Fortress Investment Group Q4 2007 Earnings Call Transcript

Fortress Investment Group LLC., (FIG)

Q4 2007 Earnings Call

March 25, 2008 10:00 am ET

Executives

Wes Edens - Chairman and CEO

Dan Bass - Chief Financial Officer

Pete Briger - Co-President and Head of Hybrid Hedge Fund Business

Mike Novogratz - President and Head of Liquid Market Hedge Fund Business

Randy Nardone - Chief Operating Officer

Lilly Donohue – Investor Relations

Analysts

Roger Freeman - Lehman Brothers

Marc Irizarry - Goldman Sachs

Craig Siegenthaler - Credit Suisse

Prashant Bhatia – Citigroup

Dan Fannon - Jefferies

Roger Smith - FPK

Robert Lee - KBW

Presentation

Operator

At this time I would like to welcome everyone to the Fortress fourth quarter earnings conference call. (Operator Instructions) Thank you. Ms. Donohue, you may begin your conference.

Lilly Donohue

Thanks Ashley. Good morning. I'm Lilly Donohue and I want to welcome you all to our fourth quarter and 2007 year-end earnings conference call. Joining me today is Wes Edens, our Chairman and CEO, Dan Bass, our Chief Financial Officer; we also have with us Pete Briger, Co-President and head of our hybrid hedge fund business, Mike Novogratz, President and head of our liquid market hedge fund business and Randy Nardone, our Chief Operating Officer.

And before I turn the call over to Wes, as Ashley mentioned, this call is going to be recorded. The replay number is 800-642-1687; that’s from within the United States and outside, it’s 706-645-9291. Access code is 37943758. This call will also be available on our website which is just www.fortress.com.

Also I would like to point out that statements today which are not historical facts may be forward-looking statements. Our actual results may differ materially from estimates or expectations in any forward-looking statements. These statements represent the Company’s belief regarding events that by nature are uncertain and outside of our control. I would encourage you to review the forward-looking statement disclaimer in our quarterly earnings release including the recommendation to review the risk factors that are in our annual and quarterly reports that are filed with the SEC.

With that, I would like to turn it over to Wesley Edens.

Wesley Edens

Great. Thanks Lilly and welcome everyone. Welcome to our 2007 fourth quarter and full year earnings call.

2007 was a historic year for the firm. It was our tenth year as a Company. We went public on February 7; this is the first New York Stock Exchange listed alternative assets management Company and most importantly, we set records in both distributable earnings and assets under management. Overall, it’s just a very good year for us here at Fortress. The financial results for the firm for both the quarter and the year were quite good.

For the fourth quarter, pretax distributable earnings was $78 million bringing our total distributable earnings for the year to $552 million. DE for 2006 was $397 million. So in total our earnings grew by 39% year-over-year, a terrific result.

Assets under management also experienced excellent growth. To remind you, we report assets under management in two distinct ways. The total assets under management, AUM, is meant to give you visibility on all of the assets we oversee but doesn’t necessarily reflect the assets on which we earn fees. At year end, our total AUM was $37.8 billion which compares the total AUM of $32.8 billion at year end of 2006.

Another measure that we track closely is management fee paying AUM which is a measure of the amount of capital that we earn management fees as well as performance fees on. At the end of 2006 we had $20.9 billion of MAUM. At the end of 2007, we had grown that total to $33.2 billion, so total growth in assets under management of nearly 59%.

I would like to think that distributable earnings provide the best scorecard for how the firm has performed looking backwards in time and that AUM and in particular management fee paying assets under management or MAUM provide the best estimate on how we are going to perform in the future.

Our business is a very high margin business here at Fortress in general through a combination of management fees and performance fees we earn about 4% on MAUM and bring about half or 2% of that to the bottom line.

Historically, if we took the average of MAUM for the year and multiplied it times 2%, this has been an excellent estimate of what our pretax DE is going to be for the year. For example, in 2005, our average management fee paying assets under management for the year was $10.6 billion and our DE was $224 million or 2.1% of MAUM.

In 2006, MAUM was $16.8 billion, DE $311 million, so it was 1.9% for that year and last year, the year we just completed, MAUM was approximately $28 billion on average and our DE was 1.9% of that. So a very good metric and an easy way to keep track of what we think our forecasts are going to be going forward. This is a rough estimate of course and implies a typical year for both management fees and performance fees.

Our forecast for average MAUM for Fortress this year is about $40 billion. We started the year at $33.2 billion. We’ve actually had a fair bit of capital formation already that Dan will detail and we expect to finish at around $50 billion. The key variables that will impact our earnings this year are primarily growth in assets under management and performance fee earned.

We have good visibility on the AUM growth. In total, we expect to rise between $15 billion and $20 billion in new capital between the private equity and hedge fund businesses. If this estimate is right, without any significant performance fees we’d earn about 1.25% to 1.5% on MAUM. The increment -- the difference between 1.25% and the 2.0% average is really just performance fees. It’s early in the year to make any real predictions but even with the volatility of the markets I think we all feel very good at Fortress about where we are right now. Let the year play out a bit to get a better estimate but we’ll see how it all turns out.

Now let's talk about the performance of our businesses. Hedge funds at Fortress total approximately $16.6 billion or 50% of MAUM. All of our hedge funds last year had excellent returns. Macro, which is an $8.1 billion hedge fund at year-end, had an 18.3% gross return, 12.7% net return. The credit funds which were $6.8 billion in MAUM likewise had a very good year with 15.2% gross and 10.2% net returns and our newest fund, the Partners Fund also had a very good year. This fund was launched in August of 2006. This has been in existence for just over a year but has grown tremendously to $1.7 billion MAUM at the end of the year; in its first full year, did very well. Total returns for 2007 were 10.1% gross and 8.8% net.

In general, times of high volatility are good times to be in the macro business as one can generate great returns without using high levels of leverage. Mike, Adam and the gang had a very solid 2007 and are off to a good start this year. They were up in January and February, they are down thus far in March, but most importantly, with all the volatility, have avoided any major problems.

Pete’s credit business, while it has weathered the 100 Year of storm in credit and fine shape. One of the key aspects of success in the credit business is not to be overleveraged which Pete has always been very focused on. Some times it’s a good idea in any market but in a market where there’s much illiquidity as this one, being in the wrong side of this can truly be fatal.

The credit funds, we are in a great position to make new investments and this is really one of the areas that should benefit the most from the illiquidity and dislocation in the marketplace. We feel very good about the current portfolio and the capital structure that Pete has and expect this to be a terrific investment year for that business.

Our brand of private equity is focused on investing in asset based businesses with good growth prospects and we had a solid year in 2007, both in terms of deploying capital as well as a handful of meaningful resolutions. We invested $6.8 billion in capital and generated $2.5 billion in realizations including $1.3 billion in profits that we returned to our fund LP investors.

Obviously the pace of activity was greater in the first half of the year than in the second but we really are seeing a number of excellent investment opportunities in the private equity world right now and I expect the second half of this year will be very busy. Over time, we have made many of our best investments in times likes this. I believe the firm’s capabilities in both the debt and the equity markets give us the tools necessary to excel in this kind of market.

A word on leverage is something that’s been talked about a lot. We employ conservative leverage across all of our businesses here at the firm. In private equity, total leverage at acquisition generally ranges from 50% to 60% and with the shutdown of the corporate lending markets, our low levels of leverage allow us to continue to grow our businesses without the use of corporate debt. Even in these tough times, you can finance hard assets.

For example, since the beginning of this year, we have raised or refinanced about $1.5 billion in debt across our companies and have lots of activity underway. It’s challenging and of course it’s a bit more expensive than it was before but one of the beauties of asset based private equity is you have financing alternatives for your assets incremental to the corporate world. One note is that at Fortress we have never used high yield to fund any of our corporate acquisitions and so we believe that we are somewhat insulated from some of the vagaries of the capital markets going forward and some of the financing issues that might cause some of the more traditional private equity firms to be a bit more shutdown.

In the credit business, the leverage in total is less than 1 to 1. In addition, Pete primarily finances his business with long-term locked up debt that’s not subject to being called. He has several billion dollars of un-invested capacity in these debt vehicles which given the cost of this debt is quite low, i.e., it was put in place before the credit crunch has started last summer and create a significant amount of upside for investors in the credit funds.

The Castles’ businesses had a challenging year in 2007. They came to the market volatility in good shape. Our focus for the past eight months has been on liquidity for both Newcastle and Eurocastle which has allowed us to avoid some of the difficulties that other companies or sectors have had. There is a significant amount of asset value in our companies which once markets stabilize should be the good performance but in the short term liquidity and portfolio performance remain our greatest focus.

Let me spend a couple of minutes on the credit markets; what happened, how we got here, and what it means for us at Fortress? The first half of last year was the continuation of what the past several years have been; appeared to have tremendous liquidity, robust capital flows, and debt available at terms that are very favorable to equity holders.

Extended periods of stability can create a false sense of security and the mis-pricing of risk. That was certainly the case last year and the correction that resulted is truly one for the ages. Once the credit markets began to unravel in July all the mini accesses in the markets were revealed. Bear markets are never very pleasant and this one is no exception. What makes this market experience so unique in comparison to other market corrections of the past is the scale of it. The sheer volume of assets that were re-priced and the impact on the financial institutions worldwide is truly without precedence; a difficult time to be sure that won our tremendous opportunities for us.

So why is this a great opportunity for businesses like ours? This credit crunch has led to one of the great deleveraging events of our lifetimes. In very simple terms there are many more sellers of assets than there are buyers. In the past, the investment banks who acted some what as a buffer by stepping up and providing liquidity during periods of real dislocation. But this time they themselves have had balance sheet and financing issues of their own, and in certain cases were just making the problems worse. The result of this is the mother of all supply/demand imbalances. There is simply way too much for sale and not enough folks with capital and balance sheets to fill the void.

I’ve been asked frequently in the past several months to compare the current credit crunch to prior ones; the WorldCom and Enron debt collapse in 2001, the Russian debt crisis in 1998, or even back to the Savings and Loan collapse and the RTC in the early 1990s. In each case, the higher the credit crunch, there was very little relationship between the price the assets were sold for and the underlying fundamental asset values. It was simply a matter of too many sellers and too few buyers. In each case, once the market stabilized prices recovered and it seemed at that time to be a once in a lifetime investment opportunity; once in a lifetime as it turns out until the next credit crisis.

The playbook this time looks very similar to us. In our view, now is the time to look to buy debt assets and securities. Based on any reasonable or even unreasonable analysis, the prices of the debt seem very compelling. It of course is impossible to pick the absolute top or the bottom in any market. The key in this case is to make sure that the capital that we are investing is long-term in nature so we don’t suffer the liquidity issues that have plagued others.

The gap between the market’s perception of risk and actual risk is the widest that I have ever seen. Here at Fortress, we have made significant credit investments in one form or another in many of the Fortress entities and we are currently raising several billions of capital focused on targeting this opportunity in various funds. I feel like the financial institution space is likely to be the story of the second half of this year, but right now it still feels a little early to me. The value proposition of debt assets in particular is so compelling that although some of the financial institutions looks attractive on a historical basis right now , on a relative basis they seem they may have a little ways to go.

On a macro basis the focus of the world is on the credit markets and the depth and the severity of the recession now seems very likely. How that all plays out will have to some degree an impact on our year at Fortress, however we have a very diversified business here at Fortress with over 33 different funds that we manage and a tremendous team of experiences investment managers.

Now just a word on the dividend before I turn it over to Dan. In 2007 we paid out a total of $84.25 which taken into account an approximate 17% effective tax rate was a pay out ratio of approximately 78% which is very close to our targeted payout of 75% of after tax DE. We decided to keep our dividend constant this quarter at $22.5. As we get more visibility on AUM growth and performance fees as the year plays out, we’ll adjust this dividend accordingly. Now I would like to turn the call over to Dan to review our financial results in more detail.

Dan Bass

Thanks Wes. First with respect to our financial results, we have had a record year in 2007. Our overall management fee paying AUM has increased to $33.2 billion as of year end versus $20.9 billion as of the end of 2007, a 59% increase. Pre tax DE increased to $552 million versus $397 million for 2006, 39% year-over-year growth.

The fourth quarter DE was $78 million versus a $138 million for the corresponding fourth quarter 2006. The increase in full year pre-tax DE was primarily driven by a 60% increase in management fees and 40% increase in incentive fees. The fourth quarter 2007 DE was lower primarily as a result of limited private equity realizations as expected. However our operating margins for the full year 2007 was better at 49% versus 43% in 2006, but down to 39% in the fourth quarter due to a higher compensation costs and lower incentive income.

In comparing our 2007 results it should be noted that a significant balance of deferred fees existed in 2006, the investment income of which drew significant distributable earnings in that year. The balance of deferred fees was attributive honor of public offerings such that investment income earned in 2006 is not necessarily comparable to our 2007 results.

Pre-tax DE per dividend paying share increased to a $1.30 per share for the year ended 2007 up from a $1.8 in the previous year. Coincidentally post tax DE per dividend paying share was a $1.8 for the full year which was inclusive of a 17% DE affected tax rates as Wes mentioned. Our DE effective tax rates for 2007 is lower than expected due to higher incentive income earned that is not subject to tax at a corporate rate as well as income earned prior to our public offering. As a reminder the overall effect of earnings -- overall distributable earnings tax rate which includes in income taxes and income tax related payments as a function of the relative mix of our business results and their tax attributes.

We expect at this time our 2008 distributable earnings effective tax rates to be in the low 20% range but let’s call it 20% to 25% although the ultimate outcome of the tax rate is a function of the mix of our business results. Our GAAP net loss, our attributable class-A share holders was a $60 million loss for the full year and $29 million loss for the fourth quarter. However excluding the principals agreement expense our GAAP net income was a $139 million for the year and $27 million for the fourth quarter. In order to understand our overall results I would now join to the results of each of our segments.

Capital rates for 2007 were at $4.4 billion were a major contributor to our overall increases in marginality paying AUM. During 2007 our private equity funds raised $7 billion of which $579 million was raised in the fourth quarter, our liquid hedge funds raised by $2.7 billion of which $386 million was raised in the fourth quarter and our hybrid funds raised $2.8 billion of which $174 million was raised in the fourth quarter.

So far in 2008 we are off to a good start with $2.7 billion in capital raised as we sit her today in March. Now, I will walk through the performance of our segments. In private equity which includes our PE and Castle segment, pre-tax DE for the year was driven by an increase in management fee as of set of management to $16.6 billion up from $10.4 billion, a 60% increase and higher incentive income of $315 million up from a $146 million or a 116% increase. This increase was due to proceeds from realization that was recognized throughout the year.

Pre-tax DE in their private equity segments was $329 million for the full year versus a $162 million for the full year ’06, up a 103% and $45 million for the fourth quarter versus $41 million in the same quarter of 2006 a 10% increase.

On an operating basis the liquid hedge funds segment had strong performance in 2007 driven by greater incentive income of $199 million versus $154 million for the full year 2006. As I previously mentioned our 2006 results are not comparable to 2007 due to investment income earned in 2006 from the deferred fees which were distributed from our public offering.

Pre-tax DE from the liquid hedge funds including such deferral income was $165 million for the full year 2007 versus $185 million 2006 down 11%. However excluding those earnings on the deferred fees, PE for liquid was at $163 million in 2007 versus $106 million essentially that operating income was up 54%. Including deferral earnings pre-tax DE was $33 million for the fourth quarter and excluding deferral earnings in 2006 fourth quarter liquidity was $47 million.

Pre-tax DE owned by the hybrid hedge funds decreased primarily due to a decrease in incentive income earned as a result of lower returns in 2007 versus 2006. Pre-tax DE for hybrid hedge funds was $87 million for the full year 2007 versus $104 million in 2 006 and was $5 million in the fourth quarter 2007 versus $38 million in the fourth quarter 2006.

Finally with respect to our balance sheet (inaudible) continue to raise capital funds will allow us to take advantage in investment opportunities as Wes mentioned in the current market place and in the future. We will continue to utilize our cash on hand and that -- and availabilities under our current loan facilities in order to fund our commitments and participate in the funds raised to invest in these opportunities. In 2007 we invested over $660 million in our funds increasing our total investments to in excess of $1 billion.

Unidentified Speaker

I will sign my life over wherever he says.

Dan Bass

As Wes mentioned, we believe that there is and there will be very attractive investment opportunities as result to environment and we believe that we are well positioned for opportunities through our ability to raise and deploy capital in our funds with a target of $15 and $20 billion for the full year 2008 and now we will open it up to Q-and-A.

Question-and-Answer-Session

Operator

(Operator Instructions) Our first question comes from line of Roger Freeman with Lehman Brothers.

Roger Freeman - Lehman Brothers

Hi good morning. If one of you can just talk to the sequential increase in management fees. Looks like they were up about mid-single digits that PK AUM was up high single digits sequentially, is there a mix issue in there that’s impacting that differential?

Dan Bass

The management fees are sequentially down

Roger Freeman - Lehman Brothers

Sequentially up, but only I think it was about 3% or so but AUM was up a higher amount. Just wondering if there is any change in mix.

Dan Bass

The mix as you see we have a slightly lower percentage earnings on our private equity fund fees versus our hedge fund fees and so our private equity as I mentioned raised $7 billion during the year versus our hedge funds so that would explain the reason for the slight decrease in the percentage increase versus the income growth.

Roger Freeman - Lehman Brothers

Right, okay. In your comments you talked to where you see some disconnected evaluations, if you look at some of the key asset classes, let’s say loans, commercial, mortgage and real estate, asset backed but where do you see the best opportunities. I mean where are you raising funds to buy. We were starting to see some fund raisers for -- the correct structured credit at this point is -- can you just talk about sort of your ranking?

Wesley Edens

Well, the most liquid income and largest opportunity that we see right now is on the mortgage related side, alright. Those are large markets, they were the markets that were hit the most last year and the first part of this year and they are quiet liquid, so the various asset back indices, the cash positions, really if you apply any kind of a reasonable standard in terms of these what your forecasts are about performance in those issues it’s very hard to see where there is much of a credit bed at this point and it’s much more just to question of what’s the right price for credit, so those are the areas that may hit the hardest and I think of the areas that actually have the most incremental offside of these matured term. Corporate debt has also suffered a lot in terms of price. There has not been the same kind of credit issues, at least not yet in those issues and I think that there’s a lot of value on that side of it. There’s been a lot written about the prospects for the real estate markets and what we see happening on the broader asset backed markets and I really think it’s too early to know kind of what the outcome of that is and so some of my thoughts with regards to the financial institutions themselves is I think that those investments are still a little half depended from my stand point without a clear path as to how some of those asset classes are going to perform once things settle down.

Roger Freeman - Lehman Brothers

I -- just to clarify. So your comment about financial institutions as they -- primarily do you think they are still write-down related to risk on the balance sheet, is that right?

Wesley Edens

It’s not a write-down related risk. If you look at the recovery out of a credit cycle in each of the last couple of credit cycles whether it be RTC days or the 98 and then the ’01 cases, the first real bottoming event that happened was a recapitalization of financial institutions. We obviously have seen a fair bit of capital flow in and particularly with the investment banks but there’s been a lot of activity in recapitalization thus far, but you haven’t really seen it in the banks themselves, the banks and savings allowance and not expect that when you do see those recapitalizations happening it will because people can see clearly what they view the credit profile of those companies are a little better than perhaps what you can see right now. So, I think it’s hard to know what the valuations will end up being. I think when it does it kind of get under way it will be truly a tremendous serious private equity and other credit related investment opportunities but I think it’s a little bit earlier in the year to make the call in that right now.

Roger Freeman - Lehman Brothers

How much further do you think that the leveraging cycle has to go and what do you think the fall out is still for may be some smaller alternative asset managements and actually what kind of an opportunity did that provide you in terms of bringing maybe some quality managers on board that are -- had restricted access to credit funding at this point.

Wesley Edens

I think the deleveraging still has its way’s to go. If you think about it in very simple terms a lot of the structured products that were created in the last four or five years were then in turn owned by structured vehicles, so all the growth, the exponential growth and the SIV’s and the off balance sheet and CDO related buyers, they were the buyers of first choice of a lot of assets and now are they not only buyers they are actually sellers. There’s been a lot of deconstruction of those portfolios already. I still think that there is a fair bit to go but the prices have gotten to the point where they truly seem very disconnected between the actual risk that’s implied by those assets and where they are actually being valued. So I think you have seeing a lot of capital; there is a lot of news even in the last couple of days about people forming capital to go after this opportunity. It is quite a substantial opportunity. It is much, much larger than it’s been in the past, there is just much more in the way of product that could be purchased, so I feel like the deleveraging has the ways to go and in any case the result of the opportunity side is really just beginning on that side.

Roger Freeman - Lehman Brothers

Okay. Lastly, can you talk to any strategy changes within the liquid funds? I think there were some folks like -- during the quarter around the long/short investment strategy.

Wesley Edens

Nothing out of the normal course of business. Mike and Adam have run a very, very successful business there for many years. They had a great year last year. I think one of the focuses of the liquids business that they have constantly talked to me about is the need for simplicity and the focus on what it is that exactly you are betting on. Those businesses when they get larger they can become overtly complex and as a result you can twist yourself up when you got a good idea and you may not actually make as much money as you should have because you have too many other competing things. So, I think that really the focus of the group was just to simplify things a little bit. There was really nothing that was done out of the ordinary course of business. That business has grown dramatically and there are adjustments you make in personnel from time to time but it really is a status quo situation.

Roger Freeman - Lehman Brothers

Okay, thanks a lot.

Operator

Our next question comes from the line of Marc Irizarry with Goldman Sachs.

Marc Irizarry - Goldman Sachs

Oh great, thanks. Wes, a question on private equity. Can you talk a little bit about the capital that’s in the ground now may be some of the deals that are pending and where do you see sort of opportunities to put capital out and then also the dividend, obviously -- it seems like your commentary implies that it’s under review as it always is I guess on a quarter-over-quarter basis but obviously you are paying out more than you are earning right now. Does that sort of imply some sort of confidence in terms of potential realizations that are on the table in ’08? Thanks.

Wesley Edens

Yeah. Well, with respect to the capital on the ground. I like our portfolio a lot. We have obviously spent a lot of time in the past -- three to six months as this credit crisis has worsened making sure that we are well financed and well capitalized in our businesses. I think the results seem to speak for themselves. If you look at the year-over-year results on the public companies and of course I see the private companies as well, we have had really a terrific year in the private equity businesses. The public securities markets haven’t always reflected that but I'm a little bit sanguine about that because I think at the end of the day when fundamentals once again matter in the market and people focus on the performance of the underlying assets, our businesses would be valued appropriately and we will do well with that. So I think in terms of the existing portfolio we feel great about it. The only material commitment that we have that’s outstanding that is unfunded is the commitment on pen gaming and our position is on that publicly what it is privately which is to say we are committed to funding that transaction. We are in the process of -- our regulatory approvals on the gaming side for myself and the other senior principals here and in the ordinary course that would be expected to fund sometime this summer. The dividend policy, Marc is something we try to give as much visibility to investors as we can, both for the dividend and also in terms of my comments regarding management fee assets under management and what that has meant historically in terms of the earnings of our business. We are at a place where I think the real breadth of our business and the underpinnings on the management fee side become very evident. So what I said is that to the extent that we don’t have material realizations in the performance fees side, we are looking at 1% in a quarter to 1.5% of MAUM as our estimate for earnings for ’08. It’s early in the year and I think we feel great about our businesses and I'm actually quite optimistic that things will work out well but it is a lot of volatility in the marketplace and so we -- as a group, we talked about this with our Board last night and we think to keeping it the same as it was last year at least initially is the right thing to do and then as the year goes on and we get more visibility from capital formation on the AUM side and performance, either out of the hedge funds or the private equity side, we will make an adjusted dividend accordingly. So it’s our desire to be as transparent and straightforward as possible and that’s what that really represents.

Marc Irizarry - Goldman Sachs

Great, and then on the Castles, I was a bit surprised of what percent -- that was a pretty high percentage of the earnings -- of distributable earnings came from the Castle’s in the period that I thought was probably more challenging with what it looks like, the performance fee down about 3% for Castles. Can you talk about what seems like a little bit of an anomaly if you will or an inconsistency in terms of the performance and then the incentive income that came from Castles?

Wesley Edens

Yeah. The bulk of that of course came out of Eurocastle and Eurocastle is the largest German listed property company. It is I think without question the best single portfolio of real estate assets that we have ever owned around the firm here. It’s a great portfolio of office buildings. It is occupied by very high quality folks in markets that are doing quite well and so we did have the opportunity for some realizations that generated some positive returns for us. There is still a lot of work to do on those portfolios. As I said, our focus really on the Castle side has been to make sure that we have got adequate liquidity and that our portfolios are under control and performing well, all which I feel very good about frankly, particularly in light of some of the other events in the marketplace. But it’s a good result for those guys last year. I wouldn’t read anything into it in terms of have been aberrant. We have files for all our businesses, so except loyalty gold firm, last year they had a good return for it and we’ll see how it pays out this year as well.

Marc Irizarry - Goldman Sachs

Okay, great. And then just in terms of capital raising activity. It seems like you have got a pretty good pipeline of potential firm launches. Can you just sort of lay out what segments you expect for the launches to come from, be it private equity or hedge fund launches, how far along you are in the capital raising process and then are you seeing any change in terms of LP appetite for the funds? Thanks.

Wesley Edens

Well, last year, we raised a total of about $12.5 billion in capital. So our estimate of $15 billion to $20 billion is very much in line with that and really the capital formation I expect to come from across the firm. We have got -- we have a commodities fund that we launched in the first of the year that has been very successful which has totaled our assets under management and now which are approaching $1 billion I think and they are continually raising capital on that side. Pete is out with a couple of credit and real estate related funds. We are not in the market yet on a new private equity fund but that’s something that I think we will come to market certainly this year and probably sooner rather than later and Mike’s got a number of fund initiatives as well. So really, it’s very broad based across the firm. None of it is really off the charts in terms of what our forecasts are for capital formation. It’s very much ordinary course and it reflects the strength and the stability of the businesses that we have. I have spent a fair bit of time, the first part of this year with investors and I think they along with us -- along with everybody else have got concerns about the market as it exists in total. I think that everyone is concerned generically about the things that they are invested in and I think to a large extent, the vast majority of them are excited about the opportunities for new investments going forward. It’s one of the realities of this business is that the time when it feels worse in the marketplace is a time when many of the great investments are made. They recognize that, they are involved in these investments for the long-term and I think at Fortress we have a very unique collection of businesses where we have very, very broad based debt experience on the credit side with Pete and his folks and I myself, Rob, we have had a lot of the exposure historically on the credit side of things and then on the books side we have a lot of private equity experience around here and I think that one of the things that becomes interesting in these markets is that those two markets tend to collide as the markets get re-priced and so having a robust view about how to navigate the waters both on the debt side and the equity side are really the tools that are essential to making the most of the opportunities. So I think our capital formation goals are very realistic and they are broad based and kind of we will see. But again as we get more visibility on some of those launches, in particular some of the larger ones, that will give us a little bit more color in terms of the visibility of earnings and what we can give you as guidance on the Company’s performance this year.

Marc Irizarry - Goldman Sachs

Okay, great, thanks.

Operator

And our next question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Credit Suisse

Thanks, just have a few questions here. First Wes, on the private equity front, given that the equity valuations of many of the portfolio companies are very depressed by historic levels, will Fortress begin to buy back the public equity of some of these portfolio companies, possibly taking them private like a $8 million (inaudible) and would this imply probably three quarters to a year rate from any meaningful performance based upon the private equity franchise?

Wesley Edens

We would evaluate our companies all the time. I think at the current time, we have no plans to take in any of the company’s private. We have looked at it from time to time. I think the companies -- they may be depressed in terms of their valuations in the public markets. In many cases still represent very substantial gains over what our cost basis are in that because we are going with some of the investments for a longer time and have a lot of success with them and so I like the portfolio of the public companies that we have got. I think a number of them trade at material discounts to NAV and as a result they have got great opportunities to increment the NAV by buying back stock. We have publicly announced that we have authorized share buybacks in a number of these cases. So I feel like that’s something that when it’s appropriate you will see us be a fan of. We don’t run those companies, we are large shareholders in them obviously but I think that there is a lot of constructive work to do with regards to that. With regards to the timing of future private equity results, there are a handful of things that are on the slate -- on my slate, a few things I would like to achieve this year and we need some stability in the marketplace. Periods of great volatility are not really friendly to either A: making a lot of investments in the private equity side or B: having a lot of realizations. The volatility that we had the first part of this year makes it problematic to actually have big realizations but it’s still very early in the year, we are not yet through the first quarter. I think the second half of this year has a lot of promise both in the investing side as well as prospectively on the realization side but it will be what it is. We are going to make our best efforts to do the right things on our investments and we will see how it all shakes up. So…

Craig Siegenthaler - Credit Suisse

And is asset based financing so readily available on your commercial real estate, residential real estate, your aero plane leasing businesses and how is the absolute levels interest rates because we know that credit prices are down but how does the absolute level in interest rates really move in those businesses in terms of cost of the capital since July ’07.

Wesley Edens

The answer is that is absolutely still available. We’ve financed or refinanced about a $1.5 billion of assets that’s far this year we have many more that are on the docket here in the next three to six months, so unlike the corporate markets that have been pretty shut down, one of the beauties of the asset based world is you can get financing from traditional sources, banks, insurance companies as well as the capital markets, so it’s one of the things I like about the business and it’s never been more clear why in a market like this. I think that with respect to what we think will happen on the financing side is the cost of the overall finance has been higher of course in every case. Absolutely the interest rates have come down from where they were this time last year. Spreads have widened out, the sun total of that is that leaves you plus or minus in about the same place and it varies frankly asset class by asset class, but we have completed financings on commercial real estate, we have financings on aero planes that are under works right now. We have financings on a whole variety of other assets, residential etcetera and there is clearly an availability of capital. It’s just that they are under terms that are little bit more stringent than they were before, but that BC alternatives substantially right in terms of either corporate debt that you can’t get or is under very difficult terms.

Craig Siegenthaler - Credit Suisse

And one more question just on your overall corporate tax rate given that we have a presidential action coming up this year. Do you think there is any chance that may be the republicans will try to push something through this year and have you changed your kind of comment on the publicly trade partnership tax initiative or I’ll say incentive tax initiatives.

Wesley Edens

I don’t think we’ve changed our position. Obviously prognosticating what’s going to happen this year is hard especially with the election here. Like I said we monitor it very closely but I am going to assure you sure that we have a view that’s its more likely or less likely in light of what’s going on Washington now.

Craig Siegenthaler - Credit Suisse

Great thanks a lot.

Operator

Our next question comes from the line of Prashant Bhatia with Citigroup.

Prashant Bhatia – Citigroup

Hi. Could you just give us the year-to-date returns on the both the liquid and hybrid hedge funds?

Dan Bass

Year-to-date is, give the numbers through the end of February is down and lets see here. So, I don’t have the month of March so we just have the first two months. Let me just see here so the global macro fund for the month of January was up 41 basis points, is up by 2.1% in February, it’s down thus far in March I don’t have the precise number for it. My guess is that the net of it is it’s around flat for the year it’s point is right now, but I don’t know precisely what that is, that changes obviously on a day-to-day basis. But it was positive for the first two months. This special opps business it was down 19 basis points in January up 19 basis in February so flat for the first two months and they are having a pretty positive month this month. So they said they are off to a good start. You have to condition those numbers against what’s happened in the market place away from them but if you like the -- the macro business has a great opportunity in a high volatility market and you have done a good job in navigating some of the pitfalls out there. Pete’s business is a credit business to have positive returns in this environment, I think reflects accurately the incredible in a depth and breadth and in talent of that group and they have got a lot of dry powder in their financing vehicle, so I think that we are pretty optimistic of those businesses. Those numbers that I gave you by the way they are all net to investors the gross returns are obviously higher than that but.

Prashant Bhatia – Citigroup

Okay great and then in the hybrid fund. Can you just give us a little bit more detail on the $8 billion the composition of assets and how much of it is dry powder right now?

Wesley Edens

Let’s say it’s a very hideous and critic group of investments. Pete runs a very diversified business and so it’s literally hundreds and hundreds of different investments. They are financed for the most part with term investing vehicles that themselves have a fair bit of dry powder. These were financing vehicles that were put in place in a prior to the credit crunch of last summer. They are run on quiet modest leverages that leveraging the business is about one-to-one, but, it can’t be taken up from there and simply put. If you could have liabilities that they were indexed to the cost of where the markets where last June or July and you can have assets that reflect current markets conditions there obviously is a lot of positive things in that, but that the portfolio is one that is very broad based. It’s a whole series of debt and financings and again very hideous and critique in nature that the business that he runs is one that requires lot of elbow breeze because it’s got so many investments to both make and monitor and transact on but it’s a highly diversified business.

Prashant Bhatia – Citigroup

Okay and I guess on the liquid side you talked about it getting more complexes as the asset base is grown are you hitting capacity issues in that area or is there something different than that?

Wesley Edens

No, it’s not capacity. It’s -- the world conspires against simplifying things. It happens to us in the private equity business it happens through a long business here at Fortress and the same thing applies to all the business here and I think it’s just merely a process of looking hard at the things that make the money and being focused on how you exploit those parts of the business without getting distracted by smaller things that perhaps are less virtual evidence to pursue. So, there is nothing really in sight-full to gain from their actions. They run a very disciplined business, again a highly diversified business. It’s been one of the best performing macro businesses in the world in the last five years and it’s in great shape right now so.

Prashant Bhatia – Citigroup

Okay and then on the unrealized gains on the public PE portfolio, I think you ended at $1.7 billion in December. Is it fair to say -- we can’t really see what you realize since then, but is it fair to say that it’s less than a billion now?

Wesley Edens

I think it’s not less than a billion. I don’t have a precise number on it. I think -- and frankly I don’t really run the calculation on that very frequently. We have targets on what I am looking for and valuation in companies and when the companies traded at meaningful discounts to NAV or to book value, those are not candidates for us to do much with them. We think that over time we will get paid adequately, the businesses are performing great, the things bounced round a fair bit even yesterday, but now it’s well over a billion dollars and of course that only represents a small portion of what we think the implicit profits would be in the private equity business. They were number of private investments that we feel terrific about and there is a number of different avenues for us to generate profits from those funds.

Prashant Bhatia – Citigroup

Okay and then just in terms of people I think you’ve added about 40 people in the fourth quarter. Just what areas are you building out, where you are adding the people?

Wesley Edens

We continue to add people across the firm I say that the largest additions have been in the infrastructure area as we continue to shore up the legal and finance and accounting areas as part of being a bigger firm, a more global firm and also a firm that’s public now, so there is a fair bit to do on that side. Also Pete’s business, the credit business is one that is scaleable with people so he is constantly adding folks on that side and though we have had made a handful of new additions in particular senior additions for us in the private equity businesses and I have got a few other things that I'm up there trying to do to really make the people match up to the opportunity set that we see out in front of us right now.

Prashant Bhatia – Citigroup

Okay, and what was your tax rate in the fourth quarter?

Dan Bass

Tax rate -- we really look at it on a full year basis because it’s really an ebb and flow thing. So really -- obviously on a blended basis, it’s down to 17% for the full year and so obviously it’s below that for the fourth quarter because we were expecting something in the -- around 20% range in two or three quarters and it ends up around 17% for the full year.

Prashant Bhatia – Citigroup

Okay, and just one final question. On the $15 billion to $20 billion in new capital raises -- any feel for how that will come in, in terms of -- will it be more backend weighted or do you think you will get quite a bit done in the second or third quarters?

Wesley Edens

We have a number of initiatives that are in the market right now and we have a couple of others that will be in the marketplace soon. So there is a fairly decent lag between the starting of the capital formation for a given product and when it actually closes but I think the middle part of the year is going to be highly productive for us, so -- and hopefully by the midpoint of the year, we will have some real visibility in terms of where our AUM is going to grow for the year.

Prashant Bhatia – Citigroup

Okay, thank you.

Operator

Our next question comes from the line of Dan Fannon with Jefferies.

Dan Fannon - Jefferies

Can you let us know or update us on where you are in the deployment of fund V on your private equity side?

Wesley Edens

Fund V is pretty deployed. In terms of current investments or committed capital, it is very close to the 75% threshold that would encourage us to raise find VI, so without a specific timing for the launch of that next bond we are actually quite close to the completion of fund V from an investment standpoint.

Dan Fannon - Jefferies

Okay, and then valuing some of the securities within the hybrid fund I would imagine has become increasingly challenging with some of the dislocations in the credit markets. Can you help us understand or give us some color around what third-party providers or what metrics you are using to help value a lot of these securities that are illiquid or difficult to quantify in terms of value?

Peter Briger

Sure. This is Pete Briger. I would say that in my experience over the last 20 years, getting mortgs on asset backed securities and loans and other things that we traffic in and special opportunities specifically -- that’s not true for the Partners Fund which is specifically for special opps, is tougher than it’s ever been before. Just to give you one example, it takes us probably a week after the close of the month to get mortgs on our ABS portfolio and the amount of folks who are out there trading residential mortgages has decreased dramatically. So it’s a lot more difficult to get valuations quickly than it used to be and I would say that the valuations that we do get are probably fussier than they have ever been but they are all from third parties and I would say the fussiness is not necessarily rich or cheap. It’s just fussy.

Dan Fannon - Jefferies

Is there a way to -- do you view these markets as conservative. Is it something in mean from a comfort level, how do you guys feel in terms of the valuations you are putting forth in some of these kinds of less liquid markets?

Wesley Edens

We feel very good about the valuation process and in fact as you would expect in times like this, we go to our external advisors and we reconfirm our valuation process because the market has changed so substantially but we feel very good about the valuation process.

Dan Fannon - Jefferies

Okay, thank you.

Operator

Your next question comes from the line of Roger Smith with FPK.

Roger Smith - FPK

Yes, I just have a couple of questions on the private equity business. Can you give us your view on what’s happening in the private equity industry where you are seeing failed deals and do you think that has a real impact on firms reputations and does that give Fortress perhaps a competitive advantage in the marketplace?

Wesley Edens

Well, I think the difficulty in getting deals closed accurately reflects the kind of the abrupt change in valuations on the debt side. When you have virtually every piece of corporate debt that’s outstanding is -- even if it’s not impaired and it’s very well secured, trades at a material discount -- any of the old legacy deals that had term structures, that were very favorable to equity holders like the pick bonds and then covenant lighter, the covenant free was kind of financings, etcetera, getting those things funded of course is a very, very difficult thing. I think for the most part, the banks take their obligations to fund very seriously. I know that we take our obligations to close on our transactions very seriously and I think it’s hard to generalize about what it means for certain participants. I think some people have taken pretty aggressive positions with regard to what their commitments actually are. I feel great about the people we do business with. It’s not ever our intention to put people in a difficult position to lend us money. We have never defaulted on a dollar of debt and we have actually done what we said we were going to do. We have tried to make our partners money, so it’s not our intention to do so but the markets are more challenged and I do think that as always doing what you said you were going to do -- people pay a high premium for that and I should help a firm like ours in a market which is difficult like this.

Roger Smith - FPK

Okay, and then you talked about the dislocation in the equity markets causing trouble here and really I guess what comes back first, you think its private equity investing or private equity realizations, because you just had both of them were kind of disrupted recently.

Wesley Edens

Yeah, I think the investment market probably comes back first. As I tried to make it clear in my remarks, I think that the -- I think investing in assets right now is the most obvious place to spend fruitful amounts of time and money. I think that that will migrate to spending times on companies and then I think when you get normalcy return, you will have -- again, the fundamentals will matter and evaluations will be fair and you will see more realizations. But one thing I would say is that these can change as quickly on the upside as they do in the downside.

Roger Smith - FPK

Right.

Wesley Edens

In the history of the credit market, this has been a fairly prolonged one already. Ironically, we haven’t really see the credit impact from a lot of the corporate stuff but of course I suspected that is come but…

Roger Smith - FPK

Okay. And then on the launch of the GM building -- I guess it’s rumor that you converted to about 49% equity interest. Is there anything in the documents or in the agreement that would allow you to somehow gain control of the GM building?

Peter Briger

Guys this is Pete Briger. That loan that we made to Harry MacLow is a loan to him and his organization personally so we obviously couldn’t comment on the call of this nature. It’s all confidential information between us and him.

Roger Smith – FPK

Okay and then I guess you talked about a dislocation between or that there is a lot more supply and replacement demand, have you started to see a lot of things actually trading and changing hands and where are you seeing that and then if you knew correctly -- you guys think there is a tremendous amount of opportunity to start investing here and it’s one of these investment opportunities of a life time but I think we hear that from a lot of different people in the market place. What makes you guys be able to get in at the right time faster then everybody else or what makes you think that in this environment things will get depressed a little further because if there is so much capital out there being raised to invest, will people start to get into these markets before they believe I guess depressed themselves out.

Wesley Edens

I think that the -- there is a lot of capital in the world and I think to a large extend what we see in the market place right now is not a lack of capital but really a lack of confidence that the asset that you are purchasing are at values that seem fair. There’s been a tremendous amount of activity so in terms of the sheer volume of securities and investments that are traded if you just look at the ABX index for the sub prime kind of AAA is one of the most obvious metrics. That index may well trade hundreds of billions of dollars they give in weeks, so you have a real ability to express your investment views in a very meaningful way in that part of the business. Also there is a lot of cash, securities to trade along with that, so I think the first place you are going to see the most amount of activity is where there is activity today which is on the highly rated securities and some of those direct financings? The next leg of the asset based portion it would be loans or more indirect investments in the companies themselves and I think that that’s going to come once you get a little better evaluation but if you have AAA securities that are trading at $0.70 or $0.75 for the dollar it’s pretty hard to find the right levels for the whole loans that might sit behind them, but I think that if and when those securities recover in value as in fact they have even in the last couple of days that that will then start to free the lodging in terms of some of the other assets and other portions of the balance sheet that need to be pretty priced. There is an awful lot of stuff to do as we sit here right now and in fact we have been very active in it, so and what makes us qualified to do it. I think -- I used to run the whole loan and trading business back at Lehman Brothers during the time with the RTC, Pete Sambruger ran the mortgage business at a Goldman Sachs. We have been active investors in mortgages and distressed assets for our entire couriers and so we’ve have seen an awful lot of this playbook before and I think that something I mentioned before but I think it’s worth reiterating again is that the tools that you need to navigate these kind of markets are ones that bridge equity and debt because you will see a lot of opportunities for both sides and I think if you got the ability to understand how to buy companies through debt in distressed time as we done on a number of occasions or understand how to make kind of the distinction between buying the assets and buying the underlying company it gives you a very, very significant leg up and of course the history and the track record of the company is -- hopefully reflects that we had a lot of good success in our investment vehicles over the years. We have then invested in other cycles and I feel although this is a dramatic cycle that we are in right now the investment opportunities just given the sheer scale of what is actually going to trade and already has traded is really one of the ages.

Roger Smith – FPK

Oh thanks a lot. Now I wasn’t trying to suggest that you guys weren’t quality. I do know that you have a great track record and are very qualified. I was just taking about you guys relative to other people with great track records as well, but thanks very much.

Operator

Our next question comes from the line of Robert Lee with KBW.

Robert Lee - KBW

Good morning. I’m curious -- Wes you talked about in the past and it was about expanding the business further on a global scale. Is it possible to give us some color when you look at some of the assets you’ve raised and anticipate raising, some color on the completion of where those assets are coming from. Is it -- are you seeing a lot of the flow, I anticipate a lot of the flow is coming from Asia, Sovereign Wealth outside the US, I was just trying to get a feel for that.

Wesley Edens

We have a very substantial emerging market business here on the liquid side. The macro guys have been very productive investors throughout the world. We have not been significant investors of private equity or in the credit business in any major regard other than U.S, Canada and Western Europe and it is a strategic imperative of mine and of ours -- the firm to really do something about that, so those decisions to go into different geographies are very long lived in nature. You make a commitment to a region, you higher the best people that you can and organize the proper capital forth and get going on it. We’ve got on the drawing board this year a number of initiatives with regard to that, but once they are successfully completed I’d be happy to talk about them but its safe to say we look at the Middle East as not only an area of investment capital but also an area of great investment promise. The other obvious markets just given the magnetite of them India, China, Argentina, Brazil are all things that are on the drawing board and things that we are thing about, but I fell like an imperative to the firm if we are going to continue to grow and maintain returns and the opportunities both for people and for investors around this place is that we need to be in these different markets over the next number of years and I expect that we will be in a meaning way.

Robert Lee - KBW

I mean, and may be just from the asset raising side, as I look at the $2 billion plus you’ve raised I think it is so far in the quarter and what you expect. Are you see a lot of the asset inflows coming from non-U.S investors into this market?

Wesley Edens

Not in particular, we do have very metrical Investment Partners around the world. We still are dominated at least in the private equity side by U.S investors and that’s something that I think will continue although we are happy to have investors from all over the place. The offshore funds, the macro fund in particular had obviously a lot of capital that is more spread out but on balance -- I don’t have a precise number, but on balance we still have an awful lot of our capital that comes from the United States, but we do have meaningful amounts of capital from Europe and from South America from the far east, the middle east etc..

Robert Lee - KBW

Okay thank you.

Operator

Your next question comes from the line of Roger Freeman with Lehman Brothers.

Roger Freeman - Lehman Brothers

Just a couple of follow-up questions. Just to come back to the two questions, taking about the -- from the trading opportunities here I mean when you say that there is way to express views through things like the ADX, I mean it seems like that’s where the liquidity has been when you get into the actually sort of the ADX and then the next derivative CDO’s there has been very little -- it seems like there has been very little trading activity and I guess I’m wondering what really facilitates that transfer of data cash asset. Is it just that the derivative, the industries improve and get people greater confidence in the underlying cash or is it brokers pushing though and de-levering here and getting assets off the balance sheet.

Wesley Edens

No I think the ADX index is in particular led the market on the way down and my bold prediction is that they will lead the market on the way out. I think it’s the most liquid and most obvious way for people to express there view’s about it. They have been used extensively as hedging vehicles for people that that are hedge up other credit positions that they have got and as people sell down cash positions and unravel their hedging side of it I think that those indexes will do well and on a fundamental basis I feel that broadly speaking that there is lot value that is represented there. The next wave of things to really come are the cash positions and you do have people, there has been some public sized ones certainly that we know own material amounts of cash securities and I think one of the impediments to making or bridging the gap between what they want to sell it for and what investors like us might find attractive is the availability of financing. So one of the things I think is likely as you will find these people providing financing in some meaningfully way to facilitate the movement of risk off of their balance sheets and under balance sheets and funds like ours. Behind that bill there is a tremendous amount of other restrictions. If you look back at the other bank restrictions that were done by banks that where around the time of the RTC there is an awful lot of good bank and bad bank and kinds of structures that where used were really the banks identified those assets that were problem assets for them, kind of threw a rope around then and brought in third parties to then buy those assets take them off their balance sheets, so they could focus on their core businesses. That kind of thing I think will happen. Its just that separating out what the good bank and what the bad bank is today is probably little more challenging than it needs to be, so that’s really my point in terms of when the market has got more clarity with regards to what the absolute performance of a lot of these assets will be. I think that will really clear the path to recapitalize a lot of these institutions and kind of restart the credit process here in the banking system of the U.S

Roger Freeman - Lehman Brothers

Do you think that the calendar 2Q event or more 3Q?

Wesley Edens

I think its -- days like yesterday are very constrictive days so we are on a -- we’ve got one in a row already, so its something that is going to take I think a long time to really play out. I mean what I’m really routing for and I think that most people are really routing for is functional capital markets. It’s not some actually -- even an aspect what the level of valuation is for any particular security or asset but just functioning debt markets and function equity markets I think then facilitates free flow capital and really a very constructive restarting of the whole credit process there, and I think that could be a this year event, that could be a next year event but its really going to come.

Roger Freeman - Lehman Brothers

Okay got it. On the private equity portfolio in terms of marking that do you have, you have external folks like (inaudible) to provide valuations on that or do that internally. Can you talk to what you mark non-public holdings down this quarter.

Wesley Edens

Dan?

Dan Bass

For the most part we mark most of the privates ourselves although within marking those we do get a fare bit of -- at year end appraisals around some of the assets that are embedded in those investments from relative reputable real-estate and other asset appraisers. We did take some mark downs, nothing over the material but we did take some make down on some of our privates, but nothing more that 5% on any one investment.

Roger Freeman - Lehman Brothers

Okay and then just lastly. I guess speaking to both liquid and highbred hedge fund can you talk to I guess in a liquid positioning wise what was most beneficial during the quarter. It was actually a pretty good return and then on hybrids I guess what may be the biggest headwind was obviously credit probably was a headwind but if you could be a little more specific it would be helpful.

Wesley Edens

Mike do you want to address that?

Michael Novogratz

Sure. On the liquid portfolio, this has been a great deleveraging and so just trying to position yourself from -- we continue to talk simplicity versus complexity, trying to position yourself for that deleveraging, both in yield and steep and those long interest rate positions in a short equity markets, short credit markets, any variation of those debt hedging out of their assets were the winning traits. I mean it’s relatively -- if you just look at a series of Jefferson and what the markets done it’s been a fairly co-related one directional bet. What’s made the last month so challenging and difficult is that as confidence broke down and counterparties and on the capital markets in general, the most rational place for investors to be was in cash and it created a cascading effect that people getting out of positions both good and bad that they were in and so trades that have been big winners had multi-standardization corrections within 24 and 48 hours. That process continues to unfold and then I think in the next few days you are going to see volatility calm back down just because of the market gets exhausted and people have done a tremendous amount to deleveraging.

Dan Bass

On the hybrid side I guess the way I would map it out is in the following way. A year ago two years ago, in the markets for credit and assets you had no perceived credit risk whatsoever and you had terrifying actual risk. Today we stand in a period where there is terrifying perceived risk and much lower actual risk. So from my stand point if you talk about the headwinds, the headwinds existed a year and two years ago. Obviously there is a transition from an easy money environment to a liquidity crisis and a credit crisis but essentially if you are in my business you live for these types of environments and a lot of people ask me the question “is now the right time to be investing, am I catching a falling knife” and I would clearly make the argument that if you are catching the falling knife right now by making an investment, you are catching a butter knife as opposed to a very sharpened stake knife a year or two year ago. So in terms of our portfolio obviously we have issues with our borrowers who are having difficulty refinancing and that’s both a problem and an opportunity from our perspective and the new investments that we are making are just fantastic and they may be better six months from now than they are today but they are still a lot better than they were a year or two ago. The important fact for our business is how we set ourselves up to transition from a period of easy money to a liquidity crisis in terms of locking up our financing and having lots of unfunded capacity to take advantage of this environment. So as Wes mentioned earlier in an environment where security prices are broadly falling it’s difficult to make money. But from my perspective I think this is going to be an excellent investment year and it’s going to lead to a much better business for us period.

Roger Freeman - Lehman Brothers

Those were helpful comments, thanks.

Operator

And we have reached the allotted time for questions. Are there any closing remark?

Lilly Donohue

Yes thank you we really appreciate everyone joining us this morning. Please don’t hesitate to call me. My number is actually on the press release with any follow up questions. Thank you all. Bye, bye.

Operator

And this concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!