UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 5, 2012 (November 2, 2012)
Fortress Investment Group LLC
(Exact name of registrant as specified in its charter)
Delaware | 001-33294 | 20-5837959 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1345 Avenue of the Americas, 46th Floor New York, New York |
10105 | |||||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (212) 798-6100
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operation and Financial Condition. |
On November 2, 2012, Fortress Investment Group LLC (the Company) issued a press release announcing the Companys results for its fiscal quarter ended September 30, 2012 and conducted a conference call to renew such results. A copy of the Companys press release and a copy of the transcript of the conference call are attached to this Current Report on Form 8-K (the Current Report) as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein solely for purposes of this Item 2.02 disclosure.
This Current Report, including the exhibits attached hereto, is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Companys filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.
Item 9.01. | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit |
Description | |
99.1 | Press release, dated November 2, 2012, issued by Fortress Investment Group LLC | |
99.2 | Transcript of conference call on November 2, 2012 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
FORTRESS INVESTMENT GROUP LLC |
(Registrant) |
/s/ David N. Brooks |
David N. Brooks |
General Counsel |
Date: November 5, 2012
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EXHIBIT INDEX
Exhibit |
Description | |
99.1 | Press release, dated November 2, 2012, issued by Fortress Investment Group LLC | |
99.2 | Transcript of conference call on November 2, 2012 |
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Exhibit 99.1
Fortress Reports Third Quarter 2012 Results and
Announces Dividend of $0.05 per Share
New York, NY. November 2, 2012 Fortress Investment Group LLC (NYSE: FIG) today reported its third quarter 2012 financial results.
FINANCIAL SUMMARY
| Fortress declares a distribution of $0.05 per dividend paying share for the third quarter of 2012 |
| Assets under management (AUM) increased to $51.5 billion as of September 30, 2012, an increase of 8% from the second quarter of 2012 and 18% from the third quarter of 2011; AUM does not include uncalled capital, or dry powder, of $7.2 billion |
| GAAP net income of $7 million in the third quarter of 2012; GAAP book value per share of $2.22 as of September 30, 2012 |
| Pre-tax distributable earnings of $64 million, or $0.12 per dividend paying share, in the third quarter of 2012; pre-tax distributable earnings of $171 million, or $0.32 per dividend paying share, for the nine months ended September 30, 2012 |
| Net cash and investments of $2.37 per dividend paying share as of September 30, 2012, up from $2.12 per dividend paying share as of June 30, 2012 |
| $651 million of embedded incentive income across the funds as of September 30, 2012, of which $543 million has not been recognized in DE |
| Subsequent to quarter end, paid in full $181 million of outstanding corporate debt |
BUSINESS HIGHLIGHTS
| Raised $1.2 billion of capital across alternatives businesses in the third quarter, bringing total capital raised year-to-date through September 30, 2012 to $5.2 billion |
| Recorded $2.0 billion of net client flows for Logan Circle during the quarter, bringing total net client flows year-to-date through September 30, 2012 to $5.9 billion |
| Delivered strong investment performance across all businesses: |
| Net third quarter 2012 returns of 5.1% in the Drawbridge Special Opportunities Fund, 2.9% in the Fortress Macro Funds and 3.6% in the Fortress Asia Macro Funds; net year-to-date 2012 returns of 13.1% in the Drawbridge Special Opportunities Fund, 11.1% in the Fortress Macro Funds and 10.7% in the Fortress Asia Macro Funds |
| Private Equity fund valuations increased 9.4% during the quarter, and 20.8% year-to-date through September 30, 2012 |
| Net annualized inception-to-date IRRs through quarter end for the Credit Opportunities Fund and Credit Opportunities Fund II of 26.9% and 17.8%, respectively |
| All 15 Logan Circle strategies outperformed respective benchmarks in the three months ended September 30, 2012 and 14 of 15 strategies outperformed respective benchmarks in the nine months ended September 30, 2012 |
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| Subsequent to quarter end, completed the sale of our private equity portfolio company, RailAmerica, for $1.4 billion |
We had a strong third quarter, with very solid momentum carrying forward in every one of our businesses, said Randal Nardone, interim Chief Executive Officer. We are solidly optimistic in our outlook. With no corporate debt, and substantial balance sheet value, we have never operated from a position of greater financial strength. New commitments of over $5 billion through the third quarter helped drive our assets under management to a record $51.5 billion. Most important, we continued to deliver strong performance for our investors in all Fortress businesses, and large-scale opportunities remain aligned with our greatest investment strengths.
SUMMARY FINANCIAL RESULTS
Fortresss business model is highly diversified, and management believes that this positions the company to capitalize on opportunities for investing, capital formation and harvesting profits that can occur at different points in any cycle for our individual businesses. Fortresss business model generates stable and predictable management fees, which is a function of the majority of alternative assets under management residing in long-term investment structures. Fortresss alternatives businesses also generate variable incentive income based on performance, and this incentive income can contribute meaningfully to financial results. Balance sheet investments represent a third component of Fortresss business model, and the company has built substantial value in these investments, which are made in Fortress funds alongside the funds limited partners.
The table below summarizes Fortresss operating results for the three and nine months ended September 30, 2012. The consolidated GAAP statement of operations and balance sheet are presented at the end of this press release.
3Q | 2Q | 3Q | % Change | YTD September | % Change | |||||||||||||||||||||||||||
2012 | 2012 | 2011 | QoQ | YoY | 2012 | 2011 | YoY | |||||||||||||||||||||||||
(in millions, except per share amount) |
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GAAP |
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Net income (loss) |
$ | 7 | $ | 14 | $ | (382 | ) | -53 | % | N/M | $ | (3 | ) | $ | (883 | ) | N/M | |||||||||||||||
Net income (loss) attributable to Class A Shareholders |
$ | 1 | $ | 5 | $ | (142 | ) | -86 | % | N/M | $ | (24 | ) | $ | (340 | ) | N/M | |||||||||||||||
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Per diluted share |
$ | (0.04 | ) | $ | (0.12 | ) | $ | (0.83 | ) | N/M | N/M | $ | (0.13 | ) | $ | (1.88 | ) | N/M | ||||||||||||||
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Weighted average Class A shares outstanding, diluted |
520 | 516 | 496 | 517 | 492 | |||||||||||||||||||||||||||
Distributable Earnings (non-GAAP) |
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Fund management DE |
$ | 63 | $ | 53 | $ | 51 | 19 | % | 24 | % | $ | 172 | $ | 200 | -14 | % | ||||||||||||||||
Pre-tax DE |
$ | 64 | $ | 50 | $ | 43 | 28 | % | 49 | % | $ | 171 | $ | 192 | -11 | % | ||||||||||||||||
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Per dividend paying share/unit |
$ | 0.12 | $ | 0.09 | $ | 0.08 | 27 | % | 47 | % | $ | 0.32 | $ | 0.36 | -12 | % | ||||||||||||||||
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Weighted average dividend paying shares and units outstanding |
537 | 533 | 530 | 534 | 527 | |||||||||||||||||||||||||||
Assets Under Management |
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Private Equity |
$ | 14,718 | $ | 13,826 | $ | 12,708 | 6 | % | 16 | % | $ | 14,718 | $ | 12,708 | 16 | % | ||||||||||||||||
Credit |
11,753 | 11,452 | 11,833 | 3 | % | -1 | % | 11,753 | 11,833 | -1 | % | |||||||||||||||||||||
Liquid Markets |
4,378 | 4,398 | 6,165 | 0 | % | -29 | % | 4,378 | 6,165 | -29 | % | |||||||||||||||||||||
Logan Circle |
20,626 | 18,112 | 12,913 | 14 | % | 60 | % | 20,626 | 12,913 | 60 | % | |||||||||||||||||||||
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Total Assets Under Management |
$ | 51,475 | $ | 47,788 | $ | 43,619 | 8 | % | 18 | % | $ | 51,475 | $ | 43,619 | 18 | % | ||||||||||||||||
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CONSOLIDATED GAAP RESULTS
Fortress recorded GAAP net income of $7 million, or a $0.04 loss per diluted share in the third quarter of 2012, compared with a GAAP net loss of $382 million, or $0.83 loss per diluted share, in the third quarter of 2011. Our diluted loss per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A Shareholders from the assumed conversion of Fortress Operating Group Units and fully vested Restricted Partnership Units to Class A shares.
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The primary driver of the year-over-year improvement in Fortresss GAAP results was the expiration of the Principals Agreement and related compensation expense, a non-economic amortization expense that had accounted for approximately $4.8 billion in compensation expenses between the first quarter of 2007 and the fourth quarter of 2011. No amounts were ever paid, or equity issued, in connection with this agreement. This agreement expired at the end of 2011 and will no longer impact Fortresss financial results.
CONSOLIDATED SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortresss businesses: (i) Credit, (ii) Private Equity, (iii) Liquid Hedge Funds, and (iv) Logan Circle.
Fortress uses distributable earnings, or DE, as a primary metric to manage its businesses and gauge the companys performance, and it uses DE exclusively to report segment results. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortresss GAAP results. Fortress urges you to read Non-GAAP Information below.
As of September 30, 2012 | ||||||||||||||||||||||||||||
Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle Partners |
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(in millions) | Total | Funds | Castles | Hedge Funds |
PE Funds |
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Assets Under Management 1 |
$ | 51,475 | $ | 11,113 | $ | 3,605 | $ | 4,378 | $ | 5,663 | $ | 6,090 | $ | 20,626 | ||||||||||||||
Dry Powder |
$ | 7,242 | $ | 740 | N/A | N/A | N/A | $ | 6,502 | N/A | ||||||||||||||||||
Average Management Fee Rate 2 |
1.2 | % | 1.5 | % | 1.7 | % | 1.9 | % | 1.4 | % | 0.1 | % | ||||||||||||||||
Incentive Eligible NAV Above Incentive Income Threshold 3 |
$ | 14,367 | $ | 220 | $ | | $ | 2,418 | $ | 4,603 | $ | 7,126 | N/A | |||||||||||||||
Undistributed Incentive Income: Unrecognized |
$ | 543 | $ | 16 | $ | | $ | 5 | $ | 92 | $ | 430 | N/A | |||||||||||||||
Undistributed Incentive Income: Recognized |
108 | | | 20 | 88 | | N/A | |||||||||||||||||||||
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Undistributed Incentive Income 4 |
$ | 651 | $ | 16 | $ | | $ | 25 | $ | 180 | $ | 430 | N/A | |||||||||||||||
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Three Months Ended September 30, 2012 | ||||||||||||||||||||||||||||
Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle Partners |
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(in millions) | Total | Funds | Castles | Hedge Funds |
PE Funds |
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Third-Party Capital Raised |
$ | 1,183 | $ | 591 | $ | 177 | $ | 167 | $ | 100 | $ | 148 | N/A | |||||||||||||||
Segment Revenues |
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Management fees |
$ | 116 | $ | 30 | $ | 15 | $ | 19 | $ | 24 | $ | 21 | $ | 7 | ||||||||||||||
Incentive income |
65 | 1 | | 11 | 36 | 17 | | |||||||||||||||||||||
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Total |
181 | 31 | 15 | 30 | 60 | 38 | 7 | |||||||||||||||||||||
Segment Expenses |
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Operating expenses |
(82 | ) | (9 | ) | (8 | ) | (17 | ) | (15 | ) | (24 | ) | (9 | ) | ||||||||||||||
Profit sharing compensation expenses |
(31 | ) | | | (4 | ) | (19 | ) | (8 | ) | | |||||||||||||||||
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Total |
(113 | ) | (9 | ) | (8 | ) | (21 | ) | (34 | ) | (32 | ) | (9 | ) | ||||||||||||||
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Principal Performance Payments |
(5 | ) | | (1 | ) | (1 | ) | (3 | ) | | | |||||||||||||||||
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Fund Management DE |
$ | 63 | $ | 22 | $ | 6 | $ | 8 | $ | 23 | $ | 6 | $ | (2 | ) | |||||||||||||
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Pre-tax Distributable Earnings |
$ | 64 | $ | 22 | $ | 6 | $ | 8 | $ | 23 | $ | 6 | $ | (2 | ) | |||||||||||||
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Pre-tax DE was $64 million in the third quarter of 2012, up from $43 million in the third quarter of 2011. The year-over-year increase was primarily due to higher incentive income earned from our funds, partially offset by lower management fees.
1 | The Assets Under Management presented for the Credit Hedge Funds includes $511 million related to the third-party originated Value Recovery Funds. Fortress earns fees from the Value Recovery Funds based only on collections. |
2 | The Average Management Fee Rate presented for the Credit Hedge Funds excludes the third-party originated Value Recovery Funds. See footnote (1) above. |
3 | The Incentive Eligible NAV Above Threshold presented for hedge funds excludes sidepocket investments. The Incentive Eligible NAV Above Threshold presented for Private Equity Funds and Credit Private Equity Funds represents total fund NAV. |
4 | The Undistributed Incentive Income presented includes the impact of sidepocket investments on hedge funds. Undistributed Incentive Income for Private Equity Funds, Credit Private Equity Funds and hedge fund sidepocket and redeeming capital account (RCA) investments has not been recognized in Distributable Earnings and will be recognized when realized; Undistributed Incentive Income for other hedge fund investments was recognized in Distributable Earnings when earned. |
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Management fees were $116 million in the third quarter of 2012, down from $131 million for the third quarter of 2011, primarily due to lower management fees from the Liquid Hedge Funds and Credit Hedge Funds, partially offset by higher management fees from the Credit Private Equity Funds and Logan Circle. Notably, 86% of the alternative assets under management at quarter end were in funds with long-term, locked-up structures, which provides for a stable, predictable base of management fees.
Incentive income recorded in the third quarter of 2012 totaled $65 million, compared to $14 million recorded in the third quarter of 2011. This year-over-year increase was driven by higher incentive income generated by the Liquid Hedge Funds, Credit Hedge Funds and Private Equity Funds, partially offset by lower incentive income recognized from the Credit Private Equity Funds. Additionally, Fortress had $651 million in undistributed, unrealized incentive income embedded across the funds based on investment valuations at September 30, 2012. Of that $651 million, $543 million has not been recognized in DE during the first nine months of 2012.
The Companys segment revenues and distributable earnings will fluctuate materially depending upon the performance of its funds and the realization events within its private equity businesses, as well as other factors. Accordingly, the revenues and profits in any particular period should not be expected to be indicative of future results.
ASSETS UNDER MANAGEMENT
As of September 30, 2012, assets under management (AUM) totaled $51.5 billion, up 8% from $47.8 billion as of June 30, 2012 and up 18% from $43.6 billion as of September 30, 2011. During the third quarter of 2012, Fortress recorded $2.0 billion of net client inflows for Logan Circle, had a $1.8 billion increase in its fund valuations, invested $0.8 billion of capital and raised $0.6 billion of capital and equity that was directly added to AUM. These increases to AUM were partially offset by (i) $0.7 billion of capital distributions to investors, (ii) $0.4 billion of Hedge Fund redemptions and (iii) $0.4 billion of RCA payments to Credit Hedge Fund investors. As of September 30, 2012 Fortress had $7.2 billion of dry powder, primarily in Credit Private Equity funds.
BUSINESS SEGMENT RESULTS
Below is a discussion of third quarter 2012 segment results and business highlights.
Credit:
| Drawbridge Special Opportunities Fund had a net return of 5.1% for the third quarter of 2012 and 13.1% year-to-date through September 30, 2012 |
| Raised nearly $250 million of third party capital in the third quarter, bringing total capital raised year-to-date to $3.7 billion through September 30, 2012 |
| Deployed over $720 million of capital during the quarter and distributed over $950 million of capital back to limited partners |
| Completed the sale of CWCapital LLC for $234 million. CWCapital is an operating subsidiary of CW Financial Services LLC, which Fortresss Credit and Private Equity funds acquired in September 2010 |
(See supplemental data on pages 18-19 for more detail on Credit results)
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The Credit business, which includes our Credit Hedge Funds and Credit Private Equity Funds, generated pre-tax DE of $29 million in the third quarter of 2012, which is up $4 million from the second quarter. During the third quarter, the business recorded $53 million of incentive income, including $36 million from hedge funds and $17 million from private-equity style funds.
On a year-to-date basis, pre-tax DE of $80 million is down from $109 million for the comparable period in 2011. This is largely attributable to fewer realizations in our private-equity style funds, partially offset by additional incentive income from the hedge funds.
In our Credit Hedge funds, the Drawbridge Special Opportunities Fund continued its track record of positive investment performance in the third quarter. The fund had a net return of 5.1% in the quarter, bringing net returns year-to-date through September 30, 2012 to 13.1%. Net annualized inception-to-date returns in this fund increased to 10.9%. The Credit Hedge Fund segment had a total of $4.6 billion of incentive eligible NAV above performance thresholds as of September 30, 2012.
Fortresss Credit Private Equity Funds continued to generate strong investment performance during the third quarter as well, which contributed to a further increase in unrealized, undistributed incentive income. The Credit Opportunities Fund and Credit Opportunities Fund II had net annualized inception-to-date IRRs through September 30, 2012 of 26.9% and 17.8%, respectively. Unrealized, undistributed incentive income increased $84 million, or 24%, to $430 million in the third quarter and has increased $186 million, or 76%, during the first nine months of 2012.
Also during the quarter, we completed the sale of CWCapital, CW Financials commercial real estate lending and primary servicing businesses, to Walker & Dunlop, Inc. (NYSE: WD) for $80 million in cash and $154 million of Walker & Dunlop common stock. Following the transactions close, Fortresss Credit and Private Equity funds became Walker & Dunlops largest shareholder.
Additionally, the Credit team called over $720 million of dry powder for investments and returned over $950 million of capital to our investors in the quarter. Total Credit Private Equity dry powder capital committed to the funds but not yet generating management fees was $6.5 billion at the end of the quarter.
Total capital raised during the third quarter was nearly $250 million. This included $100 million raised in the Credit Hedge Funds and nearly $130 million raised in our second Japan real estate credit fund, which we anticipate will close with total commitments in excess of $1 billion prior to year-end. We also held a final close for a set of dedicated real estate opportunities funds with over $280 million in total third-party commitments.
Our belief remains that the long-term investment opportunities in the Credit and broader distressed space are still substantial, primarily from the financial deleveraging that must occur in the next few years, said Peter Briger, Fortress co-chairman and Credit co-CIO. We are pleased to have substantial capital to invest as this broad opportunity set takes shape, but we do not believe that pricing dynamics today represent the most compelling opportunities that we will see in the current cycle. Our overriding objective is always to deliver outstanding returns for our investors, and we will remain patient and opportunistic in making investments on behalf of our limited partners.
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Private Equity:
| Fund portfolio investment valuations increased 9.4% in the third quarter of 2012, bringing year-to-date appreciation to 20.8% |
| Raised $591 million of capital for a new Private Equity fund focused on investments in mortgage servicing rights |
| Raised $168 million of permanent equity capital for Newcastle Investment Corp. in the third quarter, bringing total equity capital raised year-to-date to $435 million |
| Sold remaining interest in Aircastle Limited (NYSE: AYR) for $134 million |
| Subsequent to quarter end, completed the sale of RailAmerica, Inc. for $27.50 per share, representing a total equity value of $1.4 billion |
(See supplemental data on page 17 for more detail on Private Equity results)
The Private Equity business, which includes Private Equity Funds and Castles, had pre-tax DE of $28 million for the third quarter, up slightly from $27 million in the second quarter. Year-to-date pre-tax DE for the segment is $84 million, down $5 million from the same time period in 2011, largely due to lower Private Equity Fund management fees that resulted from changes in the basis on which these fees are calculated in three funds, partially offset by increased Private Equity Fund incentive income. The majority of this incentive income was attributable to a $6 million reversal of previously recognized claw-back reserves recorded for Fund II.
Private Equity Fund investment performance in the third quarter was strong, with valuations in underlying investments increasing by 9.4%. This brings appreciation of these fund investments to 20.8% through September 30, 2012. Our public company investments, which represent 36% of Private Equity fund NAV, increased 24% in the third quarter.
In addition to the CWCapital transaction described above, we sold our remaining interest of 11.8 million common shares in Aircastle, for total proceeds of $134 million. Fortress formed Aircastle in 2004 and completed an IPO in 2006 at a price of $23 per share. In aggregate, the initial investment of $351 million generated a return of 2.1 times invested capital and a gross IRR of approximately 23%.
Subsequent to quarter end, we completed the sale of RailAmerica to Genesee & Wyoming Inc. for $27.50 per share, representing a total equity value of $1.4 billion. Fortress acquired RailAmerica in a take-private transaction in 2007 and completed an IPO in 2009 at $15 per share. This investment had a return on investment of 2.2 times invested capital and a gross IRR of 17%.
During the quarter, fundraising activity was highlighted by nearly $770 million in additional capital raised for investments in mortgage servicing rights opportunities. This includes the nearly $600 million successful launch of a dedicated mortgage servicing rights fund, as well as the continuation of equity raises at Newcastle Investment Corp. (NYSE: NCT). Total capital and equity raised in the Private Equity segment was nearly $1.1 billion in the first nine months of 2012.
The first three quarters of 2012 have been very strong for our Private Equity business, said Wes Edens, Fortress co-Chairman and Private Equity CIO. Valuation gains in our fund investments accelerated in the third quarter, and now stand at over 20 percent for the year, with strong operating performance at most of our large portfolio companies pointing to potential for further gains. We are very optimistic about prospects for both our existing investments, and with substantial new capital commitments, for new investments in our key areas of focus today mortgage servicing rights, senior living, and transportation and infrastructure.
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Liquid Hedge Funds:
| Fortress Macro Fund had a net return of 11.1% for the first nine months of 2012 and an estimated year-to-date net return of 13.2% through October 26, 2012 |
| Fortress Asia Macro Fund had a net return of 10.7% for the first nine months of 2012 and an estimated year-to-date net return of 12.2% through October 26, 2012 |
| Raised approximately $167 million in new third-party capital during the quarter |
(See supplemental data on page 20 for more detail on Liquid Hedge Funds results)
The Liquid Hedge Funds generated pre-tax DE of $8 million in the third quarter of 2012, bringing year-to-date pre-tax DE to $15 million. Pre-tax DE was up $5 million for the quarter, largely a result of increased incentive income from both our Macro Funds and Asia Macro Funds as more capital eclipsed respective high water marks during the quarter.
Net returns for the nine months ended September 30, 2012 for the Fortress Macro Funds, Fortress Asia Macro Funds and Fortress Partners Funds were 11.1%, 10.7% and 6.9%, respectively. Positive year-to date performance has brought nearly all main Fortress Macro Fund and Fortress Asia Macro Fund capital above respective high water marks and thus eligible to generate incentive income. As of September 30, 2012, approximately 96% of capital in the main Fortress Macro Funds exceeded respective high water marks and 100% of Fortress Asia Macro Fund capital exceeded its respective high water marks. In aggregate, approximately $2.4 billion of capital is now above respective high water marks, a $1.3 billion increase from the end of the second quarter.
Liquid Hedge Fund AUM finished the third quarter flat at $4.4 billion. In the third quarter, we raised a total of $167 million of capital, directly adding to AUM, and paid out $379 million of redemptions. NAV appreciation of $193 million also added to AUM during the period.
Subsequent to quarter end, the Liquid Hedge Funds have raised over $400 million of additional capital, which will be added to AUM in the fourth quarter of 2012. As of September 30, 2012, there were $0.3 billion of Liquid Hedge Fund redemption notices outstanding, of which $0.1 billion will be paid primarily within one quarter and $0.2 billion will be paid primarily in the first quarter of 2013.
Double digit year-to-date returns in our Fortress Macro Funds and Fortress Asia Macro Funds have brought nearly all of our capital above respective incentive thresholds, said Mike Novogratz, Fortress Principal and co-CIO of Macro Funds. With over $2 billion of capital now eligible for incentive income, we are positioned very well for a strong financial close to 2012 and for next year. Our trading philosophy continues to align well with market opportunities and we remain optimistic that we can continue to deliver positive returns for our investors.
Logan Circle:
| All 15 Logan Circle investment strategies outperformed their respective benchmarks in the third quarter of 2012, and 14 of 15 strategies outperformed respective benchmarks in the first nine months of 2012 |
| Total traditional fixed income AUM rose to $20.6 billion as of quarter end, an increase of 60% from the third quarter of 2011 |
7
| Net client flows were $2.0 billion in the third quarter of 2012, bringing year-to-date net client flows to $5.9 billion through September 30, 2012 |
(See supplemental data on page 21 for more detail on Logan Circle results)
Our traditional asset management business, Logan Circle, generated a pre-tax DE loss of $2 million in the third quarter of 2012, flat compared to the second quarter of 2012. Compared to the third quarter of 2011, pre-tax DE loss improved by $2 million primarily due to an increase in management fees driven by a $7.7 billion increase in assets under management.
Logan Circles strategies continued to deliver strong investment performance, with all of Logan Circles 15 strategies outperforming their respective benchmarks in the third quarter of 2012 and 14 of 15 strategies outperforming respective benchmarks in the nine months ended September 30, 2012. Notably, 14 of 15 Logan Circle strategies have also outperformed their respective benchmarks since inception and seven are ranked in the top quartile of performance for their competitor universe.
Logan Circle had $20.6 billion in AUM at the end of the quarter, an increase of 14% compared to the previous quarter and a 60% increase compared to the third quarter of 2011. The $2.5 billion quarterly increase in AUM was primarily driven by net client inflows of $2.0 billion. Logan Circles AUM has grown over 75% since Fortress completed the acquisition and launched the traditional asset management business in April 2010.
We continue to deliver positive investment performance across all of our strategies which has enabled us to capture significant market share in recent quarters, said Jude Driscoll, CEO and CIO of Logan Circle. Strong institutional investor demand for our long-only fixed income strategies has led to record AUM of nearly $21 billion and a significant pipeline of new mandates. We are optimistic about the prospects for Logan Circle going forward as our performance track record and recent asset flow momentum has positioned the business well for long-term organic asset growth.
Principal Investments:
The Principal Investments segment, which is comprised of Fortresss investments in its own funds, generated pre-tax DE of $1 million for the third quarter of 2012 as compared to a pre-tax DE loss of $8 million in the third quarter of 2011. This year-over-year improvement is largely a result of the positive performance of our investments in our funds.
As of September 30 2012, Principal Investments had segment assets (excluding cash and cash equivalents) totaling $1.2 billion, up 6% from June 30, 2012. As of September 30, 2012, Fortress had a total of $154 million of outstanding commitments to its funds.
In addition, as of September 30, 2012, the net asset value of Fortresss Principal Investments exceeded its segment cost basis by $416 million, representing net unrealized gains that have not yet been recognized for segment reporting purposes. This is up 13%, or $49 million, from June 30, 2012.
LIQUIDITY & CAPITAL
As of September 30, 2012, Fortress had cash and cash equivalents of $254 million, up from $184 million as of June 30, 2012.
8
In October 2012, the completed sale of private equity portfolio company RailAmerica resulted in Fortress receiving aggregate proceeds of $182 million, comprised of the payment of deferred management fees and expenses of $150 million, the repayment of advances of $16 million, and $17 million of distributions related to our principal investments in related funds. Fortress used these proceeds to pay down the remaining balance of the companys only outstanding debt obligation a corporate term loan that had a balance of $181 million as of September 30, 2012. Fortress currently has no outstanding term loans or revolving debt balances.
DIVIDEND
Fortresss Board of Directors declared a third quarter 2012 dividend of $0.05 per share. The dividend is payable on November 19, 2012 to Class A shareholders of record as of the close of business on November 14, 2012.
The declaration and payment of any distributions are at the sole discretion of the Board of Directors, which may decide to change its distribution policy at any time. Please see below for information on the U.S. federal income tax implications of the dividend.
NON-GAAP INFORMATION
Distributable earnings, or DE, is a primary metric used by management to measure Fortresss operating performance. Consistent with GAAP, DE is the sole measure that management uses to manage, and thus report on, Fortresss segments, namely: Private Equity, Castles, Credit Hedge Funds, Credit Private Equity Funds, Liquid Hedge Funds, Logan Circle and Principal Investments. DE differs from GAAP net income in a number of material ways. For a detailed description of the calculation of DE, see note 11 in the financial statements included in the Companys most recent annual report, or note 10 to the financial statements included in the Companys most recent quarterly report on Form 10-Q.
Fortress aggregates its segment results to report consolidated segment results, as shown in the table under Summary Financial Results and in the total column of the table under Consolidated Segment Results (Non-GAAP). The consolidated segment results are non-GAAP financial information. Management believes that consolidated segment results provide a meaningful basis for comparison among present and future periods. However, consolidated segment results should not be considered a substitute for Fortresss consolidated GAAP results. The exhibits to this release contain reconciliations of the components of Fortresss consolidated segment results to the comparable GAAP measures, and Fortress urges you to review these exhibits.
CONFERENCE CALL
Management will host a conference call today, Friday, November 2, 2012 at 10:00 A.M. Eastern Time. A copy of the earnings release is posted to the Investor Relations section of Fortresss website, www.fortress.com.
All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-877-717-3044 (from within the U.S.) or 1-706-679-1521 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference Fortress Third Quarter Earnings Call.
A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.fortress.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast.
9
A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on November 9, 2012 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code 27979789.
INVESTOR & MEDIA RELATIONS CONTACT
Gordon E. Runté
Fortress Investment Group
+1-212-798-6082
grunte@fortress.com
ABOUT FORTRESS
Fortress Investment Group LLC (NYSE: FIG) is a leading, highly diversified global investment management firm with $51.5 billion in assets under management as of September 30, 2012. Fortress applies its deep experience and specialized expertise across a range of investment strategies private equity, credit, liquid hedge funds and traditional fixed income on behalf of over 1,400 institutional clients and private investors worldwide. For more information regarding Fortress Investment Group LLC or to be added to its e-mail distribution list, please visit www.fortress.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Fortresss sources of management fees, incentive income and investment income (loss), estimated fund performance and the amount and source of expected capital commitments. These statements are not historical facts, but instead represent only the Companys beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Companys control. It is possible that the sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund or redemption amounts may differ, possibly materially, from these forward-looking statements, and any such differences could cause the Companys actual results to differ materially from the results expressed or implied by these forward-looking statements. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Quarterly Report on Form 10-Q, which is, or will be, available on the Companys website (www.fortress.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. The Company can give no assurance that the expectations of any forward-looking statement will be obtained. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Companys expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND
For U.S. federal income tax purposes, the dividend declared in November 2012 will be treated as a partnership distribution. Based on the best information currently available, when calculating withholding
10
taxes, 2.60 cents of the per share distribution will be treated as U.S. source interest income. Accordingly, for non-U.S. holders of Class A shares, unless an exception to withholding tax applies, the distribution will be subject to a U.S. federal withholding tax of 0.78 cents per share. Non-U.S. holders of Class A shares are generally subject to U.S. federal withholding tax at a rate of 30% (subject to reduction by applicable treaty or other exception) on certain types of U.S. source income realized by the Company. With respect to interest, however, no withholding is generally required if proper certification (on an IRS Form W-8) of a beneficial owners foreign status has been filed with the withholding agent. In addition, non-U.S. holders must generally provide the withholding agent with a properly completed IRS Form W-8 to obtain any reduction in withholding.
11
Fortress Investment Group LLC
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues |
||||||||||||||||
Management fees: affiliates |
$ | 112,806 | $ | 118,353 | $ | 336,935 | $ | 353,269 | ||||||||
Management fees: non-affiliates |
10,762 | 18,865 | 32,534 | 47,641 | ||||||||||||
Incentive income: affiliates |
5,976 | 14,754 | 38,994 | 44,361 | ||||||||||||
Incentive income: non-affiliates |
788 | 266 | 1,564 | 1,251 | ||||||||||||
Expense reimbursements from affiliates |
49,636 | 42,350 | 138,317 | 130,337 | ||||||||||||
Other revenues |
1,555 | 1,071 | 3,885 | 5,433 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
181,523 | 195,659 | 552,229 | 582,292 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Interest expense |
3,375 | 4,583 | 11,877 | 13,883 | ||||||||||||
Compensation and benefits |
181,421 | 158,426 | 537,267 | 535,259 | ||||||||||||
Principals agreement compensation (expired in 2011) |
| 279,623 | | 751,749 | ||||||||||||
General, administrative and other |
31,004 | 34,165 | 93,365 | 109,545 | ||||||||||||
Depreciation and amortization (including impairment) |
4,982 | 23,767 | 11,718 | 30,114 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
220,782 | 500,564 | 654,227 | 1,440,550 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Income (Loss) |
||||||||||||||||
Gains (losses) |
(2,228 | ) | (15,229 | ) | 29,542 | (26,751 | ) | |||||||||
Tax receivable agreement liability adjustment |
| | (6,935 | ) | (116 | ) | ||||||||||
Earnings (losses) from equity method investees |
52,034 | (64,483 | ) | 110,417 | 26,417 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
49,806 | (79,712 | ) | 133,024 | (450 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (Loss) Before Income Taxes |
10,547 | (384,617 | ) | 31,026 | (858,708 | ) | ||||||||||
Income tax benefit (expense) |
(3,881 | ) | 2,712 | (34,251 | ) | (24,493 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income (Loss) |
$ | 6,666 | $ | (381,905 | ) | $ | (3,225 | ) | $ | (883,201 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Principals and Others Interests in Income (Loss) of Consolidated Subsidiaries |
$ | 5,958 | $ | (239,847 | ) | $ | 20,698 | $ | (543,175 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income (Loss) Attributable to Class A Shareholders |
$ | 708 | $ | (142,058 | ) | $ | (23,923 | ) | $ | (340,026 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Dividends Declared Per Class A Share |
$ | 0.05 | $ | | $ | 0.15 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings (Loss) Per Class A Share |
||||||||||||||||
Net income (loss) per Class A share, basic |
$ | 0.00 | $ | (0.76 | ) | $ | (0.12 | ) | $ | (1.85 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per Class A share, diluted |
$ | (0.04 | ) | $ | (0.83 | ) | $ | (0.13 | ) | $ | (1.88 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of Class A shares outstanding, basic |
220,641,776 | 190,006,987 | 212,297,285 | 185,373,605 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of Class A shares outstanding, diluted |
520,039,541 | 495,864,738 | 517,431,334 | 492,396,969 | ||||||||||||
|
|
|
|
|
|
|
|
12
Fortress Investment Group LLC
Consolidated Balance Sheets
(dollars in thousands)
September 30,
2012 (Unaudited) |
December 31, 2011 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 253,731 | $ | 333,166 | ||||
Due from affiliates |
289,889 | 298,689 | ||||||
Investments |
1,199,622 | 1,079,777 | ||||||
Deferred tax asset |
379,372 | 400,196 | ||||||
Other assets |
102,787 | 108,858 | ||||||
|
|
|
|
|||||
$ | 2,225,401 | $ | 2,220,686 | |||||
|
|
|
|
|||||
Liabilities and Equity |
||||||||
Liabilities |
||||||||
Accrued compensation and benefits |
$ | 222,719 | $ | 247,024 | ||||
Due to affiliates |
345,009 | 354,158 | ||||||
Deferred incentive income |
245,957 | 238,658 | ||||||
Debt obligations payable |
180,528 | 261,250 | ||||||
Other liabilities |
81,193 | 57,204 | ||||||
|
|
|
|
|||||
1,075,406 | 1,158,294 | |||||||
|
|
|
|
|||||
Commitments and Contingencies |
||||||||
Equity |
||||||||
Class A shares, no par value, 1,000,000,000 shares authorized, 220,188,973 and 189,824,053 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
| | ||||||
Class B shares, no par value, 750,000,000 shares authorized, 298,723,852 and 305,857,751 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
| | ||||||
Paid-in capital |
2,048,874 | 1,972,711 | ||||||
Retained earnings (accumulated deficit) |
(1,508,043 | ) | (1,484,120 | ) | ||||
Accumulated other comprehensive income (loss) |
(2,175 | ) | (1,160 | ) | ||||
|
|
|
|
|||||
Total Fortress shareholders equity |
538,656 | 487,431 | ||||||
Principals and others interests in equity of consolidated subsidiaries |
611,339 | 574,961 | ||||||
|
|
|
|
|||||
Total Equity |
1,149,995 | 1,062,392 | ||||||
|
|
|
|
|||||
$ | 2,225,401 | $ | 2,220,686 | |||||
|
|
|
|
13
Fortress Investment Group LLC
Exhibit 1-a
Supplemental Data for the Three Months Ended September 30, 2012 and 2011
Three Months Ended September 30, 2012 | ||||||||||||||||||||||||||||||||
Total | Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle | Principal Investments |
|||||||||||||||||||||||||||
(in millions) | Funds | Castles | Hedge Funds | PE Funds | ||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||
AUM July 1, 2012 |
$ | 47,788 | $ | 10,436 | $ | 3,390 | $ | 4,398 | $ | 5,859 | $ | 5,593 | $ | 18,112 | $ | | ||||||||||||||||
Capital raised |
395 | | | 167 | 100 | 128 | | | ||||||||||||||||||||||||
Equity raised (Permanent capital vehicles) |
177 | | 177 | | | | | | ||||||||||||||||||||||||
Increase in invested capital |
754 | 31 | | | | 723 | | | ||||||||||||||||||||||||
Redemptions |
(379 | ) | | | (379 | ) | | | | | ||||||||||||||||||||||
SPV distribution |
| | | | | | | | ||||||||||||||||||||||||
RCA distributions 5 |
(387 | ) | | | | (387 | ) | | | | ||||||||||||||||||||||
Return of capital distributions |
(689 | ) | (122 | ) | | | (155 | ) | (412 | ) | | | ||||||||||||||||||||
Adjustment for reset date |
(8 | ) | | | | | (8 | ) | | | ||||||||||||||||||||||
Crystallized Incentive Income |
(1 | ) | | | (1 | ) | | | | | ||||||||||||||||||||||
Equity buyback |
| | | | | | | | ||||||||||||||||||||||||
Net Client Flows |
1,980 | | | | | | 1,980 | | ||||||||||||||||||||||||
Income (loss) and foreign exchange |
1,845 | 768 | 38 | 193 | 246 | 66 | 534 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
AUM Ending Balance |
51,475 | 11,113 | 3,605 | 4,378 | 5,663 | 6,090 | 20,626 | | ||||||||||||||||||||||||
Third-Party Capital Raised |
$ | 1,183 | $ | 591 | $ | 177 | $ | 167 | $ | 100 | $ | 148 | $ | | $ | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||
Management fees |
$ | 116 | $ | 30 | $ | 15 | $ | 19 | $ | 24 | $ | 21 | $ | 7 | $ | | ||||||||||||||||
Incentive income |
65 | 1 | | 11 | 36 | 17 | | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
181 | 31 | 15 | 30 | 60 | 38 | 7 | | ||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||
Operating expenses |
$ | (82 | ) | $ | (9 | ) | $ | (8 | ) | $ | (17 | ) | $ | (15 | ) | $ | (24 | ) | $ | (9 | ) | $ | | |||||||||
Profit sharing compensation expenses |
(31 | ) | | | (4 | ) | (19 | ) | (8 | ) | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
(113 | ) | (9 | ) | (8 | ) | (21 | ) | (34 | ) | (32 | ) | (9 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Fund Management DE (before Principal Performance Payments) |
68 | 22 | 7 | 9 | 26 | 6 | (2 | ) | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Principal Performance Payments |
(5 | ) | | (1 | ) | (1 | ) | (3 | ) | | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Fund Management DE |
63 | 22 | 6 | 8 | 23 | 6 | (2 | ) | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Investment Income |
4 | 4 | ||||||||||||||||||||||||||||||
Interest Expense |
(3 | ) | (3 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Pre-tax Distributable Earnings |
$ | 64 | $ | 22 | $ | 6 | $ | 8 | $ | 23 | $ | 6 | $ | (2 | ) | $ | 1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Pre-tax Distributable Earnings per Dividend Paying Share |
$ | 0.12 | ||||||||||||||||||||||||||||||
|
|
Three Months Ended September 30, 2011 | ||||||||||||||||||||||||||||
Total | Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle | ||||||||||||||||||||||||
(in millions) | Funds | Castles | Hedge Funds | PE Funds | ||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||
AUM July 1, 2011 |
$ | 43,823 | $ | 9,979 | $ | 3,277 | $ | 6,321 | $ | 6,374 | $ | 4,941 | $ | 12,931 | ||||||||||||||
Capital raised |
461 | | | 292 | 60 | 109 | | |||||||||||||||||||||
Equity raised |
122 | | 122 | | | | | |||||||||||||||||||||
Increase in invested capital |
1,034 | 9 | | 5 | 57 | 963 | | |||||||||||||||||||||
Redemptions |
(335 | ) | | | (335 | ) | | | | |||||||||||||||||||
SPV distribution |
| | | | | | | |||||||||||||||||||||
RCA distributions 5 |
(158 | ) | | | | (158 | ) | | | |||||||||||||||||||
Return of capital distributions |
(484 | ) | | | | (59 | ) | (425 | ) | | ||||||||||||||||||
Adjustment for reset date |
| | | | | | | |||||||||||||||||||||
Crystallized Incentive Income |
| | | | | | | |||||||||||||||||||||
Net Client Flows |
(231 | ) | | | | | | (231 | ) | |||||||||||||||||||
Income (loss) and foreign exchange |
(613 | ) | (517 | ) | (162 | ) | (118 | ) | (60 | ) | 31 | 213 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
AUM Ending Balance |
$ | 43,619 | $ | 9,471 | $ | 3,237 | $ | 6,165 | $ | 6,214 | $ | 5,619 | $ | 12,913 | ||||||||||||||
Third-Party Capital Raised |
$ | 899 | $ | | $ | 122 | $ | 292 | $ | 60 | $ | 425 | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||
Management fees |
$ | 131 | $ | 31 | $ | 13 | $ | 28 | $ | 35 | $ | 19 | $ | 5 | ||||||||||||||
Incentive income |
14 | (3 | ) | | 1 | (4 | ) | 20 | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
145 | 28 | 13 | 29 | 31 | 39 | 5 | |||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||
Operating expenses |
$ | (83 | ) | $ | (9 | ) | $ | (6 | ) | $ | (19 | ) | $ | (33 | ) | $ | (7 | ) | $ | (9 | ) | |||||||
Profit sharing compensation expenses |
(11 | ) | 1 | | (5 | ) | 1 | (8 | ) | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
(94 | ) | (8 | ) | (6 | ) | (24 | ) | (32 | ) | (15 | ) | (9 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Fund Management DE |
51 | 20 | 7 | 5 | (1 | ) | 24 | (4 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Investment Income |
(3 | ) | | | | | | | ||||||||||||||||||||
Interest Expense |
(5 | ) | | | | | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Pre-tax Distributable Earnings |
$ | 43 | $ | 20 | $ | 7 | $ | 5 | $ | (1 | ) | $ | 24 | $ | (4 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Pre-tax Distributable Earnings per Dividend Paying Share |
$ | 0.08 | ||||||||||||||||||||||||||
|
|
5 | Represents distributions from (i) assets held by redeeming capital accounts in the Drawbridge Special Opportunities Funds, and (ii) the Value Recovery Funds. |
14
Fortress Investment Group LLC
Exhibit 1-b
Supplemental Data for the Nine Months Ended September 30, 2012 and 2011
Nine Months Ended September 30, 2012 | ||||||||||||||||||||||||||||||||
Total | Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle | Principal Investments |
|||||||||||||||||||||||||||
(in millions) | Funds | Castles | Hedge Funds | PE Funds | ||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||
AUM January 1, 2012 |
$ | 43,713 | $ | 9,285 | $ | 3,181 | $ | 5,515 | $ | 5,976 | $ | 6,232 | $ | 13,524 | $ | | ||||||||||||||||
Capital raised |
890 | | | 447 | 216 | 227 | | | ||||||||||||||||||||||||
Equity raised |
444 | | 444 | | | | | | ||||||||||||||||||||||||
Increase in invested capital |
1,582 | 98 | | | 20 | 1,464 | | | ||||||||||||||||||||||||
Redemptions |
(2,012 | ) | | | (2,001 | ) | (11 | ) | | | | |||||||||||||||||||||
SPV distributions |
| | | | | | | | ||||||||||||||||||||||||
RCA distributions 6 |
(903 | ) | | | | (903 | ) | | | | ||||||||||||||||||||||
Return of capital distributions |
(1,939 | ) | (142 | ) | | | (233 | ) | (1,564 | ) | | | ||||||||||||||||||||
Adjustment for reset date |
(331 | ) | | | | | (331 | ) | | | ||||||||||||||||||||||
Crystallized incentive income |
(72 | ) | | | (2 | ) | (70 | ) | | | | |||||||||||||||||||||
Equity buyback |
| | | | | | | | ||||||||||||||||||||||||
Net Client Flows |
5,935 | | | | | | 5,935 | | ||||||||||||||||||||||||
Income (loss) and foreign exchange |
4,168 | 1,872 | (20 | ) | 419 | 668 | 62 | 1,167 | | |||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||
AUM Ending Balance |
51,475 | 11,113 | 3,605 | 4,378 | 5,663 | 6,090 | 20,626 | | ||||||||||||||||||||||||
Third-Party Capital Raised |
$ | 5,198 | $ | 620 | $ | 444 | $ | 447 | $ | 216 | $ | 3,471 | $ | | $ | | ||||||||||||||||
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|
|
|
|
|||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||
Management fee |
$ | 348 | $ | 89 | $ | 42 | $ | 58 | $ | 76 | $ | 64 | $ | 19 | $ | | ||||||||||||||||
Incentive income |
164 | 9 | | 21 | 92 | 42 | | | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
512 | 98 | 42 | 79 | 168 | 106 | 19 | | ||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||
Operating expenses |
$ | (245 | ) | $ | (30 | ) | $ | (22 | ) | $ | (51 | ) | $ | (47 | ) | $ | (69 | ) | $ | (26 | ) | $ | | |||||||||
Profit sharing compensation expenses |
(83 | ) | (3 | ) | | (11 | ) | (45 | ) | (24 | ) | | | |||||||||||||||||||
|
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|
|
|
|
|
|
|
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|
|
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|
|
|
|||||||||||||||||
Total |
(328 | ) | (33 | ) | (22 | ) | (62 | ) | (92 | ) | (93 | ) | (26 | ) | | |||||||||||||||||
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|
|||||||||||||||||
Fund Management DE (before Principal Performance Payments) |
184 | 65 | 20 | 17 | 76 | 13 | (7 | ) | | |||||||||||||||||||||||
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|
|||||||||||||||||
Principal Performance Payments |
(12 | ) | | (1 | ) | (2 | ) | (9 | ) | | | | ||||||||||||||||||||
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|
|||||||||||||||||
Fund Management DE |
172 | 65 | 19 | 15 | 67 | 13 | (7 | ) | | |||||||||||||||||||||||
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|||||||||||||||||
Investment Income |
10 | 10 | ||||||||||||||||||||||||||||||
Interest Expense |
(11 | ) | (11 | ) | ||||||||||||||||||||||||||||
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|
|||||||||||||||||
Pre-tax Distributable Earnings |
$ | 171 | $ | 65 | $ | 19 | $ | 15 | $ | 67 | $ | 13 | $ | (7 | ) | $ | (1 | ) | ||||||||||||||
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|
|||||||||||||||||
Pre-tax Distributable Earnings per Dividend Paying Share |
$ | 0.32 | ||||||||||||||||||||||||||||||
|
|
Nine Months Ended September 30, 2011 | ||||||||||||||||||||||||||||||||
Total | Private Equity | Liquid Hedge Funds |
Credit Funds | Logan Circle | Principal Investments |
|||||||||||||||||||||||||||
(in millions) | Funds | Castles | Hedge Funds | PE Funds | ||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||
AUM January 1, 2011 |
$ | 44,613 | $ | 11,923 | $ | 3,037 | $ | 6,355 | $ | 6,773 | $ | 4,817 | $ | 11,708 | $ | | ||||||||||||||||
Capital raised |
1,619 | | | 1,141 | 288 | 190 | | | ||||||||||||||||||||||||
Equity raised |
220 | | 220 | | | | | | ||||||||||||||||||||||||
Increase in invested capital |
2,432 | 224 | | 11 | 107 | 2,090 | | | ||||||||||||||||||||||||
Redemptions |
(1,131 | ) | | | (986 | ) | (145 | ) | | | | |||||||||||||||||||||
SPV distribution |
| | | | | | | | ||||||||||||||||||||||||
RCA distributions 6 |
(968 | ) | | | | (968 | ) | | | | ||||||||||||||||||||||
Return of capital distributions |
(1,927 | ) | (313 | ) | | | (119 | ) | (1,495 | ) | | | ||||||||||||||||||||
Adjustment for reset date |
(1,997 | ) | (1,997 | ) | | | | | | | ||||||||||||||||||||||
Crystallized Incentive Income |
(160 | ) | | | (69 | ) | (91 | ) | | | | |||||||||||||||||||||
Equity buyback |
(19 | ) | | (19 | ) | | | | | | ||||||||||||||||||||||
Net Client Flows |
476 | | | | | | 476 | | ||||||||||||||||||||||||
Income (loss) and foreign exchange transfers |
461 | (366 | ) | (1 | ) | (287 | ) | 369 | 17 | 729 | | |||||||||||||||||||||
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|
|
|||||||||||||||||
AUM Ending Balance |
$ | 43,619 | $ | 9,471 | $ | 3,237 | $ | 6,165 | $ | 6,214 | $ | 5,619 | $ | 12,913 | $ | | ||||||||||||||||
Third-Party Capital Raised |
$ | 2,359 | $ | 51 | $ | 220 | $ | 1,141 | $ | 413 | $ | 534 | $ | | $ | | ||||||||||||||||
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|
|
|
|||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||
Management fees |
$ | 388 | $ | 102 | $ | 39 | $ | 84 | $ | 96 | $ | 52 | $ | 15 | $ | | ||||||||||||||||
Incentive income |
152 | (2 | ) | | 4 | 50 | 100 | | | |||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
540 | 100 | 39 | 88 | 146 | 152 | 15 | | ||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||
Operating expenses |
$ | (254 | ) | $ | (31 | ) | $ | (20 | ) | $ | (58 | ) | $ | (95 | ) | $ | (23 | ) | $ | (27 | ) | $ | | |||||||||
Profit sharing compensation expenses |
(86 | ) | 1 | | (16 | ) | (23 | ) | (48 | ) | | | ||||||||||||||||||||
Total |
(340 | ) | (30 | ) | (20 | ) | (74 | ) | (118 | ) | (71 | ) | (27 | ) | | |||||||||||||||||
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|||||||||||||||||
Fund Management DE |
200 | 70 | 19 | 14 | 28 | 81 | (12 | ) | | |||||||||||||||||||||||
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|
|
|||||||||||||||||
Investment Income |
6 | | | | | | | 6 | ||||||||||||||||||||||||
Interest Expense |
(14 | ) | | | | | | | (14 | ) | ||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|||||||||||||||||
Pre-tax Distributable Earnings |
$ | 192 | $ | 70 | $ | 19 | $ | 14 | $ | 28 | $ | 81 | $ | (12 | ) | $ | (8 | ) | ||||||||||||||
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|
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|
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|
|
|
|
|
|
|||||||||||||||||
Pre-tax Distributable Earnings per Dividend Paying Share |
$ | 0.36 | ||||||||||||||||||||||||||||||
|
|
6 | Represents distributions from (i) assets held by redeeming capital accounts in the Drawbridge Special Opportunities Funds, and (ii) the Value Recovery Funds. |
15
Fortress Investment Group LLC
Exhibit 2-a
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
Fortress | March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
|||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||||||
Private Equity & Castles |
$ | 13,244 | $ | 13,256 | $ | 12,708 | $ | 12,466 | $ | 12,466 | $ | 13,239 | $ | 13,826 | $ | 14,718 | $ | 14,718 | ||||||||||||||||||
Liquid Hedge Funds |
6,303 | 6,321 | 6,165 | 5,515 | 5,515 | 4,840 | 4,398 | 4,378 | 4,378 | |||||||||||||||||||||||||||
Credit Hedge Funds |
6,545 | 6,374 | 6,214 | 5,976 | 5,976 | 6,011 | 5,859 | 5,663 | 5,663 | |||||||||||||||||||||||||||
Credit Private Equity Funds |
4,531 | 4,941 | 5,619 | 6,232 | 6,232 | 6,258 | 5,593 | 6,090 | 6,090 | |||||||||||||||||||||||||||
Logan Circle |
12,484 | 12,931 | 12,913 | 13,524 | 13,524 | 16,084 | 18,112 | 20,626 | 20,626 | |||||||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||||
AUM Ending Balance |
$ | 43,107 | $ | 43,823 | $ | 43,619 | $ | 43,713 | $ | 43,713 | $ | 46,432 | $ | 47,788 | $ | 51,475 | $ | 51,475 | ||||||||||||||||||
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|
|||||||||||||||||||
Third-Party Capital Raised |
$ | 649 | $ | 811 | $ | 899 | $ | 1,818 | $ | 4,177 | $ | 2,912 | $ | 1,103 | $ | 1,183 | $ | 5,198 | ||||||||||||||||||
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|
|||||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||||||
Management fees |
$ | 126 | $ | 131 | $ | 131 | $ | 121 | $ | 509 | $ | 118 | $ | 114 | $ | 116 | $ | 348 | ||||||||||||||||||
Incentive income |
118 | 20 | 14 | 46 | 198 | 52 | 47 | 65 | 164 | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
244 | 151 | 145 | 167 | 707 | 170 | 161 | 181 | 512 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(93 | ) | (79 | ) | (83 | ) | (89 | ) | (344 | ) | (82 | ) | (81 | ) | (82 | ) | (245 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
(58 | ) | (17 | ) | (11 | ) | (25 | ) | (111 | ) | (28 | ) | (24 | ) | (31 | ) | (83 | ) | ||||||||||||||||||
Unallocated expenses |
2 | (1 | ) | | | 1 | | | 0 | 0 | ||||||||||||||||||||||||||
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|
|
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|
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|
|
|||||||||||||||||||
Total |
(149 | ) | (97 | ) | (94 | ) | (114 | ) | (454 | ) | (110 | ) | (105 | ) | (113 | ) | (328 | ) | ||||||||||||||||||
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|||||||||||||||||||
Fund Management DE (before Principal Performance Payments) |
95 | 54 | 51 | 53 | 253 | 60 | 56 | 68 | 184 | |||||||||||||||||||||||||||
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|
|||||||||||||||||||
Principal Performance Payments |
| | | | | (4 | ) | (3 | ) | (5 | ) | (12 | ) | |||||||||||||||||||||||
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|
|||||||||||||||||||
Fund Management DE |
$ | 95 | $ | 54 | $ | 51 | $ | 53 | $ | 253 | $ | 56 | $ | 53 | $ | 63 | $ | 172 | ||||||||||||||||||
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|
16
Fortress Investment Group LLC
Exhibit 2-b
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
Private Equity Funds & Castles |
March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
|||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||||||
Private Equity Funds |
$ | 10,016 | $ | 9,979 | $ | 9,471 | $ | 9,285 | $ | 9,285 | $ | 10,029 | $ | 10,436 | $ | 11,113 | $ | 11,113 | ||||||||||||||||||
Castles |
3,228 | 3,277 | 3,237 | 3,181 | 3,181 | 3,210 | 3,390 | 3,605 | 3,605 | |||||||||||||||||||||||||||
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|
|||||||||||||||||||
AUM Ending Balance |
$ | 13,244 | $ | 13,256 | $ | 12,708 | $ | 12,466 | $ | 12,466 | $ | 13,239 | $ | 13,826 | $ | 14,718 | $ | 14,718 | ||||||||||||||||||
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|
|||||||||||||||||||
Third-Party Capital Raised |
$ | 98 | $ | 51 | $ | 122 | $ | | $ | 271 | $ | 29 | $ | 267 | $ | 768 | $ | 1,064 | ||||||||||||||||||
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|
|||||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||||||
Management fees |
$ | 47 | $ | 50 | $ | 44 | $ | 44 | $ | 185 | $ | 44 | $ | 42 | $ | 45 | $ | 131 | ||||||||||||||||||
Incentive income |
1 | | (3 | ) | | (2 | ) | 5 | 3 | 1 | 9 | |||||||||||||||||||||||||
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|
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|
|
|||||||||||||||||||
Total |
48 | 50 | 41 | 44 | 183 | 49 | 45 | 46 | 140 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(21 | ) | (15 | ) | (15 | ) | (15 | ) | (66 | ) | (18 | ) | (17 | ) | (17 | ) | (52 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
| | 1 | | 1 | (2 | ) | (1 | ) | | (3 | ) | ||||||||||||||||||||||||
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|
|||||||||||||||||||
Total |
(21 | ) | (15 | ) | (14 | ) | (15 | ) | (65 | ) | (20 | ) | (18 | ) | (17 | ) | (55 | ) | ||||||||||||||||||
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|
|||||||||||||||||||
Fund Management DE (before Principal Performance Payments) |
27 | 35 | 27 | 29 | 118 | 29 | 27 | 29 | 85 | |||||||||||||||||||||||||||
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|
|
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|
|
|||||||||||||||||||
Principal Performance Payments |
| | | | | | | (1 | ) | (1 | ) | |||||||||||||||||||||||||
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|
|
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|
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|
|||||||||||||||||||
Fund Management DE |
$ | 27 | $ | 35 | $ | 27 | $ | 29 | $ | 118 | $ | 29 | $ | 27 | $ | 28 | $ | 84 | ||||||||||||||||||
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|
17
Fortress Investment Group LLC
Exhibit 2-c
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
Credit Hedge Funds | March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
|||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||||||
Drawbridge Special Opportunities Funds 7 |
$ | 5,341 | $ | 5,272 | $ | 5,227 | $ | 5,165 | $ | 5,165 | $ | 5,209 | $ | 5,168 | $ | 5,152 | $ | 5,152 | ||||||||||||||||||
Value Recovery Funds 8 |
1,204 | 1,102 | 987 | 811 | 811 | 802 | 691 | 511 | 511 | |||||||||||||||||||||||||||
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|
|
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|
|||||||||||||||||||
AUM Ending Balance |
$ | 6,545 | $ | 6,374 | $ | 6,214 | $ | 5,976 | $ | 5,976 | $ | 6,011 | $ | 5,859 | $ | 5,663 | $ | 5,663 | ||||||||||||||||||
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|
|||||||||||||||||||
Third-Party Capital Raised |
$ | 149 | $ | 204 | $ | 60 | $ | 21 | $ | 434 | $ | 67 | $ | 49 | $ | 100 | $ | 216 | ||||||||||||||||||
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|
|
|||||||||||||||||||
Segment Revenues |
||||||||||||||||||||||||||||||||||||
Management fees |
$ | 31 | $ | 30 | $ | 35 | $ | 26 | $ | 122 | $ | 26 | $ | 26 | $ | 24 | $ | 76 | ||||||||||||||||||
Incentive income |
38 | 16 | (4 | ) | 28 | 78 | 30 | 26 | 36 | 92 | ||||||||||||||||||||||||||
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|
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|
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|
|
|
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|
|
|
|
|||||||||||||||||||
Total |
69 | 46 | 31 | 54 | 200 | 56 | 52 | 60 | 168 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(34 | ) | (28 | ) | (33 | ) | (33 | ) | (128 | ) | (16 | ) | (16 | ) | (15 | ) | (47 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
(17 | ) | (7 | ) | 1 | (12 | ) | (35 | ) | (14 | ) | (12 | ) | (19 | ) | (45 | ) | |||||||||||||||||||
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Total |
(51 | ) | (35 | ) | (32 | ) | (45 | ) | (163 | ) | (30 | ) | (28 | ) | (34 | ) | (92 | ) | ||||||||||||||||||
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Fund Management DE (before Principal Performance Payments) |
18 | 11 | (1 | ) | 9 | 37 | 26 | 24 | 26 | 76 | ||||||||||||||||||||||||||
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Principal Performance Payments |
| | | | | (3 | ) | (3 | ) | (3 | ) | (9 | ) | |||||||||||||||||||||||
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Fund Management DE |
$ | 18 | $ | 11 | $ | (1 | ) | $ | 9 | $ | 37 | $ | 23 | $ | 21 | $ | 23 | $ | 67 | |||||||||||||||||
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Net Returns 9 |
||||||||||||||||||||||||||||||||||||
Drawbridge Special Opportunities LP |
4.9 | % | 2.2 | % | -0.8 | % | 4.3 | % | 10.9 | % | 4.2 | % | 3.3 | % | 5.1 | % | 13.1 | % | ||||||||||||||||||
Drawbridge Special Opportunities Ltd. |
5.8 | % | 2.9 | % | 0.2 | % | 2.2 | % | 11.5 | % | 4.8 | % | 3.0 | % | 4.0 | % | 12.2 | % |
7 | Combined AUM for Drawbridge Special Opportunities Fund Ltd., Drawbridge Special Opportunities Fund LP, Drawbridge Special Opportunities Fund managed accounts, Worden Fund LP and Worden Fund II LP. |
8 | Fortress will receive management fees from these funds equal to 1% of cash receipts and up to 1% per annum on certain managed assets, subject to collectability, and may receive limited incentive income if aggregate realizations exceed an agreed threshold. |
9 | The performance data contained herein reflects returns for a new issue eligible, single investor class as of the close of business on the last day of the relevant period. Net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments. The returns for the Drawbridge Special Opportunities Funds reflect the performance of each fund excluding the performance of the redeeming capital accounts which relate to December 31, 2008, December 31, 2009, December 31, 2010, and December 31, 2011 redemptions. |
18
Fortress Investment Group LLC
Exhibit 2-d
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
Credit Private Equity Funds | March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
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Assets Under Management |
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Long Dated Value Funds 10 |
$ | 619 | $ | 575 | $ | 574 | $ | 563 | $ | 563 | $ | 564 | $ | 555 | $ | 555 | $ | 555 | ||||||||||||||||||
Real Assets Funds |
141 | 123 | 118 | 112 | 112 | 102 | 92 | 97 | 97 | |||||||||||||||||||||||||||
Fortress Credit Opportunities Funds 11 |
2,885 | 3,329 | 3,971 | 4,599 | 4,599 | 4,610 | 4,246 | 4,611 | 4,611 | |||||||||||||||||||||||||||
Japan Opportunity Funds 12 |
886 | 914 | 956 | 958 | 958 | 982 | 700 | 827 | 827 | |||||||||||||||||||||||||||
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AUM Ending Balance |
$ | 4,531 | $ | 4,941 | $ | 5,619 | $ | 6,232 | $ | 6,232 | $ | 6,258 | $ | 5,593 | $ | 6,090 | $ | 6,090 | ||||||||||||||||||
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Third-Party Capital Raised |
$ | 72 | $ | 37 | $ | 425 | $ | 1,620 | $ | 2,154 | $ | 2,717 | $ | 606 | $ | 148 | $ | 3,471 | ||||||||||||||||||
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Segment Revenues |
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Management fees |
$ | 16 | $ | 17 | $ | 19 | $ | 21 | $ | 73 | $ | 22 | $ | 21 | $ | 21 | $ | 64 | ||||||||||||||||||
Incentive income |
57 | 23 | 20 | 18 | 118 | 11 | 14 | 17 | 42 | |||||||||||||||||||||||||||
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Total |
73 | 40 | 39 | 39 | 191 | 33 | 35 | 38 | 106 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(7 | ) | (9 | ) | (7 | ) | (11 | ) | (34 | ) | (22 | ) | (23 | ) | (24 | ) | (69 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
(28 | ) | (12 | ) | (8 | ) | (8 | ) | (56 | ) | (8 | ) | (8 | ) | (8 | ) | (24 | ) | ||||||||||||||||||
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Total |
(35 | ) | (21 | ) | (15 | ) | (19 | ) | (90 | ) | (30 | ) | (31 | ) | (32 | ) | (93 | ) | ||||||||||||||||||
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Fund Management DE (before Principal Performance Payments) |
38 | 19 | 24 | 20 | 101 | 3 | 4 | 6 | 13 | |||||||||||||||||||||||||||
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Principal Performance Payments |
| | | | | | | | | |||||||||||||||||||||||||||
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Fund Management DE |
$ | 38 | $ | 19 | $ | 24 | $ | 20 | $ | 101 | $ | 3 | $ | 4 | $ | 6 | $ | 13 | ||||||||||||||||||
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10 | Combined AUM for Long Dated Value Fund I, Long Dated Value Fund II, Long Dated Value Fund III and LDVF Patent Fund. |
11 | Combined AUM for Credit Opportunities Fund, Credit Opportunities Fund II, Credit Opportunities Fund III, FCO Managed Accounts, Net Lease Fund I, Global Opportunities Fund, Life Settlement Fund, Life Settlement Fund MA, SIP managed account, Real Estate Opportunities Fund and Real Estate Opportunities REOC Fund. |
12 | Combined AUM for Japan Opportunity Fund, Japan Opportunity Fund II (Dollar) and Japan Opportunity Fund II (Yen). |
19
Fortress Investment Group LLC
Exhibit 2-e
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||||
Liquid Hedge Funds | March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
Full Year 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
Nine Months Ended September 30, 2012 |
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Assets Under Management |
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Fortress Macro Funds 13 |
$ | 3,258 | $ | 3,143 | $ | 3,086 | $ | 2,584 | $ | 2,584 | $ | 2,429 | $ | 2,417 | $ | 2,250 | $ | 2,250 | ||||||||||||||||||
Fortress Convex Asia Funds 14 |
| | | | | | 26 | 25 | 25 | |||||||||||||||||||||||||||
Drawbridge Global Macro Funds 15 |
422 | 406 | 386 | 392 | 392 | 398 | 410 | 417 | 417 | |||||||||||||||||||||||||||
Fortress Commodities Funds 16 |
1,111 | 1,189 | 1,064 | 875 | 875 | 473 | | | | |||||||||||||||||||||||||||
Fortress Asia Macro Funds 17 |
23 | 108 | 189 | 208 | 208 | 211 | 235 | 316 | 316 | |||||||||||||||||||||||||||
Fortress Partners Funds 18 |
1,489 | 1,475 | 1,440 | 1,456 | 1,456 | 1,329 | 1,310 | 1,370 | 1,370 | |||||||||||||||||||||||||||
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AUM Ending Balance |
$ | 6,303 | $ | 6,321 | $ | 6,165 | $ | 5,515 | $ | 5,515 | $ | 4,840 | $ | 4,398 | $ | 4,378 | $ | 4,378 | ||||||||||||||||||
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Third-Party Capital Raised |
$ | 330 | $ | 519 | $ | 292 | $ | 177 | $ | 1,318 | $ | 99 | $ | 181 | $ | 167 | $ | 447 | ||||||||||||||||||
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Segment Revenues |
||||||||||||||||||||||||||||||||||||
Management fees |
$ | 27 | $ | 29 | $ | 28 | $ | 25 | $ | 109 | $ | 20 | $ | 19 | $ | 19 | $ | 58 | ||||||||||||||||||
Incentive income |
22 | (19 | ) | 1 | | 4 | 6 | 4 | 11 | 21 | ||||||||||||||||||||||||||
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Total |
49 | 10 | 29 | 25 | 113 | 26 | 23 | 30 | 79 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(21 | ) | (18 | ) | (19 | ) | (20 | ) | (78 | ) | (17 | ) | (17 | ) | (17 | ) | (51 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
(13 | ) | 2 | (5 | ) | (5 | ) | (21 | ) | (4 | ) | (3 | ) | (4 | ) | (11 | ) | |||||||||||||||||||
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Total |
(34 | ) | (16 | ) | (24 | ) | (25 | ) | (99 | ) | (21 | ) | (20 | ) | (21 | ) | (62 | ) | ||||||||||||||||||
Fund Management DE (before Principal Performance Payments) |
15 | (6 | ) | 5 | | 14 | 5 | 3 | 9 | 17 | ||||||||||||||||||||||||||
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Principal Performance Payments |
| | | | | (1 | ) | | (1 | ) | (2 | ) | ||||||||||||||||||||||||
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Fund Management DE |
$ | 15 | $ | (6 | ) | $ | 5 | $ | | $ | 14 | $ | 4 | $ | 3 | $ | 8 | $ | 15 | |||||||||||||||||
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Net Returns 19 |
||||||||||||||||||||||||||||||||||||
Fortress Macro Fund Ltd |
1.9 | % | -5.4 | % | -3.9 | % | -2.2 | % | -9.3 | % | 6.2 | % | 1.7 | % | 2.9 | % | 11.1 | % | ||||||||||||||||||
Drawbridge Global Macro Fund Ltd |
1.7 | % | -6.0 | % | -4.0 | % | -2.4 | % | -10.5 | % | 5.8 | % | 1.4 | % | 2.8 | % | 10.2 | % | ||||||||||||||||||
Fortress Commodities Fund L.P. |
3.0 | % | -6.4 | % | 4.7 | % | -8.9 | % | -8.0 | % | -8.7 | % | -4.1 | % | N/A | -12.5 | % | |||||||||||||||||||
Fortress Asia Macro Fund Ltd 20 |
3.5 | % | -1.0 | % | -3.6 | % | 5.0 | % | 3.6 | % | 5.8 | % | 0.9 | % | 3.6 | % | 10.7 | % | ||||||||||||||||||
Fortress Convex Asia Fund Ltd 21 |
N/A | N/A | N/A | N/A | N/A | N/A | -0.7 | % | -2.5 | % | -3.1 | % | ||||||||||||||||||||||||
Fortress Partners Fund LP 22 |
3.3 | % | -0.1 | % | -3.0 | % | 0.4 | % | 0.5 | % | 3.1 | % | -1.3 | % | 5.1 | % | 6.9 | % | ||||||||||||||||||
Fortress Partners Offshore Fund L.P. 22 |
3.2 | % | -0.1 | % | -4.6 | % | -0.5 | % | -2.1 | % | 2.4 | % | -0.3 | % | 5.7 | % | 7.9 | % |
13 | Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro Fund Ltd, Fortress Macro MA1 and Fortress Macro managed accounts. |
14 | Combined AUM for Fortress Convex Asia Fund L.P. and Fortress Convex Asia Fund Ltd. |
15 | Combined AUM for Drawbridge Global Macro Fund LP and Drawbridge Global Macro Intermediate Fund L.P. |
16 | Combined AUM for Fortress Commodities Fund L.P., Fortress Commodities Fund Ltd, Fortress Commodities MA1 L.P. and Fortress Commodities managed accounts. The Fortress Commodities Funds were closed in May 2012. |
17 | Combined AUM for Fortress Asia Macro Fund Ltd, Fortress Asia Macro Fund LP and Fortress Asia Macro managed accounts. |
18 | Combined AUM for Fortress Partners Fund LP and Fortress Partners Offshore Fund L.P. |
19 | The performance data contained herein reflects returns for a new issue eligible, single investor class as of the close of business on the last day of the relevant period. Net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. |
20 | The 2011 returns represent returns for Class B investors; Class B is now closed to new investors. The 2012 returns represent returns for Class A investors. Certain fees payable by investors in Class B differ from the fees payable by the investors in Class A that remains open, and the returns for the different classes will vary. |
21 | The Fortress Convex Asia Funds were launched on May 1, 2012. Accordingly, the three months ended June 30, 2012 returns represent the two month period from May 1, 2012 to June 30, 2012 and the nine months ended September 30, 2012 returns represent the five month period from May 1, 2012 to September 30, 2012. |
22 | The returns for the Fortress Partners Funds include gains and losses from special investments. Investors' specific performance may vary dependent upon their ownership in one or more special investments. |
20
Fortress Investment Group LLC
Exhibit 2-f
Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
Logan Circle | March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
|||||||||||||||||||||||||||||
Assets Under Management |
||||||||||||||||||||||||||||||||||||
AUM Ending Balance |
$ | 12,484 | $ | 12,931 | $ | 12,913 | $ | 13,524 | $ | 13,524 | $ | 16,084 | $ | 18,112 | $ | 20,626 | $ | 20,626 | ||||||||||||||||||
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Net Client Flows |
$ | 545 | $ | 162 | $ | (231 | ) | $ | 365 | $ | 841 | $ | 2,256 | $ | 1,699 | $ | 1,980 | $ | 5,935 | |||||||||||||||||
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Segment Revenues |
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Management fees |
$ | 5 | $ | 5 | $ | 5 | $ | 5 | $ | 20 | $ | 6 | $ | 6 | $ | 7 | $ | 19 | ||||||||||||||||||
Incentive income |
| | | | | | | | | |||||||||||||||||||||||||||
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Total |
5 | 5 | 5 | 5 | 20 | 6 | 6 | 7 | 19 | |||||||||||||||||||||||||||
Segment Expenses |
||||||||||||||||||||||||||||||||||||
Operating expenses |
(10 | ) | (9 | ) | (9 | ) | (10 | ) | (38 | ) | (9 | ) | (8 | ) | (9 | ) | (26 | ) | ||||||||||||||||||
Profit sharing compensation expenses |
| | | | | | | | | |||||||||||||||||||||||||||
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Total |
(10 | ) | (9 | ) | (9 | ) | (10 | ) | (38 | ) | (9 | ) | (8 | ) | (9 | ) | (26 | ) | ||||||||||||||||||
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Fund Management DE |
$ | (5 | ) | $ | (4 | ) | $ | (4 | ) | $ | (5 | ) | $ | (18 | ) | $ | (3 | ) | $ | (2 | ) | $ | (2 | ) | $ | (7 | ) | |||||||||
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21
Fortress Investment Group LLC
Exhibit 3
Reconciliation of GAAP Net Income (Loss) to Pre-tax Distributable Earnings and Fund Management DE,
Reconciliation of GAAP Revenues to Segment Revenues and Reconciliation of GAAP Expenses to Segment Expenses
(dollars in millions)
Three Months Ended | Full
Year 2011 |
Three Months Ended | Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||||||||||||
March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
||||||||||||||||||||||||||||||
GAAP Net Income (Loss) |
$ | (255 | ) | $ | (246 | ) | $ | (382 | ) | $ | (234 | ) | $ | (1,117 | ) | $ | (24 | ) | $ | 14 | $ | 7 | $ | (3 | ) | |||||||||||
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Principals and Others Interests in Income (Losses) of Consolidated Subsidiaries |
152 | 151 | 240 | 142 | 685 | (6 | ) | (9 | ) | (6 | ) | (21 | ) | |||||||||||||||||||||||
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GAAP Net Income (Loss) Attributable to Class A Shareholders |
$ | (103 | ) | $ | (95 | ) | $ | (142 | ) | $ | (92 | ) | $ | (432 | ) | $ | (30 | ) | $ | 5 | $ | 1 | $ | (24 | ) | |||||||||||
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Private Equity incentive income |
47 | 9 | 7 | (19 | ) | 44 | 3 | (7 | ) | 14 | 10 | |||||||||||||||||||||||||
Hedge Fund incentive income |
53 | (3 | ) | (4 | ) | (46 | ) | | 36 | 26 | 46 | 108 | ||||||||||||||||||||||||
Reserve for clawback |
| | (5 | ) | | (5 | ) | 4 | 2 | | 6 | |||||||||||||||||||||||||
Distributions of earnings from equity method investees |
7 | 1 | 2 | 1 | 11 | 2 | | 2 | 4 | |||||||||||||||||||||||||||
Losses (earnings) from equity method investees |
(66 | ) | (17 | ) | 62 | (13 | ) | (34 | ) | (31 | ) | (21 | ) | (48 | ) | (100 | ) | |||||||||||||||||||
Losses (gains) on options |
1 | 1 | 6 | (3 | ) | 5 | (4 | ) | | 6 | 2 | |||||||||||||||||||||||||
Losses (gains) on other Investments |
5 | 4 | 9 | 5 | 23 | (20 | ) | (7 | ) | (4 | ) | (31 | ) | |||||||||||||||||||||||
Impairment of investments |
| (1 | ) | (2 | ) | (1 | ) | (4 | ) | | | (1 | ) | (1 | ) | |||||||||||||||||||||
Adjust income from the receipt of options |
(7 | ) | | (6 | ) | | (13 | ) | | (13 | ) | (9 | ) | (22 | ) | |||||||||||||||||||||
Mark-to-market of contingent consideration in business combination |
(1 | ) | (2 | ) | | | (3 | ) | | | | | ||||||||||||||||||||||||
Amortization of intangible assets and impairment of goodwill |
1 | | 21 | | 22 | | | | | |||||||||||||||||||||||||||
Employee, Principal and director compensation |
64 | 59 | 58 | 54 | 235 | 58 | 55 | 49 | 162 | |||||||||||||||||||||||||||
Principals forfeiture agreement expense (expired in 2011) |
235 | 237 | 280 | 299 | 1,051 | | | | | |||||||||||||||||||||||||||
Adjust non-controlling interests related to Fortress Operating Group units |
(154 | ) | (153 | ) | (240 | ) | (144 | ) | (691 | ) | 4 | 7 | 4 | 15 | ||||||||||||||||||||||
Tax receivable agreement liability reduction |
| | | (3 | ) | (3 | ) | 7 | | | 7 | |||||||||||||||||||||||||
Taxes |
21 | 6 | (3 | ) | 12 | 36 | 28 | 3 | 4 | 35 | ||||||||||||||||||||||||||
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Pre-tax Distributable Earnings |
$ | 103 | $ | 46 | $ | 43 | $ | 50 | $ | 242 | $ | 57 | $ | 50 | $ | 64 | $ | 171 | ||||||||||||||||||
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Investment Loss (income) |
(12 | ) | 3 | 3 | (2 | ) | (8 | ) | (5 | ) | (1 | ) | (4 | ) | (10 | ) | ||||||||||||||||||||
Interest Expense |
4 | 5 | 5 | 5 | 19 | 4 | 4 | 3 | 11 | |||||||||||||||||||||||||||
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Fund Management DE |
$ | 95 | $ | 54 | $ | 51 | $ | 53 | $ | 253 | $ | 56 | $ | 53 | $ | 63 | $ | 172 | ||||||||||||||||||
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GAAP Revenues |
$ | 197 | $ | 190 | $ | 195 | $ | 277 | $ | 859 | $ | 172 | $ | 199 | $ | 181 | $ | 552 | ||||||||||||||||||
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Adjust management fees |
| | | (1 | ) | (1 | ) | | | | | |||||||||||||||||||||||||
Adjust incentive income |
102 | 6 | (1 | ) | (66 | ) | 41 | 43 | 21 | 60 | 124 | |||||||||||||||||||||||||
Adjust income from the receipt of options |
(7 | ) | | (6 | ) | | (13 | ) | | (13 | ) | (9 | ) | (22 | ) | |||||||||||||||||||||
Other revenues |
(48 | ) | (45 | ) | (43 | ) | (43 | ) | (179 | ) | (45 | ) | (46 | ) | (51 | ) | (142 | ) | ||||||||||||||||||
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Segment Revenues |
$ | 244 | $ | 151 | $ | 145 | $ | 167 | $ | 707 | $ | 170 | $ | 161 | $ | 181 | $ | 512 | ||||||||||||||||||
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GAAP Expenses |
$ | 498 | $ | 442 | $ | 501 | $ | 514 | $ | 1,955 | $ | 221 | $ | 212 | $ | 221 | $ | 654 | ||||||||||||||||||
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Adjust interest expense |
(4 | ) | (5 | ) | (5 | ) | (5 | ) | (19 | ) | (4 | ) | (4 | ) | (3 | ) | (11 | ) | ||||||||||||||||||
Adjust employee, Principal and director compensation |
(64 | ) | (59 | ) | (58 | ) | (54 | ) | (235 | ) | (58 | ) | (55 | ) | (49 | ) | (162 | ) | ||||||||||||||||||
Adjust Principals forfeiture agreement expense (expired in 2011) |
(235 | ) | (237 | ) | (280 | ) | (299 | ) | (1,051 | ) | | | | | ||||||||||||||||||||||
Adjust amortization of intangible assets and impairment of goodwill |
(1 | ) | | (21 | ) | | (22 | ) | | | | | ||||||||||||||||||||||||
Adjust expense reimbursements from affiliates |
(44 | ) | (44 | ) | (42 | ) | (42 | ) | (172 | ) | (44 | ) | (45 | ) | (49 | ) | (138 | ) | ||||||||||||||||||
Adjust Principal Performance Payments |
| | | | | (4 | ) | (3 | ) | (5 | ) | (12 | ) | |||||||||||||||||||||||
Other |
(1 | ) | | (1 | ) | | (2 | ) | (1 | ) | | (2 | ) | (3 | ) | |||||||||||||||||||||
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Segment Expenses |
$ | 149 | $ | 97 | $ | 94 | $ | 114 | $ | 454 | $ | 110 | $ | 105 | $ | 113 | $ | 328 | ||||||||||||||||||
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22
Distributable earnings is Fortresss supplemental measure of operating performance. It reflects the value created which management considers available for distribution during any period. As compared to generally accepted accounting principles (GAAP) net income, distributable earnings excludes the effects of unrealized gains (or losses) on illiquid investments, reflects contingent revenue which has been received as income to the extent it is not expected to be reversed, and disregards expenses which do not require an outlay of assets, whether currently or on an accrued basis. Distributable earnings is reflected on an unconsolidated and pre-tax basis, and, therefore, the interests in consolidated subsidiaries related to Fortress Operating Group units (held by the principals) and income tax expense are added back in its calculation. Distributable earnings is not a measure of cash generated by operations which is available for distribution nor should it be considered in isolation or as an alternative to cash flow or net income and it is not necessarily indicative of liquidity or cash available to fund the Companys operations. For a complete discussion of distributable earnings and its reconciliation to GAAP, as well as an explanation of the calculation of distributable earnings impairment, see note 10 to the financial statements included in the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.
Fortresss management uses distributable earnings:
| in its determination of periodic distributions to equity holders; |
| in making operating decisions and assessing the performance of each of the Companys core businesses; |
| for planning purposes, including the preparation of annual operating budgets; and |
| as a valuation measure in strategic analyses in connection with the performance of its funds and the performance of its employees. |
Growing distributable earnings is a key component to the Companys business strategy and distributable earnings is the supplemental measure used by management to evaluate the economic profitability of each of the Companys businesses and total operations. Therefore, Fortress believes that it provides useful information to investors in evaluating its operating performance. Fortresss definition of distributable earnings is not based on any definition contained in its amended and restated operating agreement.
Fund Management DE is equal to pre-tax distributable earnings excluding our direct investment-related results. It is comprised of Segment Revenues net of Segment Expenses and Principal Performance Payments. Fund management DE and its components are used by the Company to analyze and measure the performance of our management business on a stand-alone basis. We define our segment operating margin to be equal to fund management DE divided by segment revenues. We believe that it is useful to provide investors with the opportunity to review our management business using the same metrics. Fund management DE and its components are subject to the same limitations as pre-tax distributable earnings, as described above.
23
Fortress Investment Group LLC
Exhibit 4
Reconciliation of Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Weighted Average Class A Shares Outstanding (Used for Basic EPS) |
220,641,776 | 190,006,987 | 212,297,285 | 185,373,605 | ||||||||||||
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Weighted average fully vested restricted Class A share units with dividend equivalent rights |
(2,519,869 | ) | (2,791,277 | ) | (4,068,945 | ) | (5,208,431 | ) | ||||||||
Weighted average fully vested restricted Class A shares |
(828,211 | ) | (540,353 | ) | (706,787 | ) | (460,700 | ) | ||||||||
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Weighted Average Class A Shares Outstanding |
217,293,696 | 186,675,357 | 207,521,553 | 179,704,474 | ||||||||||||
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Weighted average restricted Class A shares 23 |
828,211 | 570,293 | 722,413 | 506,213 | ||||||||||||
Weighted average fully vested restricted Class A share units which are entitled to dividend equivalent payments |
2,519,869 | 2,791,277 | 4,068,945 | 5,208,431 | ||||||||||||
Weighted average nonvested restricted Class A share units which are entitled to dividend equivalent payments |
6,434,147 | 13,820,478 | 6,667,917 | 14,104,896 | ||||||||||||
Weighted average Fortress Operating Group units |
299,397,765 | 305,857,751 | 301,815,314 | 304,487,344 | ||||||||||||
Weighted average Fortress Operating Group RPUs 24 |
10,333,334 | 20,666,667 | 13,652,069 | 23,202,687 | ||||||||||||
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Weighted Average Class A Shares Outstanding (Used for DEPS) |
536,807,022 | 530,381,823 | 534,448,211 | 527,214,045 | ||||||||||||
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Weighted average vested and nonvested restricted Class A share units which are not entitled to dividend equivalent payments |
16,426,317 | 21,556,226 | 19,212,189 | 24,233,838 | ||||||||||||
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Weighted Average Fully Diluted Shares and Units Outstanding (Used for Diluted DEPS) |
553,233,339 | 551,938,049 | 553,660,400 | 551,447,883 | ||||||||||||
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Dividend Paying Shares and Units represents the number of shares and units outstanding at the end of the period which were entitled to receive dividends or related distributions. It is useful in computing the aggregate amount of cash required to make a current per share distribution of a given amount per share. It excludes certain potentially dilutive equity instruments, primarily non-dividend paying restricted Class A share units, and, therefore, is limited in its usefulness in computing per share amounts. Accordingly, Dividend Paying Shares and Units should be considered only as a supplement to GAAP basic and diluted shares outstanding. The Companys calculation of Dividend Paying Shares and Units may be different from the calculation used by other companies and, therefore, comparability may be limited.
23 | Includes both fully vested and nonvested restricted Class A shares. |
24 | Includes both fully vested and nonvested Fortress Operating Group RPUs. |
24
Fortress Investment Group LLC
Exhibit 5
Reconciliation of GAAP Book Value Per Share to Net Cash and Investments Per Share
(dollars and shares in thousands)
As of September 30, 2012 |
As of December 31, 2011 |
|||||||||||||||
GAAP Book Value |
Net Cash and Investments |
GAAP Book Value |
Net Cash and Investments |
|||||||||||||
Cash and Cash equivalents |
$ | 253,731 | $ | 253,731 | $ | 333,166 | $ | 333,166 | ||||||||
Investments |
1,199,622 | 1,199,622 | 1,079,777 | 1,079,777 | ||||||||||||
Due from Affilitates |
289,889 | | 298,689 | | ||||||||||||
Deferred Tax Asset |
379,372 | | 400,196 | | ||||||||||||
Other Assets |
102,787 | | 108,858 | | ||||||||||||
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Assets |
2,225,401 | 1,453,353 | 2,220,686 | 1,412,943 | ||||||||||||
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Debt Obligations Payable |
$ | 180,528 | $ | 180,528 | $ | 261,250 | $ | 261,250 | ||||||||
Accrued Compensation and Benefits |
222,719 | | 247,024 | | ||||||||||||
Due to Affiliates |
345,009 | | 354,158 | | ||||||||||||
Deferred Incentive Income |
245,957 | | 238,658 | | ||||||||||||
Other Liabilities |
81,193 | | 57,204 | | ||||||||||||
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Liabilities |
1,075,406 | 180,528 | 1,158,294 | 261,250 | ||||||||||||
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Net |
$ | 1,149,995 | $ | 1,272,825 | $ | 1,062,392 | $ | 1,151,693 | ||||||||
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GAAP Basic Shares |
Dividend Paying Shares and Units |
GAAP Basic Shares |
Dividend Paying Shares and Units |
|||||||||||||
Class A Shares |
219,361 | 219,361 | 189,254 | 189,254 | ||||||||||||
Restricted Class A Shares |
828 | 828 | 570 | 570 | ||||||||||||
Fortress Operating Group Units |
298,724 | 298,724 | 305,858 | 305,858 | ||||||||||||
Fully Vested Class A Shares Dividend Paying |
| 637 | | 692 | ||||||||||||
Nonvested Class A Shares Dividend Paying |
| 6,434 | | 13,668 | ||||||||||||
Fortress Operating Group RPUs |
| 10,333 | | 20,666 | ||||||||||||
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Shares Outstanding |
518,913 | 536,317 | 495,682 | 530,708 | ||||||||||||
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Per Share |
$ | 2.22 | $ | 2.37 | $ | 2.14 | $ | 2.17 | ||||||||
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Fortress believes that Net Cash and Investments is a useful supplemental measure because it provides investors with information regarding Fortresss net investment assets. Net Cash and Investments excludes certain assets (due from affiliates, deferred tax asset, other assets) and liabilities (due to affiliates, accrued compensation and benefits, deferred incentive income and other liabilities), its utility as a measure of financial position is limited. Accordingly, Net Cash and Investments should be considered only as a supplement to GAAP Book Value as a measure of the Companys financial position. The Companys calculation of Net Cash and Investments may be different from the calculation used by other companies and, therefore, comparability may be limited.
25
Exhibit 99.2
Event ID: 4911211
Culture: en-US
Event Name: Q3 2012 Fortress Investment Group LLC Earnings Conference Call
Event Date: 2012-11-02T14:00:00 UTC
P: Operator;;
C: Gordon Runté; Fortress Investment Group; Managing Director, IR
C: Randy Nardone; Fortress Investment Group; Interim CEO
C: Dan Bass; Fortress Investment Group; CFO
C: Pete Briger; Fortress Investment Group; Co-Chairman and Head of Credit
C: Wes Edens; Fortress Investment Group; Co-Chairman and Head of Private Equity
P: Roger Freeman; Barclays Capital; Analyst
P: Robert Lee;Keefe, Bruyette & Woods; Analyst
P: Marc Irizarry; Goldman Sachs; Analyst
P: Chris Kotowski; Oppenheimer; Analyst
+++ presentation
Operator: Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortress third-quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions).
I would now like to turn todays conference over to Gordon Runté. Please go ahead.
Gordon Runté: Thank you, Holly. Good morning, everyone, and welcome to the Fortress Investment Groups third-quarter 2012 earnings conference call. First, thank you for rearranging your calendars to be with us today. We thought it would be prudent to reschedule our call, given all the storm-related issues that I know are far too familiar to many of you.
So thank you for your patience; and, more importantly, we hope that you and yours stayed well clear of harms way.
We will begin our call today with opening remarks from Fortress Interim Chief Executive Officer Randy Nardone and Chief Financial Officer Dan Bass. After these remarks, we will save most of our time this morning for your questions.
Joining us for that portion of our call we, have with us Co-Chairman and Head of Private Equity, Wes Edens; Co-Chairman and Head of Credit, Pete Briger; Principal and Head of Liquid Markets, Mike Novogratz; Principal and Director Rob Kauffman; Co-CIO of Credit, Dean Dakolias; along with other members of our management team.
Before we begin, let me remind you that statements made today that are not historical facts may be forward-looking statements. These statements are by their nature uncertain and may differ materially from actual results. I encourage you to read the forward-looking statement disclaimer in todays earnings release, in addition to the risk factors described in our quarterly and annual filings.
With that, let me hand off to Randy.
Randy Nardone: Thanks, Gordon, and thanks, everyone, for joining us today. Fortress had a solid third quarter, with pre-tax distributable earnings of $64 million. Thats a 28% increase over Q2. Third-quarter and year-to-date investment returns and capital raising have been strong across all of our businesses. These are the clearest leading indicators of performance, and we believe they point to earnings and valuation upside.
Heres the highlights our AUM eclipsed $50 billion, up 8% in the third quarter and 18% for the year. We raised over $5 billion in new commitments through the third quarter, and each of our businesses are currently in the market raising capital. We delivered strong investment performance in the quarter and year to date in all of our businesses.
Through September, we had double-digit returns for our main Credit and Macro Funds, and over 20% valuation gains across our PE Funds. Logan Circle continued to outperform benchmarks in virtually all strategies. Strong investment performance contributed to an increase in the value of our balance sheet, which Ill address further in a minute. And we paid off all remaining corporate debt in October.
From a peak of over $800 million in 2009, were now debt-free, and will have greater capital management flexibility going forward. Based on our performance to date, our financial strength, and our confidence in our prospects going forward, our Board approved a dividend of $0.05 a share for the third quarter.
Looking more closely at our financial results, our distributable earnings continued to benefit from a stable, predictable stream of management fees. This reflects the high proportion of AUM in long-term and permanent structures. In the third quarter, we had management fees of $116 million. We expect to see continued growth in AUM, which will result in higher management fees in the near- to medium-term.
We finished the quarter with over $7 billion in dry powder that is not yet generating management fees. Obviously, the extent and pace at which we invest this will be determined by the opportunities we see in the market; but rough math is about $15 million in incremental management fees on each $1 billion invested. And as I mentioned, were still raising capital in every one of our businesses.
Incentive income for the quarter was $65 million, up nearly 40% from Q2. As with management fees, we have visibility of higher incentive income in future periods. Our gross undistributed incentive income is over $540 million in PE-style funds. Thats up over 20% from Q2. Most of this resides in our Credit Funds, where 100% of NAV is above incentive thresholds.This should generate incentive income when realizations pick up, without any assumptions about incremental investment gains.
Weve also had standout performance in our Macro Funds this year. Nearly all Macro NAV and all Asia Macro NAV is above high-water marks. In Private Equity, weve continued to see substantial gains in investments
valuations. That moves us closer to preferred thresholds in our most recent funds. We need continued outperformance to hit those marks, but we have years left before these funds mature.
Strong investment performance typically leads to success in attracting new capital. Id like to highlight a few key points on our fundraising in 2012. We broadened and deepened our LP relationships. Over 220 investors have committed capital to our funds in 2012. About one-third are new to Fortress, accounting for over $1.2 billion in commitments. We also continue to benefit from a geographically diverse investor base. Approximately one-quarter of the capital raised this year has come from investors in Europe, Asia, Australia and the Middle East.
Every one of our businesses has had a strong year raising capital. Next-generation credit PE-style funds have raised $3.2 billion. Our Liquid and Credit Hedge Funds have raised approximately $700 million. New strategies have added about $900 million in commitments in 2012. These strategies include real estate opportunities, convex Asia, transportation and infrastructure, and our dedicated mortgage servicing rights fund.
Weve also raised approximately $435 million for the year in additional permanent equity capital at Newcastle, largely to focus on the MSR opportunity.
Last point on capital raising for four straight quarters now, weve had strong net inflows at Logan Circle. AUM has pushed north of $20 billion, up from about $12 billion when we acquired Logan in 2010. Logans pipeline remains strong, and the business is on the cusp of profitability. With strong performance and a scalable platform, we have high expectations for business growth going forward.
The value we create in our businesses contributes to the growth in the value of our balance sheet. Here, weve had a very positive trajectory for some time. Our net cash and investments have increased by nearly 60% in the last two years. At the end of the third quarter, net cash and investments totaled almost $1.3 billion, or $2.37 a share. Net of the RailAmerica sale in October, thats $2.68 a share. Either way, its more than half of our share price today.
Net of our balance sheet value, our stock is trading today at less than 3.5 times consensus earnings estimates for 2013.
Looking at all of our businesses, we have strong momentum across the board, strong investment performance, and a great year of capital raising. Were running on all cylinders. And with zero debt and substantial balance sheet value, weve never operated from a position of greater financial strength as a Company. So, good quarter; good year so far; and were solidly optimistic going forward.
With that, let me hand it off to Dan.
Dan Bass: Thanks, Randy. Good morning, everyone. I will open with the key financials, and then discuss drivers that we believe have the greatest potential to unlock future earnings. Pre-tax DE was $64 million or $0.12
per share in the third quarter, up 28% quarter-over-quarter. This brings year-to-date pre-tax DE to $171 million or $0.32 per share.
Fund management DE was $63 million, up from $53 million in the second quarter. AUM continued its upward trajectory, ending the quarter at $51.5 billion. Driving this result was alternative asset growth of 4% and traditional asset growth of 14%. With another quarter still remaining, to date we have now raised $5.2 billion of capital, already exceeding our capital raise last year. This brings our three-year total of capital raise to nearly $15 billion.
And, finally, fund investment performance remains a core strength. Let me give you a few examples. In our traditional PE Funds, the value of our fund investments appreciated by 9.4%, or over $1.3 billion, during the quarter. This is appreciation of nearly $3 billion, or 21%, in the first nine months of this year. Our public company investments again drove this result, up nearly 24% in the third quarter.
In our Liquid Hedge Funds, our Fortress Macro Fund generated returns of 2.9% net in the quarter, bringing year-to-date returns to over 11% for the year. These returns brought about 96% of the Macro business capital above their respective high-water marks. And our Fortress Asia Macro Fund is also up nearly 11% net for the year, and 100% of its capital exceeds its respective high-water marks.
So, in aggregate, this brings $2.4 billion of capital above high-water marks in this business, and eligible to generate incentive income. Positive fund performances continued in October in Liquids, with our Macro Fund up an estimated 1.9% net, and our Asia Macro Fund up an estimated 1.4% net through last Friday.
Moving on, in our Credit Hedge Funds, our DBSO Funds continued their great run of performance. They have generated 13% net returns year-to-date through September, with a 5% net return in the third quarter. These returns have allowed us to record over $90 million of incentive income in this segment this year.
And in our Credit PE Funds, exceptional returns continued in the quarter. Of the $651 million of unrealized, undistributed incentive income, $430 million resides in our Credit PE Funds. This grew $84 million or 24% during the quarter, and $186 million for the year.
As we close out 2012 and begin 2013, let me share with you five key endings drivers that we are focused on.
First, capital deployment. We called over $750 million of capital in the third quarter, nearly double our deployment rate during the first two quarters. Notably, we still have over $7 billion of dry powder available for investment. So you can see there could be substantial management fee potential as we continue to invest additional capital. And as Ive stated previously, our dry powder is largely long-term, locked up capital structures; so the benefits from calling this capital will accrue over many years.
Second, liquid incentive income. As I said earlier, we have over $2 billion of liquid capital now eligible for generating incentive income. This $2 billion, combined with positive returns in October, leaves us well-positioned for incentive income both in the fourth quarter this year and future years.
Third, additional capital raising. We remain in the market with funds in all of our businesses, and investment performance has started to translate into capital raising momentum as well, which adds to our earnings potential. As an example, in our Liquid Funds, we raised almost $200 million in October, and another $250 million in November. This capital has already started paying management fees, and is eligible for incentive income.
Fourth, as I just mentioned, our undistributed incentive income continues to grow. Importantly, as Randy stated, over $540 million of this value resides in PE-style structures, and has not been included in our DE to date. This will convert to DE upon realization of the underlying investments in these funds, representing significant earnings upside as realization activity increases.
Fifth and final, our debt retirement. Paying down all of our debt essentially eliminates all of our covenants, and will add about $0.03 per share of earnings on an annual run rate basis.
A quick point on taxes before I close. For full-year 2012, we expect our DE effective tax rate to be between 5% and 9%.
So, in closing, let me summarize. Going into this year, we had an ambitious set of financial objectives for the firm, and we have tracked very well against each one of these objectives to date. We have raised over $5 billion in new third-party capital, including $1 billion in our Private Equity business; plus $6 billion of net inflows in our Logan Circle traditional business.
AUM has continued to grow, and has now crossed the $50 billion threshold. Our Macro Funds have performed very well, reaching and crossing their respective high-water marks in the third quarter. And our balance sheet value continues to grow, as well. After cash received from the closing of the RailAmerica transaction, and the subsequent debt paydown, the pro forma value of the cash investments is approximately $2.68 a share. This value reflects year-to-date growth of 23%, and represents nearly 60% of our current share value.
With that, we will now take your questions.
+++ q-and-a
Operator: (Operator Instructions). Roger Freeman, Barclays.
Roger Freeman: Dan, just picking up on that last comment you made, reiterating the cash investments. As you look at your forward commitments, alongside your fundraising and other uses of capital, is
that sized appropriately at this point for that? Or do you have excess in there?
Dan Bass: Yes, its sized appropriately. We also have a $60 million revolver out there today; so $150 million of unfunded commitments, which will fund over many years. We certainly feel that it is and the revolver is completely undrawn so we feel that we are right-sized at that level.
Roger Freeman: Okay. And then, maybe, one more on capital structure; paying off the debt, you mentioned, frees you up of covenants. Can you remind me what restrictions relative to anything that you might have (multiple speakers).
Dan Bass: There were no meaningful restrictions. It just provides greater flexibility for us.
Roger Freeman: Okay. Pete, if youre there, can you talk a little bit to the investing opportunities you see in credit right now? Last quarter, you talked about credit being mispriced over in Europe. We were just hearing, on the Och-Ziff call, they are actually seeing opportunities there now; might be in some different areas than you are investing in. But where do you stand on that?
Pete Briger: Well, I dont think much has changed from our perspective. Government interference in the European credit markets especially, but to some extent in the US, continues. And I would say there are early signs of opportunities beginning to open up, particularly in the corporate debt sector in Europe. But I would still characterize the opportunity there as early. So were beginning to see a bunch of issues occur on the corporate landscape, which would cause prices in certain situations to become more interesting. But I would still characterize them as not interesting enough.
Again, when Im speaking in that context, its really for the alternative business. There are lots of credit businesses that we think are reasonably, fairly priced for a long-only credit business. But in order to deliver 15%-plus returns for our locked-up funds on a net basis, thats the context in which Im making that characterization.
Roger Freeman: Okay. All right, thanks. And then on the Liquid Hedge Funds, I think performance was stronger than last quarter. Performance fees were lower. Is that just a function of returns being generated, and assets that arent above high-water marks?
Dan Bass: No, the fees are up in the quarter. And we hit our high-water marks during the quarter, so there was some of the performance didnt generate it until we exceeded it.
Roger Freeman: Okay, got it. And lastly, Wes, as you look out at fundraising into next year, what are the can you just refresh us on what your key areas of focus are? What funds you might be looking to or broad areas you might be looking to launch funds in?
Wes Edens: Well, weve raised capital in the quarter both for Newcastle and were actually in the market, now, raising more capital in the Transportation Fund. And we are raising them as our funds, so there is a bunch of different things that are going on.
I think, thematically, all of those things I expect to continue through next year. There is a lot of opportunity in the transportation space. Theres a lot of opportunity in the residential space here in the US. And so, we think theres going to be a fair bit to do.
Since we started raising capital again, middle of last year, weve raised about $1.3 billion, I think. Without a specific target for next year, I think in that in my expectations, we will raise at least that; and, quite possibly, substantially more. But its really a function of different opportunities, and where we think we can deploy the capital. So its a good time for us.
Roger Freeman: Okay. All right. Thanks a lot.
Operator: Robert Lee, KBW.
Robert Lee: Morning, everyone. First question I had was on the undistributed incentive income. Thats, I guess, a gross number before comps, so and I know you dont necessarily call your specific comp ratios. But how should we think of that at all, in terms of a net number? And should we think of it roughly ?
Dan Bass: Its generally between 50% and 65% to the firm. Thats the way to so comp would be 1 minus that.
Robert Lee: Okay, great. Okay, thats helpful. Maybe going back to the credit businesses, Pete I think maybe I asked about this last quarter. But I guess Ill ask it again. Just given the nature of the underlying investments and maybe I didnt ask it clearly before just trying to get a sense of theres obviously coupons attached to a lot of what you are buying; maybe not all of it, but a lot of it. There is some kind of natural flow of whether its paydowns, runoffs, coupon interest.
Is there any rough way of gauging the proportion of incentive or return that is generated from for lack of a better way clipping coupons, so to speak?
Pete Briger: I remember your question from last quarter. And I think you asked it perfectly. I think I understood it. I think, from our perspective, since we are running opportunistic funds, there is not a good way to estimate when and how were going to create promote and I wouldnt want to mislead you. I think one of the most dangerous things that we can do in our alternatives business is try to forecast how were going to create promote; because thats not aligned with the interests of our LPs. And were focused on creating liquidity avenues when its most appropriate. And were focused on that every day.
Robert Lee: Okay. I appreciate that. Maybe last question just curious Randall, I guess you still have the title of Interim CEO. Any movement
towards getting a more permanent search, or where that might be in process?
Randy Nardone: The structure we have in place right now is working well. And I dont see any need to introduce a distraction. That said, I dont have any intent to take the Interim off my business cards.
Robert Lee: Okay. That was it for my questions. Thank you.
Operator: Marc Irizarry, Goldman Sachs.
Marc Irizarry: Great, thanks. Wes, can you just give us an update on the Private Equity portfolio, performance of underlying companies? I know its difficult to talk about what the harvesting environment could look like for you. But can you give some perspective on the performance of the portfolio companies; exits, exit opportunities? And also maybe fundraising, if you can just give us a view on how fundraising is going, and maybe how the real estate team is helping you raise up some capital?
Wes Edens: Sure. The big number is in the private equity business. The total amount of capital originally invested is just over $20 billion. Current paid-in capital, net of returns, is just under $10 billion. So, use $10 billion as a denominator. As Dan said, we were up almost 10% for the quarter, and over 20% for the year close to $3 billion, actually.
The big numbers, the $9.9 billion of paid-in capital the current carrying value is $15.34 billion. So were $5 billion over paid-in capital, so it has been a very good last year or two, actually.
The big drivers for it have been financial services here in the US, where the impact of Dodd-Frank, and through the banks becoming more utility-like and forcing them out of businesses on the margin have created lots of opportunities. The big servicing company, Nationstar, a public company, has had a great run of it.
I still think it is early in that whole opportunity, as well as its done. I think that we wont look back at 2nd November, 2012, and say that was the peak of the market; I think, far from it. There is just a lot of stuff there to go.
The mortgage markets, I think, have got in the US, have got a tremendous amount of dislocation still in them. And I think one of the things that will happen, post-election, is that they will get focused on Fannie Mae and Freddie Mac and the GSEs, HUD, et cetera. And I think theres likely to be substantial opportunities as a result of that.
The financial services both the consumer business, the residential business here have been great. Our transportation, we had a big liquidation in the quarter. We sold RailAmerica at a little over two times what we paid for it, kind of free prices. That company did terrifically the last couple of years. They had more than doubled the EBITDA. So the management did a great job. Its a great sector. We made money there.
We think weve got, really, a great stable of companies in the transportation sector. And we are raising capital for what we believe is going to be a very, very significant amount of investment activity to come. One of the aspects of the financial crisis in Europe that I think is worthy of note is that the banks in Europe the banking system there is considerably larger than the US system, even given the same size, the economy, the same population.
They were the dominant provider of finance in the transportation sectors worldwide. And that is something that has reversed itself very dramatically. And it has created lots and lots of asset buying opportunity that are idiosyncratic in nature, around the world.
Transportation as an asset class is $2.4 trillion. So its a gigantic market. And we bought well over $15 billion in assets in the last number of years. So were a big player in it. And we think that thats a big, big component of it.
I think that the hardest portfolio investments have been the stuff in Europe; which is no surprise, given whats happened in Europe over the last couple of years. But even on that front, weve had we had a good quarter. And weve got some, we think, some really good things going on.
When you are up $3 billion for the year, its hard not to sound positive. And we feel positive about it. But I think its still pretty early on, and to back what Pete said, you cant really predict precisely when you are going to have liquidations and generate/promote. But Im feeling quite positive that were going to have very substantial amounts of both at some point in the not-too-distant future.
And capital raising has really followed the lines. On the capital raising side, what we see in Private Equity is much more bespoke strategies, a la what we did on the mortgage servicing rights, where people are very keen to make investments in things that they can see, where there are tangible kind of factors that are influencing the outcomes.
And in that respect, I think that the capital raising environment is actually a good one. But its a different form than it was, certainly, four or five years ago.
Marc Irizarry: Okay, great. Thanks.
Operator: (Operator Instructions). Chris Kotowski, Oppenheimer.
Chris Kotowski: Couple of things one is, Im wondering, between the sale of RailAmerica and other presumed sales coming out of Funds III, IV and V, should we expect to see the base management fees in the Private Equity sector decline steadily in the next two, three years? Or does it come in certain lock steps, as funds lead the investment period? Or is it going to be a function of the asset the actual assets under management as opposed to committed? Can you remind us all how that works?
Wes Edens: Yes, generally the way the funds work is that after the commitment period, their fees are calculated on invested capital as
opposed to committed capital. So the natural pace of these management fees is they would decline as those funds return capital and go down. That, of course, assumes no additional fundraising, which is obviously not the plan.
The direct answer is, I dont think management fees are going to go down because we think that were going to continue to raise capital, invest capital and make money, because thats our business. But, specifically, on the funds, they work as you describe. So they do decline as you return capital in these older funds.
Chris Kotowski: Okay. Will we expect just to calculate the impact of RailAmerica, we just take $1.4 billion, multiply it by 111 basis points or something like that, and that will be the impact, and that will be that?
Wes Edens: The invested capital, in that case, was like $600 million and change. That would be the right number to multiply by, not the liquidation amount, but the invested amount.
Dan Bass: Correct.
Chris Kotowski: Okay. And is it all funds, as I understand III, IV and V they are all still in the investment period, right? They are like between 2015 and 2017.
Wes Edens: No, they are not in the investment period. They are in the investment holding, and, eventually, liquidation periods.
Dan Bass: Those are the ends of the lives of those funds.
Chris Kotowski: Okay, so right. But the base management fees will then be a function of the size. There is no step down in the accrual rate as we (multiple speakers).
Dan Bass: No, no, no. Theres no step down in rate. The rate is its the same throughout.
Chris Kotowski: All right. And then, secondly, I was thinking Pete sounded very cautious on the second-quarter call. But I noticed he called $720 million this quarter. And it seems where are you finding opportunities to put that money to work? You sounded so incredibly cautious last quarter. I was somewhat surprised by that this quarter, that youd call that much.
Pete Briger: Well, first of all, we have an $11 billion NAV. And so, if you call $700 million, you can look at that as a percentage of what we have outstanding and what we have to invest. But the other thing I would say is, we make investments. We commit to investments at a point in time. And we fund investments at a different point in time, depending upon the contractual obligations in a specific transaction.
For example, we recently made a funding on an investment that we committed to, in some senses, as much as a year ago. Were having to make
investments that are committed at an earlier point could be one day; could be three days; could be a month; and could be, in some cases, as much as a year, depending upon the contractual agreements that we have with a counterparty.
So I dont think that that I dont think that that $700 million that you are referring to is evidence of us having a different view than what I mentioned on last quarters conference call.
Chris Kotowski: Okay. And then last for me with the improvement in the balance sheet, most of the other alternative asset managers have a policy of distributing, effectively, all their fund management DE. And Im wondering, will you be transitioning to that kind of policy? Or do you think there is still benefit in building up the cash balances, and building the balance sheet further?
Randy Nardone: This is Randy. I think as we said on the last call, that decision will be made by us with the Board at the end of the year. The fourth quarter, of course, isnt over yet. Certainly, well take into account our liquidity and what our projections are, the share price, and whether buybacks make sense; as well as opportunities to invest in our business, in addition to paying a top-up dividend.
Chris Kotowski: Great. Thats it for me. Thank you.
Operator: At this time, there are no further questions. Id like to turn the conference back over to Randy Nardone for closing remarks.
Randy Nardone: Great. Thanks, everybody. To sum up, Id say were pleased with our results; strong quarter, and a strong year-to-date across the house; solid capital raising momentum; new investors; and new capital coming into each of our businesses. Investment performance has been very strong in all our main strategies, which bodes well for earnings in future periods. So, again, pleased with the quarter and optimistic about our prospects going forward. Thanks.
Operator: Thank you. This does conclude todays conference call. You may now disconnect.
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