On Wall Street, Fortress Fails To Impress

Fortress Investment Group, one of the hardest hit of the publicly listed private equity firms, said its distributable income in the fourth quarter more than doubled to $122 million, or 24 cents a share, against $60 million one year ago. Analysts had expected earnings of 15 cents a share.

But the big rise in Fortress’s distributable income was not enough to impress Wall Street, which sent its shares down more than 8 percent. They traded at $6.12 a share as of 3:20 p.m. But while the company’s results exceeded analyst expectations and failed to meet those of investors, the report marks a substantial improvement over the company’s results a year ago, a further sign that private equity firms are continuing to emerge from their recession doldrums.

In a statement, the company’s chief executive, Daniel Mudd, said the company’s funds “continued to deliver strong returns, capital raising increased apace, and we have attracted a significant number of new investors to Fortress.”

For the full year, Fortress’s distributable earnings grew 72 percent to $358 million, or 72 cents a share, compared to $208 million, or 26 cents a share, in 2009. The company says distributable income, which excludes compensation to the people who took the company public in 2007, is the best way to measure the shareholder performance.

Top line growth in management fees and incentive revenues also rose in the fourth quarter, growing by 71 percent to $269 million in the fourth quarter, from $157 in the fourth quarter of 2009. Analysts polled by Reuters had expected $221 million in revenues. Full year revenues rose 68 percent to $840 million, as compared to $499 million in 2009.

Fortress said its private equity funds, which represented $11.9 billion in assets at the end of 2010, returned 17 percent during 2010 and 10.5 percent during the fourth quarter.

Unlike, say, Kohlberg Kravis & Roberts, Fortress is not a pure-play publicly listed private equity firm. The company derives substantial revenues from its hedge fund and credit operations. The company derives 52 percent of its management fees and incentive revenues from private equity investments.

The company’s total assets under management rose 42 percent to $44.6 billion in 2010, from $31.5 million a year ago. Most of this growth came from its April, 2010, acquisition of Logan Circle Partners, a fixed-income asset manager that had $11.7 under management.