NEW YORK (Reuters) – Fortress Investment Group LLC (FIG.N), a publicly traded private-equity and hedge fund giant, said on Monday some deferred fund management fees will be received later than expected and warned incentive income this year will be muted.
The New York fund manager in its second quarter financial results filing said about $27.9 million of management fees had been deferred as of June 30 and that the timing of their ultimate payment remains uncertain.
“Since quarter end, the amount of deferred management fees has increased significantly and may continue to increase in the future. Also, while we still believe that we will receive these fees, we now expect to receive payment at a later date than we previously anticipated,” Fortress said.
Last week, Fortress reported a second quarter loss of $44.6 million on revenue of $139.1 million.
Turmoil in the hedge fund business, the impact of the credit crunch on leveraged buyouts and a flood of redemptions last year pared down the size of Fortress’ funds and squeezed its main sources of income.
The firm’s “liquid” hedge funds, which received redemption requests for $5.4 billion last year, received requests for about $1.0 billion more through the end of June. Fortress’ funds charge investors between 1.5 percent and 3 percent of assets.
Further, as a result of not meeting incentive thresholds, “the incentive income from substantially all of our liquid and hybrid hedge funds has been discontinued for an indefinite period of time,” the firm said.
Likewise, “unrealized losses in substantially all of our private equity funds and certain hybrid PE funds have resulted in higher future returns being required before we earn incentive income from such funds.”
Fortress in the filing said it does not expect to earn “substantial” incentive-fee income this year.
In other disclosures, Fortress expects about 4 million common shares will be sold into the market by employees next year after some restricted stock awards vest.
Fortress disclosed that about 24 percent of 47.7 million in restricted Class A shares granted to employees will vest, or become eligible for resale, on Jan. 1. Of these shares, employees are expected to sell 35 percent of these shares over the first half of 2010 to meet income tax obligations.
That works out to about 4 million shares, or less than 1 percent, of the 452.6 million fully diluted shares outstanding as of June 30.
Fortress observed in its “risk factors” disclosures that most shares in the firm, which went public in early 2007, are held by employees and represent a significant overhang for the stock’s price.
(Reporting by Joseph A. Giannone; editing by Andre Grenon)