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Fortress Investment Group LLC said first-quarter profit fell 43 percent as fund management fees declined and it sold fewer holdings.
Pretax distributable earnings, which exclude some compensation costs and other items, decreased to $55 million, or 12 cents a share, from $97 million, or 21 cents, a year earlier, New York-based Fortress said in a statement Thursday. The results missed the 21-cent average per-share estimate by five analysts in a Bloomberg survey.
Earnings were hurt by higher operating expenses and lower management fees as some of the firm’s hedge funds posted losses. Fortress’s macro fund, which invests across products and geographies, lost 4.7 percent in the quarter and the company’s Asia macro fund declined 0.7 percent.
“The weak start to the year for Fortress’s macro fund means it still has to dig out of a modest-sized hole to reach its high-water marks,” Rob Lee, an analyst at Keefe Bruyette & Woods, said in a note to clients last month. He said his firm expected hedge fund performance fees for Fortress to be minimal.
Fortress shares fell 1.1 percent to $8.08 at 9:41 a.m. in New York, paring gains this year to 0.7 percent. The stock is down more than 50 percent from the company’s February 2007 initial public offering, when it sold shares at $18.50 apiece to become the first U.S.-listed buyout and hedge-fund manager.
Fortress executives cited the firm’s success raising funds during the period in a conference call after the results were announced. The firm raised $5.4 billion in fresh capital during the quarter, mostly for its latest credit opportunities fund. That boosted fee-paying assets to a record $69.9 billion.
Private equity fund valuations appreciated 4.8 percent, fueled by a 43 percent jump in Fortress’s investment in consumer lender Springleaf Holdings Inc.
Springleaf’s rise elevated returns for Fortress Investment Fund V, a $5 billion fund vehicle raised in 2007, above the 8 percent threshold needed for Fortress to collect incentive fees on fund profits.
Springleaf has produced a $3.34 billion, or 27-fold, unrealized profit on a $124 million investment made in 2010.
Fortress’s distributable earnings differ from U.S. generally accepted accounting principles.
Under those rules, known as GAAP, the company’s net income attributable to Class A shareholders was $35 million, or 15 cents a share, compared with $3 million, or 1 cent, a year earlier.