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Fortress Investment Group LLC (FIG)

Q4 2011 Earnings Call

February 28, 2012 8:30 am ET


Gordon Runté -

Randal Alan Nardone - Co-Founder, Principal, Director, and Interim Chief Executive Officer

Daniel N. Bass - Chief Financial Officer

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Stuart H. Bohart - President of Liquid Markets, Senior Managing Director of Strategy, Member of Management Committee and Member of Operating Committee

Constantine Michael Dakolias - Managing Director, Member of the Management Committee, and Co-Chief Investment Officer

Wesley Robert Edens - Co-Founder, Co-Chairman, Principal, and Member of Management Committee


Craig Siegenthaler - Crédit Suisse AG, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

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Campbell Anthony - Macquarie Research



Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortress Year-End Earnings Call. [Operator Instructions] I would like to now turn the call over to Mr. Gordon Runté. You may begin, sir.

Gordon Runté

Okay. Thank you, Andrea. Good morning, everyone, and welcome to the Fortress Investment Group Fourth Quarter and Full Year 2011 Earnings Conference Call. We will begin today's call with opening remarks from Fortress interim Chief Executive Officer, Randy Nardone; and Chief Financial Officer, Dan Bass. We'll then move to business updates from Stu Bohart, President of Liquid Markets and Head of Strategy; Dean Dakolias, Co-CIO of our Credit business; and Wes Edens, Fortress Co-Founder, Co-chairman and Head of Private Equity. After these remarks, we look forward to taking your questions.

As you know, Randy was appointed interim CEO in late December. So I'd like to provide a quick introduction. Randy was part of Fortress before the company had a name. He's a day one principal and member of our board since its inception. Randy previously served as Chief Operating Officer of Fortress and he's been a member of the operating committee, our main decision-making body, since it was formed.

Before handing off to Randy, let me remind you that statements made today that are not historical facts may be forward-looking statements. Such statements are, by their nature, uncertain and may differ materially from actual results. We encourage you to read the forward-looking statement disclaimer in today's earnings release, in addition to the risk factors described in our quarterly and annual filings. With that, let me hand off to Randy.

Randal Alan Nardone

Thanks, Gordon, and thanks, everyone, for joining us today. Fortress delivered solid performance and made important strategic progress against the challenging backdrop in 2011. We entered 2012 well positioned across our businesses and we remained confident that the investment landscape presents outstanding opportunities for select diversified managers like Fortress. Let me start by anticipating an obvious question and giving you some context on my new role.

As Gordon noted, my ties at Fortress could not run any deeper. I'm one of the Fortress Co-Founders, and I take my new responsibilities very seriously. I don't anticipate any major changes in our course or strategy. The transition has had and will have no impact on the investment teams or processes at Fortress. Pete, Wes and Mike remain laser focused on investments. We continue to benefit from the guidance of our board and the leadership of the principals.

At the corporate level, we have a very high-quality people and systems. Most of my new direct reports were my old direct reports. So this has facilitated a seamless transition with no let up in the progress of our company. We'll keep you updated on any developments here. Let's do a quick recap of 2011 and share some thoughts on 2012.

First, business activity has been strong. Across our funds, we invested $3.5 billion of capital in 2011, and quite a bit more if we count our portfolio companies in the Private Equity business. We continue to see great opportunities for each of our businesses. Capital formation across our funds was substantial.

Full year third-party commitments were $4.2 billion. That includes well over $1 billion in our next-generation credit private equity funds and $200 million of permanent capital in Newcastle. Deal flow is strong. We have a solid pipeline in credit and a significant uptick in activity around our private equity portfolio companies. Dean and Wes will provide some color on this later in the call.

For the year, credit continued to deliver top-tier performance. Private Equity continued a trend of significant valuation gains. We also made great progress to generate some liquidity events for our LPs in 2012. For Liquid Markets, a disappointing year for our flagship Macro Funds, but we've had a strong start to 2012. And Asia Macro has reported a very solid first 11 months that's carried into this year.

Second, we continue to position Fortress for the long term and made a great deal of strategic progress on this front. We continue the disciplined expansion of our global capabilities and reach. Over half of the capital we raised in 2011 was from investors outside of North America. On the investment side, we saw compelling opportunities and put more capital to work in Asia, Europe and Australia. We also continued to diversify and expand our product offerings. Our Asia Macro Fund is a perfect example of how we can leverage expertise incubated within our flagship funds. And we plan to show you more on this front in 2012.

We renewed our principles agreement. The new 5-year agreement provides for compensation on a completely forward-looking, performance-driven basis with no compensation guarantees. And last, we continue to build on the strength of our balance sheet. Debt is at an all-time low, book value has increased to $1.1 billion and we currently have cash and investments, net of debt, of about $2.15 a share. That's more than half of our current share price.

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