Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the
“Company”) today reported its first quarter 2015 financial
results.
FINANCIAL SUMMARY
- Fortress declares a cash dividend of
$0.08 per dividend paying share for the first quarter of 2015
- Management Fee Paying Assets Under
Management (“AUM”) of $69.9 billion as of March 31, 2015, an
increase of 3% from the previous quarter and an increase of 12%
from March 31, 2014
- GAAP net income of $87 million, or
$0.15 per diluted Class A share, for the first quarter of 2015,
compared to GAAP net income of $9 million, or $0.01 per diluted
Class A share, for the first quarter of 2014
- Pre-tax distributable earnings (“DE”)
of $55 million, or $0.12 per dividend paying share, for the first
quarter of 2015, compared to pre-tax DE of $97 million, or $0.21
per dividend paying share, for the first quarter of 2014
- Net cash and investments of $2.80 per
dividend paying share as of March 31, 2015
- $1.2 billion of gross embedded
incentive income across funds and permanent capital vehicles as of
March 31, 2015, that has not been recognized in DE
- Total uncalled capital, or “dry
powder,” of $10.7 billion as of March 31, 2015, including $7.6
billion available for general investment purposes
BUSINESS HIGHLIGHTS
- Raised a record $5.4 billion of capital
across alternative investment businesses during the quarter,
including $4.7 billion for Fortress Credit Opportunities Fund
(“FCO”) IV
- Subsequent to quarter end, raised $1.2
billion of capital for the Permanent Capital Vehicles
- Private Equity (“PE”) Fund V
appreciated 22.5% during the quarter and was valued above its
preferred return threshold based on investment valuations at
quarter end
- Investment performance summary as of
March 31, 2015:
- Private Equity fund valuations
increased 4.8% during the quarter
- Annualized inception-to-date net IRRs
for FCO, FCO II and FCO III of 25.2%, 17.8% and 12.7%,
respectively
- First quarter 2015 net returns of 2.2%
for Drawbridge Special Opportunities Fund (“DBSO”) LP and (4.7)%
for Fortress Macro Fund Ltd
- 11 out of 16 Logan Circle fixed income
strategies outperformed respective benchmarks for the quarter ended
March 31, 2015 and 15 of 16 strategies have outperformed respective
benchmarks since inception
“We had a very active start to the year, highlighted by the
launch of our largest Credit PE fund in our history, our largest PE
fund crossing its preferred return threshold, and a number of
important strategic transactions across our permanent capital
vehicles,” said Fortress Chief Executive Officer Randy Nardone.
“With $1.2 billion of gross embedded incentive income not yet
recognized in earnings and nearly $11 billion of dry powder for us
to put to work, we see great prospects for growth and value
creation in the quarters and years ahead.”
SUMMARY FINANCIAL RESULTS
Fortress’s 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. Fortress’s business model generates stable
and predictable management fees, which is a function of the
majority of Fortress’s alternative AUM residing in long-term
investment structures. Fortress’s alternative investment 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
Fortress’s 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 Fortress’s operating results for the
quarter ended March 31, 2015. The consolidated GAAP statement of
operations and balance sheet are presented on pages 12-13 of this
press release.
1Q
4Q 1Q % Change 2015 2014 2014
QoQ YoY (in millions, except per
share amount)
GAAP Revenues $ 227 $
455 $ 237 (50 )% (4 )% Expenses 329 310 231
6%
42%
Other Income 208 (14 ) 9 N/A N/A Net income (loss) 87 141 9 (38 )%
N/A Net income (loss) attributable to Class A Shareholders
35 61 3 (43
)% N/A Per diluted share $ 0.15 $ 0.23
$ 0.01 (35 )% N/A
Weighted average Class A shares outstanding, diluted 222 450 229
Distributable Earnings Fund management DE $ 51 $ 110
$ 87 (54 )% (41 )% Pre-tax DE 55 123
97 (55 )% (43 )%
Per dividend paying share/unit $ 0.12 $ 0.28 $
0.21 (57 )% (43 )% Weighted
average dividend paying shares and units outstanding 450 442 469
Assets Under Management Private Equity $ 14,801 $
13,933 $ 15,243 6% (3 )% Credit 13,834 13,128 12,947 5% 7% Liquid
Markets1 7,838 8,128 7,738 (4 )% 1% Logan Circle
33,416 32,342 26,592
3% 26% Total Assets Under Management $
69,889 $ 67,531 $ 62,520 3%
12%
____________________
1 The Assets Under Management presented for Liquid Markets includes
$4,001 million related to Affiliated Managers as of 1Q 2015.
CONSOLIDATED GAAP RESULTS
Fortress recorded GAAP net income of $87 million, or $0.15 per
diluted Class A share, for the first quarter of 2015, compared to
GAAP net income of $9 million, or $0.01 per diluted Class A share,
for the first quarter of 2014. Our diluted earnings 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.
The year-over-year increase in Fortress’s first quarter 2015
GAAP net income was primarily driven by a $198 million increase in
other income, partially offset by a $98 million increase in
expenses. The increase in other income and expenses was primarily
related to the transfer of our interest in Graticule Asset
Management (“Graticule”). In January 2015, the Fortress Asia Macro
Funds and related managed accounts transitioned to Graticule, an
autonomous asset management business on Fortress’s affiliated
manager platform (“Affiliated Managers”). Fortress recorded the
results of this transaction at fair value, which for the first
quarter of 2015, resulted in a non-cash gain of $134 million
recorded in other income, a non-cash expense of $101 million
recorded in expenses related to the portion of Fortress's interest
that was transferred to a former senior employee, and $33 million
from our resulting retained interest recorded as an equity method
investment.
Excluding the effects of the transfer described above, GAAP net
income increased year-over-year primarily due to increases in the
fair value of options and common stock held in our publicly traded
permanent capital vehicles and increases in earnings from our
equity method investees, primarily with respect to our investments
in Fund V and Affiliated Managers, partially offset by lower
incentive income generated by our funds.
In February 2015, the Financial Accounting Standards Board
issued amendments to its accounting standards for consolidation of
certain entities, and Fortress elected to early adopt such guidance
for all periods presented in its consolidated financial statements.
As a result of such adoption, certain entities that were previously
consolidated by Fortress are no longer consolidated subsidiaries,
including New Media Investment Group Inc. (NYSE: NEWM) and New
Senior Investment Group Inc. (NYSE: SNR), which were both initially
consolidated in 2014.
CONSOLIDATED SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortress’s
businesses: (i) Credit Hedge Funds and Credit PE Funds, (ii)
Private Equity Funds and Permanent Capital Vehicles, (iii) Liquid
Hedge Funds, and (iv) Logan Circle.
Fortress uses DE as the primary metric to manage its businesses
and gauge the Company’s performance, and it uses DE exclusively to
report segment results. All DE figures are presented on a pre-tax
basis. Consolidated segment results are non-GAAP information and
are not presented as a substitute for Fortress’s GAAP results.
Fortress urges you to read “Non-GAAP Information” below.
As of March 31,
2015 Private Equity
Credit Funds
(in millions)
Total Funds
PermanentCapital
Vehicles
Liquid HedgeFunds
Hedge Funds PE Funds
Logan CirclePartners
Assets Under Management2 $ 69,889 $
10,179 $ 4,622 $ 7,838 $ 6,271 $ 7,563 $
33,416
Dry Powder $ 10,730 $ 1,752 $ 353 N/A $ 362 $ 8,263
N/A
Average Management Fee Rate3 1.2 % 1.5 % 1.7 %
2.0 % 1.4 % 0.2 %
Incentive Eligible NAV Above Incentive
Income Threshold4 $ 25,221 $ 6,083 $ 2,087 $ 574 $ 5,646
$ 10,705 $ 126 Undistributed Incentive Income: Unrecognized
$ 1,249 $ 202 $ 108 $ 7 $ 84 $ 848 $ - Undistributed Incentive
Income: Recognized
23
- -
1
22 - $ -
Undistributed Incentive Income5 $
1,272
$ 202 $ 108 $
8
$ 106 $ 848 $ -
Three Months Ended March 31, 2015 Private
Equity
Credit Funds
(in millions)
Total Funds
PermanentCapital
Vehicles
Liquid HedgeFunds
Hedge Funds PE Funds
Logan CirclePartners
Third-Party Capital Raised $ 5,360 $ - $ 150 $ 86 $
175 $ 4,949 $ -
Segment Revenues Management fees $
139 $ 29 $ 19 $ 21 $ 30 $ 27 $ 13 Incentive income 51
- 3 1
23 24
-
Total
190 29 22 22 53 51 13
Segment Expenses Operating expenses
(115 ) (14 ) (18 ) (21 ) (18 ) (30 ) (14 ) Profit sharing
compensation expenses (30 ) -
- (4 ) (12 )
(14 ) -
Total
(145 ) (14 ) (18 ) (25 ) (30 ) (44 ) (14 )
Earnings From
Affiliated Managers 9 - - 9 - - -
Principal
Performance Payments (3 ) - - - (2 ) (1 ) -
Fund Management DE
$ 51 $ 15 $ 4 $ 6
$ 21 $ 6 $ (1 ) Net
Investment Income6 4 - - 3 1 1 -
Pre-tax Distributable Earnings $
55 $ 15 $ 4 $ 9 $
22 $ 7 $ (1 )
____________________
2 The Assets Under Management presented for the Liquid Hedge Funds
includes $4,001 million related to Affiliated Managers. The Assets
Under Management presented for the Credit Hedge Funds includes $189
million related to the third-party originated Value Recovery Funds.
Fortress earns fees from the Value Recovery Funds based only on
collections. 3 The Average Management Fee Rate presented for the
Liquid Hedge Funds excludes Affiliated Managers. The Average
Management Fee Rate presented for the Credit Hedge Funds excludes
the third-party originated Value Recovery Funds. See footnote (2)
above. 4 The Incentive Eligible NAV Above Incentive Income
Threshold presented for Liquid and Credit Hedge Funds excludes
sidepocket investments and for Liquid Hedge Funds, excludes
Affiliated Managers. The Incentive Eligible NAV Above Incentive
Income Threshold presented for Private Equity Funds and Credit PE
Funds represents total fund NAV. The Incentive Eligible NAV Above
Incentive Income Threshold presented for the publicly traded
permanent capital vehicles represents the equity basis that is used
to calculate incentive income and, for the private permanent
capital vehicle, total NAV. 5 The Undistributed Incentive Income
presented for the Liquid Hedge Funds excludes Affiliated Managers.
Undistributed Incentive Income includes the impact of sidepocket
investments on Liquid and Credit Hedge Funds. Undistributed
Incentive Income for Private Equity Funds, Credit PE Funds and
Liquid and Credit 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. Undistributed Incentive Income
for Permanent Capital Vehicles includes incentive income that would
have been recorded in Distributable Earnings if Fortress had
exercised all of its in-the-money options it holds in the publicly
traded permanent capital vehicles and sold all of the resulting
shares at their March 31, 2015 closing price. 6 Net Investment
Income includes Unallocated Expenses of $1 million.
Pre-tax DE was $55 million in the first quarter of 2015, down
from $97 million in the first quarter of 2014. This decrease was
primarily due to lower incentive income and management fees,
partially offset by lower profit sharing compensation expenses.
Management fees were $139 million in the first quarter of 2015,
down from $147 million in the first quarter of 2014, primarily due
to lower management fees from the Liquid Hedge Funds and Private
Equity Funds, partially offset by higher management fees from the
Permanent Capital Vehicles, Credit Hedge Funds, Credit PE Funds and
Logan Circle.
Incentive income recorded in the first quarter of 2015 totaled
$51 million, down from $104 million recorded in the first quarter
of 2014, primarily due to lower incentive income from the Credit PE
Funds and Credit Hedge Funds.
Earnings from Affiliated Managers totaled $9 million in the
first quarter of 2015, related to our interests in Graticule.
Additionally, Fortress had $1.2 billion in gross undistributed,
unrecognized incentive income based on investment valuations as of
March 31, 2015. This includes $1.1 billion from our funds, $100
million from options in our publicly traded permanent capital
vehicles and $8 million from our private permanent capital
vehicle.
The Company’s 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 distributable earnings in any particular period should
not be expected to be indicative of future results.
ASSETS UNDER MANAGEMENT
As of March 31, 2015, AUM totaled $69.9 billion, up from $67.5
billion as of December 31, 2014. During the quarter, Fortress had
$1.4 billion of market-driven valuation gains, a $0.7 billion
increase in invested capital, recorded $0.6 billion of net client
inflows for Logan Circle, raised $0.6 billion of capital and equity
that was directly added to AUM, and had a net $0.5 billion increase
in AUM of Affiliated Managers. These increases to AUM were
partially offset by (i) $0.7 billion of Liquid Hedge Fund
redemptions, (ii) $0.5 billion of capital distributions to
investors, (iii) $0.1 billion of crystallized incentive income, and
(iv) $0.1 billion of Credit Hedge Fund redemptions and payments to
Credit Hedge Fund investors from redeeming capital accounts.
As of March 31, 2015, the Credit Funds, Private Equity Funds and
private permanent capital vehicle had $8.6 billion, $1.8 billion
and $0.4 billion of uncalled capital, respectively, that will
become AUM if deployed/called. Uncalled capital or dry powder –
capital committed to the funds but not invested and generating
management fees – includes $3.1 billion that is only available for
follow-on investments, management fees and other fund expenses.
Notably, approximately 78% of alternative AUM was in funds with
long-term investment structures as of March 31, 2015, which
provides for a stable, predictable base of management fees.
BUSINESS SEGMENT RESULTS
Below is a discussion of first quarter 2015 segment results and
business highlights.
Credit:
- DBSO LP net returns of 2.2% for the
first quarter of 2015
- FCO, FCO II, FCO III, Japan
Opportunity Fund (“FJOF”) and FJOF II (Yen) recorded annualized
inception-to-date net IRRs of 25.2%, 17.8%, 12.7%, 31.4% and 21.2%,
respectively, through March 31, 2015
- Raised a record $5.1 billion of
capital across the Credit business during the quarter, including
$4.7 billion for FCO IV and related accounts
- During the quarter, the Credit PE
Funds invested $0.6 billion of capital and distributed $0.3 billion
of capital back to limited partners
(See supplemental data on pages 18-19 for more detail on Credit
results)
The Credit business, which includes our Credit PE Funds and
Credit Hedge Funds, generated pre-tax DE of $29 million in the
first quarter of 2015, compared to $56 million in the first quarter
of 2014. The year-over-year decrease in DE was primarily driven by
lower incentive income, partially offset by higher management fees
and lower profit sharing expenses.
The Credit Hedge Funds generated pre-tax DE of $22 million in
the quarter, essentially flat compared to the first quarter of
2014. DBSO LP, Fortress’s flagship credit hedge fund, had net
returns of 2.2% in the first quarter following net returns of 10.0%
in 2014. The Credit Hedge Funds raised $175 million of capital in
the quarter, primarily for the DBSO funds.
The Credit PE Funds generated pre-tax DE of $7 million in the
quarter, down from $33 million in the first quarter of 2014,
primarily due to lower realization activity and incentive income in
the quarter. Gross unrecognized Credit PE incentive income totaled
$848 million at quarter end, up $126 million from March 31, 2014,
despite $212 million of gross recognized Credit PE incentive income
over the last twelve months.
The Credit PE Funds raised $4.9 billion of capital in the
quarter, including $4.7 billion for FCO IV and $0.2 billion for
Fortress Real Estate Opportunities Fund II. Fortress anticipates a
total capital raise of approximately $5.0 billion, the targeted
cap, for FCO IV and related accounts. FCO IV is the successor fund
to FCO III and its related accounts, which closed in September 2011
with approximately $4.5 billion in commitments.
Private Equity:
- Fund portfolio investment valuations
increased 4.8% in the quarter
- Fund V appreciated 22.5% in the
quarter, crossing its preferred return threshold
- Raised $1.4 billion of permanent
capital year-to-date through April 30, 2015, including $0.9 billion
by New Residential Investment Corp. (“New Residential”) (NYSE:NRZ)
in connection with its acquisition of Home Loan Servicing
Solutions, Ltd. (“HLSS”)
(See supplemental data on pages 16-17 for more detail on Private
Equity results)
The Private Equity business recorded pre-tax DE of $19 million
in the first quarter of 2015, including $15 million for the Private
Equity Funds and $4 million for the Permanent Capital Vehicles.
Pre-tax DE declined from $34 million in the first quarter of 2014,
primarily due to lower Private Equity Fund management fees and
investment income, partially offset by higher Permanent Capital
Vehicle management fees.
Private Equity Fund valuations increased 4.8% in the quarter,
primarily due to appreciation of Springleaf Holdings, Inc. (NYSE:
LEAF), partially offset by depreciation of Nationstar Mortgage
Holdings Inc. (NYSE: NSM) and certain privately held portfolio
company investments.
Fund V appreciated 22.5% during the first quarter of 2015,
primarily due to a 43.1% increase in Springleaf’s share price. This
NAV appreciation, combined with approximately $80 million in
capital distributions to LPs in the quarter, resulted in Fund V
crossing its preferred return threshold and beginning its 60/40
“catch-up” accrual phase of gross incentive income for Fortress as
the GP. As of March 31, 2015, Fund V had $188 million of gross
undistributed incentive income not yet recognized in DE.
The Permanent Capital Vehicles had $108 million of gross
undistributed, unrecognized incentive income at quarter end,
including $100 million related to in-the-money options we hold in
our publicly traded permanent capital vehicles.
The Permanent Capital Vehicles have raised $1.4 billion of
capital year-to-date through April 2015, including $150 million
raised by New Media in January and approximately $340 million and
$860 million raised in April by Eurocastle Investment Limited and
New Residential, respectively. A portion of the capital raised by
New Residential was used to help fund the acquisition of HLSS in
April 2015.
Liquid Hedge Funds:
- Raised $0.2 billion of capital
year-to-date through April 30, 2015
- Completed transition of the Fortress
Asia Macro Funds to Graticule Asset Management
(See supplemental data on page 20 for more detail on Liquid
Hedge Funds results)
The Liquid Hedge Funds recorded pre-tax DE of $9 million in the
first quarter of 2015, flat compared to the first quarter of 2014,
as lower management fees were offset by earnings from Affiliated
Managers and higher investment income. Earnings from Affiliated
Managers totaled $9 million in the first quarter of 2015, related
to our interests in Graticule.
First quarter 2015 net returns for the Fortress Macro Funds,
Fortress Convex Asia Funds, Fortress Centaurus Global Funds and
Fortress Partners Funds were (4.7)%, (0.6)%, 3.9% and 1.2%,
respectively. Net returns year-to-date through April 30, 2015 for
the Fortress Macro Funds, Fortress Convex Asia Funds and Fortress
Centaurus Global Funds were (8.0)%, (1.1)% and 4.2%,
respectively.*
In January 2015, we completed the previously announced
transition of management of the Fortress Asia Macro Funds and
related managed accounts to Graticule, a new autonomous asset
management business on Fortress’s affiliated manager platform.
Fortress has retained a perpetual minority interest in Graticule
amounting to 30% of earnings during 2015 and receives additional
fees for providing various infrastructure services.
Liquid Hedge Funds ended the quarter with $7.8 billion of AUM,
including $4.0 billion related to Affiliated Managers. Liquid Hedge
Fund AUM declined slightly during the quarter primarily due to $0.7
billion of redemptions, partially offset by a net $0.5 billion
increase in the AUM of Affiliated Managers and $0.1 billion of
capital raised. Subsequent to quarter end, the Liquid Hedge Funds
raised approximately $0.1 billion of additional capital, which will
be added to AUM in the second quarter of 2015.
At quarter end, there were $396 million of Liquid Hedge Fund
redemption notices outstanding, including $385 million to be paid
primarily in the second quarter of 2015.
____________________
* The net returns for the Fortress Convex Asia Funds reflect
returns for the Fortress Convex Asia Funds and Fortress Convex Asia
PF Funds collectively. The calculation of net returns for the
Fortress Convex Asia PF Funds reflect all expenses, including
management fees, accrued incentive allocation (if any), and other
expenses over the fund’s Trading Level. “Trading Level” is defined
as the product of the fund’s NAV multiplied by the Funding Factor.
The “Funding Factor” is 2x for Fortress Convex Asia Fund PF Ltd and
Fortress Convex Asia Fund PF LP. The net returns for the Fortress
Partners Funds represent the performance of Fortress Partners Fund
LP. Please see supplemental data on page 20 for more detail on the
returns of each Fortress Partners Fund.
Logan Circle:
- 11 out of 16 Logan Circle fixed
income investment strategies outperformed their respective
benchmarks in the quarter, and 15 of 16 strategies have
outperformed respective benchmarks since inception
- Traditional asset management AUM
totaled $33.4 billion at March 31, 2015, an increase of 26%
compared to March 31, 2014
- Net client inflows totaled $0.6
billion in the quarter
(See supplemental data on page 21 for more detail on Logan
Circle results)
Logan Circle, our traditional asset management business,
recorded a pre-tax DE loss of $1 million in the quarter, compared
to a pre-tax DE loss of $2 million in the first quarter of 2014,
primarily due to higher management fees, partially offset by higher
operating expenses.
Logan Circle ended the quarter with $33.4 billion in AUM, a 3%
increase compared to the prior quarter and a 26% increase compared
to the previous year. The year-over-year increase in AUM was
primarily due to net client inflows of $5.5 billion and
market-driven valuation gains of $1.3 billion.
Over a five-year period through March 31, 2015, 14 of Logan
Circle’s 16 fixed income strategies outperformed their respective
benchmarks. Since inception, 15 of 16 Logan Circle fixed income
strategies have outperformed their respective benchmarks and six
were ranked in the top quartile of performance for their competitor
universe.
LIQUIDITY & CAPITAL
As of March 31, 2015, Fortress had cash and cash equivalents of
$145 million and debt obligations of $75 million.
As of March 31, 2015, Fortress had $1.3 billion of investments
in Fortress funds and options in publicly traded permanent capital
vehicles. As of March 31 2015, Fortress had a total of $173 million
of outstanding commitments to its funds.
In addition, the NAV of Fortress’s investments in its own funds
exceeded its segment cost basis by $576 million at quarter end,
representing net unrealized gains that have not yet been recognized
for segment reporting purposes.
DIVIDEND
Fortress’s Board of Directors declared a first quarter 2015 cash
dividend of $0.08 per dividend paying share. The dividend is
payable on May 21, 2015 to Class A shareholders of record as of the
close of business on May 18, 2015.
The declaration and payment of any dividends are at the sole
discretion of the Board of Directors, which may decide to change
its dividend policy at any time. Please see below for information
on the U.S. federal income tax implications of the dividend.
NON-GAAP INFORMATION
DE is a primary metric used by management to measure Fortress’s
operating performance. Consistent with GAAP, DE is the sole
measure that management uses to manage, and thus report on,
Fortress’s segments, namely: Private Equity, Permanent Capital
Vehicles, Credit Hedge Funds, Credit PE Funds, Liquid Hedge Funds
and Logan Circle. DE differs from GAAP net income in a number
of material ways. For a detailed description of the calculation of
pre-tax DE and fund management DE, see Exhibit 3 to this release
and note 10 to the financial statements included in the Company’s
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
Fortress’s consolidated GAAP results. The exhibits to this release
contain reconciliations of the components of Fortress’s
consolidated segment results to the comparable GAAP measures, and
Fortress urges you to review these exhibits. Fortress also uses
weighted average dividend paying shares and units outstanding (used
to calculate pre-tax DE per dividend paying share) and net cash and
investments. The exhibits to this release contain reconciliations
of these measures to the comparable GAAP measures, and Fortress
urges you to review these exhibits.
CONFERENCE CALL
Management will host a conference call today, Thursday, May 7th
at 9:00 A.M. Eastern Time. A copy of the earnings release is posted
to the Investor Relations section of Fortress’s website,
www.fortress.com. The conference call may be accessed by dialing
1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from
outside of the U.S.) ten minutes prior to the scheduled start of
the call; please reference “Fortress First 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. A
telephonic replay of the conference call will also be available 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
“27940522.”
ABOUT FORTRESS
Fortress Investment Group LLC (NYSE: FIG) is a leading, highly
diversified global investment management firm with $69.9 billion in
assets under management as of March 31, 2015. Fortress applies its
deep experience and specialized expertise across a range of
investment strategies - private equity, credit, liquid hedge funds
and traditional asset management - on behalf of approximately 1,700
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 Fortress’s 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
Company’s beliefs regarding future events, many of which, by their
nature, are inherently uncertain and outside of the Company’s
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 Company’s 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 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the
Company’s Quarterly Report on Form 10-Q, which is, or will be,
available on the Company’s 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 Company’s 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
This announcement is intended to be a qualified notice as
provided in the Internal Revenue Code (the “Code”) and the
Regulations thereunder. For U.S. federal income tax purposes, the
dividend declared in May 2015 will be treated as a partnership
distribution. The per share distribution components are as
follows:
U.S. Long Term Capital Gain (1)
$ 0.0000 Non-U.S. Long Term Capital Gain $ 0.0000
U.S. Portfolio Interest Income (2) $ 0.0450 U.S. Dividend Income
(3) $ 0.0200 Other Income (4) $ 0.0150 Return of Capital $ 0.0000
Distribution Per Share $ 0.0800 (1)
U.S. Long Term Capital Gain realized on the sale of a United States
Real Property Holding Corporation. As a result, the gain from the
sale will be treated as income that is effectively connected with a
U.S. trade or business. (2) Eligible for the U.S. portfolio
interest exemption for any holder not considered a 10-Percent
shareholder under §871(h)(3)(B) of the Code. (3) This income
is subject to withholding under §1441 of the Code. (4) This
income is not subject to withholding under §1441 or §1446 of the
Code.
Fortress Investment Group LLC
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except share data)
Three Months Ended March 31, 2015
2014 Revenues Management fees:
affiliates $ 127,707 $ 129,710 Management fees:
non-affiliates 15,291 17,622 Incentive income: affiliates 24,223
34,251 Incentive income: non-affiliates - 643 Expense
reimbursements: affiliates 54,565 51,186 Expense reimbursements:
non-affiliates 3,248 2,448 Other revenues 1,655
1,250
Total Revenues
226,689 237,110
Expenses Compensation and benefits 178,888 188,519 General,
administrative and other 42,981 37,823 Depreciation and
amortization 5,331 4,301 Interest expense 839 691 Transfer of
interest in Graticule 101,000 -
Total Expenses 329,039
231,334
Other Income (Loss) Gains
(losses) 31,561 (11,055 ) Tax receivable agreement liability
adjustment - - Earnings (losses) from equity method investees
41,708 20,374 Gain on transfer of Graticule 134,400
-
Total Other Income (Loss)
207,669 9,319
Income (Loss) Before Income Taxes 105,319 15,095 Income tax
benefit (expense) (18,399 ) (5,994 )
Net Income (Loss) $ 86,920 $ 9,101
Allocation of Net Income (Loss) Principals' and
Others' Interests in Income (Loss) of Consolidated Subsidiaries
52,223 6,077 Redeemable Non-Controlling Interests in Income (Loss)
(16 ) - Net Income (Loss) Attributable to Class A Shareholders
34,713 3,024 $
86,920 $ 9,101
Earnings (Loss) Per
Class A Share
Net income (loss) per Class A share, basic $ 0.15 $
0.01 Net income (loss) per Class A share, diluted $
0.15 $ 0.01 Weighted average number of
Class A shares outstanding, basic 215,785,776
216,934,917 Weighted average number of Class A
shares outstanding, diluted 221,535,189
229,033,778
Fortress Investment Group LLC
Consolidated Balance Sheets
(dollars in thousands)
March 31,
2015(Unaudited)
December 31, 2014 Assets Cash
and cash equivalents $ 145,233 $ 391,089 Due
from affiliates 168,176 326,575 Investments 1,200,151 1,121,545
Investments in options 108,120 71,844 Deferred tax asset, net
397,778 417,623 Other assets 167,903
173,708
Total Assets $
2,187,361 $ 2,502,384
Liabilities and Equity Liabilities Accrued
compensation and benefits $ 139,171 $ 374,709 Due to affiliates
354,122 375,424 Deferred incentive income 307,737 304,526 Debt
obligations payable 75,000 75,000 Other liabilities
123,396 88,053
Total
Liabilities $ 999,426 $
1,217,712
Commitments and Contingencies
Redeemable Non-controlling Interests 109 1,717
Equity Class A shares, no par value, 1,000,000,000 shares
authorized, 208,554,885 and 208,535,157 shares issued and
outstanding at March 31, 2015 and December 31, 2014, respectively -
- Class B shares, no par value, 750,000,000 shares authorized,
226,331,513
shares issued and outstanding at March 31,
2015 and December 31, 2014,
respectively - - Paid-in capital 1,922,312 1,996,137 Retained
earnings (accumulated deficit) (1,315,409 ) (1,350,122 )
Accumulated other comprehensive income (loss)
(2,710 ) (2,416 ) Total Fortress
shareholders' equity 604,193 643,599 Principals' and others'
interests in equity of consolidated subsidiaries
583,633 639,356
Total
Equity 1,187,826
1,282,955 $ 2,187,361 $
2,502,384
Fortress Investment Group LLC
Exhibit 1
Supplemental Data for the Three Months
Ended March 31, 2015 and 2014
Three Months Ended March 31,
2015 Private Equity
Credit Funds
(in millions)
Total Funds
Permanent
CapitalVehicles
Liquid HedgeFunds
Hedge Funds PE Funds
Logan Circle
Assets Under Management AUM - January 1, 2015 $
67,531 $ 9,366 $ 4,567 $ 8,128 $ 6,173 $
6,955 $ 32,342 Capital raised 495 - - 86 175 234 -
Equity raised (Permanent Capital Vehicles) 150 - 150 - - - -
Increase in invested capital 718 61 60 - 15 582 - Redemptions (785
) - - (733 ) (52 ) - - RCA distributions7 (66 ) - - - (66 ) - -
Return of capital distributions (524 ) (95 ) (99 ) (42 ) - (288 ) -
Crystallized Incentive Income (95 ) - - - (95 ) - - Change in AUM
of Affiliated Managers 494 - - 494 - - - Net Client Flows 589 - - -
- - 589 Income (loss) and foreign exchange 1,382
847 (56 ) (95 )
121 80 485
AUM - Ending Balance $ 69,889 $ 10,179 $ 4,622 $
7,838 $ 6,271 $ 7,563 $ 33,416
Third-Party Capital
Raised $ 5,360 $ - $ 150
$ 86 $ 175 $ 4,949 $
-
Segment Revenues Management fees $
139 $ 29 $ 19 $ 21 $ 30 $ 27 $ 13 Incentive income 51
- 3 1
23 24
- Total 190 29 22 22 53 51 13
Segment
Expenses Operating expenses (115 ) (14 ) (18 ) (21 ) (18 ) (30
) (14 ) Profit sharing compensation expenses (30 )
- - (4 )
(12 ) (14 ) - Total (145
) (14 ) (18 ) (25 ) (30 ) (44 ) (14 )
Earnings From
Affiliated Managers 9 - - 9 - - -
Fund Management DE (before
Principal Performance Payments) 54
15 4 6
23 7 (1 )
Principal Performance Payments (3 ) - - - (2 ) (1 ) -
Fund Management
DE 51 15 4
6 21
6 (1 ) Investment Income 5 - - 3 1 1 -
Unallocated Investment Income - Unallocated Expenses (1 )
Pre-tax
Distributable Earnings $ 55 $ 15 $
4 $ 9 $ 22 $ 7 $
(1 )
Pre-tax Distributable Earnings per Dividend
Paying Share $ 0.12
Three Months Ended March 31, 2014
Private Equity
Credit Funds
(in millions)
Total Funds
Permanent
CapitalVehicles
Liquid HedgeFunds
Hedge Funds PE
Funds
Logan Circle
Assets Under Management AUM - January 1, 2014 $
61,750 $ 11,862 $ 3,721 $ 7,398 $ 5,856 $
7,527 $ 25,386 Capital raised 1,516 - - 1,302 214 - -
Equity raised (Permanent Capital Vehicles) - - - - - - - Increase
in invested capital 363 7 92 - 15 249 - Redemptions (593 ) - - (557
) (36 ) - - RCA distributions7 (149 ) - - - (149 ) - - Return of
capital distributions (1,201 ) (257 ) (84 ) (24 ) - (836 ) -
Crystallized Incentive Income (273 ) - - (129 ) (144 ) - - Net
Client Flows 477 - - - - - 477 Income (loss) and foreign exchange
630 (99 ) 1
(252 ) 212 39
729
AUM - Ending Balance $ 62,520 $
11,512 $ 3,731 $ 7,738 $ 5,968 $ 6,979 $ 26,592
Third-Party Capital Raised $ 1,609 $ 79
$ - $ 1,302 $ 228 $
- $ -
Segment Revenues
Management fees $ 147 $ 35 $ 16 $ 33 $ 27 $ 25 $ 11 Incentive
income 104 2 4
- 32
66 - Total 251 37 20 33 59 91 11
Segment Expenses Operating expenses (104 ) (11 ) (14 ) (23 )
(17 )
(26
) (13 ) Profit sharing compensation expenses (53 )
(1 ) - (2 ) (15 )
(35 ) - Total (157 ) (12
) (14 ) (25 ) (32 ) (61 ) (13 )
Fund Management DE (before Principal
Performance Payments) 94
25 6 8 27
30 (2 ) Principal
Performance Payments (7 ) - (1 ) - (5 ) (1 ) -
Fund Management DE
87 25 5 8
22 29
(2 ) Investment Income 10 4 - 1 1 4 - Unallocated
Investment Income - Unallocated Expenses -
Pre-tax Distributable Earnings $
97 $ 29 $ 5 $ 9 $
23 $ 33 $ (2 )
Pre-tax
Distributable Earnings per Dividend Paying Share $ 0.21
____________________
7 Represents distributions from (i) assets held by redeeming
capital accounts in the Drawbridge Special Opportunities Funds, and
(ii) the Value Recovery Funds.
Fortress Investment Group LLC
Exhibit 2-a
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Fortress
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three Months EndedMarch
31,2015
Assets Under Management Private Equity Funds $
11,513 $ 9,810 $ 9,787 $ 9,366 $ 9,366
$ 10,179 Permanent Capital Vehicles 3,731 4,021 4,411 4,567 4,567
4,622 Liquid Hedge Funds8 7,738 7,867 7,529 8,128 8,128 7,838
Credit Hedge Funds 5,968 6,084 6,140 6,173 6,173 6,271 Credit
Private Equity Funds 6,979 6,898 7,083 6,955 6,955 7,563 Logan
Circle 26,592 29,133
31,096
32,342 32,342
33,416
AUM - Ending Balance $ 62,520
$ 63,813 $ 66,046
$ 67,531 $ 67,531 $
69,889
Third-Party Capital Raised $
1,609 $ 1,762 $ 1,216
$ 1,692 $ 6,279
$ 5,360
Segment Revenues Management
fees $ 147 $ 152 $ 149 $ 153 $ 601 $ 139 Incentive income
104 78
88 191
461 51 Total 251 230 237 344
1,062 190
Segment Expenses Operating expenses (104 )
(109 ) (112 ) (126 ) (451 ) (115 ) Profit sharing compensation
expenses (53 ) (39 )
(54 ) (96 )
(242 ) (30 ) Total (157 ) (148 ) (166 ) (222 ) (693 )
(145 )
Earnings From Affiliated Managers - - - - - 9
Fund Management DE (before Principal
Performance Payments) 94
82 71
122 369
54 Principal Performance Payments (7 ) (6 ) (4
) (12 ) (29 ) (3 )
Fund Management DE $ 87
$ 76 $ 67 $
110 $ 340 $ 51
Net Investment Income 10 96 (12 ) 13 106 4
Pre-tax Distributable Earnings $ 97 $
172 $ 55 $ 123
$ 446 $ 55
____________________
8 The Assets Under Management presented for the Liquid Hedge Funds
includes $4,001 million related to Affiliated Managers as of March
31, 2015.
Fortress Investment Group LLC
Exhibit 2-b Assets Under Management and Fund Management
DE
(dollars in millions)
Three Months Ended
Private Equity
Funds
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three MonthsEnded March
31,2015
Assets Under Management Main Funds9 $ 7,787 $
7,053 $ 7,347 $ 6,934 $ 6,934 $ 7,726
Coinvestment Funds10 3,393 2,401 2,088 2,006 2,006 1,994 MSR
Opportunities Funds11 332 344 341 326 326 336 Italian NPL
Opportunities Fund - 12 11 25 25 19 Fortress Equity Partners
- -
- 75 75
104
AUM - Ending Balance
$ 11,512 $ 9,810 $
9,787 $ 9,366 $ 9,366
$ 10,179
Third-Party Capital
Raised $ 79 $ 26 $
101 $ - $ 206
$ -
Segment Revenues Management
fees $ 35 $ 36 $ 33 $ 32 $ 136 $ 29 Incentive income
2 1 -
- 3
- Total 37 37 33 32 139 29
Segment
Expenses Operating expenses (11 ) (12 ) (15 ) (13 ) (51 ) (14 )
Profit sharing compensation expenses (1 )
1 -
- - -
Total (12 ) (11 ) (15 ) (13 ) (51 ) (14 )
Fund Management DE (before Principal Performance
Payments) 25 26
18 19
88 15
Principal Performance Payments - - - - - -
Fund Management DE $ 25 $ 26
$ 18 $ 19 $
88 $ 15 Net Investment Income 4
91 - - 95 -
Pre-tax Distributable Earnings $
29 $ 117 $ 18
$ 19 $ 183 $ 15
____________________
9 Combined AUM for Fund III, Fund IV and Fund V.
10 Combined AUM for Fund III Coinvestment,
Fund IV Coinvestment, Fund V Coinvestment, FRID, FRIC, FICO, FHIF,
FECI and MAPS. FRID and FRIC were closed in the fourth quarter of
2014.
11 Combined AUM for MSR Opportunities Fund
I A, MSR Opportunities Fund I B, MSR Opportunities Fund II A, MSR
Opportunities Fund II B and MSR Opportunities Fund MA I.
Fortress Investment Group LLC Exhibit
2-c Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended
Permanent Capital
Vehicles
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three MonthsEnded March
31,2015
Assets Under Management Newcastle Investment Corp. $
1,321 $ 1,381 $ 1,579 $ 768 $
768 $ 680 New Residential Investment Corp. 1,196 1,367 1,366 1,367
1,367 1,367 Eurocastle Investment Limited 556 553 510 488 488 432
New Media Investment Group Inc. 391 390 505 487 487 637 New Senior
Investment Group Inc. - - - 812 812 813 WWTAI12 267
330 451
645 645 693
AUM - Ending Balance $ 3,731 $
4,021 $ 4,411 $ 4,567
$ 4,567 $ 4,622
Third-Party
Capital Raised $ - $ 405 $
673 $ - $ 1,078 $
150
Segment Revenues Management fees $ 16 $ 17
$ 17 $ 19 $ 69 $ 19 Incentive income 4
21 16 25
66 3 Total 20 38
33 44 135 22
Segment Expenses Operating expenses (14
) (17 ) (18 ) (20 ) (69 ) (18 ) Profit sharing compensation
expenses - (6 ) (9
) (6 ) (21 ) -
Total (14 ) (23 ) (27 ) (26 ) (90 ) (18 )
Fund Management DE (before
Principal Performance Payments) 6
15 6
18 45 4
Principal Performance Payments (1 ) (2 ) - (3 ) (6 ) -
Fund Management
DE $ 5 $ 13 $ 6
$ 15 $ 39 $ 4
Net Investment Income - 1 1 - 2 -
Pre-tax Distributable Earnings $
5 $ 14 $ 7 $ 15
$ 41 $ 4
____________________
12 WWTAI is currently a private permanent capital vehicle that has
filed a registration statement for a public offering of shares
under the name Fortress Transportation and Infrastructure Investors
LLC (“FTAI”). A registration statement relating to the shares has
been filed with the Securities and Exchange Commission but has not
yet become effective. The shares may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This document shall not constitute an offer to
sell or the solicitation of an offer to buy, nor shall there be any
sale of the shares in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
Fortress Investment Group LLC Exhibit
2-d Assets Under Management and Fund Management DE
(dollars in millions)
Three Months Ended
Credit Hedge Funds
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three MonthsEnded March
31,2015
Assets Under Management Drawbridge Special
Opportunities Funds13 $ 5,616 $ 5,745 $ 5,817
$ 5,929 $ 5,929 $ 6,023 Value Recovery Funds14 338
324 309 200 200 189 Japan Income Fund 14
15 14
44 44 59
AUM - Ending Balance $ 5,968 $
6,084 $ 6,140 $ 6,173
$ 6,173 $ 6,271
Third-Party Capital Raised $ 228 $
554 $ 165 $ 48
$ 995 $ 175
Segment
Revenues Management fees $ 27 $ 28 $ 29 $ 30 $ 114 $ 30
Incentive income 32 42
29 19
122 23
Total
59 70 58 49 236 53
Segment Expenses Operating
expenses (17 ) (17 ) (17 ) (19 ) (70 ) (18 ) Profit sharing
compensation expenses (15 ) (20
) (14 ) (10 )
(59 ) (12 ) Total (32 ) (37 ) (31 ) (29 ) (129 ) (30
)
Fund Management DE (before Principal Performance
Payments) 27 33
27 20
107 23 Principal
Performance Payments (5 ) (3 ) (4 ) (8 ) (20 ) (2 )
Fund Management
DE $ 22 $ 30 $ 23
$ 12 $ 87 $ 21
Net Investment Income 1 2 (5 ) 1 (1 ) 1
Pre-tax
Distributable Earnings $ 23 $ 32
$ 18 $ 13 $
86 $ 22
Net
Returns15
Drawbridge Special Opportunities Fund LP 3.2 % 2.6 % 1.9 % 2.1 %
10.0 % 2.2 % Drawbridge Special Opportunities Fund Ltd 2.2 % 1.7 %
1.7 % 0.2 % 6.0 % 1.1 %
____________________
13 Combined AUM for Drawbridge Special Opportunities Fund LP,
Drawbridge Special Opportunities Fund Ltd, Drawbridge Special
Opportunities Fund managed accounts, Worden Fund LP and Worden Fund
II LP.
14 Fortress will receive management fees
from these funds equal to 1% of cash receipts and may receive
limited incentive income if aggregate realizations exceed an agreed
threshold.
15 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. The returns for the
Drawbridge Special Opportunities Funds reflect the performance of
each fund excluding special investments and the performance of the
redeeming capital accounts which relate to December 31, 2009,
December 31, 2010, December 31, 2011, December 31, 2012, December
31, 2013 and December 31, 2014 redemptions.
Fortress Investment Group LLC Exhibit 2-e Assets
Under Management and Fund Management DE
(dollars in millions)
Three Months Ended
Three MonthsEnded March
31,2015
Credit Private Equity Funds March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Assets Under Management Long Dated Value Funds16 $
395 $ 375 $ 361 $ 361 $ 361 $
352 Real Assets Funds 78 70 64 66 66 52 Fortress Credit
Opportunities Funds17 4,712 4,649 4,960 5,465 5,465 6,029 Japan
Opportunity Funds18 1,794 1,804
1,698 1,063
1,063 1,130
AUM - Ending Balance
$ 6,979 $ 6,898 $ 7,083 $
6,955 $ 6,955 $ 7,563
Third-Party Capital Raised $ - $ 254
$ 30 $ 899 $ 1,183
$ 4,949
Segment Revenues Management fees $ 25
$ 23 $ 24 $ 25 $ 97 $ 27 Incentive income 66
13 41 134
254 24 Total 91 36 65 159
351 51
Segment Expenses Operating expenses (26 ) (26
) (27 ) (29 ) (108 ) (30 ) Profit sharing compensation expenses
(35 ) (7 ) (22 )
(68 ) (132 ) (14 ) Total (61 ) (33 )
(49 ) (97 ) (240 ) (44 )
Fund Management DE (before Principal Performance
Payments) 30 3
16 62 111
7 Principal Performance Payments (1 ) -
- (1 ) (2 ) (1 )
Fund
Management DE $ 29 $ 3 $ 16
$ 61 $ 109 $ 6 Net
Investment Income 4 - 2 7 13 1
Pre-tax Distributable Earnings $ 33 $
3 $ 18 $ 68 $ 122
$ 7
____________________
16 Combined AUM for Long Dated Value Fund I, Long Dated Value Fund
II, Long Dated Value Fund III and LDVF Patent Fund.
17 Combined AUM for Credit Opportunities
Fund, Credit Opportunities Fund II, Credit Opportunities Fund III,
Credit Opportunities Fund IV, FCO Managed Accounts, Net Lease Fund
I, Global Opportunities Fund, Life Settlements Fund, Life
Settlements Fund MA, SIP managed account, Real Estate Opportunities
Fund, Real Estate Opportunities Fund II and Real Estate
Opportunities REOC Fund.
18 Combined AUM for Japan Opportunity Fund, Japan Opportunity Fund
II (Dollar), Japan Opportunity Fund II (Yen) and Japan Opportunity
Fund III (Yen).
Fortress Investment Group LLC
Exhibit 2-f Assets Under Management and Fund Management
DE
(dollars in millions)
Three Months Ended
Liquid Hedge Funds
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three MonthsEnded March
31,2015
Assets Under Management Fortress Macro Funds19 $
3,503 $ 3,391 $ 3,083 $ 3,249 $
3,249 $ 2,779 Drawbridge Global Macro Funds20 286 261 223 229 229
227 Fortress Convex Asia Funds21 130 136 189 197 197 226 Fortress
Centaurus Global Funds22 - - - 33 33 64 Fortress Partners Funds23
952 965 935 913 913 541 Fortress Asia Macro Funds24 2,867 3,114
3,099 3,507 3,507 N/A Affiliated Managers24 -
- -
- - 4,001
AUM - Ending Balance $ 7,738 $
7,867 $ 7,529 $ 8,128
$ 8,128 $ 7,838
Third-Party
Capital Raised $ 1,302 $ 523
$ 247 $ 745 $
2,817 $ 86
Segment Revenues Management
fees $ 33 $ 37 $ 33 $ 35 $ 138 $ 21 Incentive income
- 1 2
13 16
1 Total 33 38 35 48 154 22
Segment
Expenses Operating expenses (23 ) (24 ) (21 ) (31 ) (99 ) (21 )
Profit sharing compensation expenses (2 )
(7 ) (9 ) (12 )
(30 ) (4 ) Total (25 ) (31 ) (30 ) (43
) (129 ) (25 )
Earnings From Affiliated Managers - -
- - - 9
Fund
Management DE (before Principal Performance Payments)
8 7
5 5 25
6 Principal Performance Payments - (1 )
- - (1 ) -
Fund Management DE $ 8 $
6 $ 5 $ 5 $
24 $ 6 Net Investment Income 1 1 (9 ) 5 (2 ) 3
Pre-tax Distributable
Earnings $ 9 $ 7 $ (4
) $ 10 $ 22 $ 9
Net
Returns25
Fortress Macro Fund Ltd (5.5 %) (0.4 %) 1.1 % 3.4 % (1.6 %) (4.7 %)
Drawbridge Global Macro Fund Ltd (5.5 %) (0.6 %) 0.7 % 3.3 % (2.2
%) (4.9 %) Fortress Convex Asia Fund Ltd (1.1 %) (2.6 %) (0.6 %)
(0.6 %) (4.9 %) (0.6 %) Fortress Centaurus Global Fund Ltd n/a n/a
n/a n/a n/a 3.9 % Fortress Partners Fund LP26 1.1 % 2.1 % (1.4 %)
(1.8 %) (0.1 %) 1.2 % Fortress Partners Offshore Fund LP26 0.9 %
2.2 % (1.4 %) (1.3 %) 0.4 % 0.3 % Fortress Asia Macro Fund Ltd24
(3.6 %) (1.9 %) 1.4 % 3.1 % (1.2 %) n/a
____________________
19 Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro
Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund Ltd and
Fortress Macro managed accounts. 20 Combined AUM for Drawbridge
Global Macro Fund LP and Drawbridge Global Macro Intermediate Fund
LP. 21 Combined AUM for Fortress Convex Asia Fund LP, Fortress
Convex Asia Fund Ltd, Fortress Convex Asia Fund PF LP and Fortress
Convex Asia Fund PF Ltd. 22 Combined AUM for Fortress Centaurus
Global Fund LP and Fortress Centaurus Global Fund Ltd. 23 Combined
AUM for Fortress Partners Fund LP and Fortress Partners Offshore
Fund LP. 24 Combined AUM for Fortress Asia Macro Fund Ltd, Fortress
Asia Macro Fund LP and Fortress Asia Macro managed accounts. In
January 2015, the Fortress Asia Macro Funds and related managed
accounts transitioned to Graticule Asset Management on Fortress's
affiliated manager platform. 25 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. 26 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.
Fortress Investment Group
LLC Exhibit 2-g Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Logan Circle
March 31,2014
June 30,2014
September 30,2014
December 31,2014
Full Year2014
Three MonthsEnded March
31,2015
Assets Under Management AUM - Ending Balance $
26,592 $ 29,133 $ 31,096
$ 32,342 $ 32,342
$ 33,416
Net Client Flows $ 477
$ 1,730 $ 2,178 $
1,035 $ 5,420 $ 589
Segment Revenues Management fees $ 11 $ 11 $
13 $ 12 $ 47 $ 13 Incentive income
- - -
- -
- Total 11 11 13 12 47 13
Segment
Expenses Operating expenses (13 ) (13 ) (14 ) (14 ) (54 ) (14 )
Profit sharing compensation expenses -
- -
- - - Total (13 )
(13 ) (14 ) (14 ) (54 ) (14 )
Fund Management DE $ (2 )
$ (2 ) $ (1 ) $ (2 ) $
(7 ) $ (1 ) Net Investment Income - 1 (1 ) 2 2 -
Pre-tax Distributable Earnings $ (2 ) $
(1 ) $ (2 ) $ - $ (5 ) $
(1 )
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 Year2014
Three Months EndedMarch 31,
2015
March 31,2014
June 30,2014
September 30,2014
December 31,2014
GAAP Net Income (Loss) $
9 $ 73 $
17 $ 141 $
240 $ 87 Principals' and
Others' Interests in (Income) Loss of Consolidated Subsidiaries
(6 ) (42 ) (13 ) (79 ) (140 )
(52 ) Redeemable non-controlling interests in Income (Loss)
- - 2
(1 ) 1 -
GAAP Net Income (Loss) Attributable to Class A
Shareholders $ 3 $
31 $ 6 $
61 $ 101 $
35 Private Equity incentive income 37 (8 ) 36 29 94 3
Hedge Fund and Logan Circle incentive income 30 26 21 (77 ) - 23
Reserve for clawback 2 - - - 2 - Distributions of earnings from
equity method investees 9 47 6 10 72 4 Losses (earnings) from
equity method investees (17 ) (20 ) (38 ) 7 (68 ) (27 ) Losses
(gains) on options 5 1 23 1 30 (32 ) Losses (gains) on other
Investments 5 42 (16 ) (17 ) 14 (1 ) Impairment of investments - -
(3 ) - (3 ) (3 ) Adjust income from the receipt of options - (1 )
(5 ) - (6 ) (4 ) Gain on transfer of Graticule - - - - - (134 )
Amortization of intangible assets and impairment of goodwill - - -
- - - Employee, Principal and director compensation 12 6 6 12 36 20
Adjust non-controlling interests related to Fortress Operating
Group units 5 40 11 78 134 52 Tax receivable agreement liability
reduction - - 4 29 33 - Adjust income taxes 6 8 3 (10 ) 7 18 Adjust
transfer of interest in Graticule -
- - -
- 101
Pre-tax
Distributable Earnings $ 97
$ 172 $ 55
$ 123 $ 446
$ 55 Investment Loss (income) (10 ) (97
) 11 (14 ) (109 ) (5 ) Interest Expense -
1 1 1
3 1
Fund
Management DE $ 87 $
76 $ 67 $
110 $ 340 $
51 GAAP
Revenues $ 237 $
270 $ 243 $
455 $ 1,205 $
227 Adjust management fees - - - (1 ) (1 ) (1
) Adjust incentive income 69 17 57 (47 ) 96 27 Adjust income from
the receipt of options - (1 ) (5 ) - (6 ) (4 ) Other revenues
(55 ) (56 ) (57 )
(65 ) (233 ) (59 )
Segment
Revenues $ 251 $
230 $ 238 $
343 $ 1,062 $
190
GAAP Expenses $ 231 $
216 $ 235 $
310 $ 992 $
329 Adjust interest expense - (1 ) (1 ) (1 )
(3 ) (1 ) Adjust employee, Principal and director compensation (12
) (6 ) (3 ) (3 ) (24 ) (18 ) Adjust amortization of intangible
assets and impairment of goodwill - - - - - - Adjust expense
reimbursements from affiliates and non-affiliates (54 ) (52 ) (55 )
(70 ) (231 ) (59 ) Adjust Principal Performance Payments (9 ) (9 )
(9 ) (15 ) (42 ) (5 ) Adjust transfer of interest in Graticule - -
- - - (101 ) Other - -
(1 ) 1 -
-
Segment Expenses $
157 $ 148 $
166 $ 221 $
692 $ 145
‘‘Distributable earnings’’ is Fortress’s supplemental measure of
operating performance used by management in analyzing segment and
overall results. 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 in accordance with
GAAP and it is not necessarily indicative of liquidity or cash
available to fund the Company’s 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 Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2015.
Fortress’s 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 Company’s 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
Company’s business strategy and distributable earnings is the
supplemental measure used by management to evaluate the economic
profitability of each of the Company’s businesses and total
operations. Therefore, Fortress believes that it provides useful
information to investors in evaluating its operating performance.
Fortress’s 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
“Pre-tax Distributable Earnings” net of “Investment Loss (Income)”
and “Interest Expense.” Fund management DE and its components are
used by management to analyze and measure the performance of our
investment management business on a stand-alone basis. Fortress
defines segment operating margin to be equal to fund management DE
divided by segment revenues. The Company believes that it is useful
to provide investors with the opportunity to review our investment
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.
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 March 31,
2015 2014
Weighted Average Class A Shares
Outstanding (Used for Basic EPS)
215,785,776
216,934,917 Weighted
average fully vested restricted Class A share units with dividend
equivalent rights (7,231,768) (3,899,986) Weighted average fully
vested restricted Class A shares (840,658) (973,275)
Weighted Average Class A Shares
Outstanding
207,713,350
212,061,656 Weighted average restricted Class
A shares27 840,658 973,275 Weighted average fully vested restricted
Class A share units which are entitled to dividend equivalent
payments 7,231,768 3,899,986 Weighted average unvested restricted
Class A share units which are entitled to dividend equivalent
payments 8,347,402 5,997,586 Weighted average Fortress Operating
Group units 226,331,513 245,925,038
Weighted Average Class A Shares
Outstanding (Used for DEPS)
450,464,691
468,857,541 Weighted average vested and unvested
restricted Class A share units which are not entitled to dividend
equivalent payments 11,703,251
12,436,247
Weighted Average Fully Diluted Shares
and Units Outstanding (Used for Diluted DEPS)
462,167,942
481,293,788
“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. The Company
believes it is useful for investors 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 and not an
alternative to GAAP basic and diluted shares outstanding. The
Company’s calculation of dividend paying shares and units may be
different from the calculation used by other companies and,
therefore, comparability may be limited.
____________________
27 Includes both fully vested and unvested restricted Class A
shares.
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 March 31, 2015
As of December 31, 2014
GAAPBook Value
Net Cash andInvestments
GAAPBook Value
Net Cash andInvestments
Cash and Cash equivalents $ 145,233 $ 145,233
$ 391,089 $ 391,089 Investments 1,200,151
1,200,151 1,121,545 1,121,545 Investments in options28 108,120 -
71,844 - Due from Affiliates 168,176 - 326,575 - Deferred Tax
Asset, net 397,778 - 417,623 - Other Assets
167,903 - 173,708 -
Total
Assets 2,187,361 1,345,384
2,502,384 1,512,634 Debt Obligations
Payable 75,000 75,000 $ 75,000 75,000 Accrued Compensation and
Benefits 139,171 - 374,709 - Due to Affiliates 354,122 - 375,424 -
Deferred Incentive Income 307,737 - 304,526 - Other Liabilities
123,396 - 88,053
-
Total Liabilities 999,426
75,000 1,217,712 75,000
Less: Redeemable Non-controlling Interests 109 - 1,717 -
Net $ 1,187,826 $
1,270,384 $ 1,282,955 $ 1,437,634
SharesOutstanding
Dividend PayingShares and
UnitsOutstanding
SharesOutstanding
Dividend PayingShares and
UnitsOutstanding
Class A Shares 207,713 207,713 207,490 207,490 Restricted Class A
Shares 841 841 1,045 1,045 Fortress Operating Group Units 226,332
226,332 226,332 226,332 Fully Vested Class A Shares - Dividend
Paying - 7,568 - 194 Unvested Class A Shares - Dividend Paying
- 11,159 -
7,002
Shares Outstanding 434,886
453,613 434,867 442,063
Per Share $ 2.73
$ 2.80 $ 2.95 $
3.25
Net cash and investments represents cash and cash equivalents
plus investments less debt outstanding. The Company believes that
net cash and investments is a useful supplemental measure because
it provides investors with information regarding the Company’s net
investment assets. Net cash and investments excludes certain assets
(investments in options, due from affiliates, deferred tax asset,
other assets) and liabilities (due to affiliates, accrued
compensation and benefits, deferred incentive income and other
liabilities) and its utility as a measure of financial position is
limited. Accordingly, net cash and investments should be considered
only as a supplement and not an alternative to GAAP book value as a
measure of the Company’s financial position. The Company’s
calculation of net cash and investments may be different from the
calculation used by other companies and, therefore, comparability
may be limited.
____________________
28 The intrinsic value of options in equity method investees
totaled $100 million at quarter end and is included in our
undistributed, unrecognized incentive income. This value represents
incentive income that would have been recorded in Distributable
Earnings if Fortress had exercised all of its in-the-money options
it holds in the publicly traded permanent capital vehicles and sold
all of the resulting shares at their March 31, 2015 closing price
and differs from the fair value derived from option pricing models
included in the table above.
INVESTOR & MEDIA RELATIONS:Fortress Investment
GroupGordon E. Runté, +1-212-798-6082grunte@fortress.com
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