Second Quarter Highlights
- Assets under management of $31.0 billion
- Segment management fees of $110 million
- Fund management distributable earnings of $53 million
- Pre-tax distributable earnings (DE) of $59 million
- GAAP net income, excluding principals agreement compensation, of $66 million. GAAP net loss of $171 million. GAAP net loss attributable to Class A Shareholders of $45 million
- Successfully integrated the management of a large credit fund, renamed as Fortress Value Recovery Fund I
- Raised $219.5 million in net proceeds through issuance of 46 million Class A shares
- Began operations of a new Japanese investment fund
Subsequent Events in the Third Quarter
- Daniel H. Mudd, currently member of the Fortress board of directors, will become the firm's new CEO effective August 11, 2009
- George W. Wellde has been elected to Fortress's board of directors
NEW YORK, Aug. 5 /PRNewswire-FirstCall/ -- Fortress Investment Group LLC (NYSE: FIG) today reported its results for the quarter ended June 30, 2009.
Second Quarter 2009
For the quarter ended June 30, 2009, our GAAP net loss was $171 million and our GAAP net loss attributable to Class A Shareholders was $45 million, or $0.41 per diluted share, as compared to a loss of $0.67 per diluted share for the quarter ended June 30, 2008. Excluding principals agreement compensation, second quarter GAAP net income was $66 million.
Fund management distributable earnings for the second quarter was $53 million versus $75 million in the second quarter of 2008.
Pre-tax DE for the second quarter was $59 million, or $0.12 per dividend paying share (DEPS), versus $58 million for the second quarter of 2008.
For reconciliations from pre-tax distributable earnings and fund management DE to GAAP net income (loss), from GAAP net income (loss) excluding principals agreement compensation to GAAP net income (loss), from segment revenues to GAAP revenues, from segment assets to GAAP assets and from Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares Outstanding (Used for DEPS) see "Reconciliation of Fund Management DE to Pre-tax Distributable Earnings and GAAP Net Income (Loss)", "Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement Compensation to GAAP Net Income (Loss)", "Reconciliation of Segment Revenues to GAAP Revenues" and "Reconciliation of Segment Assets to GAAP Assets" in this release. Distributable earnings is a supplemental measure of our operating performance that we believe provides a meaningful basis for comparison between present and future periods.
The Company's quarterly segment revenues and distributable earnings will fluctuate materially depending upon the performance of our funds and the realization events within our private equity business, as well as other factors. Accordingly, the revenues and profits in any particular quarter should not be expected to be indicative of future results.
The following discussion of our results is based on segment reporting as presented in our Quarterly Report on Form 10-Q. Our GAAP statement of operations and balance sheet are presented following this discussion. The following table is a summary presentation of our segment performance with supplemental data provided for informational purposes. For a reconciliation of our segment results to the corresponding GAAP data, see the reconciliation information included later in this release.
Due to the increased significance of the hybrid private equity funds segment, it has been disaggregated from the private equity fund segment in this period and for all periods presented. Hybrid private equity funds are comprised of a family of "credit opportunities" funds focused on investing in distressed and undervalued assets, a family of "long dated value" funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of "real assets" funds focused on investing in tangible and intangible assets in four principal categories (real estate, capital assets, natural resources and intellectual property), and an Asian fund.
Supplemental Data for Three Months:
Three Months Ended June 30, 2009
(in millions) Hybrid Funds Princ-
Private Equity Liquid ------------ ipal
--------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM - April
1, 2009 $26,538 $10,161 $3,078 $4,809 $6,451 $2,039 $-
Capital
raised (1) 3,373 - - 99 3,140 134 -
Increase in
invested
capital 327 10 - - 2 315 -
Redemptions (736) - - (585) (151) - -
Return of
capital
distributions (168) (88) - - (1) (79) -
Income (loss)
and foreign
exchange 1,707 519 115 248 477 348 -
------------- ----- --- --- --- --- --- ---
AUM - Ending
Balance $31,041 $10,602 $3,193 $4,571 $9,918 $2,757 $-
Third-Party
Capital Raised $3,373 $- $- $99 $3,140 $134 $-
Segment Revenues
Management fee $110 $40 $12 $20 $30 $8 $-
Incentive income 7 - - - - 7 -
---------------- --- --- --- --- --- --- ---
Total 117 40 12 20 30 15 -
Segment Expenses
Profit sharing
compensation
expenses (8) - - (2) (2) (4) -
Operating expenses (56) (12) (5) (11) (21) (7) -
------------------ --- --- --- --- --- --- ---
Total (64) (12) (5) (13) (23) (11) -
Fund Management DE 53 28 7 7 7 4 -
------------------ --- --- --- --- --- --- ---
Investment
Income 14 14
Interest Expense (8) (8)
-------------- --- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $59 $28 $7 $7 $7 $4 $6
-------------- --- --- --- --- --- --- ---
Weighted Average
Dividend Paying
Shares and Units
Outstanding 482
----------------- ---
Three Months Ended June 30, 2008
(in millions) Hybrid Funds Princ-
Private Equity Liquid ------------ ipal
-------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM - April
1, 2008 $34,029 $12,382 $3,503 $9,254 $8,149 $741 $-
Capital raised 1,772 745 - 924 103 - -
Increase in
invested
capital 292 118 - - 2 172 -
Redemptions (311) - - (310) (1) - -
Return of
capital
distributions (56) (46) - - (3) (7) -
Income (loss)
and foreign
exchange (760) (560) (5) (163) 16 (48) -
------------- ---- ---- --- ---- --- --- ---
AUM - Ending
Balance $34,966 $12,639 $3,498 $9,705 $8,266 $858 $-
Segment Revenues
Management fee $150 $40 $15 $57 $36 $2 $-
Incentive income 15 - - 14 1 - -
---------------- --- --- --- --- --- --- ---
Total 165 40 15 71 37 2 -
Segment Expenses
Profit sharing
compensation
expenses (20) (1) (1) (16) (2) - -
Operating expenses (70) (7) (10) (25) (26) (2) -
------------------ --- --- --- --- --- --- ---
Total (90) (8) (11) (41) (28) (2) -
Fund Management DE 75 32 4 30 9 - -
------------------ --- --- --- --- --- --- ---
Investment Income (7) (7)
Interest Expense (10) (10)
---------------- --- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $58 $32 $4 $30 $9 $- $(17)
-------------- --- --- --- --- --- --- ----
Weighted Average
Dividend Paying
Shares and Units
Outstanding 456
----------------- ---
(1) Includes $3.1 billion of capital under management due to Fortress's
take over of management of the D.B. Zwirn funds and related
investment vehicles.
Supplemental Data for Six Months:
Six Months Ended June 30, 2009
(in millions) Hybrid Funds Princ-
Private Equity Liquid ------------ ipal
-------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM - January 1,
2009 $29,454 $10,307 $3,182 $7,169 $6,494 $2,302 $-
Capital
raised (1) 3,382 - - 108 3,140 134 -
Increase in
invested
capital 763 70 - - 2 691 -
Redemptions (3,382) - - (3,079) (303) - -
Return of
capital
distributions (745) (93) - - (8) (644) -
Income (loss)
and foreign
exchange 1,569 318 11 373 593 274 -
------------- ----- --- --- --- --- --- ---
AUM - Ending
Balance $31,041 $10,602 $3,193 $4,571 $9,918 $2,757 $-
Third-Party
Capital Raised $3,382 $- $- $108 $3,140 $134 $-
Segment Revenues
Management fee $216 $77 $24 $43 $58 $14 $-
Incentive income 8 - - - 1 7 -
---------------- --- --- --- --- --- --- ---
Total 224 77 24 43 59 21 -
Segment Expenses
Profit sharing
compensation
expenses (12) - - (5) (3) (4) -
Operating expenses (115) (20) (13) (25) (46) (11) -
------------------ ---- --- --- --- --- --- ---
Total (127) (20) (13) (30) (49) (15) -
Fund Management DE 97 57 11 13 10 6 -
------------------ --- --- --- --- --- --- ---
Investment Income (13) (13)
Interest Expense (16) (16)
---------------- --- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $68 $57 $11 $13 $10 $6 $(29)
-------------- --- --- --- --- --- --- ----
Weighted Average
Dividend Paying
Shares and Units
Outstanding 472
----------------- ---
Six Months Ended June 30, 2008
(in millions) Hybrid Funds Princ-
Private Equity Liquid ------------ ipal
-------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM - January
1, 2008 $32,930 $12,642 $3,328 $8,128 $8,196 $636 $-
Capital raised 3,926 745 - 2,211 837 133 -
Increase in
invested
capital 981 760 - - 26 195 -
Redemptions (894) - - (421) (473) - -
Return of
capital
distributions (236) (174) - - (4) (58) -
Crystallized
Incentive
Income (95) - - - (95) - -
Income (loss)
and foreign
exchange (1,646) (1,334) 170 (213) (221) (48) -
------------- ------ ------ --- ---- ---- --- ---
AUM - Ending
Balance $34,966 $12,639 $3,498 $9,705 $8,266 $858 $-
Segment Revenues
Management fee $295 $80 $28 $110 $73 $4 $-
Incentive income 47 29 - 17 1 - -
---------------- --- --- --- --- --- --- ---
Total 342 109 28 127 74 4 -
Segment Expenses
Profit sharing
compensation
expenses (52) (13) (2) (33) (4) - -
Operating expenses (144) (14) (18) (49) (59) (4) -
------------------ ---- --- --- --- --- --- ---
Total (196) (27) (20) (82) (63) (4) -
Fund Management DE 146 82 8 45 11 - -
------------------ --- --- --- --- --- --- ---
Investment Income (10) (10)
Interest Expense (20) (20)
---------------- --- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $116 $82 $8 $45 $11 $- $(30)
-------------- ---- --- --- --- --- --- ----
Weighted Average
Dividend Paying
Shares and Units
Outstanding 443
-------------- ---
(1) Includes $3.1 billion of capital under management due to Fortress's
take over of management of the D.B. Zwirn funds and related
investment vehicles.
Overview
We managed $31.0 billion of assets in private equity funds, liquid hedge funds and hybrid funds as of June 30, 2009. Fortress's revenues consist of (i) management fees, which are based on the size of our funds, (ii) incentive income, which is based on the performance of our funds, and (iii) investment income (loss), which is based on our principal investments.
In the second quarter of 2009, we generated fund management DE of $53 million. Including principal investments, Fortress generated pre-tax distributable earnings of $59 million.
For the quarter ended June 30, 2009, the private equity segments accounted for approximately 44% of total segment revenues, the liquid hedge funds segment accounted for approximately 17% of total segment revenues and the hybrid funds segments accounted for approximately 39% of total segment revenues.
For the quarter ended June 30, 2009, the private equity, liquid hedge funds and hybrid funds businesses accounted for approximately 66%, 13% and 21%, respectively, of total fund management DE.
Private Equity - Funds
For the quarter ended June 30, 2009, the Company's private equity funds had pre-tax DE of $28 million as compared to pre-tax DE of $32 million for the quarter ended June 30, 2008.
Assets under management for private equity funds was $10.6 billion at June 30, 2009 compared to $12.6 billion as of June 30, 2008.
As of June 30, 2009, our funds' private equity capital invested in non-public transactions totaled approximately $11.5 billion, and our private equity funds' unfunded commitments to investments were approximately $790 million.
Private Equity - Castles
For the quarter ended June 30, 2009, the Company's Castles generated pre-tax DE of $7 million as compared to $4 million for the quarter ended June 30, 2008.
