The year-over-year improvement in Fortress’s GAAP results was primarily driven by higher incentive income and 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 expense 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 December 31, 2012
    Private Equity    

Liquid Hedge
    Credit Funds    

Logan Circle
(in millions) Total Funds     Castles

Funds
Hedge Funds     PE Funds

Partners
 
Assets Under Management 1 $ 53,430 $ 10,611 $ 3,660 $ 5,060 $ 5,665 $ 7,749 $ 20,685
Dry Powder $ 6,150 $ 750 N/A N/A N/A $ 5,400 N/A
Average Management Fee Rate 2 1.2 % 1.5 % 1.7 % 2.0 % 1.4 % 0.2 %
 
Incentive Eligible NAV Above Incentive Income Threshold 3 $ 16,269 $ 211 $ - $ 3,095 $ 4,627 $ 8,336 N/A
 
Undistributed Incentive Income: Unrecognized $ 649 $ 11 $ 29 $ 6 $ 94 $ 509 N/A
Undistributed Incentive Income: Recognized   -     -     -     -     -     -     N/A  
Undistributed Incentive Income 4 $ 649   $ 11   $ 29   $ 6   $ 94   $ 509     N/A  
 
Three Months Ended December 31, 2012
Private Equity

Liquid Hedge
Credit Funds

Logan Circle
(in millions) Total Funds Castles

Funds
Hedge Funds PE Funds

Partners
 
Third-Party Capital Raised $ 1,485 $ 71 $ 6 $ 546 $ 31 $ 831 N/A
 
Segment Revenues
Management fees $ 131 $ 31 $ 14 $ 19 $ 25 $ 34 $ 8
Incentive income   114     2     -     47     38     27     -  
Total 245 33 14 66 63 61 8
Segment Expenses
Operating expenses (91 ) (11 ) (4 ) (23 ) (16 ) (26 ) (11 )
Profit sharing compensation expenses (42 ) (1 ) - (10 ) (18 ) (13 ) -
Unallocated Expenses   1     -     -     -     -     -     -  
Total   (132 )   (12 )   (4 )   (33 )   (34 )   (39 )   (11 )
 
Principal Performance Payments
(8 ) - - (3 ) (4 ) (1 ) -
             
Fund Management DE $ 105   $ 21   $ 10   $ 30   $ 25   $ 21   $ (3 )
Pre-tax Distributable Earnings $ 107   $ 21   $ 10   $ 30   $ 25   $ 21   $ (3 )
 

Pre-tax DE was $107 million in the fourth quarter of 2012, up from $50 million in the fourth quarter of 2011. The year-over-year increase was primarily due to higher incentive income and management fees earned from our funds, partially offset by higher compensation related expenses.

If you liked this article you might like

UniCredit Rises After Sealing $20 Billion Bad Loan Deal With Fortress and PIMCO

Italy's Monte dei Paschi Faces Uncertain Future After Two U.S. Funds Bail on Bailout

Asia's Buffett 'Gets' Tech as He Transforms Softbank

T-Mobile, Dish, Comcast and AT&T Among Top Spenders in FCC Wireless Spectrum Auction

Amundi Launches Cash Call to Fund Deal to Buy Pioneer from UniCredit