Fortress Investment Group LLC (FIG)

FIG 
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Fortress Investment Group LLC (FIG)

Q1 2013 Earnings Call

May 02, 2013 10:00 am ET

Executives

Gordon Runté

Randal Alan Nardone - Co-Founder, Interim Chief Executive Officer, Principal and Director

Daniel N. Bass - Chief Financial Officer

Wesley Robert Edens - Co-Founder, Co-Chairman of the Board, Principal, Head of Private Equity, Private Equity Chief Investment Officer and Member of Management Committee

Peter Lionel Briger - Co-Chairman of the Board, President, Principal, Head of Credit & Real Estate Business and Member of Management/Organization Development Committee

Analysts

Mark Deluzio - Crédit Suisse AG, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good morning. My name is Holly, and I'll be your conference operator today. At this time, we'd like to welcome everyone to the Fortress Investment Group First Quarter Earnings Conference Call. [Operator Instructions] I'd now like to turn today's conference over to Gordon Runté. Please go ahead, sir.

Gordon Runté

Okay. Thank you, Holly. Good morning, everyone, and welcome to the Fortress Investment Group First Quarter 2013 Earnings Conference Call. We'll begin our call today with opening remarks from Fortress Interim Chief Executive Officer, Randy Nardone; and Chief Financial Officer, Dan Bass. After these remarks, we'll save most of our time for your questions.

Joining us for that portion of our call, we have Co-Chairman and Co-Head of Credit, Pete Briger; Co-Chairman and Head of Private Equity, Wes Edens; Co-CIO of Credit, Dean Dakolias; and President of Liquid Markets, Stu Bohard, in addition to other members of our management team.

Before we begin, let me remind you that statements made today that are not historical facts may be forward-looking statements, and these statements are, by their nature, uncertain and may differ materially from actual results. So we encourage you to read the forward-looking statement disclaimer in both today's earnings release, in addition to the risk factors described in our quarterly and our annual filings.

And with that, let me hand off to Randy.

Randal Alan Nardone

Thanks, Gordon, and thanks, everyone, for joining us today. On our last call, we discussed our strong finish to 2012 and a strong start to 2013. Our first quarter results reflect a continuation of that trend with broad-based strength across all of our businesses.

Pre-tax distributable earnings was over $100 million for a second quarter in a row. That's an increase of 75% over the first quarter last year. Key drivers of our business, investment performance, capital raising and AUM growth, put us in a strong position going forward. Based on our performance, our board approved a $0.06 per share dividend for the first quarter.

Before taking a closer look at the quarter, let's provide a quick overview of Fortress today. At our core, we have 3 established non-correlated businesses in the alternative space. These businesses are supplemented by a growing traditional asset management platform. Together, our 4 businesses form a diversified global asset management firm with a model intended to provide resilience and strength through a range of market cycles.

From a revenue perspective, we have a stable and predictable base of management fees with substantial performance-driven upside. From a growth perspective, we have a good foundation to selectively expand our offerings and reach, most often by leveraging investment expertise coming out of our core strategies.

Here's the highlights of the first quarter. Our AUM increased to nearly $56 billion, an all-time high, even as we returned over $1.5 billion to our investors. We raised more than $1.5 billion of capital for alternatives, with most of that immediately added to fee-generating AUMs. This is our sixth consecutive quarter with over $1 billion in alternative capital raise. Additionally, net inflows of Logan Circle were a solid $1.2 billion.

Investment performance in every business was strong. A very good first quarter in all of our hedge funds and our main credit PE funds contributed to incentive income of over $116 million for the first quarter. That's more than double what we recorded in the first quarter of last year.

In our PE business, we built on a 4-year trend of substantial valuation gains in our main funds. With about $800 million in appreciation in the first quarter, NAV grew to an all-time high of over $16 billion. And at Logan Circle, we outperformed benchmarks in all of our strategies.

Strong investment performance, especially in the PE Funds, continued to drive increases in our balance sheet value. Net cash and investments totaled just under $3 a share at the end of the quarter, which represents nearly half of our share price today.

We addressed the catalysts for earnings and valuation upside on our last call. Here's an update. The key driver of management fee growth is increased AUM, coming from capital raise in existing funds and the introduction of new strategies. We have positive developments on both fronts.

First, all of our businesses are in the market-raising capital. We've closed on approximately $500 million in hedge fund commitments since quarter end. Asia Macro is now over the $1 billion mark from the a standing start just 2 years ago, the great example of growth from the introduction of a focused strategy developed within one of our core platforms.

Our PE business launched 2 new sector-specific funds in recent weeks: a second MSR fund and a second transportation and infrastructure fund. And we just announced last week the record date for the spinoff of our new residential mortgage REIT, more good examples of new businesses incubated within a core investment platform.

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