Fortress posts strong credit returns

The firm has been harvesting credit returns to investors, though Peter Briger says distressed investment opportunities are rare right now. The continued underperformance in the hedge fund business, meanwhile, has prompted Fortress to scale down that group.  

Fortress Investment Group’s credit business and funds have continued to post strong results, with its flagship Drawbridge Special Opportunities Fund returning 2.3 percent net IRR in the second quarter. Fortress’ annualized inception-to-date net IRR for the Fortress Credit Opportunities (FCO) I, II and III came in at 25.1 percent, 17.7 percent, and 12 percent, respectively.

The strong performance helped drive good incentive income for the business. “Outstanding investment performance and an uptick in realization led the second quarter incentive income of $110 million, that’s a second highest quarter of incentive income ever recorded by our credit business,” said Fortress chief executive Randy Nardone, speaking on the alternative investment firm’s earnings call on 30 July. Overall, incentive income for the entire business was at $183 million in the second quarter, which was the fourth highest quarter of incentive income ever for the firm.

Speaking on the same earnings call, Peter Briger (pictured), Fortress’ head of credit and co-chairman, offered an overview of the current credit market position. “The credit and real estate businesses at Fortress have continued to do well in a market which is almost devoid of new investment opportunity. Philosophically, we’re in a position where we continue to harvest our credit PE portfolios. We continue to harvest our real estate portfolios. We’ve raised quite a bit of capital but the investment pace continues to be slow,” Briger said.

The firm’s credit hedge funds have failed to capitalise on risks in the market, said Briger, noting that Fortress had returned capital from the firm’s credit hedge funds this month. He ticked off risks including the Puerto Rican default, Chinese stock market volatility and the risk of Grexit in the Eurozone and explained that the firm didn’t “see the perception of risk really reflecting a good investment opportunity”.

The firm’s macro hedge funds, headed up by Mike Novogratz, have continued to lose money since last year. The funds posted a 6.2 percent loss in the quarter and Novogratz, speaking on the firm’s earnings call, said the firm will scale down that business to try to turn performance around. “Starting 1 July, we made the decision to restructure the business and restructure the funds where I become the sole risk taker … We’re right-sizing the business and scaling it down to an appropriate size for one risk-taker,” he said.

The firm raised $3.2 billion across various alternative investment funds in the quarter, bringing its total assets to a record $72 billion, a 13 percent increase year-on-year. Assets raised in the last six months totalled $8.6 billion, and the firm estimates it now has about $10 billion in dry powder.