RBC Capital Markets analyst Bulent Ozcan rates Fortress Investment Group LLC (NYSE:FIG) as an Outperform as the company announces pre-tax distributable earnings for the December quarter.
Fortress Investment Group’s pre-tax distributable earnings
Fortress Investment Group LLC (NYSE:FIG) reported this morning pre-tax distributable earnings of $0.24 for the December quarter. We had modeled earnings of $0.27. While slightly below our estimate, distributable earnings came above consensus figures, with Fortress finishing the year on a strong note. Incentive income in the quarter grew to $136 million, up from $42 million in 3Q13. This increase was driven by the company’s Liquid Hedge Funds and Credit Hedge Funds. The Liquid Hedge Fund performance, with the Macro Fund declining 3%, had resulted in a reversal of accrued incentive income to the tune of $26 million during the September quarter. Fortress booked incentive income of $52 million in the current quarter. Incentive eligible net asset value increased from $17.6 billion to $21.7 billion in 4Q13.
We are also seeing progress in terms of AUM growth. Management fees increased from $136 million to $143 million sequentially. Fee earning assets stood at $61.8 billion as of December 31, 2013, up from $58.0 billion in the September quarter. Fortress Investment Group LLC (NYSE:FIG) raised about $1.5 billion of capital across its alternative investment businesses, slightly down from the $2 billion it reported in the September quarter.
Logan Circle continued to make progress
Net inflows in the quarter were to the tune of $1.5 billion in the December quarter. Pre-tax distributable loss increased from $3 million to $5 million as Logan Circle continues to invest in growth. The growth equity franchise started marketing the fund. We would expect David Shell and his team to start gathering assets in 2014.
Gross embedded incentive income that has not been recognized in distributable earnings moved from $807 million to $876 million sequentially. Private equity fund valuations decreased 2.5% in the quarter, mainly driven by marks on the publicly traded portfolio companies. Net cash and investments of $3.26 per dividend paying share increased 3% from $3.18 reported in the previous quarter.
Dry powder stood at $7.1 billion, slightly down from $7.2 billion as of the September quarter. For the December quarter, Fortress declared cash dividends of $0.08 per dividend paying share.