Fortress Investment Group LLC (NYSE: FIG) (“Fortress” or the
“Company”) today reported its third quarter 2017 financial
results.
FINANCIAL SUMMARY
- Management Fee Paying Assets Under
Management (“AUM”) of $36.1 billion as of September 30, 2017, down
2% compared to the previous quarter’s AUM, adjusted to exclude the
Logan Circle business which Fortress sold in September 2017
- GAAP net income of $190 million, or
$0.37 per diluted Class A share, for the third quarter of 2017,
compared to GAAP net income of $58 million, or $0.07 per diluted
Class A share, for the third quarter of 2016
- GAAP net income of $215 million, or
$0.43 per diluted Class A share, for the first nine months of 2017,
compared to GAAP net income of $16 million, or $0.02 per diluted
Class A share, for the first nine months of 2016
- Pre-tax distributable earnings (“DE”)
of $291 million, or $0.73 per dividend paying share, for the third
quarter of 2017, compared to pre-tax DE of $90 million, or $0.23
per dividend paying share, for the third quarter of 2016
- Pre-tax DE of $451 million, or $1.14
per dividend paying share, for the first nine months of 2017,
compared to pre-tax DE of $255 million, or $0.64 per dividend
paying share, for the first nine months of 2016
- Net cash and investments of $1.4
billion, or $3.54 per dividend paying share, as of September 30,
2017
- $1.4 billion of gross embedded
incentive income across funds and permanent capital vehicles as of
September 30, 2017, that has not yet been recognized in DE
- Total uncalled capital, or “dry
powder,” of $7.5 billion as of September 30, 2017, including $4.5
billion available for general investment purposes
BUSINESS HIGHLIGHTS
- Completed the sale of Logan Circle
Partners, L.P. (“Logan Circle”) to MetLife, Inc. (“MetLife”)
- Raised $1.8 billion of capital across
alternative investment businesses in the first nine months of
2017
- Investment performance summary as of
September 30, 2017:
- Annualized inception-to-date net IRRs
for Credit Opportunities Fund (“FCO”), FCO II and FCO III of 22.9%,
15.6% and 10.3%, respectively
- Third quarter and year-to-date 2017 net
returns of 2.0% and 5.6%, respectively, for the Drawbridge Special
Opportunities Fund (“DBSO”) LP
_____________________________
Note: This release contains certain Non-GAAP financial measures.
Fortress urges you to read the “Non-GAAP Information” section below
and to review the exhibits in this release for reconciliations of
these measures to the comparable GAAP measures.
PROPOSED ACQUISITION BY SOFTBANK
On July 12, 2017, Fortress announced that, at its special
meeting of shareholders, the Company’s shareholders had voted,
among other things, in favor of the proposal to adopt the
previously announced merger agreement pursuant to which certain
subsidiaries of SoftBank Group Corp. (“SoftBank”) will acquire
Fortress for approximately $3.3 billion in cash. Of the votes cast
in respect of the proposal to adopt the merger agreement,
approximately 99.7% of shares voted in favor. The transaction is
anticipated to close in the fourth quarter of 2017, subject to
certain regulatory approvals and other customary closing
conditions, after which Fortress will operate as an independent
business within SoftBank under the continuing leadership of
Fortress Principals Pete Briger, Wes Edens and Randy Nardone.
SUMMARY FINANCIAL RESULTS
Fortress’s business model is highly diversified, and management
believes that this positions the Company to capitalize on
opportunities for investing, capital formation and harvesting
profits that can occur at different points in any cycle for our
individual businesses. Fortress’s business model generates stable
and predictable management fees, which is a function of the
majority of Fortress’s alternative AUM residing in long-term
investment structures. Fortress’s alternative investment businesses
also generate variable incentive income based on performance, and
this incentive income can contribute meaningfully to financial
results. Balance sheet investments represent a third component of
Fortress’s business model, and the Company has built substantial
value in these investments, which are made in Fortress funds
alongside the funds’ limited partners. The table below summarizes
Fortress’s operating results for the three months ended September
30, 2017. The condensed consolidated GAAP statement of operations
and balance sheet are presented on pages 10-11 of this press
release.
3Q 2Q 3Q % Change YTD
YTD % Change 2017 2017 2016 QoQ YoY 2017 2016
QoQ (in millions, except per share amount)
GAAP
Revenues $ 254 $ 247 $ 261 3 % (3 )% $ 734 $ 725 1 % Expenses 248
210 225 18 % 10 % 699 671 4 % Other Income (loss) 231 8 29 N/A N/A
240 (27 ) N/A Net income (loss) 190 32 58 494 % 228 % 215 16 N/A
Net income (loss) attributable to Class A Shareholders 89
15 31 493 % 187 % 100 8 N/A
Per diluted share $ 0.37 $ 0.06 $ 0.07 N/A N/A
$ 0.43 $ 0.02 N/A Weighted average Class A shares
outstanding, diluted 394 395 390 394 390
Distributable
Earnings Fund management DE $ 100 $ 82 $ 88 22 % 14 % $ 243 $
249 (2 )% Pre-tax DE 291 86 90 238 % 223 %
451 255 77 % Per dividend paying share/unit $
0.73 $ 0.22 $ 0.23 232 % 217 % $ 1.14 $ 0.64 78 % Weighted
average dividend paying shares and units outstanding 396 397 394
397 396
Assets Under Management Private Equity and
Permanent Capital $ 14,172 $ 14,682 $ 13,917 (3 )% 2 % $ 14,172 $
13,917 2 % Credit1 16,816 17,708 18,287 (5 )% (8 )% 16,816 18,287
(8 )% Liquid Markets2 5,121 4,558 4,541 12 % 13 % 5,121 4,541 13 %
Logan Circle3 - 35,483 33,386 N/A N/A
- 33,386 N/A Total Assets Under
Management $ 36,109 $ 72,431 $ 70,131 (50 )% (49 )% $ 36,109 $
70,131 (49 )%
____________________
1 The Assets Under Management presented for Credit includes $1,371
million of AUM related to co-managed funds as of 3Q 2017. 2 The
Assets Under Management presented for Liquid Markets includes
$5,083 million of AUM related to the Affiliated Manager as of 3Q
2017. 3 Fortress sold the Logan Circle business in September 2017.
GAAP RESULTS
Fortress recorded GAAP net income of $190 million, or $0.37 per
diluted Class A share, for the third quarter of 2017, compared to
GAAP net income of $58 million, or $0.07 per diluted Class A share,
for the third quarter of 2016. Our diluted earnings per share
includes the income tax effects to net income (loss) attributable
to Class A shareholders from the assumed conversion of Fortress
Operating Group units to Class A shares in periods when the effect
is dilutive.
The year-over-year change in Fortress’s third quarter 2017 GAAP
net income was primarily driven by a $202 million increase in other
income, partially offset by a $40 million increase in income tax
expense, a $23 million increase in expenses and a $7 million
decrease in revenues.
The $202 million increase in other income was primarily due to
the completed sale of Logan Circle, which resulted in a gain on
sale of $189 million, net of selling expenses.
The $23 million increase in expenses was primarily related to
higher compensation and benefits expense.
The $7 million decrease in revenues was primarily related to
lower incentive income from non-affiliates, lower other revenues
and lower management fees from affiliates and non-affiliates,
partially offset by higher incentive income from affiliates.
SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortress’s
businesses: (i) Credit Hedge Funds and Credit PE Funds, (ii)
Private Equity Funds and Permanent Capital Vehicles, (iii) Liquid
Hedge Funds, and (iv) Logan Circle. Fortress uses DE as the primary
metric to manage its businesses and gauge the Company’s
performance, and it uses DE exclusively to report segment results.
All DE figures are presented on a pre-tax basis. Consolidated
segment results are non-GAAP information and are not presented as a
substitute for Fortress’s GAAP results. Fortress urges you to read
“Non-GAAP Information” below.
As of September
30, 2017 Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle
Partners10
(in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management4 $ 36,109 $ 6,249 $ 7,923 $ 8,452 $ 8,364 $
5,121 $ -
Dry Powder $ 7,484 $ 627 $ - $ 365 $ 6,492 N/A N/A
Average Management Fee Rate5 1.2 % 1.5 % 2.0 % 1.3 %
1.0 % N/A
Incentive Eligible NAV Above Incentive Income
Threshold6 $ 22,123 $ 1,973 $ 4,840 $ 6,042 $ 9,268 $ -
$ - Undistributed Incentive Income: Unrecognized $ 1,402 $
254 $ 56 $ 69 $ 1,023 $ - $ - Undistributed Incentive Income:
Recognized $ 98 - 34 64
- - -
Undistributed Incentive Income7 $ 1,500 $ 254
$ 90 $ 133 $ 1,023 $ - $ -
Three Months Ended September 30, 2017
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle
Partners10
(in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds
Third-Party Capital Raised $ 242 $ - $ - $ 242 $ - $ - $ -
Segment Revenues Management fees $ 131 $ 20 $ 31 $ 37
$ 29 $ 1 $ 13 Incentive income 140 11
58 28 42 1
- Total 271 31 89 65 71 2 13
Segment Expenses
Operating expenses8 (122 ) (7 ) (34 ) (27 ) (32 ) (2 ) (15 ) Profit
sharing compensation expenses (41 ) (3 ) (3 )
(13 ) (22 ) - - Total
(163 ) (10 ) (37 ) (40 ) (54 ) (2 ) (15 )
Earnings From
Affiliated Manager 4 - - - - 4 -
Principal
Performance Payments (12 ) (2 ) (6 ) (2 ) (2 ) - -
Fund Management
DE8 $ 100 $ 19 $ 46 $ 23 $
15 $ 4 $ (2 ) Net Investment Income9 191 15 -
1 6 - 170
Pre-tax Distributable Earnings8,9 $ 291 $ 34
$ 46 $ 24 $ 21 $ 4 $ 168
__________________________
4 The Assets Under Management presented for the Credit Hedge Funds
includes $1,371 million related to co-managed funds and $743
million related to the third party originated JP Funds and Value
Recovery Funds. The Assets Under Management presented for the
Liquid Hedge Funds includes $5,083 million related to the
Affiliated Manager. 5 The Average Management Fee Rate presented for
the Credit Hedge Funds excludes the co-managed funds and
third-party originated JP Funds and Value Recovery Funds (see
footnote 4 above). The Average Management Fee Rate presented for
the Liquid Hedge Funds excludes the Affiliated Manager. 6 The
Incentive Eligible NAV Above Incentive Income Threshold presented
for Credit Hedge Funds excludes co-managed funds, certain third
party originated funds and sidepocket investments and for Liquid
Hedge Funds, excludes the Affiliated Manager and sidepocket
investments. The Incentive Eligible NAV Above Incentive Income
Threshold presented for Private Equity Funds and Credit PE Funds
(except for a portion of Long Dated Value Fund I, whose capital was
above the incentive income threshold as of September 30, 2017),
represents total fund NAV. The Incentive Eligible NAV Above
Incentive Income Threshold presented for the Permanent Capital
Vehicles represents the equity basis that is used to calculate
incentive income. 7 Undistributed Incentive Income - Recognized
represents the results of the main fund investments for the Credit
Hedge Funds including the impact of realized gains and losses and
unrealized losses on sidepocket investments. Undistributed
Incentive Income - Unrecognized represents the results of the
Private Equity Funds, Credit PE Funds and Liquid and Credit Hedge
Fund sidepocket and redeeming capital account (RCA) investments
which have not been recognized in Distributable Earnings and will
be recognized when realized. The Undistributed Incentive Income
presented for the Credit Hedge Funds excludes co-managed funds and
certain third party originated funds and for Liquid Hedge Funds,
excludes the Affiliated Manager. Undistributed Incentive Income for
Credit PE Funds includes $5 million of net unrealized gains that
would have been recorded in Distributable Earnings if Fortress had
settled Japanese Yen foreign exchange derivative contracts used to
economically hedge estimated future incentive income it had
outstanding as of September 30, 2017. Undistributed Incentive
Income for Permanent Capital Vehicles includes $56 million of
incentive income that would have been recorded in Distributable
Earnings if Fortress had (i) exercised all of its in-the-money
options it holds in the Permanent Capital Vehicles and sold all of
the resulting shares, (ii) sold all of its Permanent Capital
Vehicle common shares which it received as incentive income and
(iii) sold all of its Permanent Capital Vehicle common shares which
it received from previously exercised Permanent Capital Vehicle
options, based on their respective September 30, 2017 closing
prices. 8 Includes Unallocated Expenses of $5 million incurred by
Fortress related to the proposed acquisition by SoftBank. 9
Includes Unallocated Investment Income of $1 million and
Unallocated Expenses of $2 million. 10 Fortress sold the Logan
Circle business in September 2017.
Pre-tax DE was $291 million in the third quarter of 2017, up
from $90 million in the third quarter of 2016, primarily due to
higher investment income and incentive income, partially offset by
higher operating expenses and lower management fees.
Management fees were $131 million in the third quarter of 2017,
down from $136 million in the third quarter of 2016. The decrease
was primarily due to lower management fees from the Credit PE
Funds, Credit Hedge Funds, Logan Circle and Private Equity Funds,
partially offset by higher management fees from the Permanent
Capital Vehicles.
Incentive income in the third quarter of 2017 totaled $140
million, up from $113 million in the third quarter of 2016,
primarily due to higher incentive income from the Permanent Capital
Vehicles and Private Equity Funds, partially offset by lower
incentive income from the Credit PE Funds and Credit Hedge
Funds.
Earnings from the Affiliated Manager totaled $4 million in the
third quarter of 2017, up from $3 million in the third quarter of
2016.
The Company’s segment revenues and distributable earnings
will fluctuate materially depending upon the performance of its
funds and the realization events within its private equity
businesses, as well as other factors. Accordingly, the
revenues and distributable earnings in any particular period should
not be expected to be indicative of future results.
ASSETS UNDER MANAGEMENT
As of September 30, 2017, AUM totaled $36.1 billion. As of
quarter end, approximately 85% of AUM was in funds with long-term
investment structures.
During the quarter, Fortress’s AUM decreased primarily due to
(i) the sale of Logan Circle which had $37.1 billion of AUM, (ii)
$2.1 billion of capital distributions to investors, (iii) $0.2
billion in distributions to investors in redeeming capital
accounts, and (iv) a $0.2 billion capital reset adjustment. These
decreases to AUM were partially offset by (i) $0.6 billion in
market-driven valuation gains, (ii) a $0.5 billion increase in the
AUM of the Affiliated Manager and co-managed funds, (iii) a $0.3
billion increase in invested capital, and (iv) $0.2 billion of new
capital raised that was directly added to AUM.
As of September 30, 2017, the Credit Funds and Private Equity
Funds had $6.9 billion and $0.6 billion of uncalled capital,
respectively, that will become AUM if called. Uncalled capital or
dry powder – capital committed to the funds but not invested and
generating management fees – includes $3.0 billion that is only
available for follow-on investments, management fees and other fund
expenses.
BUSINESS SEGMENT RESULTS
Below is a discussion of third quarter 2017 segment results and
business highlights.
Credit:
- DBSO LP had third quarter and
year-to-date 2017 net returns of 2.0% and 5.6%,
respectively
- DBSO Ltd had third quarter and
year-to-date 2017 net returns of 2.6% and 5.8%,
respectively
- FCO, FCO II, FCO III, FJOF and FJOF
II (Yen) recorded annualized inception-to-date net IRRs of 22.9%,
15.6%, 10.3%, 27.7% and 27.8%, respectively, through September 30,
2017
- Nearly $1.2 billion of gross
embedded incentive income that has not yet been recognized in
DE
(See supplemental data on pages 17-18 for more detail on Credit
results)
The Credit business, which includes our Credit PE Funds and
Credit Hedge Funds, generated pre-tax DE of $45 million in the
third quarter of 2017, down from $68 million in the third quarter
of 2016. The year-over-year decrease in DE was primarily driven by
lower incentive income, partially offset by lower profit sharing
expense.
The Credit Hedge Funds generated pre-tax DE of $24 million for
the quarter, down from $36 million in the third quarter of 2016,
primarily due to lower incentive income. Fortress’s flagship credit
hedge fund, DBSO LP, had net returns of 2.0% for the quarter and
annualized inception to date net returns of 10.6% as of September
30, 2017.
The Credit PE Funds generated pre-tax DE of $21 million in the
quarter, compared to $32 million in the third quarter of 2016,
primarily due to lower incentive income. Over the last twelve
months, the Credit PE Funds have recognized $161 million of gross
incentive income, while gross unrecognized Credit PE incentive
income has increased $129 million year-over-year to $1.0 billion as
of September 30, 2017.
Private Equity and Permanent Capital Vehicles:
- Permanent Capital Vehicles generated
$58 million of incentive income in the quarter
- PE Fund valuations appreciated 3.2%
in the quarter
(See supplemental data on pages 15-16 for more detail on Private
Equity results)
The Private Equity business recorded pre-tax DE of $80 million
in the third quarter of 2017, up from $27 million in the third
quarter of 2016. The year-over-year increase was primarily driven
by higher incentive income and higher investment income.
The Permanent Capital Vehicles generated pre-tax DE of $46
million in the quarter, up from $14 million in the third quarter of
2016, primarily due to higher incentive income. The Private Equity
Funds generated pre-tax DE of $34 million, up from $13 million in
the third quarter of 2016, primarily due to higher investment
income and higher incentive income.
Liquid Hedge Funds:
- Earnings from the Affiliated Manager
totaled $4 million in the quarter
(See supplemental data on page 19 for more detail on Liquid
Hedge Funds results)
The Liquid Hedge Funds recorded pre-tax DE of $4 million in the
third quarter of 2017, up from a $5 million pre-tax DE loss in the
third quarter of 2016. The year-over-year increase was due to
higher earnings from the Affiliated Manager and lower operating
expenses.
Logan Circle:
- Completed the sale of Logan Circle
to MetLife
(See supplemental data on page 20 for more detail on Logan
Circle results)
Logan Circle recorded $168 million of pre-tax DE for the third
quarter of 2017, including $170 million of investment income
primarily related to the completed sale of Logan Circle to MetLife
in September 2017.
LIQUIDITY & CAPITAL
As of September 30, 2017, Fortress had cash and cash equivalents
of $666 million and debt obligations of $105 million.
As of September 30, 2017, Fortress had approximately $0.9
billion of investments in Fortress funds and options in publicly
traded permanent capital vehicles and a total of $183 million in
outstanding commitments to its funds. In addition, the NAV of
Fortress’s investments in its own funds exceeded its segment cost
basis by $507 million at quarter end, representing net unrealized
gains that have not yet been recognized for segment reporting
purposes.
DIVIDEND
In connection with the proposed merger between Fortress and an
affiliate of SoftBank, Fortress has contractually agreed that it
will not pay any dividends with respect to periods ending after
March 31, 2017 while the merger agreement remains in effect.
NON-GAAP INFORMATION
DE is a supplemental metric used by management to measure
Fortress’s operating performance. DE is a measure that management
uses to manage, and thus report on, Fortress’s segments, namely:
Private Equity, Permanent Capital Vehicles, Credit Hedge Funds,
Credit PE Funds, Liquid Hedge Funds and Logan Circle. DE
differs from GAAP net income in a number of material ways. For a
detailed description of the calculation of pre-tax DE and fund
management DE, see Exhibit 3 to this release and note 10 to the
financial statements included in the Company’s most recent
quarterly report on Form 10-Q.
Fortress aggregates its segment results to report consolidated
segment results, as shown in the table under “Summary Financial
Results” and in the “Total” column of the table under “Consolidated
Segment Results (Non-GAAP).” The consolidated segment results are
non-GAAP financial information. Management believes that
consolidated segment results provide a meaningful basis for
comparison among present and future periods. However, consolidated
segment results should not be considered a substitute for
Fortress’s consolidated GAAP results. The exhibits to this release
contain reconciliations of the components of Fortress’s
consolidated segment results to the comparable GAAP measures, and
Fortress urges you to review these exhibits. Fortress also uses
weighted average dividend paying shares and units outstanding (used
to calculate pre-tax DE per dividend paying share) and net cash and
investments. The exhibits to this release contain reconciliations
of these measures to the comparable GAAP measures, and Fortress
urges you to review these exhibits.
ABOUT FORTRESS
Fortress Investment Group LLC is a leading, highly diversified
global investment firm with $36.1 billion in assets under
management as of September 30, 2017. Founded in 1998, Fortress
manages assets on behalf of over 1,750 institutional clients and
private investors worldwide across a range of credit, real estate,
permanent capital and private equity investment strategies.
Fortress is publicly traded on the New York Stock Exchange
(NYSE:FIG). For more information regarding Fortress Investment
Group LLC or to be added to its e-mail distribution list, please
visit www.fortress.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this communication may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
generally identified by the use of words such as “outlook,”
“believe,” “expect,” “potential,” “continue,” “may,” “will,”
“should,” “could,” “would,” “seek,” “approximately,” “predict,”
“intend,” “plan,” “estimate,” “anticipate,” “opportunity,”
“pipeline,” “comfortable,” “assume,” “remain,” “maintain,”
“sustain,” “achieve” or the negative version of those words or
other comparable words. Forward-looking statements are not
historical facts, but instead represent only Fortress’s beliefs as
of the date of this communication regarding future events, many of
which, by their nature, are inherently uncertain and outside of
Fortress’s control. Numerous factors could cause actual events to
differ from these forward-looking statements, and any such
differences could cause our actual results to differ materially
from the results expressed or implied by these forward-looking
statements. Such factors include but are not limited to the
following: (1) conditions to the closing of the merger, including
the obtaining of required regulatory approvals, may not be
satisfied; (2) the merger may involve unexpected costs, liabilities
or delays; (3) the business of Fortress may suffer as a result of
uncertainty surrounding the merger; (4) the outcome of any legal
proceedings related to the merger; (5) Fortress may be adversely
affected by other economic, business, and/or competitive factors,
including the net asset value of assets in certain of Fortress’s
funds; (6) the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; (7) risks that the merger disrupts current plans and
operations and the potential difficulties in employee retention as
a result of the merger; (8) other risks to consummation of the
merger, including the risk that the merger will not be consummated
within the expected time period or at all; and (9) the risks
described from time to time in Fortress’s reports filed with the
SEC under the heading “Risk Factors,” including the Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K and in other of Fortress’s filings with the SEC. In
addition, new risks and uncertainties emerge from time to time, and
it is not possible for Fortress to predict or assess the impact of
every factor that may cause its actual results to differ from those
expressed or implied in any forward-looking statements.
Accordingly, you should not place undue reliance on any
forward-looking statements contained in this communication, and you
should not regard any forward-looking statement as a representation
by Fortress or any other person that the future plans, estimates or
expectations currently contemplated by Fortress will be achieved.
Fortress can give no assurance that the expectations of any
forward-looking statement will be obtained. Such forward-looking
statements speak only as of the date of this communication.
Fortress expressly disclaims any obligation to release publicly any
updates or revisions to any forward-looking statements contained
herein to reflect any change in Fortress’s expectations with regard
thereto or any change in events, conditions or circumstances on
which any statement is based.
Fortress Investment Group LLC
Condensed Consolidated Statements of
Operations (Unaudited)
(dollars in thousands, except per share
data)
Three Months Ended September 30,
Nine Months Ended June 30, 2017 2016
2017 2016 Revenues Management fees:
affiliates $ 117,229 $ 123,491 $ 363,108 $ 377,269 Management fees:
non-affiliates 12,435 14,455 41,132 42,066 Incentive income:
affiliates 59,434 17,396 145,219 71,334 Incentive income:
non-affiliates 570 31,000 1,761 40,862 Expense reimbursements:
affiliates 55,073 54,602 167,860 166,041 Expense reimbursements:
non-affiliates 271 1,258 1,182 4,064 Other revenues 9,351
18,943 13,318 23,832
Total Revenues 254,363 261,145
733,580 725,468
Expenses Compensation and benefits 200,645 184,159 546,037
539,643 General, administrative and other 41,048 33,046 133,573
104,942 Depreciation and amortization 4,135 5,275 13,010 17,362
Interest expense 2,246 2,643
6,451 8,662
Total Expenses
248,074 225,123 699,071
670,609
Other Income (Loss) Gains (losses)
19,640 1,862 21,706 (22,077 ) Tax receivable agreement liability
adjustment - - - (2,699 ) Earnings (losses) from equity method
investees 22,577 27,467 29,221 (2,420 ) Gain on sale of Logan
Circle 188,638 - 188,638
-
Total Other Income (Loss) 230,855
29,329 239,565 (27,196 )
Income (Loss) Before Income Taxes 237,144 65,351
274,074 27,663 Income tax benefit (expense) (46,840 )
(7,008 ) (58,795 ) (11,863 )
Net Income (Loss)
$ 190,304 $ 58,343 $ 215,279 $ 15,800
Allocation of Net Income (Loss) Principals' and Others'
Interests in Income (Loss) of Consolidated Subsidiaries 101,484
27,181 115,200 7,609 Net Income (Loss) Attributable to Class A
Shareholders 88,820 31,162
100,079 8,191 $ 190,304 $ 58,343
$ 215,279 $ 15,800
Earnings (Loss) Per
Class A Share
Net income (loss) per Class A share, basic $ 0.39 $ 0.14
$ 0.44 $ 0.03 Net income (loss) per Class A
share, diluted $ 0.37 $ 0.07 $ 0.43 $ 0.02
Weighted average number of Class A shares outstanding, basic
219,388,077 216,913,032
220,044,051 218,160,131 Weighted average
number of Class A shares outstanding, diluted 394,250,689
390,293,844 394,234,346
390,240,731
Fortress Investment Group LLC
Condensed Consolidated Balance
Sheets
(dollars in thousands)
September 30, 2017
(Unaudited)
December 31, 2016 Assets Cash and cash equivalents $
665,566 $ 397,125 Due from affiliates 240,122 320,633 Investments
842,421 880,001 Investments in options 69,414 53,206 Deferred tax
asset, net 408,560 424,244 Other assets 91,393
126,165
Total Assets $ 2,317,476 $ 2,201,374
Liabilities and Equity
Liabilities Accrued compensation and benefits $ 304,042 $
370,413 Due to affiliates 391,271 360,769 Deferred incentive income
398,211 330,354 Debt obligations payable 105,000 182,838 Other
liabilities 125,784 69,255
Total
Liabilities 1,324,308 1,313,629
Commitments and Contingencies Equity
Class A shares, no par value, 1,000,000,000 shares authorized,
219,367,912 and 216,891,601 shares issued and outstanding at
September 30, 2017 and December 31, 2016, respectively - - Class B
shares, no par value, 750,000,000 shares authorized, 169,207,335
issued and outstanding at September 30, 2017 and December 31, 2016,
respectively - - Paid-in capital 1,874,340 1,899,163 Retained
earnings (accumulated deficit) (1,234,351 ) (1,333,828 )
Accumulated other comprehensive income (loss) (2,643 )
(1,094 ) Total Fortress shareholders' equity 637,346
564,241 Principals' and others' interests in equity of consolidated
subsidiaries 355,822 323,504
Total
Equity 993,168 887,745 $ 2,317,476
$ 2,201,374
Fortress Investment Group LLC
Exhibit 1-a
Supplemental Data for the Three Months
Ended September 30, 2017 and 2016
Three Months Ended September 30, 2017
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - July 1, 2017 $ 72,431 $ 6,850 $ 7,832 $
8,310 $ 9,398 $ 4,558 $ 35,483 Capital raised 199 - - 199 - - -
Equity raised (Permanent Capital Vehicles) - - - - - - - Increase
in invested capital 332 111 - - 219 2 - Redemptions (17 ) - - (17 )
- - - RCA distributions11 (178 ) - - (178 ) - - - Return of capital
distributions (2,056 ) (964 ) (36 ) 1 (1,057 ) - - Adjustment for
capital reset (183 ) - - - (183 ) - - Crystallized Incentive Income
(3 ) - - (3 ) - - - Change in AUM of Affiliated Manager and
co-managed funds 505 - - (62 ) - 567 - Divested Businesses (37,098
) - - - - - (37,098 ) Net Client Flows 888 - - - - - 888 Income
(loss) and foreign exchange 1,289 252
127 202 (13 ) (6 )
727
AUM - Ending Balance $ 36,109 $ 6,249 $ 7,923 $
8,452 $ 8,364 $ 5,121 $ -
Third-Party Capital Raised
$ 242 $ - $ - $ 242 $ - $ -
$ -
Segment Revenues Management fees $
131 $ 20 $ 31 $ 37 $ 29 $ 1 $ 13 Incentive income 140
11 58 28 42
1 - Total 271 31 89 65 71 2 13
Segment Expenses Operating expenses12 (122 ) (7 ) (34 ) (27
) (32 ) (2 ) (15 ) Profit sharing compensation expenses (41
) (3 ) (3 ) (13 ) (22 ) -
- Total (163 ) (10 ) (37 ) (40 ) (54 ) (2 ) (15 )
Earnings From Affiliated Manager 4 - - - - 4 -
Fund Management DE
(before Principal Performance Payments) 112
21 52 25 17
4 (2 ) Principal Performance Payments
(12 ) (2 ) (6 ) (2 ) (2 ) - -
Fund Management DE 100 19
46 23 15 4
(2 ) Investment Income 192 15 - 1 6 - 170
Unallocated Investment Income 1 Unallocated Expenses (2 )
Pre-tax Distributable
Earnings $ 291 $ 34 $ 46 $ 24 $ 21
$ 4 $ 168
Pre-tax Distributable Earnings
per Dividend Paying Share $ 0.73
Three Months Ended September 30,
2016 Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under Management
AUM - July 1, 2016 $ 70,195 $ 6,640 $ 6,644 $ 8,966 $ 9,243
$ 4,622 $ 34,080 Capital raised 120 - - - 120 - - Equity raised
(Permanent Capital Vehicles) 279 - 279 - - - - Increase in invested
capital 335 1 - - 334 - - Redemptions (209 ) - - (1 ) - (208 ) -
RCA distributions11 (141 ) - - (141 ) - - - Return of capital
distributions (408 ) (115 ) (45 ) - (248 ) - - Crystallized
Incentive Income (6 ) - - (6 ) - - - Change in AUM of Affiliated
Manager and co-managed funds (113 ) - - (240 ) - 127 - Net Client
Flows (1,453 ) - - - - - (1,453 ) Income (loss) and foreign
exchange 1,532 545 (32 )
226 34 - 759
AUM - Ending Balance $ 70,131 $ 7,071 $ 6,846 $ 8,804 $
9,483 $ 4,541 $ 33,386
Third-Party Capital Raised $
399 $ - $ 279 $ - $ 120 $ -
$ -
Segment Revenues Management fees $
136 $ 21 $ 28 $ 39 $ 32 $ 1 $ 15 Incentive income 113
- 10 44 59
- - Total 249 21 38 83 91 1 15
Segment Expenses Operating expenses (104 ) (8 ) (17 ) (25 )
(34 ) (7 ) (13 ) Profit sharing compensation expenses (50 )
- (5 ) (16 ) (29 ) -
- Total (154 ) (8 ) (22 ) (41 ) (63 ) (7 ) (13
)
Earnings From Affiliated Manager 3 - - - - 3 -
Fund Management
DE (before Principal Performance Payments) 98
13 16 42 28
(3 ) 2 Principal Performance Payments
(10 ) - (2 ) (8 ) - - -
Fund Management DE 88 13
14 34 28 (3 )
2 Investment Income 4 - - 2 4 (2 ) -
Unallocated Expenses (2 )
Pre-tax Distributable Earnings $ 90 $ 13
$ 14 $ 36 $ 32 $ (5 ) $ 2
Pre-tax Distributable Earnings per Dividend Paying Share $
0.23
_______________________
11 Represents distributions from (i) assets held by redeeming
capital accounts in the Drawbridge Special Opportunities Funds, and
(ii) the Value Recovery Funds. 12 Includes Unallocated Expenses of
$5 million incurred by Fortress related to the proposed acquisition
by SoftBank.
Fortress Investment Group LLC
Exhibit 1-a
Supplemental Data for the Nine Months
Ended September 30, 2017 and 2016
Nine Months Ended September 30, 2017
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - January 1, 2017 $ 69,627 $ 6,532 $
6,961 $ 8,803 $ 9,306 $ 4,589 $ 33,436 Capital raised 226 - - 226 -
- - Equity raised (Permanent Capital Vehicles) 835 - 835 - - - -
Increase in invested capital 1,073 133 - 44 894 2 - Redemptions
(160 ) - - (160 ) - - - RCA distributions13 (497 ) - - (497 ) - - -
Return of capital distributions (3,040 ) (1,083 ) (150 ) (7 )
(1,630 ) (170 ) - Adjustment for capital reset (183 ) - - - (183 )
- - Crystallized Incentive Income (111 ) - - (111 ) - - - Equity
buyback (5 ) - (5 ) - - - - Change in AUM of Affiliated Manager and
co-managed funds 393 - - (325 ) - 718 - Divested Businesses (37,098
) - - - - - (37,098 ) Net Client Flows 1,230 - - - - - 1,230 Income
(loss) and foreign exchange 3,819 667
282 479 (23 ) (18 )
2,432
AUM - Ending Balance $ 36,109 $ 6,249 $
7,923 $ 8,452 $ 8,364 $ 5,121 $ -
Third-Party Capital
Raised $ 1,846 $ - $ 835 $ 309 $
702 $ - $ -
Segment Revenues
Management fees $ 398 $ 60 $ 92 $ 112 $ 89 $ 2 $ 43 Incentive
income 327 12 122
75 117 1 - Total
725 72 214 187 206 3 43
Segment Expenses Operating
expenses14 (365 ) (22 ) (87 ) (82 ) (95 ) (7 ) (44 ) Profit sharing
compensation expenses (98 ) (3 ) (3 )
(32 ) (60 ) - - Total (463 ) (25
) (90 ) (114 ) (155 ) (7 ) (44 )
Earnings From Affiliated
Manager 11 - - - - 11 -
Fund Management DE (before Principal Performance
Payments) 273 47 124
73 51 7 (1 )
Principal Performance Payments (30 ) (2 ) (16 ) (7 ) (5 ) -
-
Fund
Management DE 243 45 108
66 46 7 (1
) Investment Income 212 15 2 4 10 11 170 Unallocated
Investment Income 2 Unallocated Expenses (6 )
Pre-tax Distributable Earnings $
451 $ 60 $ 110 $ 70 $ 56 $ 18
$ 169
Pre-tax Distributable Earnings per Dividend
Paying Share $ 1.14
Nine
Months Ended September 30, 2016
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - January 1, 2016 $ 70,501 $ 8,991 $
6,816 $ 8,799 $ 9,308 $ 5,409 $ 31,178 Capital raised 523 - - 268
176 79 - Equity raised (Permanent Capital Vehicles) 279 - 279 - - -
- Increase in invested capital 765 19 - 66 680 - - Capital
acquisitions 682 - - 682 - - - Redemptions (532 ) - - (65 ) - (467
) - RCA distributions13 (314 ) - - (314 ) - - - Return of capital
distributions (1,834 ) (717 ) (105 ) (4 ) (979 ) (29 ) - Adjustment
for capital reset (650 ) (650 ) - - - - - Crystallized Incentive
Income (63 ) - - (63 ) - - - Equity buyback (125 ) - (125 ) - - - -
Change in AUM of Affiliated Manager and co-managed funds (1,271 ) -
- (1,015 ) - (256 ) - Divested Businesses (177 ) - - - - (177 ) -
Net Client Flows (1,174 ) - - - - - (1,174 ) Income (loss) and
foreign exchange 3,521 (572 ) (19 )
450 298 (18 ) 3,382
AUM - Ending Balance $ 70,131 $ 7,071 $ 6,846 $ 8,804
$ 9,483 $ 4,541 $ 33,386
Third-Party Capital Raised $
833 $ - $ 279 $ 299 $ 176 $ 79
$ -
Segment Revenues Management fees $ 418 $
73 $ 82 $ 113 $ 94 $ 13 $ 43 Incentive income 308
- 26 84 197
1 - Total 726 73 108 197 291 14 43
Segment Expenses Operating expenses (319 ) (28 ) (54
) (80 ) (95 ) (23 ) (39 ) Profit sharing compensation expenses
(139 ) - (9 ) (30 ) (99 )
(1 ) - Total (458 ) (28 ) (63 ) (110 ) (194 )
(24 ) (39 )
Earnings From Affiliated Manager 5 - - -
- 5 -
Fund
Management DE (before Principal Performance Payments)
273 45 45 87
97 (5 ) 4 Principal
Performance Payments (24 ) - (6 ) (14 ) (4 ) - -
Fund Management DE
249 45 39 73
93 (5 ) 4 Investment
Income 15 (1 ) 2 3 14 (4 ) 1 Unallocated Expenses (9 )
Pre-tax Distributable
Earnings $ 255 $ 44 $ 41 $ 76 $ 107
$ (9 ) $ 5
Pre-tax Distributable Earnings per
Dividend Paying Share $ 0.64
______________________
13 Represents distributions from (i) assets held by redeeming
capital accounts in the Drawbridge Special Opportunities Funds, and
(ii) the Value Recovery Funds. 14 Includes Unallocated Expenses of
$28 million incurred by Fortress related to the proposed
acquisition by SoftBank.
Fortress Investment Group LLC
Exhibit 2-a
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months
Ended
Full Year
2016
Three Months Ended
Nine Months Ended September
30, 2017
Fortress
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Private Equity Funds $ 7,179 $ 6,640
$ 7,071 $ 6,532 $ 6,532 $ 6,695 $ 6,850 $ 6,249 $ 6,249 Permanent
Capital Vehicles 6,773 6,644 6,846 6,961 6,961 7,816 7,832 7,923
7,923 Credit Hedge Funds15 9,336 8,966 8,804 8,803 8,803 8,633
8,310 8,452 8,452 Credit Private Equity Funds 9,353 9,243 9,483
9,306 9,306 9,098 9,398 8,364 8,364 Liquid Hedge Funds16 5,195
4,622 4,541 4,589 4,589 4,198 4,558 5,121 5,121 Logan Circle17
32,801 34,080 33,386
33,436 33,436 33,719
35,483 - -
AUM -
Ending Balance $ 70,637 $ 70,195 $ 70,131
$ 69,627 $ 69,627 $ 70,159 $ 72,431 $
36,109 $ 36,109
Third-Party Capital
Raised $ 348 $ 86 $ 399 $ 437 $
1,270 $ 1,550 $ 54 $ 242 $ 1,846
Segment Revenues Management fees $ 141 $ 141 $ 136 $
133 $ 551 $ 133 $ 134 $ 131 $ 398 Incentive income 64
131 113 133 441
103 84 140
327 Total 205 272 249 266 992 236 218 271 725
Segment Expenses Operating expenses18 (109 ) (106 ) (104 )
(119 ) (438 ) (127 ) (116 ) (122 ) (365 ) Profit sharing
compensation expenses (31 ) (58 ) (50 )
(49 ) (188 ) (40 ) (17 ) (41 )
(98 ) Total (140 ) (164 ) (154 ) (168 ) (626 ) (167 ) (133 ) (163 )
(463 )
Earnings From Affiliated Manager 1 1 3 10 15 1
6 4 11
Fund Management DE (before Principal Performance
Payments) 66 109 98
108 381 70 91
112 273 Principal
Performance Payments (3 ) (11 ) (10 ) (12 ) (36 ) (9 ) (9 ) (12 )
(30 )
Fund Management DE $ 63 $ 98 $ 88
$ 96 $ 345 $ 61 $ 82 $ 100
$ 243 Net Investment Income 1 3 2 11 17 13 4
191 208
Pre-tax Distributable Earnings $ 64 $ 101
$ 90 $ 107 $ 362 $ 74 $ 86
$ 291 $ 451
________________________
15 The Assets Under Management presented for the Credit Hedge Funds
includes $1,371 million related to co-managed funds as of 3Q 2017.
16 The Assets Under Management presented for the Liquid Hedge Funds
includes $5,083 million related to the Affiliated Manager as of 3Q
2017. 17 Fortress sold the Logan Circle business in September 2017.
18 Includes Unallocated Expenses of $21 million, $2 million and $5
million incurred by Fortress related to the proposed acquisition by
SoftBank in 1Q 2017, 2Q 2017 and 3Q 2017, respectively.
Fortress Investment Group LLC
Exhibit 2-b
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
Private Equity Funds
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Main Funds19 $ 4,907 $ 4,479
$ 4,980 $ 4,502 $ 4,502 $ 4,676 $ 4,660 $ 4,234 $ 4,234
Coinvestment Funds20 1,552 1,463 1,412 1,374 1,374 1,378 1,617
1,464 1,464 MSR Opportunities Funds21 333 309 285 261 261 239 220
203 203 Italian NPL Opportunities Fund 231 225 228 213 213 216 163
151 151 Fortress Equity Partners 156 164
166 182 182
186 190 197 197
AUM - Ending Balance $ 7,179 $ 6,640 $ 7,071
$ 6,532 $ 6,532 $ 6,695 $ 6,850
$ 6,249 $ 6,249
Third-Party Capital
Raised $ - $ - $ - $ - $ - $
- $ - $ - $ -
Segment
Revenues Management fees $ 26 $ 26 $ 21 $ 21 $ 94 $ 20 $ 20 $
20 $ 60 Incentive income - - -
- - - 1
11 12 Total 26 26 21 21 94 20 21
31 72
Segment Expenses Operating expenses (10 ) (10 )
(8 ) (8 ) (36 ) (8 ) (7 ) (7 ) (22 ) Profit sharing compensation
expenses - - - -
- - - (3 )
(3 ) Total (10 ) (10 ) (8 ) (8 ) (36 ) (8 ) (7 ) (10 ) (25 )
Fund Management DE (before Principal Performance Payments)
16 16 13 13
58 12 14 21
47 Principal Performance Payments - - - - - -
- (2 ) (2 )
Fund Management DE $ 16 $ 16 $ 13
$ 13 $ 58 $ 12 $ 14 $ 19
$ 45 Net Investment Income (2 ) 1 - 2 1 - - 15 15
Pre-tax Distributable Earnings $ 14 $ 17 $ 13
$ 15 $ 59 $ 12 $ 14 $ 34
$ 60
____________________
19 Combined AUM for Fund IV and Fund V. 20 Combined AUM for Fund IV
Coinvestment, Fund V Coinvestment, FHIF and FECI. 21 Combined AUM
for MSR Opportunities Fund I A, MSR Opportunities Fund I B, MSR
Opportunities Fund II A, MSR Opportunities Fund II B and MSR
Opportunities Fund MA I.
Fortress Investment Group LLC
Exhibit 2-c
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year
2016
Three Months Ended
Nine Months Ended September 30,
2017
Permanent Capital Vehicles
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Drive Shack Inc. $ 680 $ 680
$ 680 $ 680 $ 680 $ 680 $ 681 $ 681 $ 681 New Residential
Investment Corp. 2,689 2,689 2,948 2,948 2,948 3,782 3,782 3,782
3,782 Eurocastle Investment Limited 608 510 486 488 488 587 627 745
745 New Media Investment Group Inc. 637 637 637 772 772 712 707 707
707 New Senior Investment Group Inc. 1,024 1,024 1,024 1,024 1,024
1,020 1,020 1,020 1,020 Fortress Transportation and Infrastructure
Investors LLC 1,135 1,104 1,071
1,049 1,049 1,035
1,015 988 988
AUM -
Ending Balance $ 6,773 $ 6,644 $ 6,846 $
6,961 $ 6,961 $ 7,816 $ 7,832 $ 7,923
$ 7,923
Third-Party Capital Raised $ -
$ - $ 279 $ 135 $ 414 $ 835
$ - $ - $ 835
Segment
Revenues Management fees $ 27 $ 27 $ 28 $ 28 $ 110 $ 31 $ 30 $
31 $ 92 Incentive income 2 14 10
41 67 16 48
58 122 Total 29 41 38 69 177 47
78 89 214
Segment Expenses Operating expenses (19 )
(18 ) (17 ) (26 ) (80 ) (24 ) (29 ) (34 ) (87 ) Profit sharing
compensation expenses (1 ) (3 ) (5 ) (6
) (15 ) - - (3 )
(3 ) Total (20 ) (21 ) (22 ) (32 ) (95 ) (24 ) (29 ) (37 ) (90 )
Fund Management DE (before Principal Performance Payments)
9 20 16 37
82 23 49 52
124 Principal Performance Payments (1 ) (3 )
(2 ) (6 ) (12 ) (4 ) (6 ) (6 ) (16 )
Fund Management DE $ 8
$ 17 $ 14 $ 31 $ 70 $ 19
$ 43 $ 46 $ 108 Net Investment Income 1
1 - 1 3 1 1 - 2
Pre-tax Distributable Earnings $ 9 $ 18
$ 14 $ 32 $ 73 $ 20 $ 44
$ 46 $ 110
Fortress Investment Group LLC
Exhibit 2-d
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
Credit Hedge Funds
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Drawbridge Special
Opportunities Funds22 $ 5,816 $ 5,928 $ 6,019 $ 6,153 $ 6,153 $
6,054 $ 6,010 $ 6,047 $ 6,047 Third Party Originated Funds23 815
837 821 840 840 831 706 743 743 Japan Income Fund 116 123 125 114
114 143 161 163 163 Asset-Based Income Fund - - - - - - - 128 128
Co-Managed Funds24 2,589 2,078
1,838 1,696 1,696 1,605
1,433 1,371 1,371
AUM - Ending Balance $ 9,336 $ 8,966 $ 8,804
$ 8,803 $ 8,803 $ 8,633 $ 8,310
$ 8,452 $ 8,452
Third-Party Capital
Raised $ 272 $ 27 $ - $ - $ 299
$ 13 $ 54 $ 242 $ 309
Segment Revenues Management fees $ 37 $ 37 $ 39 $ 37 $ 150 $
37 $ 38 $ 37 $ 112 Incentive income 7 33
44 47 131
32 15 28 75 Total
44 70 83 84 281 69 53 65 187
Segment Expenses
Operating expenses (26 ) (29 ) (25 ) (27 ) (107 ) (27 ) (28 ) (27 )
(82 ) Profit sharing compensation expenses (3 ) (11 )
(16 ) (20 ) (50 ) (13 ) (6 )
(13 ) (32 ) Total (29 ) (40 ) (41 ) (47 ) (157 ) (40
) (34 ) (40 ) (114 )
Fund Management DE (before Principal
Performance Payments) 15 30
42 37 124 29
19 25 73 Principal
Performance Payments (1 ) (5 ) (8 ) (5 ) (19 ) (2 ) (3 ) (2 ) (7 )
Fund Management DE $ 14 $ 25 $ 34 $ 32
$ 105 $ 27 $ 16 $ 23 $ 66
Net Investment Income - 1 2 3 6 1 2 1 4
Pre-tax Distributable
Earnings $ 14 $ 26 $ 36 $ 35 $ 111
$ 28 $ 18 $ 24 $ 70
Net
Returns25
Drawbridge Special Opportunities Fund LP 0.6 % 2.8 % 2.7 % 3.3 %
9.7 % 2.4 % 1.2 % 2.0 % 5.6 % Drawbridge Special Opportunities Fund
Ltd (1.3 %) 1.5 % 3.1 % 2.6 % 5.9 % 2.2 % 1.0 % 2.6 % 5.8 %
_________________________
22 Combined AUM for Drawbridge Special Opportunities Fund LP,
Drawbridge Special Opportunities Fund Ltd, Drawbridge Special
Opportunities Fund managed accounts, Worden Fund LP and Worden Fund
II LP. Worden Fund II LP was closed in 1Q 2016. 23 Combined AUM for
the third party originated JP Funds and third party originated
Value Recovery Funds. 24 Combined AUM for the Mount Kellett
investment funds and related accounts. 25 The performance data
contained herein reflects returns for a "new issue eligible,"
single investor class as of the close of business on the last day
of the relevant period. Net returns reflect performance data after
taking into account management fees borne by the Fund and incentive
allocations. The returns for the Drawbridge Special Opportunities
Funds reflect the performance of each fund excluding special
investments and the performance of the redeeming capital accounts
which relate to December 31, 2009, December 31, 2010, December 31,
2011, December 31, 2012, December 31, 2013, December 31, 2014,
December 31, 2015 and December 31, 2016 redemptions.
Fortress Investment Group LLC
Exhibit 2-e
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
Credit Private Equity Funds
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Long Dated Value Funds26 $
292 $ 203 $ 186 $ 186 $ 186 $ 186 $ 186 $ 186 $ 186 Real Assets
Funds 50 33 33 33 33 33 - - - Fortress Credit Opportunities Funds27
6,894 6,765 7,031 7,112 7,112 6,773 7,145 6,133 6,133 Japan
Opportunity Funds28 2,117 2,242
2,234 1,975 1,975 2,107
2,067 2,045 2,045
AUM - Ending Balance $ 9,353 $ 9,243 $ 9,483
$ 9,306 $ 9,306 $ 9,098 $ 9,398
$ 8,364 $ 8,364
Third-Party Capital
Raised $ 13 $ 43 $ 120 $ 302 $ 478
$ 702 $ - $ - $ 702
Segment Revenues Management fees $ 31 $ 31 $ 32 $ 32 $ 126 $
30 $ 30 $ 29 $ 89 Incentive income 53 85
59 44 241
55 20 42 117 Total
84 116 91 76 367 85 50 71 206
Segment Expenses
Operating expenses (32 ) (29 ) (34 ) (38 ) (133 ) (31 ) (32 ) (32 )
(95 ) Profit sharing compensation expenses (26 ) (44
) (29 ) (23 ) (122 ) (27 ) (11 )
(22 ) (60 )
Total
(58 ) (73 ) (63 ) (61 ) (255 ) (58 ) (43 ) (54 ) (155 )
Fund
Management DE (before Principal Performance Payments) 26
43 28 15
112 27 7 17
51 Principal Performance Payments (1 ) (3 ) - (1 ) (5
) (3 ) - (2 ) (5 )
Fund Management DE $ 25 $ 40 $
28 $ 14 $ 107 $ 24 $ 7 $ 15
$ 46 Net Investment Income 3 7 4 6 20 3 1 6 10
Pre-tax Distributable Earnings $ 28 $ 47 $ 32
$ 20 $ 127 $ 27 $ 8 $ 21
$ 56
______________________
26 Combined AUM for Long Dated Value Fund I, Long Dated Value Fund
II, Long Dated Value Fund III and LDVF Patent Fund. 27 Combined AUM
for Credit Opportunities Fund, Credit Opportunities Fund II, Credit
Opportunities Fund III, Credit Opportunities Fund IV, FCO Managed
Accounts, Global Opportunities Funds, Life Settlements Fund, Life
Settlements Fund MA, SIP managed account, Real Estate Opportunities
Fund, Real Estate Opportunities Fund II, Real Estate Opportunities
REOC Fund and Secured Lending Fund I. 28 Combined AUM for Japan
Opportunity Fund, Japan Opportunity Fund II (Dollar), Japan
Opportunity Fund II (Yen), Japan Opportunity Fund III (Dollar),
Japan Opportunity Fund III (Yen), FJOF3 Residential Coinvestment
Fund (Dollar) and FJOF3 Residential Coinvestment Fund (Yen).
Fortress Investment Group LLC
Exhibit 2-f
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
Liquid Hedge Funds
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management Drawbridge Global Macro
Funds29 116 112 101 39 39 39 35 38 38 Fortress Convex Asia Funds30
176 - - - - - - - - Fortress Centaurus Global Funds31 206 182 - - -
- - - - Fortress Partners Funds32 228 215 199 186 186 9 7 - -
Affiliated Manager33 4,469 4,113
4,240 4,365 4,365 4,150
4,516 5,083 5,083
AUM - Ending Balance $ 5,195 $ 4,622 $ 4,541
$ 4,589 $ 4,589 $ 4,198 $ 4,558
$ 5,121 $ 5,121
Third-Party Capital
Raised $ 63 $ 16 $ - $ - $ 79
$ - $ - $ - $ -
Segment Revenues Management fees $ 6 $ 6 $ 1 $ 1 $ 14 $ - $
1 $ 1 $ 2 Incentive income 2 (1 ) -
- 1 - -
1 1 Total 8 5 1 1 15 - 1 2 3
Segment Expenses Operating expenses (9 ) (7 ) (7 ) (5
) (28 ) (2 ) (3 ) (2 ) (7 ) Profit sharing compensation expenses
(1 ) - - -
(1 ) - - - -
Total (10 ) (7 ) (7 ) (5 ) (29 ) (2 ) (3 ) (2 ) (7 )
Earnings From Affiliated Manager 1 1 3 10 15 1 6 4 11
Fund
Management DE (before Principal Performance Payments) (1
) (1 ) (3 ) 6 1 (1
) 4 4 7 Principal
Performance Payments - - - - - - - - -
Fund Management DE $ (1 )
$ (1 ) $ (3 ) $ 6 $ 1 $ (1 ) $ 4 $ 4 $
7 Net Investment Income 3 (5 ) (2 ) 1 (3 ) 9 2 - 11
Pre-tax Distributable Earnings $ 2 $ (6 ) $ (5 ) $ 7
$ (2 ) $ 8 $ 6 $ 4 $ 18
Net
Returns34
Fortress Convex Asia Fund Ltd 1.5 % (1.2 %) N/A N/A 0.3 % N/A N/A
N/A N/A Fortress Centaurus Global Fund Ltd 1.9 % (6.1 %) (3.3 %)
N/A (7.5 %) N/A N/A N/A N/A
________________________
29 Combined AUM for Drawbridge Global Macro Fund LP and Drawbridge
Global Macro Intermediate Fund LP. 30 Combined AUM for Fortress
Convex Asia Fund LP, Fortress Convex Asia Fund Ltd, Fortress Convex
Asia Fund PF LP and Fortress Convex Asia Fund PF Ltd. In 2Q 2016,
Fortress transferred its interests as general partner and
investment manager of the Fortress Convex Asia Funds to a third
party. 31 Combined AUM for Fortress Centaurus Global Fund LP and
Fortress Centaurus Global Fund Ltd. In 3Q 2016, Fortress closed the
Fortress Centaurus Global Funds. 32 Combined AUM for Fortress
Partners Fund LP and Fortress Partners Offshore Fund LP. 33 In 1Q
2015, the Fortress Asia Macro Funds and related managed accounts
transitioned to Graticule Asset Management and became an Affiliated
Manager. 34 The performance data contained herein reflects returns
for a "new issue eligible," single investor class as of the close
of business on the last day of the relevant period. Net returns
reflect performance data after taking into account management fees
borne by the Fund and incentive allocations.
Fortress Investment Group LLC
Exhibit 2-g
Assets Under Management and Fund
Management DE
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
Logan Circle35
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
Assets Under Management AUM - Ending Balance $
32,801 $ 34,080 $ 33,386 $ 33,436 $
33,436 $ 33,719 $ 35,483 $ - $ -
Net Client Flows $ 261 $ 18 $ (1,453 )
$ 1,049 $ (125 ) $ (362 ) $ 704 $ 888 $ 1,230
Segment Revenues Management fees $ 14 $ 14 $
15 $ 14 $ 57 $ 15 $ 15 $ 13 $ 43 Incentive income -
- - 1 1
- - - -
Total 14 14 15 15 58 15 15 13 43
Segment Expenses
Operating expenses (13 ) (13 ) (13 ) (15 ) (54 ) (14 ) (15 ) (15 )
(44 ) Profit sharing compensation expenses - -
- - - -
- - - Total (13 )
(13 ) (13 ) (15 ) (54 ) (14 ) (15 ) (15 ) (44 )
Fund Management
DE $ 1 $ 1 $ 2 $ - $ 4 $ 1
$ - $ (2 ) $ (1 ) Net Investment Income - 1 -
(1 ) - - - 170 170
Pre-tax Distributable Earnings $ 1 $ 2
$ 2 $ (1 ) $ 4 $ 1 $ - $ 168
$ 169
___________________________
35 Fortress sold the Logan Circle business in September 2017.
Fortress Investment Group LLC
Exhibit 3
Reconciliation of GAAP Net Income
(Loss) to Pre-tax Distributable Earnings and Fund Management
DE,
Reconciliation of GAAP Revenues to
Segment Revenues and Reconciliation of GAAP Expenses to Segment
Expenses
(dollars in millions)
Three Months Ended
Full Year 2016
Three Months Ended
Nine Months Ended September 30,
2017
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
GAAP Net Income (Loss) $ (16 ) $
(27 ) $ 58 $ 165
$ 181 $ (7 )
$ 32 $ 190 $
215 Principals' and Others' Interests in (Income)
Loss of Consolidated Subsidiaries 7 13 (28 ) (79 ) (87 ) 4 (17 )
(101 ) (115 ) Redeemable non-controlling interests in Income (Loss)
- - - -
- - - -
-
GAAP Net Income (Loss) Attributable to Class A
Shareholders $ (9 ) $ (14
) $ 31 $ 86
$ 94 $ (3 ) $
15 $ 89 $ 100
Private Equity incentive income 23 73 8 (38 ) 66 41 12 12 65
Hedge Fund, PCV and Logan Circle incentive income 8 26 35 (69 ) -
31 16 51 98 Incentive income received related to exercise of
options - - 4 - 4 - - 10 10 Distributions of earnings from equity
method investees 3 8 4 11 26 13 3 19 36 Losses (earnings) from
equity method investees 24 8 (24 ) 30 38 22 (20 ) (16 ) (14 )
Losses (gains) on options 2 (12 ) (4 ) (9 ) (23 ) (27 ) 23 (15 )
(19 ) Losses (gains) on other Investments 15 19 1 (37 ) (2 ) 6 (3 )
(4 ) (1 ) Impairment of investments (2 ) (1 ) - (1 ) (4 ) - - - -
Adjust income from the receipt of options - - (2 ) (3 ) (5 ) (8 ) -
- (8 ) Amortization of intangible assets and impairment of goodwill
1 - 1 1 3 1 - 1 2 Employee, Principal and director compensation 3 2
2 37 44 3 10 15 28 Adjust non-controlling interests related to
Fortress Operating Group units (8 ) (12 ) 27 79 86 (4 ) 17 102 115
Tax receivable agreement liability reduction 3 - - 4 7 - - - -
Adjust income taxes and other tax related items 1 4 7 16 28 (1 ) 13
47 59 Adjust gain on sale of Logan Circle - -
- - - -
- (20 ) (20 )
Pre-tax
Distributable Earnings $ 64 $
101 $ 90 $ 107
$ 362 $ 74
$ 86 $ 291 $
451 Investment Loss (income) (4 ) (6 ) (4 ) (13 ) (27
) (15 ) (6 ) (193 ) (214 ) Interest Expense 3
3 2 2 10 2
2 2 6
Fund
Management DE $ 63 $ 98
$ 88 $ 96 $
345 $ 61 $ 82
$ 100 $ 243
GAAP
Revenues $ 232 $ 232
$ 261 $ 438 $
1,164 $ 232 $ 247
$ 254 $ 734 Adjust
management fees 1 - - - 1 1 - 1 2 Adjust incentive income 31 100 65
(107 ) 89 72 28 79 179 Adjust income from the receipt of options -
- (2 ) (3 ) (5 ) (8 ) - - (8 ) Other revenues (59 )
(60 ) (75 ) (62 ) (257 ) (61 )
(57 ) (63 ) (182 )
Segment Revenues $
205 $ 272 $ 249
$ 266 $ 992
$ 236 $ 218 $
271 $ 725
GAAP Expenses
$ 207 $ 238 $
226 $ 280 $ 951
$ 241 $ 210
$ 248 $ 699 Adjust
interest expense (3 ) (3 ) (2 ) (2 ) (10 ) (2 ) (2 ) (2 ) (6 )
Adjust employee, Principal and director compensation (2 ) (1 ) (1 )
(35 ) (39 ) (2 ) (6 ) (8 ) (16 ) Adjust amortization of intangible
assets and impairment of goodwill (1 ) - (1 ) (1 ) (3 ) (1 ) - (1 )
(2 ) Adjust expense reimbursements from affiliates and
non-affiliates (57 ) (58 ) (58 ) (60 ) (233 ) (58 ) (57 ) (56 )
(171 ) Adjust Principal Performance Payments (4 ) (12
) (10 ) (14 ) (40 ) (11 ) (12 )
(18 ) (41 )
Segment Expenses $
140 $ 164 $ 154
$ 168 $ 626
$ 167 $ 133 $
163 $ 463
‘‘Distributable earnings’’ is Fortress’s supplemental measure of
operating performance used by management in analyzing segment and
overall results. As compared to generally accepted accounting
principles (‘‘GAAP’’) net income, distributable earnings excludes
the effects of unrealized gains (or losses) on illiquid
investments, reflects contingent revenue which has been received as
income to the extent it is not expected to be reversed, and
disregards expenses which do not require an outlay of assets,
whether currently or on an accrued basis. Distributable earnings is
reflected on an unconsolidated and pre-tax basis, and, therefore,
the interests in consolidated subsidiaries related to Fortress
Operating Group units (held by the principals) and income tax
expense are added back in its calculation. Distributable earnings
is not a measure of cash generated by operations which is available
for distribution nor should it be considered in isolation or as an
alternative to cash flow or net income in accordance with GAAP and
it is not necessarily indicative of liquidity or cash available to
fund the Company’s operations. For a complete discussion of
distributable earnings and its reconciliation to GAAP, as well as
an explanation of the calculation of distributable earnings
impairment, see note 10 to the financial statements included in the
Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017.
Fortress’s management uses distributable earnings:
- in making operating decisions and
assessing the performance of each of the Company’s core
businesses;
- for planning purposes, including the
preparation of annual operating budgets;
- as a valuation measure in strategic
analyses in connection with the performance of its funds and the
performance of its employees; and
- to assist in evaluating its periodic
distributions to equity holders.
Growing distributable earnings is a key component to the
Company’s business strategy and distributable earnings is the
supplemental measure used by management to evaluate the economic
profitability of each of the Company’s businesses and total
operations. Therefore, Fortress believes that it provides useful
information to investors in evaluating its operating performance.
Fortress’s definition of distributable earnings is not based on any
definition contained in its amended and restated operating
agreement.
“Fund management DE” is equal to pre-tax distributable earnings
excluding our direct investment-related results. Fund management DE
is comprised of “Pre-tax Distributable Earnings” excluding
“Investment Loss (Income)” and “Interest Expense.” Fund management
DE and its components are used by management to analyze and measure
the performance of our investment management business on a
stand-alone basis. Fortress defines segment operating margin to be
equal to fund management DE divided by segment revenues. The
Company believes that it is useful to provide investors with the
opportunity to review our investment management business using the
same metrics. Fund management DE and its components are subject to
the same limitations as pre-tax distributable earnings, as
described above.
Fortress Investment Group LLC
Exhibit 4
Reconciliation of Weighted Average
Class A Shares Outstanding (Used for Basic EPS) to Weighted Average
Dividend Paying Shares and Units Outstanding (Used for
DEPS)
Three Months Ended September 30, Nine Months Ended
June 30, 2017 2016 2017 2016
Weighted Average Class A Shares
Outstanding (Used for Basic EPS)
219,388,077 216,913,032 220,044,051
218,160,131 Weighted average fully vested
restricted Class A share units with dividend equivalent rights
(20,165) (303,762) (1,471,162) (755,599) Weighted average
restricted Class A shares (934,192) (886,867) (933,845) (822,628)
Weighted Average Class A Shares
Outstanding
218,433,720 215,722,403 217,639,044
216,581,904 Weighted average restricted Class
A shares36 934,192 886,867 933,845 822,628 Weighted average fully
vested restricted Class A share units which are entitled to
dividend equivalent payments 20,165 303,762 1,471,162 755,599
Weighted average unvested restricted Class A share units which are
entitled to dividend equivalent payments 7,461,953 8,063,715
7,396,854 7,982,073 Weighted average Fortress Operating Group units
169,207,335 169,437,692 169,207,335 169,488,696
Weighted Average Class A Shares
Outstanding (Used for DEPS)
396,057,365 394,414,439 396,648,240
395,630,900 Weighted average vested and unvested
restricted Class A share units which are not entitled to dividend
equivalent payments 8,458,814 9,197,150
8,321,531 9,099,458
Weighted Average Fully Diluted Shares
and Units Outstanding (Used for Diluted DEPS)
404,516,179 403,611,589 404,969,771
404,730,358
“Dividend paying shares and units” represents the number of
shares and units outstanding at the end of the period which were
entitled to receive dividends or related distributions. It excludes
certain potentially dilutive equity instruments, primarily
non-dividend paying restricted Class A share units, and, therefore,
is limited in its usefulness in computing per share amounts.
Accordingly, dividend paying shares and units should be considered
only as a supplement and not an alternative to GAAP basic and
diluted shares outstanding. The Company’s calculation of dividend
paying shares and units may be different from the calculation used
by other companies and, therefore, comparability may be
limited.
____________________
36 Includes both fully vested and unvested restricted Class
A shares.
Fortress Investment Group LLC
Exhibit 5
Reconciliation of GAAP Book Value Per
Share to Net Cash and Investments Per Share
(dollars and shares in thousands)
As of September 30, 2017 As of December 31,
2016
GAAP
Book Value
Net Cash and Investments
GAAP
Book Value
Net Cash and Investments
Cash and Cash equivalents $ 665,566 $ 665,566 $
397,125 $ 397,125 Investments 842,421 842,421 880,001 880,001
Investments in options37 69,414 - 53,206 - Due from Affiliates
240,122 - 320,633 - Deferred Tax Asset, net 408,560 - 424,244 -
Other Assets 91,393 - 126,165 -
Total Assets 2,317,476 1,507,987
2,201,374 1,277,126 Debt Obligations Payable $
105,000 $ 105,000 $ 182,838 $ 182,838 Accrued Compensation and
Benefits 304,042 - 370,413 - Due to Affiliates 391,271 - 360,769 -
Deferred Incentive Income 398,211 - 330,354 - Other Liabilities
125,784 - 69,255 -
Total
Liabilities 1,324,308 105,000 1,313,629
182,838
Net $
993,168 $ 1,402,987 $ 887,745 $ 1,094,288
Shares Outstanding
Dividend Paying Shares and
Units Outstanding
Shares Outstanding
Dividend Paying Shares and
Units Outstanding
Class A Shares 218,434 218,434 216,005 216,005 Restricted Class A
Shares 934 934 887 887 Fortress Operating Group Units 169,207
169,207 169,207 169,207 Fully Vested Class A Shares - Dividend
Paying - 71 - 468 Unvested Class A Shares - Dividend Paying
- 7,462 - 8,064
Shares Outstanding
388,575 396,108 386,099 394,631
Per Share $ 2.56 $
3.54 $ 2.30 $ 2.77
Net cash and investments represents cash and cash equivalents
plus investments less debt outstanding. The Company believes that
net cash and investments is a useful supplemental measure because
it provides investors with information regarding the Company’s net
investment assets. Net cash and investments excludes certain assets
(investments in options, due from affiliates, deferred tax asset,
other assets) and liabilities (due to affiliates, accrued
compensation and benefits, deferred incentive income and other
liabilities) and its utility as a measure of financial position is
limited. Accordingly, net cash and investments should be considered
only as a supplement and not an alternative to GAAP book value as a
measure of the Company’s financial position. The Company’s
calculation of net cash and investments may be different from the
calculation used by other companies and, therefore, comparability
may be limited.
___________________________
37 The intrinsic value of options in equity method investees
totaled $48 million at quarter end and is included in our
undistributed, unrecognized incentive income. This value represents
incentive income that would have been recorded in Distributable
Earnings if Fortress had exercised all of its in-the-money options
it holds in the Permanent Capital Vehicles and sold all of the
resulting shares at their September 30, 2017 closing price and
differs from the fair value derived from option pricing models
included in the table above.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171109005749/en/
INVESTOR & MEDIA RELATIONS CONTACTFortress Investment
GroupGordon E. Runté, +1-212-798-6082grunte@fortress.com
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