Fortress Investment Group's (FIG) CEO Randy Nardone on Q2 2014 Results - Earnings Call Transcript

Aug. 4.14 | About: Fortress Investment (FIG)

Fortress Investment Group LLC (NYSE:FIG)

Q2 2014 Earnings Conference Call

July 31, 2014 10:00 AM ET

Executives

Gordon Runte - Head, IR

Randy Nardone - Co-Founder, CEO, Principal and Director

Dan Bass - CFO

Wes Edens - Co-Founder, Principal and Co-Chairman of the Board of Directors, New York

Mike Novogratz - Principal and Director, New York

Pete Briger - Principal and Co-Chairman of the Board of Directors, San Francisco

Dean Dakolias - Managing Director, New York

Analysts

Craig Siegenthaler - Credit Suisse

Chris Kotowski - Oppenheimer & Company

Robert Lee - Keefe, Bruyette & Woods

Devin Ryan - JMP Securities

Marc Irizarry - Goldman Sachs

Bulent Ozcan - RBC Capital Markets

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortress Investment Group Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

And Gordon Runte, Head of Investor Relations, you may being your conference.

Gordon Runte

Good. Thank you, Stephanie and good morning everyone, and welcome to the Fortress Investment Group’s second quarter 2014 earnings conference call. We will begin our call today with opening remarks from Fortress Chief Executive Officer, Randy Nardone; and Chief Financial Officer, Dan Bass. And after these remarks, we will save most of our time for your questions. Joining us for that portion of our call with us in New York we have Co-Chairman and Head of Private Equity Wes Edens; Principal and Head of Liquid Markets, Mike Novogratz; and we have Co-Chairman and Co-CIO of Credit Pete Briger; and Co-CIO of Credit Dean Dakolias calling in from Europe.

Just let me cover a few housekeeping items before we begin. I’ll remind you that statements today that are historical facts may be forward-looking statements. And these statements are by their nature, uncertain and may differ materially from actual results. We encourage you to read the forward-looking statement disclaimer in today's earnings release in addition to the risk factors described in our quarterly and our annual filings.

Now with that, let me hand off to Randy.

Randy Nardone

Thank you, Gordon and thanks everyone for joining us. We had a terrific second quarter. Pre-tax distributable earnings were $172 million or $0.39 a share, our second highest quarter ever.

AUM increased to an all-time high of $63.8 billion. Net cash and investments on our balance sheet grew to over $3 a share, and we announced a second quarter dividend of $0.26 a share including a top-up of $0.18 based on balance sheet realizations. That’s our largest ever quarterly distribution. The distribution is the first under our new dividend policy approved by our Board.

Some key points, of course subject to the usual considerations. We will continue to make regular quarterly dividends based on net management fees. We also expect to make quarterly top-up distributions, primarily funded by balance sheet realizations as you saw today. And at year-end, our quarterly distribution will also take into account net incentive income. In the aggregate, we expect to distribute substantially all of our DE in any given year.

A big part of the story for the quarter was PE realization activity. These sales generated $91 million in investment gains recognized in DE. They funded our top-up dividend and they returned meaningful money to our LPs. Balance sheet investments stood at $1.1 billion at the end of the quarter. That includes over $540 million in embedded gains that would become DE if we liquidated at our current marks. We’re actively working to make these assets worth more as we prepare to monetize them. We expect that realizations and corresponding top-up dividends, subject to Board approval, will continue to trend up in the next few years.

Unrecognized incentive income increased to over a $1 billion. Capital raising has been strong and broad-based. We have $1.8 billion in commitments to alternative strategies including the permanent capital vehicle during the quarter. And at Logan Circle, we had $1.7 billion in net inflows. Dry powder grew to $7.4 billion which would be added to fee earning AUM as invested, so a lot of metrics pointing to potential earnings upside and increased liquidity.

Let me give you the highlights by business; in private equity, we had a very busy and a very constructive quarter; in our main funds, valuations increased by nearly 3%; fund management DE, increased to $39 million, up 30% over last year; coupled with the investment gains from the sales of GAGFAH and Brookdale, private equity activities accounted for a total of $131 million in DE; at the same time, capital formation was strong carrying through July.

We mentioned on our last call that we reopened the transportation and infrastructure fund and I am happy to report that we’re closing the fund today with expected commitments of about $950 million. We’re working towards an IPO as early as year-end, we also raised over $170 million in equity for new residential in Q2. Investment performance in this business was exceptional, leading to incentive income of nearly $20 million in the quarter. And we announced our intent to spin-out the senior living business from Newcastle. The business has total invested capital of over $700 million and is in good shape for a potential IPO later this year.

Including TAI we’ve raised nearly $3 billion in the permanent capital vehicles since the beginning of 2012 bringing AUM and dry powder to about $4.6 billion today. We’ve grown from two vehicles to an expected six by year-end. With enormous addressable markets and strong and experienced management teams we’re positioned for significant growth from here. The economics to FIG are powerful. As a hypothetical, on each incremental $1 billion in AUM with a 1.5% management fee on equity and a 25 over a 10% incentive fee, we generated $27.5 million on 15% net returns and $40 million on 20% net returns. We also received options at each capital raise. At the end of the second quarter the intrinsic value of our options was a net $77 million, so a great deal of growth momentum in our permanent capital group which should have significant valuation implications for Fortress.

Moving to credit, once again it’s a story of strong consistent returns. Our credit hedge fund is up close to 6% net through June and our credit private equity funds maintained top-tier IRRs of 19% to 28% with a solid quarter of capital formation. New commitments totaled over $800 million including over $550 million in hedge funds strategies and over $250 million for our second global real-estate fund.

Credit had a dramatic increase in gross unrecognized incentive income now nearly $920 million. With this embedded value I have mentioned and over $15 billion in NAV above incentive thresholds, we feel very good about prospects for strong results in the quarters ahead. In liquid markets, we remain focused on generating solid full year performance for our LPs and getting back to high watermarks.

Macro returns were roughly flat in the second quarter but the guys have had an extremely strong July through last Friday, up nearly 3% net month-to-date. In the Asia Macro fund it’s a similar story of good progress in July with more work ahead. With five months left in the year we remain optimistic about prospects for getting back into incentive territory. At Logan Circle investment performance remains strong with all 16 fixed income strategies once again outperforming their benchmarks.

Logan AUM reached an all-time high of over $29 billion backed by investment gains and $1.7 billion in client inflows, that’s an increase of over 35% in the past year. Altogether it was a great quarter for Fortress. We’ve talked about our ability to generate strong results across a range of environments. Our capacity to generate strong cash earnings based impart on increased realizations. And we have talked about how these factors can contribute to higher dividends with distributions not necessarily waiting until the end of the year, on all these fronts we delivered in the second quarter, with great momentum going into the second half of the year and see substantial upside in every one of our businesses.

And with that let me hand it off to Dan.

Dan Bass

Thanks Randy, good morning everyone. As Randy mentioned we had a great second quarter. The quarter was anchored by record DE including significant investment income from our balance sheet, continued growth in our key financial metrics, substantial capital formation activity in all businesses and a record quarterly dividend of $0.26 per share. With that in mind let me start with our financial results.

Earnings growth at Fortress has been visible and apparent from many quarters. Over the last 12 months we have recorded pre-tax DE of $455 million and our current share count of 442 million that equates to over $1 a share. And for the first six months of 2014 we have recorded pre-tax earnings per share of $0.59 representing an earnings growth of 16% over the same time last year.

Supporting this growth is a 15% increase in management fees when compared to the same six months period in 2013. In addition to the management fees multiple sources of incentive income have contributed to our earnings growth as well. In fact during the first six months we have received incentive income from 30 different sources across all of our businesses. And with the planned spinoff our Senior Living business in the second half of the year we could have yet another vehicle potentially generating incentive income going forward.

So we’ve seen strong growth in our 2Q revenue streams with an outlook for future growth ahead. However, what made this quarter truly exceptional was earnings derived from our balance sheet. Sales of Brookdale and GAGFAH in our PE funds generated around $130 million of balance sheet proceeds for Fortress. We also recognized over $90 million or about $0.20 per share of DE from these sales as well. These sales drove our strong second quarter results and also funded our top-up dividend.

Let me now move to our key performance metrics. AUM finished the second quarter at a record higher $63.8 billion, this is a 2% growth from the first quarter and 17% from the same time last year. The growth in AUM came after returning over $2 billion of capital to our limited partners in the quarter. Nearly 1.5 billion of that capital came from the Brookdale and GAGFAH transactions alone. Contributing to AUM growth in the quarter was nearly $700 million of hedge fund inflows, over $1.7 billion of Logan Circle net inflows and fund performance of $1.1 billion.

Moving to capital formation, over the last year and a half we now have raised nearly $10 billion of alternative capital. In addition, we have had nearly $6 billion of net inflows into Logan Circle. About 40% of the alternative capital came from private equity funds and permanent capital vehicles another 40% came from liquid funds and the final 20% was raised in credit strategies. The key point here is that we are actively raising capital and we are positioned for future growth in every one of our businesses.

On embedded incentive income, during the second quarter, this gross value grew to over $1 billion or nearly $2.34 per share. This represents 11% growth in the quarter and 18% since year-end. The $1 billion of value is comprised of $937 million embedded in our funds and $95 million gross, the gross value of our options in permanent capital vehicles. Importantly, of the value embedded in our funds, nearly 70% resides in funds or vehicles that are outside of their investment period.

A few points on our balance sheet, while the second quarter realizations were substantial in size, they represent only around 10% of our total investment value at the end of the quarter. That still leaves nearly $1.2 billion in investments at or current marks. And we see significant potential for our investments to appreciate further in value before they are realized. Investment realizations will be varied from quarter-to-quarter but based on the maturity profile of the underlying investments we expect to harvest a significant portion of that value in the next few years. As you saw in the second quarter the implications here for both DE and potential top-up distributions are significant.

A few comments on the quarterly dividend, today’s dividend announcement of $0.26 per share is comprised of an $0.08 quarterly base dividend plus a top-up cash dividend of $0.18 based upon balance sheet realizations. With this, we now have distributed $0.34 to our shareholders in the first half of this year. This implies a dividend yield for the full year of around 7% as of yesterday’s close and this is before any assumption for additional top-up distributions throughout the remainder of the year, which could push this yield even higher. Lastly, a final point on taxes, for the full year, we still expect our DE tax rate to be a percentage in the mid-teens.

In closing, I have a few final thoughts. We had a strong second quarter of business performance with PE realizations driving a truly exceptional bottom-line result. All of our key financial metrics are strong and positioned for future improvement. We have the greatest diversity and total number of revenue drivers than we have had at any point in our history. And as you saw this quarter, the substantial value that we have built on our balance sheet can power outsize DE and distributions to our shareholders. We are very optimistic about prospects for value creation in the quarters and years ahead.

Thank you. We will now take your questions.

Question-and-Answer Session

Operator

Thank you. At this time ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) Your first question comes from the line of Craig Siegenthaler with Credit Suisse. Your line is open.

Craig Siegenthaler - Credit Suisse

Thanks good morning everyone. I know you're probably a little limited here on what you can talk about, but on the corporate private equity side, excluding what's going on with the Senior Living REIT and also WWTAI, what should we think about from the capital-raising perspective here?

Wes Edens

This is Wes, I’ll take that. I mean we are limited in what we can talk about. Because the majority of those vehicles are public companies, we’re not in a position to talk about specific needs. I would say that we’ll look over the process of reporting earnings both today and next week in a number of the vehicles and I think on balance we had an extremely good quarter. And there is a lot of good news to talk about. The investment environment across the board is pretty challenging it’s hard to find compelling things to do and it’s a good time to be careful. We have added to our portfolios generally speaking and so we’ve raised a little bit of capital this year.

As Randy mentioned we will complete I guess as of tomorrow will be our last close for the fund raised for our transportation fund and I think we will end up as you said $950 million maybe up to a $1 billion there. So we’ve raised good capital for us and we found some very interesting things in that sector. And I am optimistic in the longer term that there will be lots of capital to deploy in those strategies and other ones because these markets are a gigantic addressable market so we feel great about that. But I can’t really give any color as to where we are in the short-term.

Craig Siegenthaler - Credit Suisse

Got it in a follow-up on Logan Circle, I was wondering if you'd just provide an update on the equity business here and let us know if you have any plans to add additional, maybe long-only teams outside of U.S. growth.

Randy Nardone

On Logan, it is Randy, the -- I’ll answer the question a little bit elliptically. The run rate on the fixed income business right now is positive, so hurray for that and we’re projecting positive DE and we’re projecting positive DE for the year. The guys have had terrific performance and the pipeline is really strong. The equities have been slower than we’d like, the performance on what they have invested has been good and I think we see good reasons to be patient with that business right now.

Operator

Your next question comes from the line of Chris Kotowski with Oppenheimer. Your line is open.

Chris Kotowski - Oppenheimer & Company

First of all, I wanted to hearken back to Dan's comments about 70% of the embedded gains are outside of the investment period. And thus far, your realizations, certainly in the credit business, have been very methodical. It seems like it is $30 million, $40 million, to $50 million a quarter. But Pete has been sounding very bearish for about 18 months now, and the credit markets have gotten frothier as time has gone on. Does this set us up for a period in which we should expect just kind of accelerated disposition of those positions, possibly greater gains, and then depleting the backlog of the unrealized gains?

Pete Briger

This is Pete. As I have said before, I think that the market from the value investor’s perspective is not interesting in credit and we’d like to sell as quickly as we can but lots of physicians have their time in place when they are best sold. And so we’re selling things when it’s appropriate to sell. And as I said in the last couple of conference calls I think those gains could come sooner rather than later, but certainly there is no science to it. Opportunistically we’re looking to sell things when they’re most appropriate to sell.

Chris Kotowski - Oppenheimer & Company

And then I guess for Wes, I don't know if you can comment, but is there a thought of another general-purpose private equity fund, and the status on that?

Wes Edens

There is actually -- we have already have our first closing outside investors into the next generation of fund it will be a small start to the capital process we just need to have a handful of investments and some things I am excited about. So I think it’s a good start to it. The form of that fund is going to be made in a bit of a different structure and it’s something that I think could prospectively have a public listening to it. So without going to the details, so that is something that I think we’ve given a lot of thought to and I think of it as a next generation of private equity fund it sits well kind of the nature of our activities. But I think as the next quarter or two goes on we’ll have some real detail about that but we very much are in the process of getting organized but actually having closing that bond.

Operator

Your next question comes from the line of Robert Lee with KBW. Your line is open.

Robert Lee - Keefe, Bruyette & Woods

I have a question on the liquid hedge funds, had some decent new capital raise. Could you just give us, and then at the same time, in the release you did talk about getting a tick-up in the redemption. So could you maybe talk a little bit about which funds -- was it maybe the new strategy that you're seeing some of those flows into? Was it Asia or was it -- where are you seeing the inflows? And I'm assuming most of the outflows are coming from the main liquid fund.

Mike Novogratz

I’ll take it, it’s Mike Novogratz. Year-to-date two-thirds of -- roughly two-thirds of the inflows came into the Asia fund as we top that up and took a new capital the one-third roughly into the Macro fund and manager accounts that run pari passu with that. We haven’t started a capital raise for our new event driven fund of what we expect to sometime soon.

Robert Lee - Keefe, Bruyette & Woods

And in addition to the new fund you're starting up, could you talk a little bit about how you're thinking about adding additional strategies, or are you currently in active conversations with other teams, or are there some things you're seeding?

Randy Nardone

I would say slowly and methodically, we want to kind of -- this is a business that returns drive a lot of good things and so our primary focus is on the funds we have making sure our returns get back into the positive and we generate, promote for our shareholders and investing returns for our LPs. The Centaurus, the Fortress Centaurus Fund which we will kick off in London is our first priority and after that we will do a global equity fund based in New York and that’s kind of on the agenda. Listen, we certainly always looking at other opportunities but I feel like the plate is pretty full with those four funds. And hopefully in 12 months we’ll report kind of robust capital raise and robust returns on those vehicles and go forward from there.

Robert Lee - Keefe, Bruyette & Woods

Great. And just a follow-up on the Logan Circle, and I think, Randy, maybe you had mentioned this. I just wanted to make sure I understood that it's currently your expectation that that can start generating a little bit of DE by end of this year? Did I hear that correctly?

Randy Nardone

On the fixed income side, that’s right. And it’s a very scalable business and grown quite a bit over the last 12 months pipeline is strong. So we’re plenty optimistic.

Robert Lee - Keefe, Bruyette & Woods

Okay, that was it. Thanks for taking my questions.

Operator

Your next question comes from the line of Devin Ryan with JMP Securities. Your line is open.

Devin Ryan - JMP Securities

Thank you. Good morning. Congratulations on the strong quarter and first top-off distribution. With respect to just the balance sheet cash of $3, or cash investments of $3 and then the additional $1 or so of net embedded incentive income that should be hitting the P&L over time, now that we're starting to actually see this capital return process, can we get an update? Or how should we be thinking about how much capital is appropriate for you guys to run the business today and really remain opportunistic and do all the things that you want to do? Is it half of where we are today, or can you put any additional context around it, now that it seems like things are changing where you actually are starting to return capital?

Randy Nardone

It is Randy I’ll take a start and other guys can chime in. we said in the past that the balance sheet doesn’t really need to be as big as it is to run the business we’re running. And so as you saw this quarter we have some liquidations, and those liquidations drove the top up dividend. There is actually a bunch of DE embedded in the balance sheet and our plan would essentially be to return that DE as the balance sheet is monetized. A lot of the balance sheet is in as I think we mentioned earlier funds and direct investments that are pretty much vintages and we’re working actively towards realizing gains there. So we saw a good quarter of that and we’re making some good progress on setting things up for monetization going forward. So, I think we’ve said our balance sheet doesn’t need to be as big as it is and unless we see some compelling opportunity our plan would continue to return a portion of the balance sheet as its monetized.

Devin Ryan - JMP Securities

Okay, great. Appreciate the color. And then just with respect to the mix and size of the balance sheet investments, I'm not sure if you can give any more color or characterize. The sales that you had this quarter, were they lumpier, maybe, than some of the others that are in the backlog that could be monetized in the quarters ahead? Just trying to have some context of you had some big, lumpy sales this quarter. Are the other investments similar size, or how should we think about that?

Randy Nardone

I don’t think they were lumpy I think they were probably on average size that this made up in our balance sheet. We are -- even though the line items maybe small they are invested in funds and those funds have a number of investments. So, I wouldn’t say that they were over they were lump average size.

Devin Ryan - JMP Securities

Okay. Okay, great. And then just lastly, with respect to the tax rate and modeling the tax rate, just given the balance sheet sales and incentive earnings that have been at a good level, should we still think about a mid-teens tax rate for the year, or is there any change to that view?

Randy Nardone

Mid-teens tax rate is our expectation for the year and it’s largely driven by the mix of income.

Devin Ryan - JMP Securities

Okay, great, thanks for taking my -- got it. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Bulent Ozcan with Royal Bank of Canada. Your line is open.

Randy Nardone

Bulent?

Operator

Bulent, your line is open.

Randy Nardone

Can we move to the next question operator? We’ll try Bulent again in a bit.

Operator

Your next question comes from the line of Marc Irizarry with Goldman Sachs. Your line is open.

Marc Irizarry - Goldman Sachs

Great, thanks. Just wanted to put the private equity business and also the permanent capital opportunities in context, as you think about growing that business over time, how should we think about the sort of raise-ups for permanent capital vehicles relative to maybe broadening out what you're doing in private equity? Thanks.

Randy Nardone

Well, the permanent capital vehicles once the spin is done on senior housing will have fixed vehicles about $5 billion in capital in markets where you took the largest participant in each one of those sectors and grows them all up the opportunity would be many, many times. I mean the things housing business for example we’ve deployed about $0.75 billion the largest REITs in that sector are north of $20 billion the transportation business that you have $1 billion in capital, that’s a $400 billion $500 billion addressable markets. So these are vehicles but we think can be much larger enough.

Before our aspirations for the permanent capital vehicles are to go from 5 billion to 10 billion to 20 billion and obviously it’s all a function of what the investment opportunities are and making money for investors. But I think that the markets that they traffic and are very large. And I do think that we’ve talked about ourselves internally is to try to breakout, now the business is large and break that section out and provide visibility to you all in terms of economics of those businesses we think both the stability of them and the nature of the capital i.e. is permanent as one that should get a much higher multiple and we think given visibility to that is something that we’re going to be very focused on. And those activities are all separate in part from the private equity activities, they said we formed a new fund that is structured a little bit differently, my next generation kind of commented something that it lends itself to a public listing of this something we chose to do at some point.

And there are more limited opportunities in the investment side, actually what Pete said in terms of you should be cautious at this point in the market. But there are still interesting sectors, we’ve got healthcare investments, we’ve got infrastructure investments, energy investments things and sectors that we think do have lots of opportunities. So the scale of those businesses historically has been substantial and I think in the future you’ll see more of the same on the private equity side.

Operator

Your next question comes from the line of Bulent Ozcan with Royal Bank of Canada. Your line is open.

Bulent Ozcan - RBC Capital Markets

I just had a quick question on the fee, go-forward of the fee earning AUM. So how should we think about that? On the one hand, it seems like we're getting in the phase where you will have increased realizations from here on. On the other hand you are still raising capital and you could have more permanent capital vehicles out there. How are you thinking about that internally in terms of realizations? How do you approach realizations?

Randy Nardone

We’re not trying to manage to an AUM number. This is Randy. Obviously from an LP perspective our goal is to make as much money as possible on realizations and that has the benefits to FIG shareholders as well. As those assets are monetized at the same time we’re in the markets raising capital for things that we think are interesting. So it’s a balance to optimize returns and to optimize resources and to optimize what we think are out there in terms of opportunities.

Bulent Ozcan - RBC Capital Markets

Could you just -- maybe another question on the non-performing loan market in Italy. It feels like that UniCredit is in the market, offering some of its non-performing loans. What do you see right now in terms of pricing? How rationale is pricing? And also, in the whole process, how does it help to have a tough [indiscernible] in the area of net process or owning that mortgage servicer?

Wes Edens

Look we’ve had an investment business in Italy for about 14 years, we’ve been in those markets, there has been a number of different periods of large scale NPL sales and we’ve participated in all of them. The current environment is the largest of any of these periods that we have seen prospectively, we have invested in a number of small pools and UniCredit is one of the folks that are in the market, there are a number of other people that are out there and those are active processes, so we can’t really speak to the specifics of it.

With respect to vehicle to fund the area is actually broader than that, it’s not just the asset management company but also the people that have worked for us for over a decade they are very, very capable and very confident and we think we’ve got a tremendous competitive advantage versus other new entrants of the market over there. Italy is a non-transparent and challenging market, there is big opportunities and we’ve been there for a long time. So we feel good about it and we’ll have to see how that translates into returns. We’ve for a number of different vehicles which would prospectively invest in both private equity and the credit size. So we have a lot of capital that’s available for and we just need to find the opportunities that we think make sense.

Bulent Ozcan - RBC Capital Markets

How would you back the size of that potential in Italy? How large is that? How much money could you be deploying?

Wes Edens

Well I think that the total amount of NPLs is estimated to be between €150 billion and €200 billion, so that’s on the bank’s balance sheets. And in past periods you have had 20% to 30% of the assets on balance sheets end up coming into the marketplace. I think that gives you some sense of the gross market. So it was 150 times 20 that’s $30 billion in assets and at a price of $0.20 or $0.30 or $0.40 depending on what the nature of the assets is that gives you some sense of the context that exist over there and then it’s just a question of how much we can do. I think there is virtually unlimited capital available for good opportunities these days but it’s hard to translate that into investment. So there are a couple of big things we’re working on and we’ll hope for a good summer and fall.

Bulent Ozcan - RBC Capital Markets

Alright, very good. Thank you much for taking my questions, and congratulations on a great quarter. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Robert Lee with KBW. Your line is open.

Robert Lee - Keefe, Bruyette & Woods

Thank you and thanks for taking my follow up questions and I know there's a limit to what -- going back to an earlier question on fundraising, I know there is, obviously, a limit to what you can or can't say. But maybe just go a little bit through a list of some of the initiatives you've had to see where they stand. If I think of the Italian NPL fund, is that the Real Estate Opps which you mentioned you had to close on number two? I know there was the other Japanese -- I guess it was a loan fund or opportunities fund. Can you maybe just update us on the Italian fund? Is that pretty much at its closing? And to the extent you can talk about a real goal for the second real estate fund? And just trying to get a little bit of a, almost like a list, so to speak -- of closed-end type structures that you're fundraising and where they stand.

Randy Nardone

I’ll take start and others can add. You asked about the Italian NPL fund, I think we’re at around €800 million and we’re close to being done there. TAI we mentioned we’re between $950 million a $1 billion that will be close and our goal will be to take that company fund public at some point. What’s mentioned the start of a new general fund initiative you mentioned the Japan fund and things in Pete’s world and Pete and Dean if you want to comment on that.

Pete Briger

Well, we’re somewhat limited as to what we can say in the world of credit we’re not actively raising capital at this point if we do it will probably be for closed end private equity like funds where we can draw down the capital when the opportunity arises as opposed to being constantly invested in a hedge fund like structure. Our real estate business has done a great job. And I would assume that over time they will raise a significant amount of capital. And that’s true both in the U.S. and Europe as well as in what is being a particularly strong performing series of funds and in Japan and non-Japan Asia.

Robert Lee - Keefe, Bruyette & Woods

Great. Thanks for taking my follow-up.

Operator

And I am showing that we have no further questions in our queue at this time. I turn the call back over to the presenters.

Randy Nardone

Great. Thanks everyone. Just to sum up; terrific quarter, including our second strongest DE and highest quarterly distribution ever AUMs at an all time high; very substantial embedded value and strong fundraising across the businesses; feel very good about our prospects for growth and value creation looking ahead. Thanks a lot.

Operator

This concludes today’s conference call. You may now disconnect.

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