Devin Banerjee (Bloomberg) -- Fortress Investment Group LLC, the first publicly traded private-equity and hedge-fund manager in the U.S., said second-quarter profit rose 16 percent as the firm earned more money from selling holdings.
Pretax distributable earnings, which exclude some compensation costs and other items, increased to $172 million, or 39 cents a share, from $148 million, or 30 cents a share, a year earlier, New York-based Fortress said today in a statement. The results beat the 37-cent average estimate by five analysts in a Bloomberg survey.
Fortress is benefiting as rising stock markets lift the value of holdings, offsetting the impact of losses at some of the firm’s hedge funds. Fortress’s macro fund, which invests across products and geographies, lost 5.9 percent this year through June, and the company’s Asia macro fund declined 5.4 percent. Globally, macro hedge funds gained 1 percent in the first half of the year, according to the Bloomberg Active Indexes for Funds.
“Hedge fund performance was generally lackluster, with Fortress’s liquid hedge funds posting relatively flat returns,” Keefe Bruyette & Woods Inc. analysts led by Robert Lee said in a note to clients before the results were announced. Lee increased his earnings estimate “to reflect realized gains from balance sheet investments that we expect will flow through revenues.”
Shares of Fortress closed at $7.42 in New York yesterday, having lost 13 percent this year. The stock is down 60 percent since the company’s February 2007 initial public offering, when it sold shares at $18.50 apiece to become the first U.S.-listed buyout and hedge-fund manager.
Fortress’s distributable earnings differ from U.S. generally accepted accounting principles. Under those rules, known as GAAP, the company’s net income attributable to Class A shareholders was $31 million, or 12 cents a share, compared with a loss of $2 million, or 1 cent a share, a year earlier.
Fortress’s businesses include private equity, credit, liquid hedge funds and a traditional-asset management unit called Logan Circle Partners, the largest by assets under management. The firm’s assets rose to $63.8 billion from $62.5 billion at the end of the first quarter.
The firm in June hired two foreign-exchange specialists to bolster its liquid-markets business. It said Citigroup Inc.’s Jeffrey Feig will end a 25-year career at the bank to join Fortress as co-chief investment officer of the macro funds alongside Mike Novogratz. Fortress also hired Christopher Fahy, a former Deutsche Bank AG currency trader.
Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit in a cycle lasting about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1 percent to 2 percent of committed funds and keep 20 percent of profit from investments as a carried interest.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
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