(See supplemental data on page 17 for more detail on Private Equity results)
- Fund portfolio investment valuations increased 9.4% in the third quarter of 2012, bringing year-to-date appreciation to 20.8%
- Raised $591 million of capital for a new Private Equity fund focused on investments in mortgage servicing rights
- Raised $168 million of permanent equity capital for Newcastle Investment Corp. in the third quarter, bringing total equity capital raised year-to-date to $435 million
- Sold remaining interest in Aircastle Limited (NYSE: AYR) for $134 million
- Subsequent to quarter end, completed the sale of RailAmerica, Inc. for $27.50 per share, representing a total equity value of $1.4 billion
The Private Equity business, which includes Private Equity Funds and Castles, had pre-tax DE of $28 million for the third quarter, up slightly from $27 million in the second quarter. Year-to-date pre-tax DE for the segment is $84 million, down $5 million from the same time period in 2011, largely due to lower Private Equity Fund management fees that resulted from changes in the basis on which these fees are calculated in three funds, partially offset by increased Private Equity Fund incentive income. The majority of this incentive income was attributable to a $6 million reversal of previously recognized claw-back reserves recorded for Fund II.
Private Equity Fund investment performance in the third quarter was strong, with valuations in underlying investments increasing by 9.4%. This brings appreciation of these fund investments to 20.8% through September 30, 2012. Our public company investments, which represent 36% of Private Equity fund NAV, increased 24% in the third quarter.
In addition to the CWCapital transaction described above, we sold our remaining interest of 11.8 million common shares in Aircastle, for total proceeds of $134 million. Fortress formed Aircastle in 2004 and completed an IPO in 2006 at a price of $23 per share. In aggregate, the initial investment of $351 million generated a return of 2.1 times invested capital and a gross IRR of approximately 23%.