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Fortress AUM Shrank in Q4

(Reuters) – Fortress Investment Group LLC (FIG.N), one of the world’s largest publicly traded alternative asset managers, said its assets under management shrank by almost 1 percent during the fourth quarter as client redemptions totaled over $1 billion.

Fortress managed $31.8 billion in hedge funds and private equity investments at the end of 2009, down from $32 billion at the end of the third quarter. The total was up 8 percent from the end of 2008.

The company reported a smaller net loss for the fourth quarter of 2009 as total assets were higher than a year earlier and overall fund performance improved.

In addition to the fourth quarter’s redemptions, Fortress said investors in its hybrid hedge funds had asked to get another $1.5 billion back. The level of redemptions stands in contrast with developments at other large hedge fund firms where pension funds and endowments began putting in new money this year year, analysts and investors said.

Fortress’ share price tumbled more than 4 percent.

Even though the company’s earnings largely met expectations, investors were concerned by clients’ ongoing request to get their money out, said Roger Freeman, an analyst at Barclays Capital.

“Redemptions, however, remain high, though still contain legacy redemption requests,” he said in a research note. During the financial crisis, Fortress restricted the amount of money clients could withdraw by putting up so-called gates.

Fortress chief executive Daniel Mudd emphasized that new capital is coming into the firm, including $616 million in the fourth quarter and another $650 million raised in January and February.

“We are seeing investors put capital back to work and we are working pretty hard to be the solution provider of choice to those clients and investors,” he said on a call with analysts.

Fortress, which went public three years ago, posted a fourth-quarter net loss of $261 million, or 58 cents a share, compared with a loss of $426 million, or $1.50 a share a year ago. The GAAP net loss attributable to Class A shareholders narrowed to $84 million from $140 million.

Hedge funds distinguish themselves from mutual funds by charging incentive or performance fees on top of management fees. Investors usually pay these fees only when a fund is in the black or after it has recouped losses from the previous year by reaching its high-water mark. Fortress said that many of its funds were not at that level again.

The New York-based company said incentive income totaled $57 million during the quarter, rebounding from a loss of $107 million a year earlier.

Fortress said distributable earnings climbed to $60 million during the quarter from $7 million a year earlier.

Hedge fund companies often highlight distributable earnings — income from their funds segment minus adjustable income taxes — as the best measure of their performance. (Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn and Robert MacMillan)