Fortress Net Dips 20% in Q2 on Lower Fees, Asset Sales

Jul 30 2015 | 3:55pm ET

Profits at Fortress Investment Group fell 20% in the second quarter due primarily to lower management fees from the publicly held investment manager’s hedge funds and a fewer private equity asset sales.

The company reportd pre-tax distributable earnings, which does not include some non-operational items, was $137 million, or $0.30 per share, during the period. This compares with $172 million, or $0.39 per share, in 2014’s comparable quarter.

Wall Street analysts were looking for $0.26 per share, according to Bloomberg. 

Fortress was the first private equity and hedge fund manager in the U.S. to go public, completing an IPO in 2007. It has faced rougher waters recently, however, as its hedge fund business has come under pressure and the private equity unit went several years in which performance did not qualify it to earn performance fees. 

The company noted in a statement that it raised nearly $2.3 billion of permanent equity capital during the quarter, which brought total PE assets managed by the firm to $16.5 billion, a record since the company’s IPO. Fortress plans on bringing in a total of $12 - $15 billion of new capital for all of 2015, and is experiencing good demand, according to a statement. 

Comparisons with 2014’s second quarter were hurt by two large private equity exits at that time, which pushed pretax earnings from Fortress’ PE unit to $131 million versus only $76 million this year. 

Meanwhile, the company’s credit arm did very well during the quarter, more than doubling pretax distributable earnings from $35 million to $68 million.

The company’s hedge fund business has come under the fire so far this year, suffering losses on its flagship macro fund of 6.2% during the quarter and 9.9% YTD according to Bloomberg. Amid management changes including the appointment of Michael Novogratz as the sole manager of the Macro fund, the company’s liquid hedge fund unit faced $400 million of redemptions during the quarter, offset by approximately $200 million of new capital, and leaving the unit with apprioximately $7.6 billion in AUM.

In total, Fortress is reportedly facing $718 million of hedge fund redemption notices, $510 million of which will be primarily paid in the third quarter.

Meanwhile, other publicly traded hedge funds have largely bucked the trends that have hurt Fortress. For instance, London-based Man Group PLC, which is the world’s largest publicly traded hedge fund firm, reported a near doubling of performance fees and pretax earnings of $280 million, up from $148 million in a year-ago period. 

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