Fortress first quarter profits drop, assets grow

The firm's private equity funds generated $50m in pre-tax distributable earnings, 64 percent less than the first quarter of 2007, while private equity assets grew 55 percent to $13bn.

Fortress Investment Group, a publicly listed US hedge and private equity fund manager, reported a first quarter net loss of $68.9 million (€44.9 million) in the first quarter, a drop of more than 200 percent compared to the net gain of $62.1 million it saw in the first quarter of 2007.

“In markets like this, our first focus as investors is to maximise liquidity and protect capital,” Wesley Edens, Fortress chief executive, said during an earnings call, Dow Jones reported. “We took down risk in our hedge fund businesses as we felt appropriate by doing so, we avoided major missteps, but one of the consequences of reduction of risk is also reduction of return and thus we had unsatisfying financial returns during the quarter.”

One of the consequences of reduction of risk is also reduction of return.

Wesley Edens

However the firm’s management fee income, 47 percent of which relates to its private equity funds, grew by 48 percent to $145 million, as compared to the same period last year.

Fortress said that as of 31 March 2008, its private equity business accounted for approximately 76 percent of total fund management.

Its private equity funds generated $50 million of pre-tax distributable earnings, down 64 percent from the $139 million generated in the same quarter 2007. Private equity assets, however, grew 55 percent to $13 billion. The firm received an incentive income distribution of $17 million, net employee allocations, it said.

“One measure of our ability to continue to generate incentive income is our unrealised gains in our private equity funds,” the firm said “Unrealised gains in our funds' public company holdings totaled $765 million as of 31 March 2008.”

The private equity funds’ capital invested in non-public transactions totaled approximately $10.9 billion, while unfunded commitments totaled roughly $2.4 billion.

Fortress’ principal investment area grew to $1 billion in the first quarter, up from $0.7 billion the same quarter last year, but suffered a $13 million loss comprised of a $3 million loss largely related to hedge fund returns and $10 million in interest expense.

Since the quarter ended, the firm has raised $1.8 billion in capital, bringing its year to date total to $4.4 billion, or $3.5 billion net capital raised, it said.

The firm noted in its earnings report that “the revenues and profits in any particular quarter should not be expected to be indicative of future results”.

Fortress’ stock closed at $13.65 per unit today, a 6.25 percent drop from yesterday’s closing price and more than 26 percent down from its issue price of $18.50 per unit. The firm went public in February 2007.