AUGUST 5, 2010, 10:26 A.M. ET
NEW YORK (Dow Jones)--Fortress Investment Group LLC (FIG) said Thursday its second-quarter net loss widened, though distributable earnings improved as funds rebounded from previous year's low.
It also said it managed to attract $1.9 billion of new third-party capital in the "most successful capital raising quarter" since second quarter of 2007.
The private equity and hedge fund manager said it closed a Japan real estate focused fund at $800 million in the quarter and its Credit Opportunities Funds II at a total commitment of $2.6 billion in July.
"Our new commitment captured 5% of all hedge fund inflows in the quarter," said Chief Executive Daniel Mudd. "We are building our international investor base. For our Japan fund, 80% of the U.S. dollar commitments came from international investors."
Mudd said market turbulence in the second quarter didn't sway him from his thesis that opportunities still loom large.
"There is a great liquidation story going to play out in the next three to five years," he said. "Large scale downsizing is still to come. We believe the value of offloading non-core assets or platform could be as high as 20 to 30 times what we experienced in the loan crisis. There will be tons of low-hanging fruits."
Fortress recorded a net loss of $92 million or 57 cents per share in the second quarter, up from $45 million in the year-earlier period. Distributable earnings--which excludes certain expenses and the effects of unrealized gains and losses on illiquid investments--rose to 14 cents from 12 cents a year earlier.
The company was one of the hardest hit private-investment firms during the recession, Fortress is still recouping ground in terms of those high-water marks, or the level of performance needed to collect incentive fees.
It reported $50 million in incentive fees, which can be earned only after funds have regained their "high-water marks," bringing total segment revenue to $173 million. During the second quarter of 2009, when the funds were below those marks, Fortress earned no incentive income and reported just $33 million total segment revenue.
Fortress' assets under management, which were reported on a pro-forma basis in the most-recent quarter, rose to $41.7 billion from $30.2 billion in the prior quarter, after adding $11.5 billion from acquiring Logan Circle Partners.
Fortress' hedge funds dedicated to special opportunities, the company's largest in terms of assets under management, were up between 3.4% and 4% net of fees through the end of June.
The company also reported that both its Fortress Macro Offshore and Drawbridge Global Macro funds were up through the end of July. A fund dedicated to commodities took a hit from volatile commodity prices last month and was down 5.9% through the end of July, net of fees.
-Amy Or, Dow Jones Newswires; 212-416-3142; amy.or@dowjones.com
From Bloomberg published on AUGUST 5, 2010, 10:26 A.M. ET
