pulling out all the money they wanted back. This was designed to prevent a sudden drop in assets. Managers feared having to sell off illiquid positions.
Fortress, which went public in February 2007, said a 28 percent drop in management fees and a 62 percent plunge in incentive income, a fee paid mainly to hedge fund managers, weighed on second-quarter revenue, which fell to $139.1 million from $188.1 million.
But revenue topped analysts’ average forecast of $108 million, according to Reuters Estimates. Wall Street had expected earnings of 7 cents a share.
Fortress did not pay a dividend in order to preserve cash.
The company recently named Daniel Mudd as its chief executive, allowing Fortress founder Wes Edens to focus more on portfolio management.
On a conference call with analysts, executives said they were focusing on a number of potential business opportunities. They gave few details. Talk surfaced last month that the firm might embark on an acquisition spree.
The company’s shares fluctuated on Wednesday, rising as much as 6 percent but then paring those gains. They were up 5 cents at $4.35 near midday on the New York Stock Exchange.
The stock debuted at $18.50 and topped $35 in its first day of trading.
Reporting by Svea Herbst-Bayliss; editing by John Wallace