The primary driver of the year-over-year improvement in Fortress’s GAAP results was the expiration of the Principals Agreement and related compensation expense, a non-economic amortization expense that had accounted for approximately $4.8 billion in compensation expenses between the first quarter of 2007 and the fourth quarter of 2011. No amounts were ever paid, or equity issued, in connection with this agreement. This agreement expired at the end of 2011 and will no longer impact Fortress’s financial results.
CONSOLIDATED SEGMENT RESULTS (NON-GAAP)
This section provides information about each of Fortress’s businesses: (i) Credit, (ii) Private Equity, (iii) Liquid Hedge Funds, and (iv) Logan Circle.
Fortress uses “distributable earnings,” or DE, as a primary metric to manage its businesses and gauge the company’s performance, and it uses DE exclusively to report segment results. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortress’s GAAP results. Fortress urges you to read “Non-GAAP Information” below.
|As of September 30, 2012|
|Hedge Funds||PE Funds||
|Assets Under Management 1||$||51,475||$||11,113||$||3,605||$||4,378||$||5,663||$||6,090||$||20,626|
|Average Management Fee Rate 2||1.2||%||1.5||%||1.7||%||1.9||%||1.4||%||0.1||%|
|Incentive Eligible NAV Above Incentive Income Threshold 3||$||14,367||$||220||$||-||$||2,418||$||4,603||$||7,126||N/A|
|Undistributed Incentive Income: Unrecognized||$||543||$||16||$||-||$||5||$||92||$||430||N/A|
|Undistributed Incentive Income: Recognized||108||-||-||20||88||-||N/A|
|Undistributed Incentive Income 4||$||651||$||16||$||-||$||25||$||180||$||430||N/A|
|Three Months Ended September 30, 2012|
|Hedge Funds||PE Funds||
|Third-Party Capital Raised||$||1,183||$||591||$||177||$||167||$||100||$||148||N/A|
|Profit sharing compensation expenses||(31||)||-||-||(4||)||(19||)||(8||)||-|
|Principal Performance Payments|
|Fund Management DE||$||63||$||22||$||6||$||8||$||23||$||6||$||(2||)|
|Pre-tax Distributable Earnings||$||64||$||22||$||6||$||8||$||23||$||6||$||(2||)|
|1 The Assets Under Management presented for the Credit Hedge Funds includes $511 million related to the third-party originated Value Recovery Funds. Fortress earns fees from the Value Recovery Funds based only on collections.|
|2 The Average Management Fee Rate presented for the Credit Hedge Funds excludes the third-party originated Value Recovery Funds. See footnote (1) above.|
3 The Incentive Eligible NAV Above Threshold presented for hedge funds excludes sidepocket investments. The Incentive Eligible NAV Above Threshold presented for Private Equity Funds and Credit Private Equity Funds represents total fund NAV.
|4 The Undistributed Incentive Income presented includes the impact of sidepocket investments on hedge funds. Undistributed Incentive Income for Private Equity Funds, Credit Private Equity Funds and 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.|
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