Market Overview

Fortress Reports Third Quarter 2015 Results and Announces Dividend of $0.08 per Share

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NEW YORK--(BUSINESS WIRE)--

Fortress Investment Group LLC (NYSE: FIG) ("Fortress" or the "Company") today reported its third quarter 2015 financial results.

FINANCIAL SUMMARY

  • Fortress declares a cash dividend of $0.08 per dividend paying share for the third quarter of 2015
  • Management Fee Paying Assets Under Management ("AUM") of $74.3 billion as of September 30, 2015, an increase of 3% from the previous quarter and an increase of 13% from September 30, 2014
  • GAAP net loss of $26 million, or $(0.07) per diluted Class A share, for the third quarter of 2015, compared to GAAP net income of $17 million, or $0.02 per diluted Class A share, for the third quarter of 2014
  • GAAP net income of $66 million, or $0.09 per diluted Class A share, for the nine months ended September 30, 2015, compared to GAAP net income of $99 million, or $0.17 per diluted Class A share, for the nine months ended September 30, 2014
  • Pre-tax distributable earnings ("DE") of $69 million, or $0.15 per dividend paying share, for the third quarter of 2015, compared to pre-tax DE of $55 million, or $0.12 per dividend paying share for the third quarter of 2014
  • Pre-tax DE of $261 million, or $0.58 per dividend paying share, for the nine months ended September 30, 2015, compared to pre-tax DE of $323 million, or $0.72 per dividend paying share, for the nine months ended September 30, 2014
  • Net cash and investments of $1.4 billion, or $3.06 per dividend paying share, as of September 30, 2015
  • $0.9 billion of gross embedded incentive income across funds and permanent capital vehicles as of September 30, 2015, that has not been recognized in DE
  • Total uncalled capital, or "dry powder," of $8.8 billion as of September 30, 2015, including $5.8 billion available for general investment purposes
  • Post quarter end, announced agreement to repurchase 56.8 million Class A equivalent shares at a price of $4.50 per share, representing approximately 13% of dividend paying shares outstanding

BUSINESS HIGHLIGHTS & DEVELOPMENTS

  • Raised $8.8 billion of capital across alternative investment businesses and recorded $1.7 billion of net client inflows for Logan Circle during the first nine months of 2015
  • Added $3.0 billion of AUM after becoming co-manager with Mount Kellett Capital Management LP ("Mount Kellett") of the Mount Kellett investment funds and related accounts (the "Mount Kellett Funds" or "co-managed funds")
  • Post quarter end, Fortress Japan Opportunity Fund ("FJOF") III expected to close at its targeted cap of approximately $1.1 billion
  • Post quarter end, announced the closing of the Fortress Macro Funds and related managed accounts (the "Fortress Macro Funds"); as of September 30, 2015, the Fortress Macro Funds accounted for approximately 2% of total Fortress AUM and had generated a year-to-date pre-tax DE loss of $8 million
  • Investment performance summary as of September 30, 2015:
    • Annualized inception-to-date net IRRs for FCO, FCO II and FCO III of 24.7%, 16.8% and 10.8%, respectively
    • Third quarter and year-to-date 2015 net returns of 0.3% and 4.9%, respectively, for Drawbridge Special Opportunities Fund ("DBSO") LP
    • 15 of 16 Logan Circle strategies have outperformed respective benchmarks since inception

"It has been a very active and productive year for Fortress," said Chief Executive Officer Randal Nardone. "We closed the third quarter with record assets under management, more new commitments to our alternative strategies through September than in any full year since 2007, and embedded value in our funds and on our balance sheet that now represents over 70% of our share price today. These results underscore the strength of our core businesses, and potential for significant earnings upside in future periods."

"Our recently announced agreement to repurchase nearly 57 million Fortress shares represents a very positive use of capital that will provide ongoing economic benefit to shareholders. We remain committed to distributing substantially all of our after-tax DE to shareholders as dividends, or in the event additional opportunities arise, as buybacks."

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 and nine months ended September 30, 2015. The consolidated GAAP statement of operations and balance sheet are presented on pages 13-14 of this press release.

                                           

   3Q   

   2Q   

   3Q   

% Change YTD YTD % Change

   2015   

2015 2014

     QoQ     

   

    YoY    

2015 2014

    YoY    

(in millions, except per share amount)
GAAP
Revenues $   264 $   308 $   243 (14)% 9% $   799 $   761 5%
Expenses 224 258 234 (13)% (4)% 811 682 19%
Other Income (loss) (62 ) (51 ) 11 N/A N/A 95 48 97%
Net income (loss) (26 ) 5 17 N/A N/A 66 99 (33)%
Net income (loss) attributable to Class A Shareholders     (14 )     3       6 N/A N/A     24     40 (41)%
Per diluted share $   (0.07 ) $   0.00   $   0.02 N/A N/A $   0.09 $   0.17 (47)%
Weighted average Class A shares outstanding, diluted 216 449 221 222 457
 
Distributable Earnings
Fund management DE $ 67 $ 133 $ 67 (50)% 0% $ 251 $ 230 9%
Pre-tax DE     69       137       55 (50)% 25%     261     323 (19)%
Per dividend paying share/unit $   0.15   $   0.30   $   0.12 (50)% 25% $   0.58 $   0.72 (19)%
Weighted average dividend paying shares and units outstanding 454 454 442 453 451
 
Assets Under Management
Private Equity and Permanent Capital $ 16,091 $ 16,535 $ 14,198 (3)% 13% $ 16,091 $ 14,198 13%
Credit1 17,426 14,491 13,223 20% 32% 17,426 13,223 32%
Liquid Markets2 7,367 7,377 7,529 0% (2)% 7,367 7,529 (2)%
Logan Circle     33,446       33,564       31,096 0% 8%     33,446     31,096 8%
Total Assets Under Management $   74,330   $   71,967   $   66,046 3% 13% $   74,330 $   66,046 13%
 

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1The Assets Under Management presented for Credit includes AUM related to co-managed funds in 2015, which was $3,018 million as of 3Q 2015.
2The Assets Under Management presented for Liquid Markets includes AUM related to Fortress's affiliated manager platform ("Affiliated Managers") in 2015, which was $4,456 million as of 3Q 2015.
 

CONSOLIDATED GAAP RESULTS

Fortress recorded a GAAP net loss of $26 million, or $(0.07) per diluted Class A share, for the third quarter of 2015, compared to GAAP net income of $17 million, or $0.02 per diluted Class A share, for the third quarter of 2014. Our diluted earnings per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group units and fully vested restricted partnership units to Class A shares.

The year-over-year decrease in Fortress's third quarter 2015 GAAP net income was primarily driven by a $73 million decrease in other income, partially offset by a $21 million increase in revenues and an $11 million decrease in expenses. The decrease in other income was primarily related to a $61 million net decrease in earnings from equity method investees primarily related to investments in our alternative investment funds. The increase in revenues was primarily related to higher incentive income and expense reimbursements from affiliates while the decrease in expenses was primarily related to lower compensation and benefits expense.

CONSOLIDATED 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, 2015
      Private Equity

 

      Credit Funds      

 

(in millions) Total Funds    

Permanent
Capital Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle
Partners

 
Assets Under Management3 $     74,330 $     9,195 $     6,896 $     7,367 $     9,070 $     8,356 $     33,446
Dry Powder $ 8,795 $ 736 $ - N/A $ 332 $ 7,727 N/A
Average Management Fee Rate4 1.2 % 1.4 % 1.5 % 2.0 % 1.3 % 0.2 %
 
Incentive Eligible NAV Above Incentive Income Threshold5 $ 20,635 $ 942 $ 3,431 $ 81 $ 5,531 $ 10,596 $ 54
 
Undistributed Incentive Income: Unrecognized $ 938 $ 26 $ 25 $ 5 $ 64 $ 818 $ -
Undistributed Incentive Income: Recognized       45         -         1         -           44           -   $     -  
Undistributed Incentive Income6 $     983   $     26   $     26   $     5     $     108     $     818   $     -  
 
Three Months Ended September 30, 2015
Private Equity

 

Credit Funds

 

(in millions) Total Funds

Permanent
Capital Vehicles

Liquid Hedge
Funds

Hedge Funds PE Funds

Logan Circle
Partners

 
Third-Party Capital Raised $ 204 $ - $ - $ 48 $ - $ 156 $ -
 
Segment Revenues
Management fees $ 151 $ 29 $ 27 $ 16 $ 37 $ 29 $ 13
Incentive income       70         -         (1 )       -           1           70         -  
Total 221 29 26 16 38 99 13
Segment Expenses
Operating expenses (112 ) (13 ) (16 ) (20 ) (21 ) (29 ) (13 )
Profit sharing compensation expenses       (37 )       -         1         (1 )         (1 )         (36 )       -  
Total (149 ) (13 ) (15 ) (21 ) (22 ) (65 ) (13 )
 
Earnings From Affiliated Managers 2 - - 2 - - -
 
Principal Performance Payments (7 ) - (3 ) - (3 ) (1 ) -
             
Fund Management DE $     67   $     16   $     8   $     (3 )   $     13     $     33   $     -  
 
Net Investment Income7 2 - - (1 ) - 5 -
             
Pre-tax Distributable Earnings $     69   $     16   $     8   $     (4 )   $     13     $     38   $     -  
 

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3 The Assets Under Management presented for the Liquid Hedge Funds includes $4,456 million related to Affiliated Managers. The Assets Under Management presented for the Credit Hedge Funds includes $3,018 million related to co-managed funds and $150 million related to the third-party originated Value Recovery Funds. Fortress earns fees from the Value Recovery Funds based only on collections.
4 The Average Management Fee Rate presented for the Liquid Hedge Funds excludes Affiliated Managers. The Average Management Fee Rate presented for the Credit Hedge Funds excludes the co-managed funds and third-party originated Value Recovery Funds. See footnote (3) above.
5 The Incentive Eligible NAV Above Incentive Income Threshold presented for Liquid Hedge Funds excludes Affiliated Managers and sidepocket investments and for Credit Hedge Funds, excludes co-managed funds and sidepocket investments. The Incentive Eligible NAV Above Incentive Income Threshold presented for Private Equity Funds and Credit PE Funds (except for Fund V and Real Estate Opportunities Fund II, of which a portion of the fund's capital was above the incentive income threshold as of September 30, 2015), 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.
6 The Undistributed Incentive Income presented for the Liquid Hedge Funds excludes Affiliated Managers and for Credit Hedge Funds, excludes co-managed funds. Undistributed Incentive Income includes the impact of sidepocket investments on Liquid and Credit Hedge Funds. Undistributed Incentive Income for Private Equity Funds, Credit PE Funds and Liquid and Credit Hedge Fund sidepocket and redeeming capital account (RCA) investments has not been recognized in Distributable Earnings and will be recognized when realized; Undistributed Incentive Income for other Hedge Fund investments was recognized in Distributable Earnings when earned. Undistributed Incentive Income for Permanent Capital Vehicles includes 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 and (ii) sold all of its Permanent Capital Vehicle common shares which it received as incentive income, based on their September 30, 2015 closing price.
7 Net Investment Income includes Unallocated Investment Income of $1 million and Unallocated Expenses of $1 million.
 

Pre-tax DE was $69 million in the third quarter of 2015, up from $55 million in the third quarter of 2014, primarily due to lower profit-sharing expenses and higher net investment income, partially offset by lower incentive income.

Management fees were $151 million in the third quarter of 2015, up slightly from $149 million in the third quarter of 2014. Management fees for the third quarter of 2014 included approximately $15 million attributable to the former Fortress Asia Macro Funds ("FAMF"), which transitioned to an autonomous business in which we have a minority interest named Graticule Asset Management Asia L.P. ("Graticule") in the first quarter of 2015. Adjusting for this transition, Fortress's management fees increased by approximately $17 million year-over-year in the third quarter of 2015. The increase was primarily due to higher management fees from the Permanent Capital Vehicles, Credit Hedge Funds and Credit PE Funds, partially offset by lower management fees from the Private Equity Funds and Liquid Hedge Funds.

Incentive income in the third quarter of 2015 totaled $70 million, down from $88 million in the third quarter of 2014, primarily due to lower incentive income from the Credit Hedge Funds and Permanent Capital Vehicles, partially offset by higher incentive income from the Credit PE Funds.

Earnings from Affiliated Managers totaled $2 million in the third quarter of 2015, up from a loss of $1 million in the second quarter of 2015, related to our interests in Graticule.

Additionally, Fortress had $938 million in gross undistributed, unrecognized incentive income based on investment valuations as of September 30, 2015. This includes $913 million from our funds, $20 million from options in our permanent capital vehicles and $5 million in common shares Fortress received in connection with the IPO of Fortress Transportation and Infrastructure Investors LLC (NYSE: FTAI).

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, 2015, AUM totaled $74.3 billion, up from $72.0 billion as of June 30, 2015. During the quarter, Fortress recorded a $3.6 billion positive change in AUM of Affiliated Managers and co-managed funds, had a $0.6 billion increase in invested capital, raised $0.2 billion of capital that was directly added to AUM, and recorded $0.1 billion of net client inflows for Logan Circle. These increases to AUM were partially offset by (i) $0.9 billion of capital distributions to investors, (ii) $0.6 billion of market-driven valuation losses, (iii) $0.5 billion of Liquid Hedge Fund redemptions, and (iv) $0.2 billion of Credit Hedge Fund redemptions and payments to Credit Hedge Fund investors from redeeming capital accounts.

As of September 30, 2015, the Credit Funds and Private Equity Funds had $8.1 billion and $0.7 billion of uncalled capital, respectively, that will become AUM if deployed/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. Notably, approximately 82% of alternative AUM was in funds with long-term investment structures as of September 30, 2015, which provides for a stable, predictable base of management fees.

BUSINESS SEGMENT RESULTS

Below is a discussion of third quarter 2015 segment results and business highlights.

Credit:

  • DBSO LP net returns of 4.9% for the nine months ended September 30, 2015
  • FCO, FCO II, FCO III, FJOF and FJOF II (Yen) recorded annualized inception-to-date net IRRs of 24.7%, 16.8%, 10.8%, 32.3% and 23.5%, respectively, through September 30, 2015
  • Agreed to become co-manager of the Mount Kellett Funds, adding $3.0 billion of AUM
  • Post quarter end, the Credit PE Funds expect to close their third Japan Real Estate fund, FJOF III, at its cap of approximately $1.1 billion

(See supplemental data on pages 20-21 for more detail on Credit results)

The Credit business, which includes our Credit PE Funds and Credit Hedge Funds, generated pre-tax DE of $51 million in the third quarter of 2015, up from $36 million in the third quarter of 2014. The 42% year-over-year increase in DE was primarily driven by higher management fees and investment income, partially offset by higher expenses. Credit incentive income totaled $71 million in the quarter, up $1 million from the third quarter of 2014, as higher incentive income from the Credit PE Funds were largely offset by lower incentive income from the Credit Hedge Funds.

The Credit PE Funds generated pre-tax DE of $38 million in the quarter, up significantly from $18 million in the third quarter of 2014, as increased realization activity resulted in $70 million of incentive income in the quarter. For the nine months ended September 30, 2015, the Credit PE Funds generated $154 million of incentive income, greater than the amount generated in any comparable period since the Credit PE Funds were launched in 2008.

Gross unrecognized Credit PE incentive income totaled $818 million at quarter end, representing the amount of gross incentive income that would be recorded in DE if the related Credit funds were liquidated on September 30, 2015 at their net asset values.

The Credit Hedge Funds generated pre-tax DE of $13 million in the quarter, compared to $18 million in the third quarter of 2014, primarily due to lower incentive income earned in the quarter. Fortress's flagship credit hedge fund, DBSO LP, had net returns of 0.3% in the third quarter, bringing net returns for the nine months ended September 30, 2015 to 4.9%.

During the quarter, Fortress agreed to become co-manager of the Mount Kellett Funds, which have been included as part of the Credit Hedge Fund segment. As of September 30, 2015, the Mount Kellett Funds had $3.0 billion of AUM.

Post quarter end, the Credit PE Funds expect to close their third Japan Real Estate fund, FJOF III, at its cap of approximately $1.1 billion. At quarter end, approximately 14% of the fund's capital has already been committed or invested in real estate related investments in Japan.

Private Equity and Permanent Capital Vehicles:

  • AUM increased 13% year-over-year to $16.1 billion, including $9.2 billion in the Private Equity Funds and $6.9 billion in the Permanent Capital Vehicles
  • Raised $2.4 billion of permanent equity capital year-to-date through September 30, 2015
  • Permanent Capital Vehicles generated $74 million of pre-tax DE in the first nine months of 2015, more pre-tax DE than in any full year since Fortress has been public

(See supplemental data on pages 18-19 for more detail on Private Equity results)

The Private Equity business recorded pre-tax DE of $24 million in the third quarter of 2015, including $16 million for the Private Equity Funds and $8 million for the Permanent Capital Vehicles. Pre-tax DE declined from $25 million in the third quarter of 2014, primarily due to a $17 million decrease in Permanent Capital Vehicle incentive income year-over-year, partially offset by a $10 million year-over-year increase in Permanent Capital Vehicle management fees.

Private Equity Fund valuations declined 3.9% in the third quarter, primarily due to depreciation of Nationstar Mortgage Holdings Inc. (NYSE: NSM) and Springleaf Holdings, Inc. (NYSE: LEAF). As of October 28, 2015, public company valuations had increased 7.3% in the fourth quarter, primarily due to a 10.9% increase in Springleaf's stock price.

Liquid Hedge Funds:

  • Post quarter end, announced closing of the Fortress Macro Funds; anticipated return of most capital to investors by the end of 2015

(See supplemental data on page 22 for more detail on Liquid Hedge Funds results)

The Liquid Hedge Funds recorded a pre-tax DE loss of $4 million in the third quarter of 2015, flat compared to the third quarter of 2014. The pre-tax DE loss in the quarter was primarily due to an $11 million impairment of certain software and technology-related assets.

Earnings from Affiliated Managers totaled $2 million in the third quarter of 2015, compared to a loss of $1 million in the second quarter of 2015.

Third quarter 2015 net returns for the Fortress Macro Funds, Fortress Convex Asia Funds, Fortress Centaurus Global Funds and Fortress Partners Funds were (7.6)%, 3.3%, (3.1)% and (4.8)%, respectively. Net returns year-to-date through October 23, 2015 for the Fortress Convex Asia Funds and Fortress Centaurus Global Funds were (1.0)% and (2.3)%, respectively.*

Post quarter end, Fortress announced it will close the Fortress Macro Funds and expects to return most capital to investors by the end of 2015. The Fortress Macro Funds accounted for 2% of Fortress's total AUM at quarter end and had generated a pre-tax DE loss of $8 million year-to-date through September 30, 2015. Michael Novogratz, a Fortress principal, officer and director and Macro Fund CIO, is expected to retire at the end of 2015.

Excluding $1.8 billion of AUM related to the Fortress Macro Funds, the Liquid Hedge Funds had $5.6 billion of AUM at quarter end, including $4.5 billion related to Affiliated Managers.

______________________________

* The net returns for the Fortress Convex Asia Funds reflect returns for the Fortress Convex Asia Funds and Fortress Convex Asia PF Funds collectively. The calculation of net returns for the Fortress Convex Asia PF Funds reflect all expenses, including management fees, accrued incentive allocation (if any), and other expenses over the fund's Trading Level. "Trading Level" is defined as the product of the fund's NAV multiplied by the Funding Factor. The "Funding Factor" is 2x for Fortress Convex Asia Fund PF Ltd and Fortress Convex Asia Fund PF LP. The net returns for the Fortress Partners Funds represent the performance of Fortress Partners Fund LP. Please see supplemental data on page 22 for more detail on the returns of each Fortress Partners Fund.
 

Logan Circle:

  • 15 out of 16 Logan Circle fixed income investment strategies have outperformed their respective benchmarks since inception, and 8 of 16 strategies have outperformed respective benchmarks for the nine months ended September 30, 2015
  • AUM totaled $33.4 billion at September 30, 2015, an increase of 8% compared to September 30, 2014
  • Net client inflows totaled $1.7 billion for the nine months ended September 30, 2015

(See supplemental data on page 23 for more detail on Logan Circle results)

Logan Circle, our traditional asset management business, recorded breakeven pre-tax DE in the quarter, as $0.3 million of fund management DE was offset by $0.3 million of net investment losses. Pre-tax DE increased from a pre-tax DE loss of $2 million in the third quarter of 2014, primarily due to higher revenues and lower operating expenses.

Logan Circle ended the quarter with $33.4 billion in AUM, a slight decline compared to the prior quarter and an 8% increase compared to the third quarter of 2014. AUM declined slightly quarter-over-quarter as $0.1 billion of net inflows were offset by $0.2 billion of market-driven valuation losses.

Since inception, 15 of 16 Logan Circle fixed income strategies have outperformed their respective benchmarks and seven were ranked in the top quartile of performance for their competitor universe. For the year-to-date period through September 30, 2015, 8 out of Logan Circle's 16 fixed income strategies outperformed their respective benchmarks.

LIQUIDITY & CAPITAL

As of September 30, 2015, Fortress had cash and cash equivalents of $337 million and debt obligations of $75 million.

As of September 30, 2015, Fortress had $1.2 billion of investments in Fortress funds and options in publicly traded permanent capital vehicles. As of September 30, 2015, Fortress had a total of $153 million of outstanding commitments to its funds. In addition, the NAV of Fortress's investments in its own funds exceeded its segment cost basis by $506 million at quarter end, representing net unrealized gains that have not yet been recognized for segment reporting purposes.

In October 2015, Fortress announced that it has agreed to purchase 56.8 million Class A equivalent shares at $4.50 per share, or an aggregate amount of $255.7 million. In connection with this purchase, it is anticipated that Fortress will pay $100.0 million of cash in November 2015 and issue an $155.7 million promissory note. In addition, Fortress expects to enter into a consent and waiver with lenders under its credit agreement for their consent to this transaction.

DIVIDEND

Fortress's Board of Directors declared a third quarter 2015 cash dividend of $0.08 per dividend paying share. The dividend is payable on November 13, 2015 to Class A shareholders of record as of the close of business on November 10, 2015.

The declaration and payment of any dividends are at the sole discretion of the Board of Directors, which may decide to change its dividend policy at any time. Please see below for information on the U.S. federal income tax implications of the dividend.

NON-GAAP INFORMATION

DE is a primary metric used by management to measure Fortress's operating performance. Consistent with GAAP, DE is the sole 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.

CONFERENCE CALL

Management will host a conference call today, Thursday, October 29th at 10:00 A.M. Eastern Time. A copy of the earnings release is posted to the Investor Relations section of Fortress's website, www.fortress.com. The conference call may be accessed by dialing 1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference "Fortress Third Quarter Earnings Call." A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.fortress.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code "57023583."

ABOUT FORTRESS

Fortress Investment Group LLC (NYSE: FIG) is a leading, highly diversified global investment management firm with $74.3 billion in assets under management as of September 30, 2015. Fortress applies its deep experience and specialized expertise across a range of investment strategies - private equity, credit, liquid hedge funds and traditional asset management - on behalf of over 1,800 institutional clients and private investors worldwide. 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 press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Fortress's sources of management fees, incentive income and investment income (loss), estimated fund performance, the amount and source of expected capital commitments, the closing of the Fortress Macro Funds and repurchase of shares/units from a retiring principal (the "transaction"). These statements are not historical facts, but instead represent only the Company's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. It is possible that the sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund or redemption amounts may differ, possibly materially, from these forward-looking statements. Such differences or other changes to forward looking statements including with respect to the transaction could cause the Company's actual results to differ materially from the results expressed or implied by these forward-looking statements. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Quarterly Report on Form 10-Q, which is, or will be, available on the Company's website (www.fortress.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. The Company 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 press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND

This announcement is intended to be a qualified notice as provided in the Internal Revenue Code (the "Code") and the Regulations thereunder. For U.S. federal income tax purposes, the dividend declared in October 2015 will be treated as a partnership distribution. The per share distribution components are as follows:

        U.S. Long Term Capital Gain (1)       $0.0000
Non-U.S. Long Term Capital Gain $0.0000
U.S. Portfolio Interest Income (2) $0.0520
U.S. Dividend Income (3) $0.0000
Income Not from U.S. Sources (4) $0.0280
Return of Capital $0.0000
Distribution Per Share $0.0800
 
(1) U.S. Long Term Capital Gain realized on the sale of a United States Real Property Holding Corporation. As a result, the gain from the sale will be treated as income that is effectively connected with a U.S. trade or business.
 
(2) Eligible for the U.S. portfolio interest exemption for any holder not considered a 10-Percent shareholder under §871(h)(3)(B) of the Code.
 
(3) This income is subject to withholding under §1441 of the Code.
 
(4) This income is not subject to withholding under §1441 or §1446 of the Code.
 
 
 

Fortress Investment Group LLC

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share data)

           
Three Months Ended September 30, Nine Months Ended September 30,
  2015           2014     2015           2014  
Revenues
Management fees: affiliates $ 134,414 $ 138,135 $ 413,057 $ 403,890
Management fees: non-affiliates 15,400 16,774 45,657 52,112
Incentive income: affiliates 48,773 30,941 155,154 125,634
Incentive income: non-affiliates 439 343 735 1,030
Expense reimbursements: affiliates 59,988 50,600 168,544 153,448
Expense reimbursements: non-affiliates 2,757 4,869 9,573 9,931
Other revenues   2,248     1,518     6,476     4,589  
Total Revenues   264,019     243,180     799,196     750,634  
 
Expenses
Compensation and benefits 169,027 187,249 547,023 543,882
General, administrative and other 37,887 41,313 126,053 121,322
Depreciation and amortization 16,102 4,997 34,201 14,335
Interest expense 918 916 2,796 2,554
Transfer of interest in Graticule   -     -     101,000     -  
Total Expenses   223,934     234,475     811,073     682,093  
 
Other Income (Loss)
Gains (losses) (39,888 ) (23,917 ) (15,114 ) (30,108 )
Tax receivable agreement liability adjustment (390 ) (4,036 ) (7,890 ) (4,036 )
Earnings (losses) from equity method investees (22,195 ) 38,928 (16,808 ) 81,750
Gain on transfer of Graticule   -     -     134,400     -  
Total Other Income (Loss)   (62,473 )   10,975     94,588     47,606  
 
Income (Loss) Before Income Taxes (22,388 ) 19,680 82,711 116,147
Income tax benefit (expense)   (3,584 )   (3,024 )   (16,784 )   (16,934 )
Net Income (Loss) $ (25,972 ) $ 16,656   $ 65,927   $ 99,213  
Allocation of Net Income (Loss)
Principals' and Others' Interests in Income (Loss) of Consolidated Subsidiaries (11,727 ) 12,623 42,149 60,800
Redeemable Non-Controlling Interests in Income (Loss) - (2,042 ) (6 ) (1,885 )
Net Income (Loss) Attributable to Class A Shareholders   (14,245 )   6,075     23,784     40,298  
$ (25,972 ) $ 16,656   $ 65,927   $ 99,213  
 

Earnings (Loss) Per Class A Share

Net income (loss) per Class A share, basic $ (0.07 ) $ 0.03   $ 0.10   $ 0.19  
Net income (loss) per Class A share, diluted $ (0.07 ) $ 0.02   $ 0.09   $ 0.17  
Weighted average number of Class A shares outstanding, basic   216,439,077     208,014,692     216,138,405     210,874,640  
Weighted average number of Class A shares outstanding, diluted   216,439,077     220,792,711     222,213,743     457,019,507  
 
   
 

Fortress Investment Group LLC

Consolidated Balance Sheets

(dollars in thousands)

             

September 30, 2015
(Unaudited)

December 31, 2014
Assets
Cash and cash equivalents $ 337,109 $ 391,089
Due from affiliates 195,619 326,575
Investments 1,125,443 1,121,545
Investments in options 33,849 71,844
Deferred tax asset, net 426,274 417,623
Other assets   158,420     173,708  
Total Assets $ 2,276,714   $ 2,502,384  
 
Liabilities and Equity
 
Liabilities
Accrued compensation and benefits $ 242,492 $ 374,709
Due to affiliates 383,685 375,424
Deferred incentive income 348,267 304,526
Debt obligations payable 75,000 75,000
Other liabilities   124,303     88,053  
Total Liabilities $ 1,173,747   $ 1,217,712  
 
Commitments and Contingencies
 
Redeemable Non-controlling Interests 1,717
 
Equity
Class A shares, no par value, 1,000,000,000 shares authorized, 215,714,060
and 208,535,157 shares issued and outstanding at September 30, 2015 and
December 31, 2014, respectively - -
Class B shares, no par value, 750,000,000 shares authorized, 226,331,513
shares issued and outstanding at September 30, 2015 and December 31, 2014,
respectively - -
Paid-in capital 1,909,349 1,996,137
Retained earnings (accumulated deficit) (1,326,338 ) (1,350,122 )
Accumulated other comprehensive income (loss)   (1,900 )   (2,416 )
 
Total Fortress shareholders' equity 581,111 643,599
Principals' and others' interests in equity of consolidated subsidiaries   521,856     639,356  
Total Equity   1,102,967     1,282,955  
$ 2,276,714   $ 2,502,384  
 
 
 

Fortress Investment Group LLC

Exhibit 1-a

Supplemental Data for the Three Months Ended September 30, 2015 and 2014

       
Three Months Ended September 30, 2015
     

Private Equity

           

Credit Funds

     
(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management  
AUM - July 1, 2015 $     71,967 $     9,587 $     6,948 $     7,377 $     6,244 $     8,247 $     33,564
Capital raised 201 - - 48 - 153 -
Equity raised (Permanent Capital Vehicles) - - - - - - -
Increase in invested capital 641 11 - - 25 605 -
Redemptions (669 ) - - (457 ) (212 ) - -
RCA distributions8 (22 ) - - - (22 ) - -
Return of capital distributions (862 ) (134 ) (11 ) (100 ) - (617 ) -
Adjustment for capital reset - - - - - - -
Crystallized Incentive Income (2 ) - - - (2 ) - -
Change in AUM of Affiliated Managers and co-managed funds 3,579 - - 561 3,018 - -
Net Client Flows 101 - - - - - 101
Income (loss) and foreign exchange       (604 )       (269 )       (41 )         (62 )       19           (32 )       (219 )
AUM - Ending Balance $ 74,330 $ 9,195 $ 6,896 $ 7,367 $ 9,070 $ 8,356 $ 33,446
 
Third-Party Capital Raised $     204   $     -   $     -     $     48   $     -     $     156   $     -  
 
Segment Revenues
Management fees $ 151 $ 29 $ 27 $ 16 $ 37 $ 29 $ 13
Incentive income       70         -         (1 )         -         1           70         -  
Total 221 29 26 16 38 99 13
 
Segment Expenses
Operating expenses (112 ) (13 ) (16 ) (20 ) (21 ) (29 ) (13 )
Profit sharing compensation expenses       (37 )       -         1           (1 )       (1 )         (36 )       -  
Total (149 ) (13 ) (15 ) (21 ) (22 ) (65 ) (13 )
 
Earnings From Affiliated Managers 2 - - 2 - - -
             
Fund Management DE (before Principal Performance Payments)       74         16         11           (3 )       16           34         -  
 
Principal Performance Payments (7 ) - (3 ) - (3 ) (1 ) -
             
Fund Management DE       67         16         8           (3 )       13           33         -  
 
Investment Income 4 - - (1 ) - 5 -
Unallocated Investment Income (1 )

 

 

 

 

 

 

Unallocated Expenses (1 )
             
Pre-tax Distributable Earnings $     69   $     16   $     8     $     (4 ) $     13     $     38   $     -  
Pre-tax Distributable Earnings per Dividend Paying Share $     0.15  
 
       
Three Months Ended September 30, 2014
     

Private Equity

           

Credit Funds

     
(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
    Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - July 1, 2014 $     63,813 $     9,810 $     4,021 $     7,867 $     6,084 $     6,898 $     29,133
Capital raised 433 - - 247 155 31 -
Equity raised (Permanent Capital Vehicles) 312 - 312 - - - -
Increase in invested capital 938 67 133 - - 738 -
Redemptions (563 ) - - (562 ) (1 ) - -
RCA distributions8 (180 ) - - - (180 ) - -
Return of capital distributions (1,170 ) (644 ) (13 ) (83 ) (19 ) (411 ) -
Adjustment for capital reset (86 ) - - - - (86 ) -
Crystallized Incentive Income (10 ) - - (1 ) (9 ) - -
Net Client Flows 2,178 - - - - - 2,178
Income (loss) and foreign exchange       381         554         (42 )       61         110         (87 )       (215 )
AUM - Ending Balance $ 66,046 $ 9,787 $ 4,411 $ 7,529 $ 6,140 $ 7,083 $ 31,096
 
Third-Party Capital Raised $     1,216   $     101   $     673   $     247   $     165   $     30   $     -  
 
Segment Revenues
Management fees $ 149 $ 33 $ 17 $ 33 $ 29 $ 24 $ 13
Incentive income       88         -         16         2         29         41         -  
Total 237 33 33 35 58 65 13
 
Segment Expenses
Operating expenses (112 ) (15 ) (18 ) (21 ) (17 ) (27 ) (14 )
Profit sharing compensation expenses       (54 )       -         (9 )       (9 )       (14 )       (22 )       -  
Total (166 ) (15 ) (27 ) (30 ) (31 ) (49 ) (14 )
             
Fund Management DE (before Principal Performance Payments)       71         18         6         5         27         16         (1 )
 
Principal Performance Payments (4 ) - - - (4 ) - -
             
Fund Management DE       67         18         6         5         23         16         (1 )
 
Investment Income (12 ) - 1 (9 ) (5 ) 2 (1 )
Unallocated Investment Income -
Unallocated Expenses -
             
Pre-tax Distributable Earnings $     55   $     18   $     7   $     (4 ) $     18   $     18   $     (2 )
Pre-tax Distributable Earnings per Dividend Paying Share $     0.12  
 

______________________________

8 Represents distributions from (i) assets held by redeeming capital accounts in the Drawbridge Special Opportunities Funds, and (ii) the Value Recovery Funds.
 
 
 

Fortress Investment Group LLC

Exhibit 1-b

Supplemental Data for the Nine Months Ended September 30, 2015 and 2014

     
Nine Months Ended September 30, 2015
      Private Equity        

 

      Credit Funds      

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - January 1, 2015 $     67,531 $     9,366 $     4,567 $     8,128 $     6,173 $     6,955 $     32,342
Capital raised 1,371 - - 305 254 812 -
Equity raised (Permanent Capital Vehicles) 2,441 - 2,441 - - - -
Increase in invested capital 2,155 192 287 - 46 1,630 -
Redemptions (1,829 ) - - (1,565 ) (264 ) - -
RCA distributions9 (288 ) - - - (288 ) - -
Return of capital distributions (1,732 ) (412 ) (110 ) (162 ) (31 ) (1,017 ) -
Adjustment for reset date (168 ) - (168 ) - - - -
Crystallized Incentive Income (118 ) - - - (118 ) - -
Change in AUM of Affiliated Managers and co-managed funds 3,967 - - 949 3,018 - -
Net Client Flows 1,746 - - - - - 1,746
Income (loss) and foreign exchange       (746 )       49         (121 )       (288 )       280         (24 )       (642 )
AUM - Ending Balance $ 74,330 $ 9,195 $ 6,896 $ 7,367 $ 9,070 $ 8,356 $ 33,446
 
Third-Party Capital Raised $     8,777   $     -   $     2,441   $     305   $     254   $     5,777   $     -  
 
Segment Revenues
Management fees $ 434 $ 87 $ 69 $ 56 $ 96 $ 86 $ 40
Incentive income       304         -         76         -         74         154         -  
Total 738 87 145 56 170 240 40
 
Segment Expenses
Operating expenses (348 ) (42 ) (50 ) (68 ) (58 ) (89 ) (41 )
Profit sharing compensation expenses       (121 )       -         (8 )       (2 )       (31 )       (80 )       -  
Total (469 ) (42 ) (58 ) (70 ) (89 ) (169 ) (41 )
 
Earnings From Affiliated Managers       10         -         -         10         -         -         -  
 
Fund Management DE (before Principal Performance Payments)       279         45         87         (4 )       81         71         (1 )
 
Principal Performance Payments (28 ) - (14 ) - (11 ) (3 ) -
             
Fund Management DE       251         45         73         (4 )       70         68         (1 )
 
Investment Income 14 - 1 3 1 9 -
Unallocated Investment Income (1 )
Unallocated Expenses (3 )
             
Pre-tax Distributable Earnings $     261   $     45   $     74   $     (1 ) $     71   $     77   $     (1 )
Pre-tax Distributable Earnings per Dividend Paying Share $     0.58  
 
       
Nine Months Ended September 30, 2014
      Private Equity        

 

      Credit Funds      

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - January 1, 2014 $     61,750 $     11,861 $     3,722 $     7,398 $     5,856 $     7,527 $     25,386
Capital raised 2,615 - - 2,072 512 31 -
Equity raised (Permanent Capital Vehicles) 483 - 483 - - - -
Increase in invested capital 1,526 127 348 - 15 1,036 -
Redemptions (1,475 ) - - (1,438 ) (37 ) - -
RCA distributions9 (487 ) - - - (487 ) - -
Return of capital distributions (4,457 ) (2,798 ) (97 ) (120 ) (47 ) (1,395 ) -
Adjustment for capital reset (86 ) - - - - (86 ) -
Crystallized Incentive Income (299 ) - - (130 ) (169 ) - -
Net Client Flows 4,385 - - - - - 4,385
Income (loss) and foreign exchange       2,091         597         (45 )       (253 )       497         (30 )       1,325  
AUM - Ending Balance $ 66,046 $ 9,787 $ 4,411 $ 7,529 $ 6,140 $ 7,083 $ 31,096
 
Third-Party Capital Raised $     4,587   $     206   $     1,078   $     2,072   $     947   $     284   $     -  
 
Segment Revenues
Management fees $ 448 $ 104 $ 50 $ 103 $ 84 $ 72 $ 35
Incentive income       270         3         41         3         103         120         -  
Total 718 107 91 106 187 192 35
 
Segment Expenses
Operating expenses (325 ) (38 ) (49 ) (68 ) (51 ) (79 ) (40 )
Profit sharing compensation expenses       (146 )       -         (15 )       (18 )       (49 )       (64 )       -  
Total (471 ) (38 ) (64 ) (86 ) (100 ) (143 ) (40 )
             
Fund Management DE (before Principal Performance Payments)       247         69         27         20         87         49         (5 )
 
Principal Performance Payments (17 ) - (3 ) (1 ) (12 ) (1 ) -
             
Fund Management DE       230         69         24         19         75         48         (5 )
 
Investment Income 94 95 2 (7 ) (2 ) 6 -
Unallocated Investment Income 1
Unallocated Expenses (2 )
             
Pre-tax Distributable Earnings $     323   $     164   $     26   $     12   $     73   $     54   $     (5 )
Pre-tax Distributable Earnings per Dividend Paying Share $     0.72  
 

______________________________

9 Represents distributions from (i) assets held by redeeming capital accounts in the Drawbridge Special Opportunities Funds, and (ii) the Value Recovery Funds.
 
             
 

Fortress Investment Group LLC

Exhibit 2-a

Assets Under Management and Fund Management DE  

(dollars in millions)

                   
Three Months Ended Three Months Ended

 

Fortress

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

Full Year
2014

March 31,
2015

June 30,
2015

September 30,
2015

Nine Months Ended
September 30, 2015

Assets Under Management
Private Equity Funds $   11,512 $   9,810 $ 9,787 $ 9,366 $   9,366 $   10,179 $   9,587 $ 9,195 $ 9,195
Permanent Capital Vehicles 3,731 4,021 4,411 4,567 4,567 4,622 6,948 6,896 6,896
Liquid Hedge Funds10 7,738 7,867 7,529 8,128 8,128 7,838 7,377 7,367 7,367
Credit Hedge Funds11 5,968 6,084 6,140 6,173 6,173 6,271 6,244 9,070 9,070
Credit Private Equity Funds 6,979 6,898 7,083 6,955 6,955 7,563 8,247 8,356 8,356
Logan Circle     26,592       29,133     31,096     32,342       32,342       33,416       33,564     33,446     33,446  
AUM - Ending Balance $   62,520   $   63,813   $ 66,046   $ 67,531   $   67,531   $   69,889   $   71,967   $ 74,330   $ 74,330  
 
Third-Party Capital Raised $   1,609   $   1,762   $ 1,216   $ 1,692   $   6,279   $   5,360   $   3,213   $ 204   $ 8,777  
 
Segment Revenues
Management fees $ 147 $ 152 $ 149 $ 153 $ 601 $ 139 $ 144 $ 151 $ 434
Incentive income     104       78     88     191       461       51       183     70     304  
Total 251 230 237 344 1,062 190 327 221 738
 
Segment Expenses
Operating expenses (104 ) (109 ) (112 ) (126 ) (451 ) (115 ) (121 ) (112 ) (348 )
Profit sharing compensation expenses     (53 )     (39 )   (54 )   (96 )     (242 )     (30 )     (54 )   (37 )   (121 )
Total (157 ) (148 ) (166 ) (222 ) (693 ) (145 ) (175 ) (149 ) (469 )
 
Earnings From Affiliated Managers     -       -     -     -       -       9       (1 )   2     10  
 
Fund Management DE (before Principal Performance Payments)     94       82     71     122       369       54       151     74     279  
 
Principal Performance Payments (7 ) (6 ) (4 ) (12 ) (29 ) (3 ) (18 ) (7 ) (28 )
                 
Fund Management DE $   87   $   76   $ 67   $ 110   $   340   $   51   $   133   $ 67   $ 251  
 
Net Investment Income 10 96 (12 ) 13 106 4 4 2 10
                 
Pre-tax Distributable Earnings $   97   $   172   $ 55   $ 123   $   446   $   55   $   137   $ 69   $ 261  
 

______________________________

10 The Assets Under Management presented for the Liquid Hedge Funds includes $4,456 million related to Affiliated Managers as of September 30, 2015.
11 The Assets Under Management presented for the Credit Hedge Funds includes $3,018 million related to co-managed funds as of September 30, 2015.
 
                 
 

Fortress Investment Group LLC

Exhibit 2-b

        Assets Under Management and Fund Management DE

 (dollars in millions)

 
Three Months Ended Three Months Ended

 

Private Equity Funds

March 31,
2014

   

June 30,
2014

   

September 30,
2014

   

December 31,
2014

Full Year
2014

March 31,
2015

   

June 30,
2015

    September 30,

2015

Nine Months Ended
September 30, 2015

 
Assets Under Management
Main Funds12 $   7,787 $ 7,053 $ 7,347 $   6,934 $   6,934 $   7,726 $   7,128 $ 6,874 $   6,874
Coinvestment Funds13 3,393 2,401 2,088 2,006 2,006 1,994 1,902 1,785 1,785
MSR Opportunities Funds14 332 344 341 326 326 336 417 388 388
Italian NPL Opportunities Fund - 12 11 25 25 19 20 20 20
Fortress Equity Partners     -       -       -         75         75         104         120       128       128  
AUM - Ending Balance $   11,512     $ 9,810     $ 9,787     $   9,366     $   9,366     $   10,179     $   9,587     $ 9,195   $   9,195  
 
Third-Party Capital Raised $   79     $ 26     $ 101     $   -     $   206     $   -     $   -     $ -   $   -  
 
Segment Revenues
Management fees $ 35 $ 36 $ 33 $ 32 $ 136 $ 29 $ 29 $ 29 $ 87
Incentive income     2       1       -         -         3         -         -       -       -  
Total 37 37 33 32 139 29 29 29 87
 
Segment Expenses
Operating expenses (11 ) (12 ) (15 ) (13 ) (51 ) (14 ) (15 ) (13 ) (42 )
Profit sharing compensation expenses     (1 )     1       -         -         -         -         -       -       -  
Total     (12 )   (11 )   (15 )       (13 )       (51 )       (14 )       (15 )     (13 )   (42 )
 
Fund Management DE (before Principal Performance Payments)     25       26       18         19         88         15         14       16       45  
 
Principal Performance Payments - - - - - - - - -
                               
Fund Management DE $   25     $ 26     $ 18     $   19     $   88     $   15     $   14     $ 16   $   45  
 
Net Investment Income 4 91 - - 95 - - - -
                               
Pre-tax Distributable Earnings $   29     $ 117     $ 18     $   19     $   183     $   15     $   14     $ 16   $   45  

______________________________

12 Combined AUM for Fund III, Fund IV and Fund V.
13 Combined AUM for Fund III Coinvestment, Fund IV Coinvestment, Fund V Coinvestment, FRID, FRIC, FICO, FHIF, FECI and MAPS. FRID and FRIC were closed in the fourth quarter of 2014.
14 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 Three Months Ended

 

Permanent Capital Vehicles

March 31,
2014

   

June 30,
2014

   

September 30,
2014

   

December 31,
2014

Full Year
2014

March 31,
2015

   

June 30,
2015

     

September 30,
2015

Nine Months Ended
September 30, 2015

 
Assets Under Management
Newcastle Investment Corp. $   1,321 $   1,381 $   1,579 $   768 $   768 $   680 $   680 $ 680 $ 680
New Residential Investment Corp. 1,196 1,367 1,366 1,367 1,367 1,367 2,725 2,689 2,689
Eurocastle Investment Limited 556 553 510 488 488 432 626 605 605
New Media Investment Group Inc. 391 390 505 487 487 637 637 637 637
New Senior Investment Group Inc. - - - 812 812 813 1,089 1,089 1,089
Fortress Transportation and Infrastructure Investors LLC15     267         330         451         645         645         693         1,191       1,196     1,196  
AUM - Ending Balance $   3,731     $   4,021     $   4,411     $   4,567     $   4,567     $   4,622     $   6,948     $ 6,896   $ 6,896  
 
Third-Party Capital Raised $   -     $   405     $   673     $   -     $   1,078     $   150     $   2,291     $ -   $ 2,441  
 
Segment Revenues
Management fees $ 16 $ 17 $ 17 $ 19 $ 69 $ 19 $ 23 $ 27 $ 69
Incentive income     4         21         16         25         66         3         74       (1 )   76  
Total 20 38 33 44 135 22 97 26 145
 
Segment Expenses
Operating expenses (14 ) (17 ) (18 ) (20 ) (69 ) (18 ) (16 ) (16 ) (50 )
Profit sharing compensation expenses     -         (6 )       (9 )       (6 )       (21 )       -         (9 )     1     (8 )
Total     (14 )       (23 )       (27 )       (26 )       (90 )       (18 )       (25 )     (15 )   (58 )

 

Fund Management DE (before Principal Performance Payments)     6         15         6         18         45         4         72       11     87  
 
Principal Performance Payments (1 ) (2 ) - (3 ) (6 ) - (11 ) (3 ) (14 )
                               
Fund Management DE $   5     $   13     $   6     $   15     $   39     $   4     $   61     $ 8   $ 73  
 
Net Investment Income - 1 1 - 2 - 1 - 1
                               
Pre-tax Distributable Earnings $   5     $   14     $   7     $   15     $   41     $   4     $   62     $ 8   $ 74  
 

______________________________

15 All of the capital of Worldwide Transportation and Infrastructure Investors ("WWTAI"), a private fund managed by Fortress, was contributed to FTAI which completed its initial public offering in 2Q 2015.
 
 
 

Fortress Investment Group LLC

Exhibit 2-d

Assets Under Management and Fund Management DE

 (dollars in millions)

                   
Three Months Ended Three Months Ended

 

Credit Hedge Funds

March 31,
2014

   

June 30,
2014

   

September 30,
2014

   

December 31,
2014

Full Year
2014

March 31,
2015

   

June 30,
2015

   

September 30,
2015

Nine Months Ended
September 30, 2015

 
Assets Under Management
Drawbridge Special Opportunities Funds16 $   5,616 $   5,745 $   5,817 $   5,929 $   5,929 $   6,023 $   6,021 $ 5,808 $ 5,808
Value Recovery Funds17 338 324 309 200 200 189 156 150 150
Japan Income Fund 14 15 14 44 44 59 67 94 94
Co-Managed Funds18     -         -         -         -         -         -         -       3,018       3,018  
AUM - Ending Balance $   5,968     $   6,084     $   6,140     $   6,173     $   6,173     $   6,271     $   6,244     $ 9,070     $ 9,070  
 
Third-Party Capital Raised $   228     $   554     $   165     $   48     $   995     $   175     $   79     $ -     $ 254  
 
Segment Revenues
Management fees $ 27 $ 28 $ 29 $ 30 $ 114 $ 30 $ 29 $ 37 $ 96
Incentive income     32         42         29         19         122         23         50       1       74  
Total 59 70 58 49 236 53 79 38 170
 
Segment Expenses
Operating expenses (17 ) (17 ) (17 ) (19 ) (70 ) (18 ) (19 ) (21 ) (58 )
Profit sharing compensation expenses     (15 )       (20 )       (14 )       (10 )       (59 )       (12 )       (18 )     (1 )     (31 )
Total     (32 )       (37 )       (31 )       (29 )       (129 )       (30 )       (37 )     (22 )   (89 )
 
Fund Management DE (before Principal Performance Payments)     27         33         27         20         107         23         42       16       81  
 
Principal Performance Payments (5 ) (3 ) (4 ) (8 ) (20 ) (2 ) (6 ) (3 ) (11 )
                                 
Fund Management DE $   22     $   30     $   23     $   12     $   87     $   21     $   36     $ 13     $ 70  
 
Net Investment Income 1 2 (5 ) 1 (1 ) 1 - - 1
                                 
Pre-tax Distributable Earnings $   23     $   32     $   18     $   13     $   86     $   22     $   36     $ 13     $ 71  
 
 

Net Returns19

Drawbridge Special Opportunities Fund LP 3.2 % 2.6 % 1.9 % 2.1 % 10.0 % 2.2 % 2.3 % 0.3 % 4.9 %
Drawbridge Special Opportunities Fund Ltd 2.2 % 1.7 % 1.7 % 0.2 % 6.0 % 1.1 % 0.4 % -0.8 % 0.7 %
 

______________________________

16 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.
17 Fortress will receive management fees from these funds equal to 1% of cash receipts and may receive limited incentive income if aggregate realizations exceed an agreed threshold.
18 Combined AUM for the Mount Kellett investment funds and related accounts. In July 2015, Fortress became co-manager of the Mount Kellett Funds.
19 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 and December 31, 2014 redemptions.
 
 
 

Fortress Investment Group LLC

Exhibit 2-e

Assets Under Management and Fund Management DE

 (dollars in millions)

                 
Three Months Ended Three Months Ended

 

Credit Private Equity Funds

March 31,
2014

   

June 30,
2014

   

September 30,
2014

   

December 31,
2014

Full Year
2014

March 31,
2015

   

June 30,
2015

   

September 30,
2015

Nine Months Ended
September 30, 2015

 
Assets Under Management
Long Dated Value Funds20 $   395 $   375 $   361 $   361 $   361 $   352 $   315 $   315 $ 315
Real Assets Funds 78 70 64 66 66 52 40 41 41
Fortress Credit Opportunities Funds21 4,712 4,649 4,960 5,465 5,465 6,029 6,802 6,796 6,796
Japan Opportunity Funds22     1,794         1,804         1,698         1,063       1,063         1,130         1,090         1,204       1,204  
AUM - Ending Balance $   6,979     $   6,898     $   7,083     $   6,955   $   6,955     $   7,563     $   8,247     $   8,356     $ 8,356  
 
Third-Party Capital Raised $   -     $   254     $   30     $   899   $   1,183     $   4,949     $   672     $   156     $ 5,777  
 
Segment Revenues
Management fees $ 25 $ 23 $ 24 $ 25 $ 97 $ 27 $ 30 $ 29 $ 86
Incentive income     66         13         41         134       254         24         60         70       154  
Total 91 36 65 159 351 51 90 99 240
 
Segment Expenses
Operating expenses (26 ) (26 ) (27 ) (29 ) (108 ) (30 ) (30 ) (29 ) (89 )
Profit sharing compensation expenses     (35 )       (7 )       (22 )       (68 )     (132 )       (14 )       (30 )       (36 )     (80 )
Total     (61 )       (33 )       (49 )       (97 )     (240 )       (44 )       (60 )       (65 )     (169 )
 
Fund Management DE (before Principal Performance Payments)     30         3         16         62       111         7         30         34       71  
 
Principal Performance Payments (1 ) - - (1 ) (2 ) (1 ) (1 ) (1 ) (3 )
                               
Fund Management DE $   29     $   3     $   16     $   61   $   109     $   6     $   29     $   33     $ 68  
 
Net Investment Income 4 - 2 7 13 1 3 5 9
                               
Pre-tax Distributable Earnings $   33     $   3     $   18     $   68   $   122     $   7