Fortress Group’s credit unit grows

The New York-based firm's credit hedge funds now have $5.4 billion in assets and the credit private equity funds are at $9.7 billion, while total firm AUM has grown to a peak of $63.8 billion.  

The Fortress Group’s credit hedge funds and private equity funds experienced moderate to strong performance and asset growth in the second quarter this year, according to the firm’s Q2 earnings call and release.

Its flagship Drawbridge Special Opportunities Fund returned 2.5 percent net of fees for the second quarter and 5.8 percent so far this year. The DBSO funds, along with the rest of the firm’s credit business are managed by Peter Briger, the co-chairman of the firm. The Drawbridge funds have enjoyed performance in the teens year-over-year and on an annualized basis in recent years.

The firm’s Credit Opportunities Fund recorded annualized inception-to-date net IRR of 25.7 percent, while the Credit Opportunities Fund II had gains of 18.9 percent and the Japan Opportunity Fund returned 27.9 percent by the same measures. The first credit opportunities fund closed at $3 billion in 2008, while the second one finished raising capital at $2.6 billion in 2010. The Japan fund, meanwhile, closed at ¥130 billion at the end of 2012.

Fortress also raised $554 million across its credit hedge funds in the quarter, primarily for the DBSO funds, of which $143 million immediately went to investible assets and the remaining $411 million is callable through June 30, 2016. The firm also raised $254 million for its second Real Estate Opportunities Fund this quarter.

The credit business, which includes hedge fund and private equity structures, generated pre-tax distributable earnings of $33 million in the second quarter of 2014, compared to $53 million in the second quarter of 2013. The year-over-year decline was primarily driven by lower incentive income, which was partially offset by higher management fees.

During the quarter, the firm held a first close for the second-generation Real Estate Opportunities Fund with $254 million of capital. Fortress’s first set of dedicated Real Estate Opportunities Funds closed in 2012 with $284 million in total third-party commitments. Fortress executives also announced on the call that they’d be closing their Infrastructure & Transportation Fund at $950 million today.

At the end of the quarter, the credit hedge funds had $5.4 billion of performance fee-earning AUM, while the credit private equity funds had $9.7 billion of fee-earning assets. The firm’s total AUM is now at a peak of $63.8 billion, a 17 percent increase from the end of June last year.