Fortress Stays Strong, Mostly
Carl Gutierrez, 03.25.08, 6:35 PM ET
Fortress Investment Group was lacking in the performance department last quarter, but investors seem poised for a comeback.
On Tuesday, Fortress Investment Group reported a forth-quarter loss after having to pay $240 million in principal compensation.
The company, which had $33.2 billion in fee paying assets at the end of the year, reported a loss of $29 million, or 43 cents per share, for the 2007 fourth quarter. A year ago, the company earned $290 million. Fortress did not provide per-share data for the year-ago periods, saying a restructuring in January 2007 makes a comparison meaningless.
Excluding the principal compensation payment and other items, earnings fell to $78 million, or 18 cents per share, from $138 million a year ago. Analyst polled by Thomson Financial had anticipated earnings of $80.0 million, or 18 cents per share. Sales fell to $304 million from $488 million the year before. Segment revenue came in at $196 million, with management fees accounting for $129 million. Wall Street had expected $210.2 million for the quarter.
Despite the weak numbers, investors were generally pleased with the firm's performance, sending shares of the publicly traded hedge fund up 4.8%, or 53 cents, to $11.54 by close on Tuesday. According to Robert Lee of Keefe, Bruyette & Woods, investors' primary focus was on the company's outlook for the rest of the year, which is generally positive.
"Their hedge fund products have held up well," Lee said, "and they have a robust asset raising plans for the rest of the year." Lee went on to note that, due to the current environment, investors were concerned that some unknown problem might emerge.
During the analyst call, Fortress Chief Executive Wesley Edens said the company plans to raise $15 million to $20 million in capital over the coming months. Jeffries analyst Daniel Fannon told Forbes.com that he expects the money will be raised through private equity or the birth of a six hedge fund for the investment group.
Looking at the larger picture, Lee said that economic environments such as the current one are a key time for alternative investment managers to build their track records.
"If you can outperform on an absolute basis in crummy markets, it won't mean that you'll generate performance fees, but you've outperformed broad equity industries," Lee said. "So this environment could create short-term headwinds around revenues and performance fees, but to the extent you can perform better you can build track records and build assets for the future."
Lee added that he views Fortress as one of these alternative managers.
A week ago Fortress announced it was bumping the release up a week. (See: "Silent Fortress") The firm did not return calls as to why it changed the date of the release. www.forbes.com
