Fortress’s Credit Private Equity funds continued to generate strong investment performance during the quarter, which contributed to a further increase in unrealized, undistributed incentive income. The Credit Opportunities Fund and Credit Opportunities Fund II had net annualized inception-to-date IRRs through quarter end of 26.9% and 16.9%, respectively. Unrealized, undistributed incentive income rose to $346 million compared with $284 million at the end of the first quarter, reflecting continued appreciation in the value of fund investments in aggregate. Additionally, the team called approximately $350 million of capital for investments and returned $770 million to investors during the quarter. Total Credit Private Equity dry powder—capital committed to the funds but not yet generating management fees—increased $1 billion from the previous quarter to $7.2 billion.
Capital raising across the Credit business has been exceptional with over $3.4 billion in third-party commitments raised in the first six months of 2012. In the second quarter, the Credit business raised over $650 million, highlighted by two large managed accounts which closed out the third set of Credit Opportunities Funds. This fund complex closed with $4.3 billion of committed capital – the largest fund raise at Fortress since 2007. In addition, Fortress is raising a second Japan real estate credit fund that is on pace to attract in excess of $1 billion in total commitments, and a dedicated set of real estate opportunities funds primarily focused on the U.S. and Europe that had total third-party commitments approaching $300 million through July.
“We believe that long-term investment opportunities in the Credit and broader distressed space will be exceptional, given the degree of financial deleveraging that we believe must occur over the next several years,” said Peter Briger, Fortress co-Chairman and Credit co-CIO. “We do not believe that prices today represent particularly attractive opportunities in general, but we believe this is unsustainable. We are disciplined, patient investors, with global sourcing, investment and asset management capabilities. With ample capital to deploy on our investors’ behalf, we believe we are well-positioned to capitalize on complex and idiosyncratic opportunities that emerge as the great financial deleveraging continues to unfold.”