Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the
“Company”) today reported its second quarter 2015 financial
results.
FINANCIAL SUMMARY
- Fortress declares a cash dividend of
$0.08 per dividend paying share for the second quarter of 2015
- Management Fee Paying Assets Under
Management (“AUM”) of $72.0 billion as of June 30, 2015, an
increase of 3% from the previous quarter and an increase of 13%
from June 30, 2014
- GAAP net income of $5 million, or $0.00
per diluted Class A share, for the second quarter of 2015, compared
to GAAP net income of $73 million, or $0.12 per diluted Class A
share, for the second quarter of 2014
- Pre-tax distributable earnings (“DE”)
of $137 million, or $0.30 per dividend paying share, for the second
quarter of 2015, compared to pre-tax DE of $172 million, or $0.39
per dividend paying share for the second quarter of 2014
- Net cash and investments of $2.87 per
dividend paying share as of June 30, 2015
- $1.0 billion of gross embedded
incentive income across funds and permanent capital vehicles as of
June 30, 2015, that has not been recognized in DE
- Total uncalled capital, or “dry
powder,” of $10.1 billion as of June 30, 2015, including $7.1
billion available for general investment purposes
BUSINESS HIGHLIGHTS
- Raised $3.2 billion of capital across
alternative investment businesses during the quarter and $8.6
billion in the first half of 2015
- Recorded $1.1 billion of net client
inflows for Logan Circle during the quarter, bringing total net
client inflows year-to-date through June 30, 2015 to $1.6
billion
- Investment performance summary as of
June 30, 2015:
- Second quarter 2015 net returns of 2.3%
for Drawbridge Special Opportunities Fund (“DBSO”) LP and (6.2)%
for Fortress Macro Fund Ltd
- Annualized inception-to-date net IRRs
for FCO, FCO II and FCO III of 25.1%, 17.7% and 12.0%,
respectively
- Private Equity fund valuations
decreased 2.3% in the first half of 2015
- 13 out of 16 Logan Circle fixed income
strategies outperformed respective benchmarks for the quarter ended
June 30, 2015 and 15 of 16 strategies have outperformed respective
benchmarks since inception
“We delivered strong financial performance in the second quarter
and carried great momentum into the second half of the year,” said
Fortress Chief Executive Officer Randy Nardone. “Our results
reflect continued top-tier investment performance in our Credit
funds and substantial contributions from a Permanent Capital
business that now accounts for nearly 20% of total alternative AUM.
Robust investor demand for successor Credit PE funds and equity
raised for our Permanent Capital Vehicles led to our raising more
capital in the first half of 2015 than in any full year since 2008.
With assets under management at an all-time high of $72 billion,
ample dry powder to deploy and substantial embedded value to
harvest, we have a very optimistic outlook for future earnings
growth and valuation upside.”
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
three and six months ended June 30, 2015. The consolidated GAAP
statement of operations and balance sheet are presented on pages
12-13 of this press release.
2Q 1Q 2Q % Change 1H 1H
% Change 2015 2015 2014 QoQ YoY 2015 2014 YoY (in millions,
except per share amount)
GAAP Revenues $ 308 $ 227 $ 270 36
% 14 % $ 535 $ 507 6 % Expenses 258 329 216 (22 )% 19 % 587 447 31
% Other Income (51 ) 208 27 N/A N/A 157 36 336 % Net income (loss)
5 87 73 (94 )% (93 )% 92 83 11 % Net income (loss) attributable to
Class A Shareholders 3 35 31 (91 )% (90
)% 38 34 12 % Per diluted share $ 0.00 $ 0.15
$ 0.12 (100 )% (99 )% $ 0.16 $ 0.14 14 % Weighted average Class A
shares outstanding, diluted 449 222 445
222 460
Distributable Earnings Fund management DE $
133 $ 51 $ 76 161 % 75 % $ 184 $ 163 13 % Pre-tax DE 137
55 172 149 % (20 )% 192 268 (28
)% Per dividend paying share/unit $ 0.30 $ 0.12 $ 0.39 150 %
(23 )% $ 0.42 $ 0.59 (29 )% Weighted average dividend paying shares
and units outstanding 454 450 442 452 455
Assets Under
Management Private Equity and Permanent Capital $ 16,535 $
14,801 $ 13,831 12 % 20 % $ 16,535 $ 13,831 20 % Credit 14,491
13,834 12,982 5 % 12 % 14,491 12,982 12 % Liquid Markets1 7,377
7,838 7,867 (6 )% (6 )% 7,377 7,867 (6 )% Logan Circle
33,564 33,416 29,133 0 % 15 % 33,564
29,133 15 % Total Assets Under Management $ 71,967 $
69,889 $ 63,813 3 % 13 % $ 71,967 $ 63,813 13 %
__________________________________
1 The Assets Under Management presented
for Liquid Markets includes AUM related to Affiliated Managers in
2015, which was $3,896 million as of 2Q 2015.
CONSOLIDATED GAAP RESULTS
Fortress recorded GAAP net income of $5 million, or $0.00 per
diluted Class A share, for the second quarter of 2015, compared to
GAAP net income of $73 million, or $0.12 per diluted Class A share,
for the second 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 decrease in Fortress’s second quarter 2015
GAAP net income was primarily driven by a $78 million decrease in
other income and a $42 million increase in expenses, partially
offset by a $38 million increase in revenues. The decrease in other
income was primarily related to $36 million of losses from equity
method investees while the increase in expenses was primarily
related to higher compensation and benefits. The increase in
revenues was primarily related to higher management fees and
incentive income from affiliates.
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 June 30, 2015
Private Equity
Credit Funds
(in millions)
Total Funds
Permanent
CapitalVehicles
Liquid HedgeFunds
Hedge Funds PE Funds
Logan CirclePartners
Assets Under Management2 $ 71,967 $ 9,587 $
6,948 $ 7,377 $ 6,244 $ 8,247 $ 33,564
Dry Powder $ 10,127 $
1,674 $ - N/A $ 356 $ 8,097 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 $ 21,229 $ 1,238 $ 3,457 $ - $ 5,530 $ 10,947
$ 57 Undistributed Incentive Income: Unrecognized $ 1,018 $
30 $ 44 $ 6 $ 64 $ 874 $ - Undistributed Incentive Income:
Recognized 46 - 1
- 45 - $ -
Undistributed Incentive Income5 $ 1,064 $ 30
$ 45 $ 6 $ 109 $ 874 $ -
Three Months Ended June 30, 2015 Private
Equity
Credit Funds
(in millions)
Total Funds
Permanent
CapitalVehicles
Liquid HedgeFunds
Hedge Funds
PE Funds
Logan CirclePartners
Third-Party Capital Raised $ 3,213 $ - $ 2,291 $ 171
$ 79 $ 672 $ -
Segment Revenues Management fees $ 144
$ 29 $ 23 $ 19 $ 29 $ 30 $ 14 Incentive income 183
- 74 (1 ) 50
60 - Total 327 29 97 18 79 90 14
Segment Expenses Operating expenses (121 ) (15 ) (16 ) (27 )
(19 ) (30 ) (14 ) Profit sharing compensation expenses (54 )
- (9 ) 3 (18 ) (30
) - Total (175 ) (15 ) (25 ) (24 ) (37 ) (60 ) (14 )
Earnings From Affiliated Managers (1 ) - - (1 ) - - -
Principal Performance Payments (18 ) - (11 ) - (6 )
(1 ) -
Fund
Management DE $ 133 $ 14 $ 61 $ (7 ) $ 36
$ 29 $ -
Net Investment Income6
4 - 1 1 - 3 -
Pre-tax Distributable Earnings $ 137 $ 14 $ 62
$ (6 ) $ 36 $ 32 $ -
__________________________________
2 The Assets Under Management presented for the Liquid Hedge Funds
includes $3,896 million related to Affiliated Managers. The Assets
Under Management presented for the Credit Hedge Funds includes $156
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 (except for Fund V, Long Dated Value Fund I and Real Estate
Opportunities Fund II, of which a portion of the fund’s capital was
above the incentive income threshold as of June 30, 2015),
represents total fund NAV. The Incentive Eligible NAV Above
Incentive Income Threshold presented for the Permanent Capital
Vehicles represents the equity basis that is used to calculate
incentive income. 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 (i)
exercised all of its in-the-money options it holds in the Permanent
Capital Vehicles and sold all of the resulting shares and (ii) sold
all of its Permanent Capital Vehicle common shares which it
received as incentive income, based on their June 30, 2015 closing
price. 6 Net Investment Income includes Unallocated Expenses of $1
million.
Pre-tax DE was $137 million in the second quarter of 2015, down
from $172 million in the second quarter of 2014. This
year-over-year decrease was primarily due to lower net investment
income and management fees, partially offset by higher incentive
income.
Management fees were $144 million in the second quarter of 2015,
down from $152 million in the second quarter of 2014. Management
fees for the second quarter of 2014 included approximately $15
million attributable to the former Fortress Asia Macro Funds
(“FAMF”). With the transition of FAMF to Graticule Asset Management
Asia L.P. (“Graticule”) in the first quarter of 2015, Fortress no
longer includes FAMF management fees in revenue. Adjusting for this
transition, Fortress management fees increased by approximately $7
million year-over-year in the second quarter of 2015. The increase
was primarily due to higher management fees from the Credit PE
Funds, Permanent Capital Vehicles, Logan Circle and Credit Hedge
Funds, partially offset by lower management fees from the Liquid
Hedge Funds and Private Equity Funds.
Incentive income recorded in the second quarter of 2015 totaled
$183 million, up from $78 million recorded in the second quarter of
2014, primarily due to higher incentive income from the Credit PE
Funds and Permanent Capital Vehicles.
Earnings from Affiliated Managers were a loss of $1 million in
the second quarter of 2015, down from earnings of $9 million in the
first quarter of 2015, related to our interests in Graticule.
Additionally, Fortress had $1.0 billion in gross undistributed,
unrecognized incentive income based on investment valuations as of
June 30, 2015. This includes $974 million from our funds, $38
million from options in our permanent capital vehicles and $6
million in common shares Fortress received in connection with the
IPO of Fortress Transportation and Infrastructure Investors LLC
(“FTAI”).
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 June 30, 2015, AUM totaled $72.0 billion, up from $69.9
billion as of March 31, 2015. During the quarter, Fortress raised
$3.0 billion of capital and equity that was directly added to AUM,
recorded $1.1 billion of net client inflows for Logan Circle, and
had a $0.8 billion increase in invested capital. These increases to
AUM were partially offset by (i) $1.5 billion of market-driven
valuation losses, (ii) $0.4 billion of Liquid Hedge Fund
redemptions, (iii) $0.3 billion of capital distributions to
investors, (iv) $0.2 billion of payments to Credit Hedge Fund
investors from redeeming capital accounts, and (v) a $0.2 billion
capital reset adjustment.
As of June 30, 2015, the Credit Funds and Private Equity Funds
had $8.5 billion and $1.7 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 $3.0 billion
that is only available for follow-on investments, management fees
and other fund expenses. Notably, approximately 81% of alternative
AUM was in funds with long-term investment structures as of June
30, 2015, which provides for a stable, predictable base of
management fees.
BUSINESS SEGMENT RESULTS
Below is a discussion of second quarter 2015 segment results and
business highlights.
Credit:
- DBSO LP net returns of 2.3% for the
second quarter of 2015
- FCO, FCO II, FCO III, Japan
Opportunity Fund (“FJOF”) and FJOF II (Yen) recorded annualized
inception-to-date net IRRs of 25.1%, 17.7%, 12.0%, 31.7% and 24.2%,
respectively, through June 30, 2015
- Closed latest flagship Credit Real
Estate fund, Fortress Real Estate Opportunities Fund (“FROF”) II,
at its cap of $1.0 billion
- Credit PE Funds invested $0.8
billion of capital in the first half of 2015, compared to $0.3
billion invested in the first half of 2014
(See supplemental data on pages 19-20 for more detail on Credit
results)
The Credit business, which includes our Credit PE Funds and
Credit Hedge Funds, generated pre-tax DE of $68 million in the
second quarter of 2015, up from $35 million in the second quarter
of 2014. The 94% year-over-year increase in DE was primarily driven
by substantially higher incentive income, partially offset by
higher profit sharing and operating expenses.
The Credit Hedge Funds generated pre-tax DE of $36 million in
the quarter, compared to $32 million in the second quarter of 2014,
primarily due to an $8 million increase in incentive income
year-over-year. DBSO LP, Fortress’s flagship credit hedge fund, had
net returns of 2.3% in the second quarter following net returns of
2.2% in the first quarter of 2015.
The Credit PE Funds generated pre-tax DE of $32 million in the
quarter, up significantly from $3 million in the second quarter of
2014, as increased realization activity resulted in $60 million of
incentive income in the quarter, compared to $13 million of
incentive income in the second quarter of 2014. Gross unrecognized
Credit PE incentive income totaled $874 million at quarter end, up
$38 million from June 30, 2014, despite $259 million of gross
Credit PE incentive income recognized in DE over the last twelve
months.
The Credit PE Funds raised $0.7 billion of capital in the
quarter, including $0.4 billion for FROF II which closed at its cap
of $1.0 billion. At quarter end, approximately 20% of the fund’s
capital has already been committed or invested in the U.S. and
Europe. FROF II is a successor fund to FROF I and related funds,
which launched in September 2011 with approximately $625 million in
commitments.
Private Equity and Permanent Capital Vehicles:
- AUM increased 20% year-over-year to
all-time high of $16.5 billion
- Raised $2.3 billion of permanent
equity capital in the second quarter, including $0.4 billion of
capital raised in connection with FTAI’s IPO
- Exercised and sold in-the-money New
Residential Investment Corp. (“New Residential”) options, resulting
in gross incentive income of $57 million recognized in DE in the
second quarter
(See supplemental data on pages 17-18 for more detail on Private
Equity results)
The Private Equity business recorded pre-tax DE of $76 million
in the second quarter of 2015, including $62 million for the
Permanent Capital Vehicles and $14 million for the Private Equity
Funds. Pre-tax DE declined from $131 million in the second quarter
of 2014, primarily due to $91 million of Private Equity fund
investment income that was recorded in the second quarter of 2014,
partially offset by $74 million of Permanent Capital Vehicle
incentive income in the second quarter of 2015.
The Permanent Capital Vehicles have raised $2.4 billion of
capital year-to-date through June 30, 2015, including $1.3 billion
raised by New Residential, $0.3 billion raised by Eurocastle
Investment Limited (“Eurocastle”), $0.4 billion raised by FTAI,
$0.3 billion raised by New Senior Investment Group Inc. (“New
Senior”) and $0.2 billion raised by New Media Investment Group Inc.
(“New Media”). A portion of the capital raised by New Residential
was used to help fund New Residential’s acquisition of HLSS in
April 2015.
In June 2015, Fortress sold 3.6 million shares acquired through
the exercise of outstanding in-the-money options it held in New
Residential. The transaction resulted in $57 million of gross
incentive income recognized in DE in the quarter.
Private Equity Fund valuations decreased 2.3% in the first half
of 2015, primarily due to depreciation of Nationstar Mortgage
Holdings Inc. (NYSE: NSM) and certain privately held portfolio
company investments, partially offset by appreciation of Springleaf
Holdings, Inc. (NYSE: LEAF).
Liquid Hedge Funds:
- Raised $0.3 billion of capital
year-to-date through June 30, 2015
(See supplemental data on page 21 for more detail on Liquid
Hedge Funds results)
The Liquid Hedge Funds recorded a pre-tax DE loss of $6 million
in the second quarter of 2015, compared to pre-tax DE of $7 million
in the second quarter of 2014, primarily due to lower management
fees. Earnings from Affiliated Managers were a loss of $1 million
in the second quarter of 2015, compared to earnings of $9 million
in the first quarter of 2015.
Second quarter 2015 net returns for the Fortress Macro Funds,
Fortress Convex Asia Funds, Fortress Centaurus Global Funds and
Fortress Partners Funds were (6.2)%, (0.8)%, (4.1)% and (1.2)%,
respectively. Net returns year-to-date through July 24, 2015 for
the Fortress Macro Funds, Fortress Convex Asia Funds and Fortress
Centaurus Global Funds were (9.9)%, (1.8)% and (2.2)%,
respectively.*
Liquid Hedge Funds ended the quarter with $7.4 billion of AUM,
including $3.9 billion related to Affiliated Managers. Liquid Hedge
Fund AUM declined slightly during the quarter primarily due to $0.4
billion of redemptions, partially offset by $0.2 billion of capital
raised. At quarter end, there were $718 million of Liquid Hedge
Fund redemption notices outstanding, including $510 million to be
paid primarily in the third 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 21
for more detail on the returns of each Fortress Partners Fund.
Logan Circle:
- 13 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
- AUM totaled $33.6 billion at June
30, 2015, an increase of 15% compared to June 30, 2014
- Net client inflows totaled $1.1
billion in the quarter
(See supplemental data on page 22 for more detail on Logan
Circle results)
Logan Circle, our traditional asset management business,
recorded breakeven pre-tax DE in the quarter, compared to a pre-tax
DE loss of $1 million in the second quarter of 2014, as higher
management fees were offset by higher operating expenses.
Logan Circle ended the quarter with $33.6 billion in AUM,
relatively flat compared to the prior quarter and a 15% increase
compared to the second quarter of 2014. AUM was relatively flat
quarter-over-quarter as net inflows were largely offset by
market-driven valuation losses.
For the year-to-date period through June 30, 2015, all 16 of
Logan Circle’s fixed income strategies outperformed their
respective benchmarks. Since inception, 15 of 16 Logan Circle fixed
income strategies have outperformed their respective benchmarks and
seven were ranked in the top quartile of performance for their
competitor universe.
LIQUIDITY & CAPITAL
As of June 30, 2015, Fortress had cash and cash equivalents of
$234 million and debt obligations of $75 million.
As of June 30, 2015, Fortress had $1.2 billion of investments in
Fortress funds and options in publicly traded permanent capital
vehicles. As of June 30, 2015, Fortress had a total of $166 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 $538 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 second quarter 2015
cash dividend of $0.08 per dividend paying share. The dividend is
payable on August 14, 2015 to Class A shareholders of record as of
the close of business on August 11, 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, July
30th at 10:00 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 Second 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
“79002443.”
ABOUT FORTRESS
Fortress Investment Group LLC (NYSE: FIG) is a leading, highly
diversified global investment management firm with $72.0 billion in
assets under management as of June 30, 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 over 1,600
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 July 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) $0.0575 U.S. Dividend Income (3)
$0.0000 Other Income (4) $0.0225 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 June 30, Six Months
Ended June 30, 2015 2014 2015
2014 Revenues Management fees: affiliates $
150,936 $ 136,045 $ 278,643 $ 265,755 Management fees:
non-affiliates 14,966 17,716 30,257 35,338 Incentive income:
affiliates 82,158 60,442 106,381 94,693 Incentive income:
non-affiliates 296 44 296 687 Expense reimbursements: affiliates
53,991 51,662 108,556 102,848 Expense reimbursements:
non-affiliates 3,568 2,614 6,816 5,062 Other revenues 2,573
1,821 4,228 3,071
Total Revenues 308,488 270,344
535,177 507,454
Expenses
Compensation and benefits 199,108 168,114 377,996 356,633 General,
administrative and other 45,185 42,186 88,166 80,009 Depreciation
and amortization 12,768 5,037 18,099 9,338 Interest expense 1,039
947 1,878 1,638 Transfer of interest in Graticule -
- 101,000 -
Total
Expenses 258,100 216,284
587,139 447,618
Other Income
(Loss) Gains (losses) (6,787 ) 4,864 24,774 (6,191 ) Tax
receivable agreement liability adjustment (7,500 ) - (7,500 ) -
Earnings (losses) from equity method investees (36,321 ) 22,448
5,387 42,822 Gain on transfer of Graticule - -
134,400 -
Total Other Income
(Loss) (50,608 ) 27,312 157,061
36,631
Income (Loss) Before Income
Taxes (220 ) 81,372 105,099 96,467 Income tax benefit (expense)
5,199 (7,916 ) (13,200 ) (13,910
)
Net Income (Loss) $ 4,979 $ 73,456 $ 91,899
$ 82,557
Allocation of Net Income (Loss)
Principals' and Others' Interests in Income (Loss) of Consolidated
Subsidiaries 1,653 42,100 53,876 48,177 Redeemable Non-Controlling
Interests in Income (Loss) 10 157 (6 ) 157 Net Income (Loss)
Attributable to Class A Shareholders 3,316
31,199 38,029 34,223 $ 4,979
$ 73,456 $ 91,899 $ 82,557
Earnings (Loss) Per
Class A Share
Net income (loss) per Class A share, basic $ 0.01 $ 0.15
$ 0.16 $ 0.16 Net income (loss) per Class A
share, diluted $ 0.00 $ 0.12 $ 0.16 $ 0.14
Weighted average number of Class A shares outstanding, basic
216,183,181 207,783,751
215,985,577 212,328,315 Weighted average
number of Class A shares outstanding, diluted 449,210,362
444,566,847 222,210,732
459,673,136
Fortress Investment Group LLC
Consolidated Balance Sheets
(dollars in thousands)
June 30, 2015
(Unaudited)
December 31, 2014 Assets Cash and cash equivalents $
233,912 $ 391,089 Due from affiliates 188,051 326,575 Investments
1,144,597 1,121,545 Investments in options 60,950 71,844 Deferred
tax asset, net 415,915 417,623 Other assets 165,531
173,708
Total Assets $ 2,208,956 $
2,502,384
Liabilities and Equity
Liabilities Accrued compensation and benefits $ 181,967 $
374,709 Due to affiliates 372,660 375,424 Deferred incentive income
326,338 304,526 Debt obligations payable 75,000 75,000 Other
liabilities 90,430
88,053
Total Liabilities $ 1,046,395 $
1,217,712
Commitments and Contingencies
Redeemable Non-controlling Interests 19 1,717
Equity Class A shares, no par value, 1,000,000,000 shares
authorized, 215,673,299 and 208,535,157 shares issued and
outstanding at June 30, 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 June 30, 2015 and
December 31, 2014, respectively - - Paid-in capital 1,922,869
1,996,137 Retained earnings (accumulated deficit) (1,312,093 )
(1,350,122 ) Accumulated other comprehensive income (loss)
(2,409 ) (2,416 ) Total Fortress shareholders' equity
608,367 643,599 Principals' and others' interests in equity of
consolidated subsidiaries 554,175 639,356
Total Equity 1,162,542 1,282,955
$ 2,208,956 $ 2,502,384
Fortress Investment Group LLC
Exhibit 1-a
Supplemental Data for the Three Months
Ended June 30, 2015 and 2014
Three Months Ended June 30,
2015
Private Equity
Credit Funds
(in millions)
Total Funds
Permanent
Capital Vehicles
Liquid HedgeFunds
Hedge Funds PE Funds
Logan Circle
Assets Under Management AUM - April 1, 2015 $ 69,889
$ 10,179 $ 4,622 $ 7,838 $ 6,271 $ 7,563 $ 33,416 Capital raised
675 - - 171 79 425 - Equity raised (Permanent Capital Vehicles)
2,291 - 2,291 - - - - Increase in invested capital 796 120 227 - 6
443 - Redemptions (375 ) - - (375 ) - - - RCA distributions7 (200 )
- - - (200 ) - - Return of capital distributions (346 ) (183 ) -
(20 ) (31 ) (112 ) - Adjustment for capital reset (168 ) - (168 ) -
- - - Crystallized Incentive Income (21 ) - - - (21 ) - - Change in
AUM of Affiliated Managers (106 ) - - (106 ) - - - Net Client Flows
1,056 - - - - - 1,056 Income (loss) and foreign exchange
(1,524 ) (529 ) (24 ) (131 ) 140
(72 ) (908 )
AUM - Ending Balance $ 71,967 $ 9,587 $
6,948 $ 7,377 $ 6,244 $ 8,247 $ 33,564
Third-Party
Capital Raised $ 3,213 $ - $ 2,291 $ 171
$ 79 $ 672 $ -
Segment Revenues
Management fees $ 144 $ 29 $ 23 $ 19 $ 29 $ 30 $ 14 Incentive
income 183 - 74 (1
) 50 60 - Total 327 29 97 18 79
90 14
Segment Expenses Operating expenses (121 ) (15
) (16 ) (27 ) (19 ) (30 ) (14 ) Profit sharing compensation
expenses (54 ) - (9 ) 3
(18 ) (30 ) - Total (175 ) (15 ) (25 )
(24 ) (37 ) (60 ) (14 )
Earnings From Affiliated
Managers (1 ) - - (1 ) - - -
Fund Management DE (before Principal Performance
Payments) 151 14 72
(7 ) 42 30 -
Principal Performance Payments (18 ) - (11 ) - (6 ) (1 ) -
Fund Management DE
133 14 61 (7 )
36 29 - Investment Income
5 - 1 1 - 3 - Unallocated Investment Income - Unallocated Expenses
(1 )
Pre-tax
Distributable Earnings $ 137 $ 14 $ 62 $
(6 ) $ 36 $ 32 $ -
Pre-tax Distributable
Earnings per Dividend Paying Share $ 0.30
Three Months Ended June 30,
2014
Private Equity
Credit Funds
(in millions)
Total Funds
Permanent
Capital Vehicles
Liquid Hedge
Funds
Hedge Funds PE Funds
Logan Circle
Assets Under Management AUM - April 1, 2014 $ 62,520
$ 11,512 $ 3,731 $ 7,738 $ 5,968 $ 6,979 $ 26,592 Capital raised
666 - - 523 143 - - Equity raised (Permanent Capital Vehicles) 171
- 171 - - - - Increase in invested capital 225 53 123 - - 49 -
Redemptions (319 ) - - (319 ) - - - RCA distributions7 (158 ) - - -
(158 ) - - Return of capital distributions (2,086 ) (1,897 ) - (13
) (28 ) (148 ) - Crystallized Incentive Income (16 ) - - - (16 ) -
- Net Client Flows 1,730 - - - - - 1,730 Income (loss) and foreign
exchange 1,080 142 (4 )
(62 ) 175 18 811
AUM - Ending
Balance $ 63,813 $ 9,810 $ 4,021 $ 7,867 $ 6,084 $ 6,898 $
29,133
Third-Party Capital Raised $ 1,762 $ 26
$ 405 $ 523 $ 554 $ 254 $ -
Segment Revenues Management fees $ 152 $ 36 $ 17 $ 37 $ 28 $
23 $ 11 Incentive income 78 1 21
1 42 13 - Total
230 37 38 38 70 36 11
Segment Expenses Operating
expenses (109 ) (12 ) (17 ) (24 ) (17 ) (26 ) (13 ) Profit sharing
compensation expenses (39 ) 1 (6 )
(7 ) (20 ) (7 ) - Total (148 )
(11 ) (23 ) (31 ) (37 ) (33 ) (13 )
Fund Management DE (before Principal
Performance Payments) 82 26
15 7 33 3
(2 ) Principal Performance Payments (6 ) - (2 ) (1 ) (3 ) -
-
Fund
Management DE 76 26 13
6 30 3 (2 )
Investment Income 96 91 1 1 2 - 1 Unallocated Investment
Income 1 Unallocated Expenses (1 )
Pre-tax Distributable Earnings $ 172
$ 117 $ 14 $ 7 $ 32 $ 3 $
(1 )
Pre-tax Distributable Earnings per Dividend Paying
Share $ 0.39
__________________________________
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 1-b
Supplemental Data for the Six Months
Ended June 30, 2015 and 2014
Six Months Ended June 30, 2015
Private Equity
Credit Funds
(in millions)
Total Funds
Permanent Capital
Vehicles
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 1,170 - - 257 254 659 - Equity raised (Permanent Capital
Vehicles) 2,441 - 2,441 - - - - Increase in invested capital 1,514
181 287 - 21 1,025 - Redemptions (1,160 ) - - (1,108 ) (52 ) - -
RCA distributions8 (266 ) - - - (266 ) - - Return of capital
distributions (870 ) (278 ) (99 ) (62 ) (31 ) (400 ) - Adjustment
for reset date (168 ) - (168 ) - - - - Crystallized Incentive
Income (116 ) - - - (116 ) - - Change in AUM of Affiliated Managers
388 - - 388 - - - Net Client Flows 1,645 - - - - - 1,645 Income
(loss) and foreign exchange (142 ) 318
(80 ) (226 ) 261 8 (423 )
AUM - Ending Balance $ 71,967 $ 9,587 $ 6,948 $ 7,377 $
6,244 $ 8,247 $ 33,564
Third-Party Capital Raised $
8,573 $ - $ 2,441 $ 257 $ 254 $
5,621 $ -
Segment Revenues Management
fees $ 283 $ 58 $ 42 $ 40 $ 59 $ 57 $ 27 Incentive income
234 - 77 -
73 84 - Total 517 58 119 40 132
141 27
Segment Expenses Operating expenses (236 ) (29
) (34 ) (48 ) (37 ) (60 ) (28 ) Profit sharing compensation
expenses (84 ) - (9 ) (1 )
(30 ) (44 ) - Total (320 ) (29 ) (43 )
(49 ) (67 ) (104 ) (28 )
Earnings From Affiliated
Managers 8 - - 8 - - -
Fund Management DE (before Principal Performance
Payments) 205 29 76
(1 ) 65 37 (1 )
Principal Performance Payments (21 ) - (11 ) - (8 ) (2 ) -
Fund Management DE
184 29 65 (1 )
57 35 (1 ) Investment
Income 10 - 1 4 1 4 - Unallocated Investment Income - Unallocated
Expenses (2 )
Pre-tax Distributable Earnings $ 192 $ 29 $ 66
$ 3 $ 58 $ 39 $ (1 )
Pre-tax
Distributable Earnings per Dividend Paying Share $ 0.42
Six Months Ended June 30, 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 $ 11,861 $ 3,722 $ 7,398 $ 5,856 $ 7,527 $ 25,386 Capital
raised 2,182 - - 1,825 357 - - Equity raised (Permanent Capital
Vehicles) 171 - 171 - - - - Increase in invested capital 588 60 215
- 15 298 - Redemptions (912 ) - - (876 ) (36 ) - - RCA
distributions8 (307 ) - - - (307 ) - - Return of capital
distributions (3,287 ) (2,154 ) (84 ) (37 ) (28 ) (984 ) -
Crystallized Incentive Income (289 ) - - (129 ) (160 ) - - Net
Client Flows 2,207 - - - - - 2,207 Income (loss) and foreign
exchange 1,710 43 (3 )
(314 ) 387 57 1,540
AUM - Ending Balance $ 63,813 $ 9,810 $ 4,021 $ 7,867 $
6,084 $ 6,898 $ 29,133
Third-Party Capital Raised $
3,371 $ 105 $ 405 $ 1,825 $ 782
$ 254 $ -
Segment Revenues Management
fees $ 299 $ 71 $ 33 $ 70 $ 55 $ 48 $ 22 Incentive income
182 3 25 1
74 79 - Total 481 74 58 71 129
127 22
Segment Expenses Operating expenses (213 ) (23
) (31 ) (47 ) (34 ) (52 ) (26 ) Profit sharing compensation
expenses (92 ) - (6 ) (9 )
(35 ) (42 ) - Total (305 ) (23 ) (37 )
(56 ) (69 ) (94 ) (26 )
Fund Management DE (before Principal Performance
Payments) 176 51 21
15 60 33 (4 )
Principal Performance Payments (13 ) - (3 ) (1 ) (8 ) (1 ) -
Fund Management
DE 163 51 18
14 52 32 (4 )
Investment Income 106 95 1 2 3 4 1 Unallocated Investment Income 1
Unallocated Expenses (2 ) - - - - - -
Pre-tax Distributable Earnings $ 268
$ 146 $ 19 $ 16 $ 55 $ 36
$ (3 )
Pre-tax Distributable Earnings per Dividend Paying
Share $ 0.59
__________________________________
8 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
Three Months Ended Fortress March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Private Equity Funds $ 11,512 $
9,810 $ 9,787 $ 9,366 $ 9,366 $ 10,179 $ 9,587 Permanent Capital
Vehicles 3,731 4,021 4,411 4,567 4,567 4,622 6,948 Liquid Hedge
Funds9 7,738 7,867 7,529 8,128 8,128 7,838 7,377 Credit Hedge Funds
5,968 6,084 6,140 6,173 6,173 6,271 6,244 Credit Private Equity
Funds 6,979 6,898 7,083 6,955 6,955 7,563 8,247 Logan Circle
26,592 29,133 31,096
32,342 32,342 33,416
33,564
AUM - Ending Balance $ 62,520 $ 63,813
$ 66,046 $ 67,531 $ 67,531 $ 69,889
$ 71,967
Third-Party Capital Raised $
1,609 $ 1,762 $ 1,216 $ 1,692 $ 6,279
$ 5,360 $ 3,213
Segment Revenues
Management fees $ 147 $ 152 $ 149 $ 153 $ 601 $ 139 $ 144 Incentive
income 104 78 88
191 461 51 183
Total 251 230 237 344 1,062 190 327
Segment Expenses
Operating expenses (104 ) (109 ) (112 ) (126 ) (451 ) (115 ) (121 )
Profit sharing compensation expenses (53 ) (39 )
(54 ) (96 ) (242 ) (30 ) (54 )
Total (157 ) (148 ) (166 ) (222 ) (693 ) (145 ) (175 )
Earnings From Affiliated Managers - - - - - 9 (1 )
Fund Management DE
(before Principal Performance Payments) 94
82 71 122 369
54 151 Principal Performance
Payments (7 ) (6 ) (4 ) (12 ) (29 ) (3 ) (18 )
Fund Management DE $ 87 $
76 $ 67 $ 110 $ 340 $ 51 $ 133
Net Investment Income 10 96 (12 ) 13 106 4 4
Pre-tax Distributable
Earnings $ 97 $ 172 $ 55 $ 123 $
446 $ 55 $ 137
__________________________________
9 The Assets Under Management presented for the Liquid Hedge Funds
includes $3,896 million related to Affiliated Managers as of June
30, 2015.
Fortress Investment Group LLC
Exhibit 2-b
Assets Under
Management and Fund Management DE
(dollars in millions)
Three Months Ended Three Months Ended
Private Equity Funds March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Main Funds10 $ 7,787 $ 7,053
$ 7,347 $ 6,934 $ 6,934 $ 7,726 $ 7,128 Coinvestment Funds11 3,393
2,401 2,088 2,006 2,006 1,994 1,902 MSR Opportunities Funds12 332
344 341 326 326 336 417 Italian NPL Opportunities Fund - 12 11 25
25 19 20 Fortress Equity Partners - -
- 75 75 104
120
AUM - Ending Balance $ 11,512 $
9,810 $ 9,787 $ 9,366 $ 9,366 $ 10,179
$ 9,587
Third-Party Capital Raised $ 79
$ 26 $ 101 $ - $ 206 $ -
$ -
Segment Revenues Management fees $ 35 $ 36
$ 33 $ 32 $ 136 $ 29 $ 29 Incentive income 2 1
- - 3 -
- Total 37 37 33 32 139 29 29
Segment Expenses Operating expenses (11 ) (12 ) (15 ) (13 )
(51 ) (14 ) (15 ) Profit sharing compensation expenses (1 )
1 - - -
- - Total (12 ) (11 ) (15 ) (13 ) (51 )
(14 ) (15 )
Fund Management DE (before Principal Performance Payments)
25 26 18 19
88 15 14 Principal
Performance Payments - - - - - - -
Fund Management DE $ 25 $ 26
$ 18 $ 19 $ 88 $ 15 $ 14
Net Investment Income 4 91 - - 95 - -
Pre-tax Distributable Earnings $
29 $ 117 $ 18 $ 19 $ 183 $ 15
$ 14
__________________________________
10 Combined AUM for Fund III, Fund IV and Fund V.
11 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.
12 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
Three Months Ended Permanent Capital Vehicles
March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Newcastle Investment Corp. $
1,321 $ 1,381 $ 1,579 $ 768 $ 768 $ 680 $ 680 New Residential
Investment Corp. 1,196 1,367 1,366 1,367 1,367 1,367 2,725
Eurocastle Investment Limited 556 553 510 488 488 432 626 New Media
Investment Group Inc. 391 390 505 487 487 637 637 New Senior
Investment Group Inc. - - - 812 812 813 1,089 Fortress
Transportation and Infrastructure Investors LLC13 267
330 451 645 645
693 1,191
AUM - Ending
Balance $ 3,731 $ 4,021 $ 4,411 $ 4,567
$ 4,567 $ 4,622 $ 6,948
Third-Party Capital Raised $ - $ 405 $ 673
$ - $ 1,078 $ 150 $ 2,291
Segment Revenues Management fees $ 16 $ 17 $ 17 $ 19 $ 69 $
19 $ 23 Incentive income 4 21 16
25 66 3 74
Total 20 38 33 44 135 22 97
Segment Expenses
Operating expenses (14 ) (17 ) (18 ) (20 ) (69 ) (18 ) (16 ) Profit
sharing compensation expenses - (6 ) (9
) (6 ) (21 ) - (9 ) Total (14 )
(23 ) (27 ) (26 ) (90 ) (18 ) (25 )
Fund Management DE (before Principal
Performance Payments) 6 15 6
18 45 4 72
Principal Performance Payments (1 ) (2 ) - (3 ) (6 )
- (11 )
Fund
Management DE $ 5 $ 13 $ 6 $ 15 $
39 $ 4 $ 61 Net Investment Income - 1 1
- 2 - 1
Pre-tax
Distributable Earnings $ 5 $ 14 $ 7 $ 15
$ 41 $ 4 $ 62
__________________________________
13 All of the capital of Worldwide Transportation and
Infrastructure Investors ("WWTAI"), a private fund managed by
Fortress, was contributed to FTAI which completed its initial
public offering in 2Q 2015.
Exhibit 2-d
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended Three Months Ended
Credit Hedge Funds March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Drawbridge Special
Opportunities Funds14 $ 5,616 $ 5,745 $ 5,817 $ 5,929 $ 5,929 $
6,023 $ 6,021 Value Recovery Funds15 338 324 309 200 200 189 156
Japan Income Fund 14 15 14
44 44 59 67
AUM - Ending Balance $ 5,968 $ 6,084 $
6,140 $ 6,173 $ 6,173 $ 6,271 $ 6,244
Third-Party Capital Raised $ 228 $ 554
$ 165 $ 48 $ 995 $ 175 $ 79
Segment Revenues Management fees $ 27 $ 28 $
29 $ 30 $ 114 $ 30 $ 29 Incentive income 32 42
29 19 122
23 50 Total 59 70 58 49 236 53 79
Segment Expenses Operating expenses (17 ) (17 ) (17 ) (19 )
(70 ) (18 ) (19 ) Profit sharing compensation expenses (15 )
(20 ) (14 ) (10 ) (59 ) (12 )
(18 ) Total (32 ) (37 ) (31 ) (29 ) (129 ) (30 ) (37 )
Fund Management
DE (before Principal Performance Payments) 27
33 27 20 107
23 42 Principal
Performance Payments (5 ) (3 ) (4 ) (8 ) (20 ) (2 ) (6 )
Fund Management DE
$ 22 $ 30 $ 23 $ 12 $ 87 $ 21
$ 36 Net Investment Income 1 2 (5 ) 1 (1 ) 1 -
Pre-tax
Distributable Earnings $ 23 $ 32 $ 18 $ 13
$ 86 $ 22 $ 36
Net
Returns16
Drawbridge Special Opportunities Fund LP 3.2 % 2.6 % 1.9 % 2.1 %
10.0 % 2.2 % 2.3 % Drawbridge Special Opportunities Fund Ltd 2.2 %
1.7 % 1.7 % 0.2 % 6.0 % 1.1 % 0.4 %
__________________________________
14 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.
15 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.
16 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 Months
Ended Credit Private Equity Funds March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Long Dated Value Funds17 $
395 $ 375 $ 361 $ 361 $ 361 $ 352 $ 315 Real Assets Funds 78 70 64
66 66 52 40 Fortress Credit Opportunities Funds18 4,712 4,649 4,960
5,465 5,465 6,029 6,802 Japan Opportunity Funds19 1,794
1,804 1,698 1,063
1,063 1,130 1,090
AUM
- Ending Balance $ 6,979 $ 6,898 $ 7,083 $
6,955 $ 6,955 $ 7,563 $ 8,247
Third-Party Capital Raised $ - $ 254 $ 30
$ 899 $ 1,183 $ 4,949 $ 672
Segment Revenues Management fees $ 25 $ 23 $ 24 $ 25
$ 97 $ 27 $ 30 Incentive income 66 13
41 134 254 24
60 Total 91 36 65 159 351 51 90
Segment Expenses Operating expenses (26 ) (26 ) (27 ) (29 )
(108 ) (30 ) (30 ) Profit sharing compensation expenses (35
) (7 ) (22 ) (68 ) (132 ) (14 )
(30 ) Total (61 ) (33 ) (49 ) (97 ) (240 ) (44 ) (60 )
Fund Management
DE (before Principal Performance Payments) 30
3 16 62 111
7 30 Principal Performance
Payments (1 ) - - (1 ) (2 ) (1 ) (1 )
Fund Management DE $ 29 $ 3
$ 16 $ 61 $ 109 $ 6 $ 29
Net Investment Income 4 - 2 7 13 1 3
Pre-tax Distributable Earnings $
33 $ 3 $ 18 $ 68 $ 122 $ 7
$ 32
__________________________________
17 Combined AUM for Long Dated Value Fund I, Long Dated Value Fund
II, Long Dated Value Fund III and LDVF Patent Fund.
18 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.
19 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 Three Months
Ended Liquid Hedge Funds March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management Fortress Macro Funds20 $ 3,503 $
3,391 $ 3,083 $ 3,249 $ 3,249 $ 2,779 $ 2,326 Drawbridge Global
Macro Funds21 286 261 223 229 229 227 210 Fortress Convex Asia
Funds22 130 136 189 197 197 226 220 Fortress Centaurus Global
Funds23 - - - 33 33 64 191 Fortress Partners Funds24 952 965 935
913 913 541 534 Fortress Asia Macro Funds25 2,867 3,114 3,099 3,507
3,507 N/A N/A Affiliated Managers25 - -
- - - 4,001
3,896
AUM - Ending Balance $ 7,738 $
7,867 $ 7,529 $ 8,128 $ 8,128 $ 7,838
$ 7,377
Third-Party Capital Raised $
1,302 $ 523 $ 247 $ 745 $ 2,817
$ 86 $ 171
Segment Revenues Management
fees $ 33 $ 37 $ 33 $ 35 $ 138 $ 21 $ 19 Incentive income -
1 2 13 16
1 (1 ) Total 33 38 35 48 154 22 18
Segment Expenses Operating expenses (23 ) (24 ) (21 )
(31 ) (99 ) (21 ) (27 ) Profit sharing compensation expenses
(2 ) (7 ) (9 ) (12 ) (30 ) (4 )
3 Total (25 ) (31 ) (30 ) (43 ) (129 ) (25 ) (24 )
Earnings From Affiliated Managers - - - - - 9 (1 )
Fund Management
DE (before Principal Performance Payments) 8
7 5 5 25
6 (7 ) Principal Performance Payments -
(1 ) - - (1 ) - -
Fund Management DE $ 8 $ 6 $ 5 $ 5
$ 24 $ 6 $ (7 ) Net Investment Income 1
1 (9 ) 5 (2 ) 3 1
Pre-tax Distributable Earnings $ 9 $ 7 $ (4 )
$ 10 $ 22 $ 9 $ (6 )
Net
Returns26
Fortress Macro Fund Ltd (5.5 %) (0.4 %) 1.1 % 3.4 % (1.6 %) (4.7 %)
(6.5 %) Drawbridge Global Macro Fund Ltd (5.5 %) (0.6 %) 0.7 % 3.3
% (2.2 %) (4.9 %) (6.6 %) Fortress Convex Asia Fund Ltd (1.1 %)
(2.6 %) (0.6 %) (0.6 %) (4.9 %) (0.6 %) (0.8 %) Fortress Centaurus
Global Fund Ltd n/a n/a n/a n/a n/a 3.9 % (4.1 %) Fortress Partners
Fund LP27 1.1 % 2.1 % (1.4 %) (1.8 %) (0.1 %) 1.2 % (1.2 %)
Fortress Partners Offshore Fund LP27 0.9 % 2.2 % (1.4 %) (1.3 %)
0.4 % 0.3 % (2.5 %) Fortress Asia Macro Fund Ltd25 (3.6 %) (1.9 %)
1.4 % 3.1 % (1.2 %) n/a n/a
__________________________________
20 Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro
Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund Ltd and
Fortress Macro managed accounts. 21 Combined AUM for Drawbridge
Global Macro Fund LP and Drawbridge Global Macro Intermediate Fund
LP. 22 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. 23 Combined AUM for Fortress Centaurus
Global Fund LP and Fortress Centaurus Global Fund Ltd. 24 Combined
AUM for Fortress Partners Fund LP and Fortress Partners Offshore
Fund LP. 25 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. 26 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. 27 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 Three Months
Ended Logan Circle
March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
Assets Under Management AUM - Ending
Balance $ 26,592 $ 29,133 $ 31,096 $
32,342 $ 32,342 $ 33,416 $ 33,564
Net Client Flows $ 477 $ 1,730 $ 2,178
$ 1,035 $ 5,420 $ 589 $ 1,056
Segment Revenues Management fees $ 11 $ 11 $ 13 $ 12
$ 47 $ 13 $ 14 Incentive income - -
- - - -
- Total 11 11 13 12 47 13 14
Segment
Expenses Operating expenses (13 ) (13 ) (14 ) (14 ) (54 ) (14 )
(14 ) Profit sharing compensation expenses - -
- - - -
-
Total (13 ) (13 ) (14 ) (14 ) (54 ) (14 ) (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
Three Months Ended
Six Months
Ended
June 30, 2015
March 31,
2014
June 30,
2014
September 30,
2014
December 31,
2014
Full Year
2014
March 31,
2015
June 30,
2015
GAAP Net Income (Loss) $ 9
$ 73 $ 17 $
141 $ 240 $ 87
$ 5 $ 92
Principals' and Others' Interests in (Income) Loss of Consolidated
Subsidiaries (6 ) (42 ) (13 ) (79 ) (140 ) (52 ) (2 ) (54 )
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
$ 3 $ 38 Private
Equity incentive income (including private permanent capital
vehicle) 37 (8 ) 36 29 94 3 19 22 Hedge Fund, PCV and Logan Circle
incentive income 30 26 21 (77 ) - 23 80 103 Reserve for clawback 2
- - - 2 - - - Distributions of earnings from equity method
investees 9 47 6 10 72 4 9 13 Losses (earnings) from equity method
investees (17 ) (20 ) (38 ) 7 (68 ) (27 ) 33 6 Losses (gains) on
options 5 1 23 1 30 (32 ) 9 (23 ) Losses (gains) on other
Investments 5 42 (16 ) (17 ) 14 (1 ) (5 ) (6 ) Impairment of
investments - - (3 ) - (3 ) (3 ) - (3 ) Adjust income from the
receipt of options - (1 ) (5 ) - (6 ) (4 ) (21 ) (25 ) Gain on
transfer of Graticule - - - - - (134 ) - (134 ) Amortization of
intangible assets and impairment of goodwill - - - - - - - -
Employee, Principal and director compensation 12 6 6 12 36 20 6 26
Adjust non-controlling interests related to Fortress Operating
Group units 5 40 11 78 134 52 1 53 Tax receivable agreement
liability reduction - - 4 29 33 - 8 8 Adjust income taxes 6 8 3 (10
) 7 18 (5 ) 13 Adjust transfer of interest in Graticule -
- - - -
101 - 101
Pre-tax Distributable Earnings $ 97
$ 172 $ 55 $
123 $ 446 $ 55
$ 137 $ 192
Investment Loss (income) (10 ) (97 ) 11 (14 ) (109 ) (5 ) (4 ) (9 )
Interest Expense - 1 1
1 3 1 -
1
Fund Management DE $ 87
$ 76 $ 67 $
110 $ 340 $ 51
$ 133 $ 184
GAAP
Revenues $ 237 $ 270
$ 243 $ 455 $
1,205 $ 227 $ 308
$ 535 Adjust management fees - - - (1 )
(1 ) (1 ) 1 - Adjust incentive income 69 17 57 (47 ) 96 27 100 127
Adjust income from the receipt of options - (1 ) (5 ) - (6 ) (4 )
(21 ) (25 ) Other revenues (55 ) (56 ) (57 )
(65 ) (233 ) (59 ) (61 ) (120 )
Segment Revenues $ 251 $
230 $ 238 $ 343
$ 1,062 $ 190
$ 327 $ 517
GAAP
Expenses $ 231 $ 216
$ 235 $ 310 $
992 $ 329 $ 258
$ 587 Adjust interest expense - (1 ) (1
) (1 ) (3 ) (1 ) - (1 ) Adjust employee, Principal and director
compensation (12 ) (6 ) (3 ) (3 ) (24 ) (18 ) (2 ) (20 ) Adjust
amortization of intangible assets and impairment of goodwill - - -
- - - - - Adjust expense reimbursements from affiliates and
non-affiliates (54 ) (52 ) (55 ) (70 ) (231 ) (59 ) (61 ) (120 )
Adjust Principal Performance Payments (9 ) (9 ) (9 ) (15 ) (42 ) (5
) (20 ) (25 ) Adjust transfer of interest in Graticule - - - - -
(101 ) - (101 ) Other - - (1 )
1 - - -
-
Segment Expenses $ 157 $
148 $ 166 $ 221
$ 692 $ 145
$ 175 $ 320
‘‘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 June 30, 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. Fund management DE
is comprised of “Pre-tax Distributable Earnings” excluding
“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 June 30, Six
Months Ended June 30, 2015 2014 2015 2014
Weighted Average Class A Shares
Outstanding (Used for Basic EPS)
216,183,181 207,783,751
215,985,577 212,328,315 Weighted
average fully vested restricted Class A share units with dividend
equivalent rights (3,717,045 ) (1,431,885 ) (5,464,698 ) (2,653,378
) Weighted average fully vested restricted Class A shares (780,497
) (1,000,310 ) (810,412 ) (986,867 )
Weighted Average Class A Shares
Outstanding
211,685,639 205,351,556
209,710,467 208,688,070 Weighted
average restricted Class A shares28 780,497 1,000,310 810,412
986,867 Weighted average fully vested restricted Class A share
units which are entitled to dividend equivalent payments 3,717,045
1,431,885 5,464,698 2,653,378 Weighted average unvested restricted
Class A share units which are entitled to dividend equivalent
payments 11,159,183 7,513,984 9,761,060 6,763,630 Weighted average
Fortress Operating Group units 226,331,513 226,331,513 226,331,513
236,074,150
Weighted Average Class A Shares
Outstanding (Used for DEPS)
453,673,877 441,629,248
452,078,150 455,166,095 Weighted average
vested and unvested restricted Class A share units which are not
entitled to dividend equivalent payments
13,416,141
13,418,337 12,564,428 12,932,088
Weighted Average Fully Diluted Shares
and Units Outstanding (Used for Diluted DEPS)
467,090,018
455,047,585 464,642,578
468,098,183
“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.
__________________________________ 28 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 June 30, 2015 As of
December 31, 2014
GAAP
Book Value
Net Cash and
Investments
GAAP
Book Value
Net Cash and
Investments
Cash and Cash equivalents $ 233,912 $ 233,912 $ 391,089
$ 391,089 Investments 1,144,597 1,144,597 1,121,545
1,121,545 Investments in options29 60,950 - 71,844 - Due from
Affiliates 188,051 - 326,575 - Deferred Tax Asset, net 415,915 -
417,623 - Other Assets 165,531 - 173,708
-
Total Assets 2,208,956 1,378,509
2,502,384 1,512,634 Debt Obligations Payable
75,000 75,000 $ 75,000 75,000 Accrued Compensation and Benefits
181,967 - 374,709 - Due to Affiliates 372,660 - 375,424 - Deferred
Incentive Income 326,338 - 304,526 - Other Liabilities
90,430 - 88,053 -
Total Liabilities
1,046,395 75,000 1,217,712 75,000
Less: Redeemable Non-controlling Interests 19
- 1,717 -
Net $ 1,162,542 $ 1,303,509 $
1,282,955 $ 1,437,634
Shares
Outstanding
Dividend Paying
Shares and Units
Outstanding
Shares
Outstanding
Dividend Paying
Shares and Units
Outstanding
Class A Shares 214,985 214,985 207,490 207,490 Restricted Class A
Shares 688 688 1,045 1,045 Fortress Operating Group Units 226,332
226,332 226,332 226,332 Fully Vested Class A Shares - Dividend
Paying - 554 - 194 Unvested Class A Shares - Dividend Paying
- 11,159 - 7,002
Shares Outstanding
442,005 453,718 434,867 442,063
Per Share $ 2.63 $
2.87 $ 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.
__________________________________
29 The intrinsic value of options in equity method investees
totaled $38 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 permanent capital vehicles and sold all of the
resulting shares at their June 30, 2015 closing price and differs
from the fair value derived from option pricing models included in
the table above.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150730005702/en/
Investor & Media Relations:Fortress Investment
GroupGordon E. Runté, +1-212-798-6082grunte@fortress.com
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