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Fortress earnings almost triple, firm tops 4q estimates

Tuesday, March 01, 2011

Daniel H. Mudd
Opalesque Industry Update - Fortress Investment Group LLC (NYSE: FIG) today reported its year end and fourth quarter 2010 results.

HIGHLIGHTS
Assets under managementof $44.6 billion as of December 31, 2010, up 42% from $31.5 billion as of December 31, 2009.

Pre-tax distributable earnings (DE) of $372 million in 2010, up from $126 million in 2009; pre-tax DE of $0.72 per dividend paying share in 2010, up 177% from $0.26 per dividend paying share in 2009. Pre-tax DE of $125 million in the fourth quarter of 2010, up from $1 million in the fourth quarter of 2009; pre-tax DE of $0.24 per dividend paying share in the fourth quarter of 2010.

Fund management DE of $358 million in 2010, up 72% from $208 million in 2009. Fund management DE of $122 million in the fourth quarter of 2010, up 103% from $60 million in the fourth quarter of 2009.

2010 GAAP net income, excluding principals agreement compensation, increased to $170 million in 2010, compared to $43 million in 2009; GAAP net loss attributable to Class A Shareholders in 2010 was $285 million, compared to $255 million in 2009.

Raised $5.3 billion of new third-party capital during 2010, $2.6 billion of which was included in assets under management as of December 31, 2010. The remaining $2.7 billion is capital committed to our funds by investors that will become assets under management when called. Of the $5.3 billion raised, $3.1 billion was in Credit Private Equity Funds, $447 million was in Credit Hedge Funds and $1.7 billion was in Liquid Hedge Funds.

During 2010, we significantly expanded our presence in Asia, closing the Fortress Japan Opportunities Fund at its cap of $800 million, launching the Global Opportunities Fund, and opening an office in Singapore to serve as a hub for our activities in Asia outside of Japan.

"Our fourth quarter and full year results were very solid, and reflect broad momentum that has carried into 2011," said Daniel Mudd, Chief Executive Officer. "Our funds continued to deliver strong returns, capital raising increased apace, and we have attracted a significant number of new investors to Fortress. We are also taking important steps to answer demand for our investment capabilities on an increasingly global basis. As we work through the continued shallow, choppy economic recovery and periodic event-driven volatility, we believe our businesses are very well-positioned to deliver strong results for our investors."

Please see the exhibits to this press release for a reconciliation of non-GAAP measures referred to in this press release to the related GAAP measures.

CONSOLIDATED RESULTS - SEGMENTS
As of December 31, 2010, assets under management totaled $44.6 billion, up 42% from $31.5 billion as of December 31, 2009. The net increase was principally from the acquisition of Logan Circle Partners in April 2010. Logan Circle Partners, which had $11.7 billion of assets under management as of December 31, 2010, will not be reported as a separate segment until such time as its operations become material to our overall performance. Currently, it is included under "Unallocated Revenues" and "Unallocated Expenses" in the tables contained in this press release.

Pre-tax DE was $372 million in 2010, up from $126 million in 2009. On a dividend paying share basis, pre-tax DE was $0.72 per share in 2010, up 177% from $0.26 per share in 2009. Pre-tax DE increased primarily as a result of higher incentive income across the Credit Private Equity Funds, Credit Hedge Funds and Liquid Hedge Funds. Certain capital in the Credit Hedge Funds started earning incentive income in the second quarter, which increased significantly in the third and fourth quarters, while substantially all of the Liquid Hedge Funds started earning significant incentive income in the second half of the year. As of December 31, 2010, substantially all of the assets under management eligible to earn incentive income in the main Credit and Liquid Hedge Funds were above their high water marks.

In 2010, fund management distributable earnings were $358 million, up 72% from $208 million in 2009. This increase was driven by a $341 million increase in total segment revenues, offset by a $191 million increase in total segment expenses.

Total segment revenues were $840 million in 2010, up 68% from $499 million in 2009. The increase was primarily a result of (i) $170 million of incentive income recognized from our Credit Hedge Funds and Liquid Hedge Funds, compared to $16 million in 2009, (ii) $158 million of incentive income recognized from our Credit Private Equity Funds, compared to $23 million in 2009 and (iii) $41 million of incentive income recognized from our Private Equity Funds in 2010, compared to $36 million in 2009.

Total segment expenses were $482 million in 2010, up 66% from $291 million in 2009, largely driven by higher profit sharing compensation expenses. In 2010, profit sharing compensation expenses were $168 million, compared to $47 million in 2009. The increase is primarily a result of higher incentive income distributions from our funds. The remaining $70 million increase in segment expenses was made up of $28 million from Logan Circle Partners, which was not part of Fortress in prior years, and a $42 million increase in other operating expenses.

The Company's quarterly segment revenues and distributable earnings will fluctuate materially depending upon the performance of our funds and the realization events within our private equity businesses, as well as other factors.Accordingly, the revenues and profits in any particular quarter should not be expected to be indicative of future results.

CONSOLIDATED RESULTS - GAAP
Fortress had a GAAP net loss of $782 million in 2010, compared to a loss of $909 million in 2009. This included revenues of $950 million in 2010 and $584 million in 2009. Excluding principals agreement compensation, Fortress had net income of $170 million in 2010, compared to net income of $43 million in 2009.

In 2010, our GAAP net loss attributable to Class A Shareholders was $1.83 per diluted share, compared to $2.08 per diluted share in 2009.

Source

(Press release)

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