Fortress posts strong results thanks to good credit returns

Fortress Investment Group posted strong results for the fourth quarter and full-year 2014, partly driven by the performance fees it earned on its credit segment throughout the year. The firm achieved record incentive income on its credit funds that led to full-year distributable earnings of $210 million. The Drawbridge Special Opportunities fund finished the year up 10 percent net of fees, while the credit private equity funds closed with net IRRs ranging from 18 percent to 31 percent, said chief executive Randy Nardone on Fortress’s earnings call on 26 February.

The firm declared a cash dividend of $0.38 per share that day bringing total dividends for the year to $0.80. Its assets under management also grew to a record of $67.8 billion: a 2 percent increase from the prior quarter ($66 billion), and 9 percent rise from the end of 2013 ($61.7 billion). Fortress’ pre-tax distributable earnings were $123 million for the fourth quarter and $446 million for the full year, compared to $121 million in the fourth quarter of 2013, and $434 million for the full year in 2013. Nardone said distributable earnings reached their highest levels since before the financial crisis in 2007.

The firm is raising its fourth global opportunities fund, and Nardone said it’s on pace to reach its $5 billion target. Fortress is also raising a second real estate fund and a third Japan fund, which is aiming for a first close of $800 million this quarter. The firm raised $1.8 billion in the fourth quarter across various new funds, and $6.4 billion during the year.

Fortress’s macro hedge funds suffered, though, posting a 1.6 percent loss for the year. The group is headed by Michael Novogratz and posted poor returns from a series of bad bets against US bonds and the Japanese yen, according to recent reports.

While the firm has enjoyed strong performance in its credit segment in 2014, Peter Briger (pictured), who heads up the credit group, noted on the earnings call that this year might be more benign for distressed investing. “The environment for credit is less interesting. The energy sector, which has had a lot of trauma is becoming an area that’s interesting, but there’s still a big amount of capital out there chasing credit opportunities and the perception of risk in credit is not interesting from a general investment perspective,” he said, responding to questions from analysts.