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Fortress Investment Group LLC (NYSE:FIG)

Q2 2011 Earnings Call

August 04, 2011 8:30 am ET

Executives

Wesley Edens - Co-Founder, Co-Chairman, Principal and Member of Management Committee

Michael Novogratz - Principal, Director and Member of Management Committee

Gordon Runté -

Daniel Bass - Chief Financial Officer

Daniel Mudd - Chief Executive Officer, Director and Member of Management Committee

Analysts

Craig Siegenthaler - Crédit Suisse AG

Daniel Fannon - Jefferies & Company, Inc.

Roger Freeman - Barclays Capital

Operator

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortress Second Quarter Earnings Call. [Operator Instructions] I will now like to turn the call over to Gordon Runté. Please go ahead, sir.

Gordon Runté

Thank you, Darla. Good morning, everyone, and welcome to our second quarter 2011 earnings conference call. We will begin our call with opening remarks from Fortress Chief Executive Officer, Dan Mudd; Principal, Mike Novogratz, and Chief Financial Officer, Dan Bass. After these remarks, we will save most of our time today for your questions. And we have Fortress Co-Chairman, Wes Edens and Pete Briger; and other members of their executive team to join us for that portion of the call.

Before we begin, let me remind you that statements made today that are not historical facts may be forward-looking statements. Such 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 annual filings.

With that, let me hand off to Dan Mudd. Dan?

Daniel Mudd

Okay. Thanks, Gordon, and thanks, everybody for joining us today. As you know, in conjunction with our earnings release this morning, we made 2 announcements that I believe sum to extremely positive news for Fortress and our investors, the reinstatement of our dividend and the renewed 5-year employment agreements for our principals. Since this is an earnings call, today, I'm going to begin with an overview of results and the drivers behind them. And then, we will go to cover those additional matters. DE was down, which reflected difficult second quarter markets in Macro, but on a number of other fronts, as indicated there is positive news to dividend. The principals agreement, I think, both expressed a continued view that the markets are very far from whatever we consider to be the new normal, and that the transition from where we are to that new normal will continue to present extraordinary opportunities for Fortress.

Let me go to the financials. DE was $46 million, down from $73 million a year ago, and $103 million from the first quarter. While that's not far off from the pace of DE midway through last year, it falls short of where we'd like it to be. The short take here is that we have 3 big alternatives businesses. They're putting a great deal of capital to work across geographies and asset classes. And they have a broad range of investment mandates. Our global Macro Fund and our Commodities Fund operate against annual high watermarks, and following a strong first quarter, they crossed under their mark so while our management fee stream continues to be very strong, incentive income was not. I would say, and Mike's going to cover this in a minute. In Macro, political uncertainty clearly dominated the market from the European sovereign debt crisis to Asia, China, inflation concerns, to the pace of recovery or potential deterioration of the U.S. economy, and all the way through to the debt ceiling debate. In a longer to context, I would say we remain focused on our core structural themes, and we're optimistic about the prospects to deliver stronger investments performance and financial results in the second half of the year. Mike, as I said, will get to that in a few minutes.

Longer-term investment themes, outside of Macro, continue to play out, centered in large part on this financial system continuing to stumble and meander towards a new normal. Regulated and nonregulated financial institutions continuing to sell distressed assets to sanitize their balance sheets, institutions struggling to refinance maturing debt, institutions offloading core platforms and the continued unwinding and reconfiguration of overly complex capital structures. With that in Credit, given the longer themes that I just noted, it remains a very good time for our business with deep experience and structured finance and intensive asset management that can focus on what we're calling financial services garbage collection. Our success, in fact, in this arena earned our Credit business, the Institutional Investor Credit Focused Hedge Fund Of The Year Award.

In the second quarter, Credit PE had a more moderate realizations than we saw in the first quarter, which resulted in somewhat lower incentive income versus what was an exceptionally strong first quarter. That's just a reflection of the fact that PE realizations don't occur on a fixed schedule. In fact, strong investment performance in these funds continue to produce unrealized incentive income, which has now grown to nearly $300 million across our credit funds.

Also in Credit, the Credit Hedge Funds continued to shine up between 7% and 9% on the year so far, and returns have been strong in our Japan Opportunities Fund, with a 14% increase in the net asset value surplus for the quarter. In Private Equity, the main story is that the trend of investments valuation increases continued into the second quarter. Main fund investments in PE, we've seen valuation increases in 8 of the last 9 quarters, which equates to appreciation of 77%, or just under $6 billion. So very positive and sustained valuation trends in Private Equity.

In addition, we think that the shakeout of corporate restructuring and recapitalizations, coupled with compelling demographic trends and strong supply-demand dynamics, all line up well for our core investments strengths in PE and financial services, healthcare, senior living, transportation, shipping and infrastructure.

As I noted, our global Macro and Commodities Funds went below high watermarks, and therefore, reversed accrued incentive income. These funds now sit with 90% of their AUM within 5% of high watermarks. One other note there, our new Asia Macro Fund has performed well out of the box, up 3% inception to date, with now over $200 million in commitments.

Let me now turn to today's other announcements, first, our board has approved a revised dividend policy to reinstate quarterly distributions of $0.05 a share, commencing in the fourth quarter of this year. Going forward in 2012, we plan to maintain a consistent quarterly dividend with an annual supplemental top-up dividend in the fourth quarter based on performance. At our current share price, without assuming any potential top-up, our dividend yield will be just under 5%. The revised dividend policy, which was unanimously approved by the board, reflects what we believe to be the most appropriate structure, given the pattern of earnings of alternative asset managers. The fixed quarterly payout really pivots off the stability and predictability of our management fees and the supplemental year-end top-up distribution will reflect full year performance fees.

After taking into account our balance sheet commitments, opportunities to fund profitable business growth, our debt covenants and our own ability to pay down debt, it's our objective under the new policy to pay out a substantial portion of DE to shareholders. In our second announcement, all 5 our principals have renewed their 5-year terms of employment. The objective of our management team and board has been to structure a durable, long-term agreement with a clear alignment of interests with shareholders, and pay based exclusively on performance. I think the agreement we've announced this morning accomplishes these objectives. First, the agreement is completely forward-looking. The new agreement will go into effect on January 1, and principal compensation will be calculated from then forward.

Principals will be compensated for delivering strong investment returns and raising new assets under management. In strong years, any compensation above 10% of fund management DE would be paid in 3-year vesting stock. In weak years, there are no guarantees. An amount equal to 50% of cash payments received under the plan will be reinvested or maintained in Fortress Funds. As an additional reminder, each of our principals owns between $200 million and $300 million of Fortress equity so they remain an enormous long-term incentive to focus on building this institution.

Let me review a few of the details. First on structure for the existing hedge funds, where our principal serves as CIO, compensation will equal 20% of incentive income. As I noted, there's no guarantee on that. If performance for our LPs does not result in an incentive income. In incentive income, that contributes to PE DE, there's no payout. For new assets, raised after January 1, principals will earn 20% of fund management DE for AUM, where they serve as the CIO. And 10% where they serve as a sponsor but not as the CIO. This accomplishes an important corporate objective of helping to develop the next generation of investment managers in the firm.

Importantly, compensation for new hedge fund in PE capital will be calculated on a net, not a gross basis. So all costs will be covered before principal compensation is paid out. This structure, I think, recognizes our principles central role, in both raising new long-term capital and in leading our efforts to maximize returns for our investors and therefore, earnings for our shareholders.

Second point. Payments up to 10% of fund management DE for each business will be made in cash. Payments above that amount, if any, will be made 100% in equity, restricted share units that vest over 3 years. To be clear, that means that the maximum possible DE impact of this plan in a particular year will be 10%. And that will occur only if the firm, as well as all 3 businesses individually, have a great year.

Third point. An amount equal to 50% of cash paid out to principals each year will be mandatorily invested or maintained in Fortress Managed Funds. So we believe this is a straightforward balanced in appropriate compensation and employment agreement that aligns the interests of our principals with our LPs and our public shareholders. We believe it appropriately contemplates the introduction of the next-generation of CIOs, which is critical to the continued expansion and diversification of our franchise.

And we believe that it also puts a final exclamation point on the deep commitment of our principals to this company, the commitment already made abundantly clear by their active hands-on leadership, their focused on maximizing returns for fund investors and the over $1 billion that they have personally invested alongside our LPs. It's forward-looking, it pays only for performance, if the LPs make money, the shareholders make money and the principals make money. The last few items I want to touch on before handing off to Mike, first, capital raising activity continued with a focus on more liquid and therefore, smaller closes so far this year. New commitments were $1.4 billion through midyear. We anticipate forming 2 new sector-specific credit PE funds, and 2 new private equity funds this year. We had, in fact, the first close of a transportation and an infrastructure fund that's our first raise in the traditional PE space since 2008, a reflection of both the hard work and the continued progress in PE valuations that I mentioned.

Fortress' Asia Macro Fund, AUM stood at $108 million at quarter end, but commitments have continued to accelerate, and we were north of $210 million as of August 1. So we're raising capital, and we're in the market in all of our businesses right now. We're limited in what else we can say about active fundraising. But as indicated on our last call, we expect that the timing of our launches will lead to capital commitments more weighted towards the latter part of the year.

Balance sheet investments continue to grow with cash and investments, net of debt, increasing to $1.1 billion at the end of the second quarter, up 3%. That translates into roughly $2.03 of balance sheet value per share, which represents about 50% of our share price as of yesterday's close. In my view, this is a really important part of our valuation story, because it implies that with credit given for our balance sheet, and a conservative multiple applied to management fees, investors in our stock are essentially receiving a free call on incentive income.

Lastly, the value chain that delivers to shareholders begins with delivering investment performance for our LPs. While we absolutely expect the market to remain challenging and volatile and vulnerable to flareups from a range of political and other catalysts, I'm confident that this landscape aligns well with the fundamental strengths of the company, and I think this ultimately accrues to the benefit of Fortress LPs and our shareholders. So today, 3 messages from me, soft quarter but the environment continues to produce great opportunities. Second, as promised, all the principals have renewed their 5-year contract on attractive, commercial and well-aligned terms. Three, our new dividend policy and announcement for the fourth quarter reflects our confidence in Fortress and our appreciation for investors.

With that, thanks. Let me hand it off to Mike.

Michael Novogratz

Great. Thanks, Dan. Listen, I'd like to show up today and talk about a bull market, unfortunately, it's not in equities. But it's a bull market in both politics and policy, which I think is dominating the investing landscape making it both challenging, but also creating great opportunities. I'm going to spend just a couple of minutes and go around the world and touch on 5 or so hot areas that, I think, really are driving the markets today.

First, there seems to have been a significant deterioration in the growth outlook, both in the U.S. and globally. We think it's derived from a few things. One, a breakdown in confidence. Earlier in the year, most economic forecasters had a 3.5% to 4% GDP outlook for the U.S. and a plus 4% global GDP outlook, with both the political gridlock that we saw in D.C., and the perceived inability to really deal with the fiscal issues, with the constant fiscal problems in Europe, and their ability to get to the 75-yard line, and never over the 100. You've seen a breakdown in both consumer confidence and corporate confidence which is showing up in ISMs rolling over and new orders rolling over.

Markets are nervous. We had a 10% correction in equity markets in the last 8 days. But more importantly, the cyclical factors all seem to be turning over. I think we can say with pretty good certainty, that we've hit the cyclical peak in the second quarter and the future outlook is going to be lower growth not higher growth. Now most forecasters have ratcheted down growth to roughly 2% in the U.S. We think it's probably going to end up at 2% with downside risk. Partly, I think is a realization that coming out of that 2008 credit bubble, at one point, there was hope that we can have a quick fix. And I think the market is sobering up, and waking up to the fact that this is going to be a long hard grind out of this deleveraging, could last 3 to 4 more years. And so as the market is resetting to a low growth threshold, and both fixed income and equity markets are pricing to that. The fiscal issues in the U.S., we got through this last hurdle, but they're going to continue to be a big drag on the economy this year and in the future. When we travel the world, the global investors and most of our big creditors are woefully worried about our ability to deal with the fiscal issues. It can create an environment where people continue to want to sell the dollar. We think the dollar will continue to be under pressure for a long time. And that's creating one of the situations, I think, is most interesting in the world, and both creating challenges in the market and opportunity.

We've seen an unbelievable amount of foreign exchange intervention. In the 20 years I've been doing the business, I've never encountered players as large and as aggressive as the sovereign wealth funds and central banks are in markets today. And it's creating grand distortions where you have markets that fundamentally, should trade at one price, but because of both political and fear agendas, are trading at completely disequilibrated prices.

The Japanese this morning, intervened in their currency market, they bought $50 billion to $60 billion of dollars weakening the yen 3%. I think it's just an indication of what you're going to continue to see. Now that provides both opportunity, but it also provides more nervousness in the markets. I'll switch to Europe real quick, the sovereign issues in Europe continue to be the single biggest overhang in the markets. They came up with a deal to help solve the Greece issue 2 weeks ago, created a forum form with the SFF that should have worked but didn't fund it. And now we're at a point where the market is going to question the resolve of the Europeans. We fundamentally think it's a mistake to question Europe's resolve to hold the Euro together. And that in the long range, you'll see a federalization of Europe. But it's a long run and the path to get there is going to be very volatile. So my best guess is that while we'll have quick fixes and you'll have big relief rallies, this sovereign issue in Europe is also going to be a big overhang in the markets. And so step back, we have problems in Europe, problems in the U.S. You've got fiscal contraction in both the Europe, U.S. and the U.K. at the time when you have slowing growth. So it doesn't look like a real optimistic scenario.

Finally, I'd say that given all that and what makes markets challenging, and it always makes fair market challenging is that, the market prices have added very quickly. So you have 2 years rates in the U.S. at 30 basis points. You have 10% to 20% selloffs in equity markets in the last 6 weeks. Risk is as low as it's been at most of the big investments banks. Risk is low in the hedge fund community. Panic indicators are at a high. And so this sets up for a period of big bear market short squeezes, which makes markets challenging. And so we foresee a very choppy environment where the broad move is lower in equities with big short squeezes to the upside, rates low for a long period of time and the dollar under continued pressure. I think at that, I'll stop.

Daniel Bass

Thanks, Dan. Thanks, Mike. As Dan mentioned, pretax DE for the quarter was $46 million or $0.09 per share. This brings our year-to-date total to $149 million, or approximately $0.28 per share. These DE levels are a function of some challenging times in this quarter in our Liquid Markets segment. That said, management fees of $131 million in the second quarter were up 4% from the first quarter, and up 7% from last year. Now on to the segment results. Our Private Equity business produced DE of $35 million for the quarter, which was up from $27 million in the first quarter, which was a result from increased management fees and lower expenses. The underlying assets in our Private Equity Funds appreciated by another $400 million or 3% in the quarter. These assets have now appreciated by $1.6 billion or 14% from the beginning of the year.

Our Credit business, once again, had a good quarter, generating $30 million of DE, bringing our year-to-date total to $86 million.

Drilling down into the business, our Credit Hedge Funds generated $16 million of incentive income in the quarter and $54 million for the year. This is a result of strong performance in our special opportunities funds, which had net returns between 7% to 9% since the beginning of the year. Our Credit PE Fund has generated another $23 million of incentive income in the quarter, bringing year-to-date total to $80 million. This is down from the first quarter due to fewer and smaller realization events versus activity in the first quarter. You should note that the embedded unrealized value in our Credit Funds remains robust. As Dan stated, we still have approximately $300 million of gross mark-to-market undistributed PE style incentive income in our Credit Funds. This $300 million is not included in our current or any prior periods reported earnings.

Finally, we raised approximately $450 million in capital in the first half of the year in Credit, primarily in our Credit Hedge Fund. Our Liquid Markets business faced a challenging second quarter. As a result, the segments of DE contribution is just under $9 million year-to-date. As you know, our Fortress Macro Fund and Commodities Funds both ended the quarter below their expected high watermarks. This led us to reverse $19 million or nearly all of the first quarter gross incentive income accrual. On a positive note, our management fees were up 7% quarter-over-quarter, helped by the $800 million of capital that we raised in the first half of the year.

Let me turn to operating margins and taxes. Our year-to-date operating margin stands at 38%. This dip in margins is primarily due to low margins in our liquid business. The main driver of the lower liquid margins is the minimal amount of incentive income that we have recognized year-to-date.

Additionally, we have made a few strategic portfolio manager hires as a part of our continued build-out of the Liquid Markets business. That said, with improved performance in the second half of the, we would expect the full year margins to come back in line with our annual historical range of 40% to 45%. On taxes, we still expect that our full year effective tax rate for 2011 DE will be between 5% and 10%. This is based upon our expected mix of income, and deductions for stock-based compensation.

Now turning to AUM, which is a leading indicator of our future earnings. Our AUM ended the second quarter at $43.8 billion, an increase of 2% from the first quarter. Additionally, our alternative asset AUM was up 1% in the quarter. Further, is it important to note that 80% of our alternative asset AUM remains in locked up private equity style, no redemption structures. And finally, at the end of the quarter, we had substantial dry powder of approximately $3.3 billion, which is available for investment and becomes AUM when called.

So in closing, let me leave you with these main points. Our assets are up. Our debt is down and with over $2 per share in book value, our balance sheet and capital structure have never been in a better position. A strong performance in the second half of the year should get us back on the right earnings trajectory. And finally, as CFO, let me make a few comments on today's announcement on the dividend and new principals agreement. These announcements provide more clarity and certainty around our businesses. These developments are good for all stakeholders. Thank you. And let's go to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Crédit Suisse AG

Can you provide an update on the Private Equity business. I know you weren't able to provide kind of a full disclosure here when you're potentially out-raising assets. But can you talk about the effort to grow and fund scenarios where Fortress has outperformed, historically, like transportation, retirement? And also provide color on the $250 million invested capital increase in PE, exactly kind of what was that item?

Daniel Mudd

Wes, take it from there.

Wesley Edens

Sure. We had a good quarter, Craig, in terms of the portfolio overall. As Dan said, we've had a pretty consistent increase in valuations as the businesses have broadly continued to do well over the last couple of years, and this quarter there was no exception. The good news from our standpoint is that the biggest exposures that we've got, senior housing, transportation and financial services, all across the board had some real great performance, and there's not a lot I can say about a couple of the companies because we're in registration on them right now. And so we have filings on both -- the Consumer Finance business, we have filings on mortgage servicing business, Nationstar, and so you can read about those but I can't really talk to those. But obviously, the numbers speak to themselves. They have done really terrifically. Senior housing, which is the biggest single investment that we've got on the product side had another tremendous first half of the year where they have record occupancy gains in both the months of June and July. So we're very positive about that. And I guess Dan mentioned, we had a first closing on a transportation only funds that's run by our partners Joe Adams and John Atkinson. It's a big event. I think that it's the first time that they had raised independent capital. It's something that we think has got the tremendous amount of potential. So I think there should be a lot more to go on that side of it. And in the capital raising, as a general matter, is about ready to commence on the general fund here. So I think we'll have some good things to report, and the new term there. But I'm very, very positive and constructive about the business and I think the prospects for this portfolio, really across all of the different funds, it looks very, very good.

Craig Siegenthaler - Crédit Suisse AG

And Wes, or maybe Dan can help up, where was that $250 million item for? I think it was...

Daniel Bass

Yes. The $250 million, it was just capital calls coming in from Fund IV -- at Fund V and V Co (sic) [Coinvestment Fund V] as those funds went off of AUM on committed capital, and now we're on called capital. So just continued capital calls there.

Craig Siegenthaler - Crédit Suisse AG

Got it. And then just one last question, maybe Stuart or Mike could handle this one. But can you talk about kind of where you are in the process of building out the Liquid Hedge Fund business, both here in the U.S. including areas like long-short, and also maybe in Asia with Adam.

Michael Novogratz

Sure. So right now, we have 3 hedge funds, the Macro Fund, the Commodity Fund and the Asia Fund. This year's focus has been getting Asia Fund up and growing, and that's got nice forward trajectory there. We have a credit fund that's we would hope to bring the market sometime in the next 6 to 18 months. We've got 4 to 5 long-short equity portfolio managers, one of which we think we could be in the market within the next, call it, 6 to 18 months as well. And are in the market interviewing and hiring other teams. And so our hope would be 2 more hedge funds within 12 months, and to go from there.

Operator

Your next person comes from the line of Roger Freeman with Barclays Capital.

Roger Freeman - Barclays Capital

Just a follow-up on the last point, so of the hires that you've made in liquids, these are, the intention here is to build new hedge funds as supposed to sort of within Macro segmenting that further? Because I'm just thinking back to in the past where you had, at one point, you have more industry focus within the Macro Funds and then, you kind of brought it up to more concentrated level. Can you just kind of talk to some of that?

Daniel Bass

Certainly. So the Macro Fund currently has 8 portfolio managers in it. We think it will stay between 7 and 10 portfolio managers. One of our credit trader in the fund would potentially be a spin out for one of the hedge funds. Other funds we're going to start. We're going to start independently, where there not going to be also portfolio managers in the Macro Funds.

Daniel Mudd

The other, Roger, it's Dan. The other thing I would add there, too, is that in parallel to the front end and investing build-out we led by Stu, are focusing on making sure that the back end and the infrastructure are keeping space. So over the course of past 12 months, in addition to adding Stu as the President and the COO, we've added a CFO, a CRO, and a new Chief Technology Officer. Just to make sure that, that infrastructure can support the build-out without taking anybody's concentration off of the day to day investing activities.

Roger Freeman - Barclays Capital

Okay. That's helpful. And then, I just -- on the transportation fund. I know you can't talk a lot about it, but can you say with what the first close brought in?

Daniel Mudd

I think we cannot. We did a relatively small first close built around the deal and to get the fund up and going. I would just sort of characterize generally that as we build out new funds, I think the experience has been, that it's much easier to market a fund in any of our businesses when you've got actual transactions that have funded and have operated to go out and talk to investors about as contrasted to kind of, "Here's our ideas and here's how we size up the market." So that was certainly the pattern with building out Asia Macro, and I would anticipate that would be the pattern with building out the worldwide transportation fund.

Wesley Edens

Yes. But I mean, given the size of the market that it operates in, Roger, you've got the ships, airplanes, containers, infrastructure, railroads, there's all kinds of different things that could prospectively be invested there. Those markets are in the hundreds and hundreds and hundreds of billions of dollars. So we think the scale of that business given our experience with it, and what we think the opportunities are worldwide, is really tremendous.

Roger Freeman - Barclays Capital

Yes. Okay. Wes. Two more. Dividends. So if I understand this correctly, the $0.05, is that kind of representative of the base quarterly payout is. I'm just confused because with the fourth quarter that would be the top-up.

Daniel Bass

No. That's the base, and we do not anticipate a top off for Q4 11.

Roger Freeman - Barclays Capital

Is that primarily because of the credit covenant restrictions this year?

Daniel Bass

Is a bunch of factors, but I think what the important thing is to get the dividend back up and going, and get ourselves -- that's consistent with the introduction of the new principals agreements. We're in a choppy market but we want to give you guys some certainty in terms of where we're going to be at the end of this year. And then with a steady run through '12, we'll go to the full year top-up.

Roger Freeman - Barclays Capital

Okay. All right, last question, just on management agreement, so I wonder if you can sort of talk to this sort of this question, which is the old agreement was, if I recall correctly, I think the principals were getting paid $150,000, $175,000 a year, and then they got their portion of distributable earnings, and under the new one there's going to be a piece that comes out of distributable earnings and then also share count dilution. And then they still get their portion of what's left of the distribution. And just from a alignment standpoint, and given they each have, as you said, $300 million to $400 million of equity in the business, and obviously have a vested interest on the success. I mean, how do you sort of compare new versus old?

Wesley Edens

Yes, I think there are a couple of points that you've got a little bit sideways there. First basically, the way I think of it is that the IPO, the principals turned in their points, and they took back shares for that. So they have an annual salary since the IPO in 2007 of $200,000, period. And so that was for the first 5 years from the interruption of the IPO, until January 1, 2012. Then going forward, based only on results going forward and based on new capital in the case of private equity funds or based on annual performance in the case of hedge funds, there is a 20-point payout to the principals as a result of those -- as a result of that performance.

Daniel Mudd

And just I'd add, I think that when you talk about us each owning $300 million or $400 million worth of stock, we do own that $300 million or $400 million worth of stock, but we also have additionally, in excess of $1 billion as investments in the LP alongside our investors.

Operator

[Operator Instructions] Your next question comes from the line of Dan Fannon with Jefferies.

Daniel Fannon - Jefferies & Company, Inc.

You mentioned, I think it was $300 million in unrealized value within the Credit Hedge Fund. Can you talk about where that was maybe last quarter at the end of the year?

Daniel Bass

It's in the entirety of the Credit business, PE and hedge funds, and it was $280 million at the end of the year, but we've realized $100 million -- we've realized $80 million on a year-to-date basis. So it's up $100 million, of which we realized $80 million, and the remaining amount left is $300 million. So it's up $100 million on $280 million from year end.

Daniel Fannon - Jefferies & Company, Inc.

Okay. That's helpful. And then, Wes, I think you mentioned getting ready for capital raising of a general fund. So is that something, as we think about 2012, we should think about maybe a larger PE Fund formation starting?

Wesley Edens

Yes, I think we've got scheduled right now,is to start after Labor Day raising the fund. And so as we have results from that, we will talk about it. I think the other I've been spending a lot of my time on is China where we've got an office which we've opened up there recently, and we're in the process of getting into the senior housing business there, so there's been a lot of interesting activity both through the specialty of our portfolio company as well as prospectively raising the capital in that part of the world. So those are both things that are very much in the -- in the hopper that should have some good results on shortly, I think.

Daniel Fannon - Jefferies & Company, Inc.

Okay. And then, going back to the Hedge Funds business quickly. Could you maybe break a kind of -- so we have an idea what kind of the redemption periods are for the different funds, the liquid funds. I'm wondering how much of your investors are generally on monthly redemption notices. And then, within the Credit business, the Credit Hedge Funds is that all annual, or is there some that's tied up beyond 1 year?

Wesley Edens

In the Liquids business, it's between one month and 3 months redemption notices. I think with a bias of 3 months class. In the Credit Hedge Fund, it is an annual redemption notice that coincides with the end of the third quarter is when the time frame for when that occurs.

Daniel Fannon - Jefferies & Company, Inc.

So when you report 3Q, we would know the annual -- you would tell us the annual redemptions, if there are any for that fund?

Wesley Edens

Yes.

Operator

At this time, there are no further questions. Presenters, I hand the floor back to you.

Daniel Mudd

Okay. It's Dan Mudd. Thanks, everybody for joining us today. Summary, we continue to like the market. We continue to like the way that it sets up for Fortress. I think we've provided a lot of forward-looking clarity, both in terms of dividend and the engagement of the senior management to get us through this periods. So we look forward to continuing our dialogue with you in posting on the results as we go. Thanks.

Operator

Ladies and gentlemen, this concludes Fortress' Second Quarter Earnings Conference Call. You may now disconnect.

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Source: Fortress Investment Group LLC's CEO Discusses Q2 2011 Results - Earnings Call Transcript
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