10-Q 1 q3fig-2016930x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended September 30, 2016
or
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to              
Commission File Number: 001-33294
figlogo93016.jpg
Fortress Investment Group LLC
(Exact name of registrant as specified in its charter) 
Delaware
 
20-5837959
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
(212) 798-6100
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý  Yes  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Class A Shares: 216,839,627 outstanding as of October 28, 2016.
Class B Shares: 169,207,335 outstanding as of October 28, 2016.



FORTRESS INVESTMENT GROUP LLC
FORM 10-Q
INDEX
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015
 
 
 
 
Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2016 and 2015
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2016 and 2015
 
 
 
 
Condensed Consolidated Statement of Changes in Equity (unaudited) for the nine months ended September 30, 2016
 
 
 
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2016 and 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Set forth below is information about certain terms used in this Quarterly Report on Form 10-Q:

"Management Fee Paying Assets Under Management," or "AUM," refers to the management fee paying assets we manage or co-manage, including, as applicable, capital we have the right to call from our investors pursuant to their capital commitments to various funds. In addition, AUM includes management fee paying assets managed by autonomous businesses in which we retain a minority interest. Our AUM equals the sum of:

(i)
the capital commitments or invested capital (or net asset value, "NAV," if lower) of our private equity funds, private permanent capital vehicle through May 2015 and credit PE funds, depending on which measure management fees are being calculated upon at a given point in time, which in connection with certain private equity funds raised after March 2006 includes the mark-to-market value of public securities held within the funds,
(ii)
the contributed capital or book equity (as defined) of our publicly traded permanent capital vehicles,
(iii)
the NAV of our hedge funds;
(iv)
the NAV or fair value of our managed accounts, to the extent management fees are charged; and
(v)
AUM related to affiliated manager funds and co-managed funds.

For each of the above, the amounts exclude assets under management for which we charge either no or nominal fees, generally related to our investments in our funds as well as investments in our funds by our principals, directors and employees.

Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of AUM is not based on any definition of assets under management contained in our operating agreement or in any of our Fortress Fund management agreements. Finally, our calculation of AUM differs from the manner in which our affiliates registered with the United States Securities and Exchange Commission report “Regulatory Assets Under Management” on Form ADV and Form PF in various ways.  Significantly, Regulatory Assets Under Management, unlike Management Fee Paying Assets Under Management, is not reduced by liabilities or indebtedness associated with assets under management and it includes assets under management and uncalled capital for which Fortress receives no compensation.

"Fortress," "we," "us," "our," the "company" and the "public company" refer, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group (as defined below) and all of its subsidiaries.

"Fortress Funds" and "our funds" refers to the private investment funds, permanent capital vehicles and related managed accounts that we manage or co-manage. The Drawbridge Special Opportunities Fund is our flagship credit hedge fund.

"Fortress Operating Group" or "FOG" refers to the limited partnerships and their subsidiaries through which we conduct our business and hold our investments. The public company controls the Fortress Operating Group through wholly owned subsidiaries that serve as the general partner of each FOG entity.

Economic interests in each FOG entity are represented by Class A common units and Class B common units. Class A common units are (indirectly) owned by the public company, and Class B common units are owned by the principals (defined below). Class B units have, from time to time, also been held by a former senior employee, who exchanged his remaining Class B units, together with his remaining Class B shares of the public company, for Class A shares of the public company in September 2016.

The number of outstanding Class A common units equals the number of outstanding Class A shares of the public company. The number of outstanding Class B common units equals the number of outstanding Class B shares of the public company.

"Fortress Operating Group units" or "FOGUs" is the term we use to refer to the aggregate of one limited partner interest (either a Class A common unit or a Class B common unit, as applicable) in each FOG entity. One FOGU together with one Class B share is convertible into one Class A share. A surrendered Class B common unit automatically converts into a Class A common unit.

"principals" or "Principals" refers to Peter Briger, Wesley Edens and Randal Nardone, collectively, as well as Michael Novogratz until his retirement in January 2016. The principals significantly influence the public company through their ownership of the public company’s Class B shares. The Class B shares and the Class A shares are each entitled to one vote per share. The Class B shares do not represent an economic interest in the public company and therefore are not entitled to any dividends. The principals own their economic interest in the public company primarily through their direct ownership of FOGUs.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Part II, Item 1A, "Risk Factors," Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," Part I, Item 3, "Quantitative and Qualitative Disclosures About Market Risk" and elsewhere in this Quarterly Report on Form 10-Q may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. Readers can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon the historical performance of us and our subsidiaries and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy, liquidity and planned transactions. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. Accordingly, you should not place undue reliance on any forward-looking statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10‑Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the company or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the company may be found elsewhere in this Quarterly Report on Form 10‑Q and the company's other public filings, which are available without charge through the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
The company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.





 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
September 30, 2016
(Unaudited)
 
December 31, 2015
Assets
 

 
 

   Cash and cash equivalents
$
350,712

 
$
339,842

   Due from affiliates
189,461

 
273,811

   Investments
918,526

 
1,055,789

   Investments in options
42,554

 
30,427

   Deferred tax asset, net
422,237

 
427,102

   Other assets
134,425

 
148,310

Total Assets
$
2,057,915

 
$
2,275,281

 


 


Liabilities and Equity
 

 
 

   Accrued compensation and benefits
$
260,212

 
$
318,750

   Due to affiliates
360,301

 
365,218

   Deferred incentive income
388,874

 
332,329

   Debt obligations payable
182,838

 
230,677

   Other liabilities
107,603

 
86,503

Total Liabilities
1,299,828

 
1,333,477

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Redeemable Non-controlling Interests

 

 
 
 
 
Equity
 

 
 

Class A shares, no par value, 1,000,000,000 shares authorized, 216,839,627
 
 
 
and 216,790,409 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

Class B shares, no par value, 750,000,000 shares authorized, 169,207,335
 
 
 
and 169,514,478 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

 

Paid-in capital
1,915,578

 
1,988,707

Retained earnings (accumulated deficit)
(1,420,079
)
 
(1,415,113
)
Accumulated other comprehensive income (loss)
(4,652
)
 
(2,909
)
Total Fortress shareholders’ equity
490,847

 
570,685

Principals’ and others’ interests in equity of consolidated subsidiaries
267,240

 
371,119

Total Equity
758,087

 
941,804

Total Liabilities, Redeemable Non-controlling Interests and Equity
$
2,057,915

 
$
2,275,281



See notes to condensed consolidated financial statements.


1


FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 

 
 

 
 
 
 
Management fees: affiliates
$
123,491

 
$
134,414

 
$
377,269

 
$
413,057

Management fees: non-affiliates
14,455

 
15,400

 
42,066

 
45,657

Incentive income: affiliates
17,396

 
48,773

 
71,334

 
155,154

Incentive income: non-affiliates
31,000

 
439

 
40,862

 
735

Expense reimbursements: affiliates
54,602

 
59,988

 
166,041

 
168,544

Expense reimbursements: non-affiliates
1,258

 
2,757

 
4,064

 
9,573

Other revenues (affiliate portion disclosed in Note 6)
18,943

 
2,248

 
23,832

 
6,476

Total Revenues
261,145

 
264,019

 
725,468

 
799,196

 
 
 
 
 
 
 
 
Expenses
 

 
 

 
 
 
 
Compensation and benefits
184,159

 
169,027

 
539,643

 
547,023

General, administrative and other
33,046

 
37,887

 
104,942

 
126,053

Depreciation and amortization
5,275

 
16,102

 
17,362

 
34,201

Interest expense
2,643

 
918

 
8,662

 
2,796

Transfer of interest in Graticule (see Note 1)

 

 

 
101,000

Total Expenses
225,123

 
223,934

 
670,609

 
811,073

 
 
 
 
 
 
 
 
Other Income (Loss)
 

 
 

 
 
 
 
Gains (losses) (affiliate portion disclosed in Note 3)
1,862

 
(39,888
)
 
(22,077
)
 
(15,114
)
Tax receivable agreement liability adjustment

 
(390
)
 
(2,699
)
 
(7,890
)
Earnings (losses) from equity method investees
27,467

 
(22,195
)
 
(2,420
)
 
(16,808
)
Gain on transfer of Graticule (see Note 1)

 

 

 
134,400

Total Other Income (Loss)
29,329

 
(62,473
)
 
(27,196
)
 
94,588

 
 
 
 
 
 
 
 
Income (Loss) Before Income Taxes
65,351

 
(22,388
)
 
27,663

 
82,711

   Income tax benefit (expense)
(7,008
)
 
(3,584
)
 
(11,863
)
 
(16,784
)
Net Income (Loss)
$
58,343

 
$
(25,972
)
 
$
15,800

 
$
65,927

Allocation of Net Income (Loss):
 
 
 
 
 
 
 
Principals’ and Others’ Interests in Income (Loss) of Consolidated Subsidiaries
$
27,181

 
$
(11,727
)
 
$
7,609

 
$
42,149

Redeemable Non-controlling Interests in Income (Loss) of Consolidated Subsidiaries

 

 

 
(6
)
Net Income (Loss) Attributable to Class A Shareholders
31,162

 
(14,245
)
 
8,191

 
23,784

 
$
58,343

 
$
(25,972
)
 
$
15,800

 
$
65,927

Dividends declared per Class A share
$
0.09

 
$
0.08

 
$
0.37

 
$
0.54

 
 
 
 

 
 
 
 
Earnings (Loss) Per Class A share
 

 
 
 
 
 
 
Net income (loss) per Class A share, basic
$
0.14

 
$
(0.07
)
 
$
0.03

 
$
0.10

Net income (loss) per Class A share, diluted
$
0.07

 
$
(0.07
)
 
$
0.02

 
$
0.09

Weighted average number of Class A shares outstanding, basic
216,913,032

 
216,439,077

 
218,160,131

 
216,138,405

Weighted average number of Class A shares outstanding, diluted
390,293,844

 
216,439,077

 
390,240,731

 
222,213,743


See notes to condensed consolidated financial statements.

2


FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(dollars in thousands)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Comprehensive income (loss) (net of tax)
 

 
 

 
 

 
 

Net income (loss)
$
58,343

 
$
(25,972
)
 
$
15,800

 
$
65,927

Foreign currency translation income
(loss)
(518
)
 
621

 
(3,830
)
 
249

Comprehensive income (loss) from equity
method investees
(11
)
 

 
(178
)
 

Total comprehensive income (loss)
$
57,814

 
$
(25,351
)
 
$
11,792

 
$
66,176

Allocation of Comprehensive Income (Loss):
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to principals’ and others’ interests
$
26,888

 
$
(11,473
)
 
$
5,335

 
$
42,095

Comprehensive income (loss) attributable to redeemable non-controlling interests

 

 

 
(6
)
Comprehensive income (loss) attributable to Class A shareholders
30,926

 
(13,878
)
 
6,457

 
24,087

 
$
57,814

 
$
(25,351
)
 
$
11,792

 
$
66,176






























See notes to condensed consolidated financial statements.

3


FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
(dollars in thousands)
 
 
Class A Shares
 
Class B Shares
 
Paid-In Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Fortress
Shareholders'
Equity
 
Principals'
and Others'
Interests in
Equity of
Consolidated
Subsidiaries
 
Total Equity
Equity - December 31, 2015
216,790,409

 
169,514,478

 
$
1,988,707

 
$
(1,415,113
)
 
$
(2,909
)
 
$
570,685

 
$
371,119

 
$
941,804

Contributions from principals’ and others’ interests in equity

 

 

 

 

 

 
46,635

 
46,635

Distributions to principals’ and others’ interests in equity (net of tax)

 

 

 

 

 

 
(151,011
)
 
(151,011
)
Dividends declared

 

 
(80,082
)
 

 

 
(80,082
)
 

 
(80,082
)
Dividend equivalents accrued in connection with equity-based
    compensation (net of tax)

 

 
(1,069
)
 

 

 
(1,069
)
 
(1,355
)
 
(2,424
)
Conversion of Class B shares to Class A shares
307,143

 
(307,143
)
 
446

 

 
(12
)
 
434

 
(434
)
 

Net deferred tax effects resulting from acquisition and
exchange of Fortress Operating Group units

 

 
(1,371
)
 

 

 
(1,371
)
 
(26
)
 
(1,397
)
Director restricted share grant
157,519

 

 
426

 

 

 
426

 
335

 
761

Capital increase related to equity-based compensation (net of tax)
4,383,419

 

 
8,673

 

 

 
8,673

 
6,800

 
15,473

Repurchase of Class A shares (Note 8)
(4,798,863
)
 

 

 
(13,157
)
 

 
(13,157
)
 
(10,307
)
 
(23,464
)
Dilution impact of equity transactions (Note 6)

 

 
(152
)
 

 
3

 
(149
)
 
149

 

Comprehensive income (loss) (net of tax)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)

 

 

 
8,191

 

 
8,191

 
7,609

 
15,800

Foreign currency translation income (loss)

 

 

 

 
(1,654
)
 
(1,654
)
 
(2,176
)
 
(3,830
)
Comprehensive income (loss) from equity method investees

 

 

 

 
(80
)
 
(80
)
 
(98
)
 
(178
)
Total comprehensive income (loss)
 

 
 

 
 

 
 

 
 

 
6,457

 
5,335

 
11,792

Equity - September 30, 2016
216,839,627

 
169,207,335

 
$
1,915,578

 
$
(1,420,079
)
 
$
(4,652
)
 
$
490,847

 
$
267,240

 
$
758,087










See notes to condensed consolidated financial statements.

4


FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash Flows From Operating Activities
 

 
 

Net income (loss)
$
15,800

 
$
65,927

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
17,362

 
34,201

Other amortization (included in interest expense)
616

 
585

(Earnings) losses from equity method investees
2,420

 
16,808

Distributions of earnings from equity method and other investees
19,669

 
32,345

(Gains) losses
22,077

 
15,114

Deferred incentive income
(82,287
)
 
(115,892
)
Deferred tax (benefit) expense
9,003

 
(5,786
)
Options received from affiliates
(2,262
)
 
(25,158
)
Tax receivable agreement liability adjustment
2,699

 
7,890

Equity-based compensation
21,618

 
32,562

Options in affiliates granted to employees
4,024

 
1,912

Other
297

 
1,096

Transfer of interest in Graticule (see Note 1)

 
101,000

Gain on transfer of Graticule (see Note 1)

 
(134,400
)
Cash flows due to changes in
 
 
 
Due from affiliates
34,897

 
8,185

Other assets
(17,187
)
 
(10,113
)
Accrued compensation and benefits
(12,327
)
 
(59,386
)
Due to affiliates
(9,556
)
 
(7,050
)
Deferred incentive income
118,755

 
146,001

Other liabilities
20,333

 
37,525

Purchase of investments by consolidated funds
(52,711
)
 
(134,474
)
Proceeds from sale of investments by consolidated funds
57,123

 
85,313

Receivables from brokers and counterparties
(1,148
)
 
(1,694
)
Due to brokers and counterparties
2,494

 
3,421

Net cash provided by (used in) operating activities
171,709

 
95,932

Cash Flows From Investing Activities
 

 
 

Contributions to equity method investees
(14,909
)
 
(26,435
)
Distributions of capital from equity method and other investees
193,720

 
181,874

Funding of loan receivable
(25,000
)
 

Proceeds from loan receivable
10,869

 

Purchase of securities

 
(883
)
Proceeds from sale of direct investments
933

 

Proceeds from sale of securities

 
18,101

Proceeds from exercise of options

 
51,543

Purchase of fixed assets
(13,841
)
 
(19,848
)
Net cash provided by (used in) investing activities
151,772

 
204,352


Continued on next page.

5


FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash Flows From Financing Activities
 

 
 

Repayments of debt obligations
(222,838
)
 

Borrowings under debt obligations
175,000

 

Payment of deferred financing costs
(3,451
)
 

Repurchase of Class A shares (Note 8)
(34,047
)
 
(9,676
)
Payments to settle RSU statutory withholding tax (Note 8)
(6,594
)
 

Excess tax benefits from delivery of RSUs

 
4,476

Dividends and dividend equivalents paid
(83,134
)
 
(122,663
)
Principals’ and others’ interests in equity of consolidated subsidiaries - contributions
71

 
1,285

Principals’ and others’ interests in equity of consolidated subsidiaries - distributions
(137,618
)
 
(225,994
)
Redeemable non-controlling interests - distributions

 
(1,692
)
Net cash provided by (used in) financing activities
(312,611
)
 
(354,264
)
Net Increase (Decrease) in Cash and Cash Equivalents
10,870

 
(53,980
)
Cash and Cash Equivalents, Beginning of Period
339,842

 
391,089

Cash and Cash Equivalents, End of Period
$
350,712

 
$
337,109

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
7,781

 
$
1,552

Cash paid during the period for income taxes
$
10,188

 
$
10,376

Supplemental Schedule of Non-cash Investing and Financing Activities
 
 
 
Employee compensation invested directly in subsidiaries
$
46,290

 
$
69,244

Investments of incentive receivable amounts into Fortress Funds
$
64,222

 
$
137,561

Dividends, dividend equivalents and Fortress Operating Group unit distributions declared but not yet paid
$
4,083

 
$
5,774

Retained equity interest related to Graticule transfer (Note 1)
$

 
$
33,400




















See notes to condensed consolidated financial statements.

6

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)


1. ORGANIZATION AND BASIS OF PRESENTATION

Fortress Investment Group LLC (the "Registrant," or, together with its subsidiaries, "Fortress,") is a leading, highly diversified global investment management firm. Its primary business is to sponsor the formation of, and provide investment management services for, various investment funds, permanent capital vehicles and related managed accounts (collectively, the "Fortress Funds"). Fortress generally makes investments in these funds.

Fortress's primary sources of income from the Fortress Funds are management fees, incentive income, and investment income on its investments in the funds. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements. The Fortress Funds fall into the following business segments in which Fortress operates:

1)
Private equity:
a)    General buyout and sector-specific funds focused on control-oriented investments in cash flow generating assets and asset-based businesses in North America and Western Europe; and
b)
Entities which Fortress collectively refers to as "permanent capital vehicles" which includes (i) Newcastle Investment Corp. ("Newcastle"), New Residential Investment Corp. ("New Residential"), Eurocastle Investment Limited ("Eurocastle"), New Media Investment Group Inc. ("New Media"), New Senior Investment Group Inc. ("New Senior") and Fortress Transportation and Infrastructure Investors LLC ("FTAI"), which are publicly traded companies that are externally managed by Fortress pursuant to management agreements (collectively referred to as the "publicly traded permanent capital vehicles") and (ii) FHC Property Management LLC (together with its subsidiaries, referred to as "Blue Harbor"), a senior living property management business. The publicly traded permanent capital vehicles invest in a wide variety of real estate related assets, including securities, loans, real estate properties and mortgage servicing related assets, media assets, senior living properties and transportation and infrastructure assets.

2)
Credit funds:
a)
Credit hedge funds, which make highly diversified investments in direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance, on a global basis and throughout the capital structure, with a value orientation, as well as non-Fortress originated funds for which Fortress has been retained as manager or co-manager as part of an advisory business; and
b)            Credit private equity ("PE") funds which are comprised of a family of "credit opportunities" funds focused on investing in distressed and undervalued assets, a family of ''long dated value'' funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of "real assets" funds focused on investing in tangible and intangible assets in the following principal categories (real estate, capital assets, natural resources and intellectual property), a family of Asia funds, including Japan real estate funds and an Asian investor based global opportunities fund, and a family of real estate opportunities funds, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector.

3)
Liquid hedge funds include (i) an endowment style fund, which invests in Fortress Funds, funds managed by external managers and direct investments, and (ii) funds managed by an external manager which Fortress has a minority interest and accounts for using the equity method ("Affiliated Manager").

During the third quarter of 2016, Fortress closed the Fortress Centaurus Global Funds.

In June 2016, Fortress transferred its rights as general partner and investment manager of the Fortress Convex Asia Funds to a third party.

In January 2015, Fortress Asia Macro Funds and related managed accounts transitioned to an autonomous asset management business named Graticule Asset Management Asia ("Graticule"). Fortress retained a perpetual minority interest in Graticule amounting to 30% of earnings during 2015 and 2016 and declining to approximately 27% of earnings thereafter. Fortress recorded the results of this transaction at fair value. During the nine months ended September 30, 2015, Fortress recorded a non-cash gain of $134.4 million, non-cash expense of $101.0 million related to the fair value of the controlling interest in Graticule transferred to a former senior employee for no consideration, and $33.4 million from its resulting retained interest as an equity method investment. Fortress utilized an income approach to value Graticule, its retained interest in Graticule and the controlling interest in Graticule which was transferred. This approach relies on a number of factors, including actual operating results, discount rates and economic projections. Fortress also received fees for providing

7

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

infrastructure services (technology, back office, and related services) to Graticule through the termination of the infrastructure services agreement in May 2016.
4)
Logan Circle Partners, L.P. ("Logan Circle"), which represents Fortress's traditional asset management business providing institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies. Logan Circle's core fixed income products cover the breadth of the maturity and risk spectrums, including short, intermediate and long duration, core/core plus, investment grade credit, high yield and emerging market debt.

For a reconciliation between the financial statements and the segment-based financial data that management uses for making operating decisions and assessing performance, see Note 10.

All significant intercompany accounts and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

The accompanying condensed consolidated financial statements and related footnotes of Fortress have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Fortress's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Fortress's consolidated financial statements for the year ended December 31, 2015 and footnotes thereto included in Fortress's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2016. Capitalized terms used herein, and not otherwise defined, are defined in Fortress's consolidated financial statements for the year ended December 31, 2015.

Recent Accounting Pronouncements

In March 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements. The standard will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows employers to repurchase more of an employee's shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new standard is effective for Fortress beginning January 1, 2017. Fortress is currently evaluating the potential impact of adoption of the new standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") which supersedes Topic 840, Leases. The new standard will require lessees to recognize operating leases on their balance sheet as a right-of-use asset with an offsetting lease liability based on the present value of future lease payments. Currently, only finance leases are recognized on the balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit thresholds. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard under ASU 2014-09. The new standard is effective for Fortress beginning January 1, 2019; however, early adoption is permitted. ASU 2016-02 requires a modified retrospective approach which includes a number of optional practical expedients an entity may elect to apply. Fortress is currently evaluating the potential impact of adoption of the new standard.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) ("ASU 2016-01"). ASU 2016-01 will require measuring equity investments (excluding those accounted for under the equity method, those that result in consolidation and certain other investments) at fair value and recognize the changes in fair value in net income. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted only for certain of the amendments. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the period of adoption, with the exception of the amendments related to equity securities without readily determinable fair values (including disclosure requirements) which should be applied prospectively. The adoption of ASU 2016-01 is not expected to have a material impact on Fortress's consolidated financial statements.

8

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03") which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a reduction from the carrying amount of that debt liability. ASU 2015-03 was effective for Fortress beginning January 1, 2016, and was to be applied retrospectively. This standard was subsequently updated by ASU No. 2015-15, Interest -Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting ("ASU 2015-15"). ASU 2015-15 codifies an SEC staff announcement that it will not object to the presentation of debt issuance costs as an asset for revolving line of credit arrangements. This standard was effective upon announcement on June 18, 2015. Fortress elected to present debt issuance costs related to its revolving credit facility as an asset, consistent with historical presentation. As such, the adoption of ASU 2015-03 and ASU 2015-15 did not have a material impact on Fortress's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") which is a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of the new revenue recognition standard. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted but not before the original public entity effective date (that is, annual periods beginning after December 15, 2016). ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The adoption of ASU 2014-09 is not expected to have a material impact on Fortress's consolidated balance sheets and consolidated statements of operations.

The FASB has recently issued or discussed a number of proposed standards. Some of the proposed changes are significant and could have a material impact on Fortress's financial reporting. Fortress has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.


2. MANAGEMENT AGREEMENTS AND FORTRESS FUNDS

Fortress has two principal sources of fee income from its agreements with the Fortress Funds: contractual management fees, which are generally based on a percentage of fee paying assets under management ("AUM"), and related incentive income, which is generally based on a percentage of returns, or profits, subject to the achievement of performance criteria. Substantially all of Fortress's net assets, after deducting the portion attributable to non-controlling interests, are a result of Fortress's investments in, or receivables from, these funds. The terms of agreements between Fortress and the Fortress Funds are generally determined in connection with third party fund investors. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements.

9

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

Management Fees and Incentive Income

Fortress recognized management fees and incentive income as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Private Equity
 
 
  

 
 

 
 

Private Equity Funds
  
 
  

 
 

 
 

Management fees: affil.
$
21,191

 
$
28,515

 
$
72,681

 
$
86,877

 
 
 
 
 
 
 
 
Permanent Capital Vehicles
 
 
 

 
 
 
 

Management fees: affil.
27,305

 
26,932

 
81,431

 
68,210

Management fees, options: affil.
2,262

 

 
2,262

 
25,158

Management fees: non-affil.
401

 
436

 
1,205

 
1,368

Incentive income: affil.
4,419

 
(2,625
)
 
17,880

 
23,119

 
 
 
 
 
 
 
 
Credit Funds
 
 
 

 
 

 
 

Credit Hedge Funds
 
 
 

 
 

 
 
Management fees: affil.
37,691

 
35,395

 
110,939

 
94,883

Management fees: non-affil.
54

 
15

 
70

 
38

Incentive income: affil.
6,307

 
1,512

 
11,033

 
23,681

 
 
 
 
 
 
 
 

Credit PE Funds
 
 
 

 
 

 
 

Management fees: affil.
33,182

 
28,956

 
94,806

 
86,343

Management fees: non-affil.

 
30

 
36

 
88

Incentive income: affil.
6,668

 
49,744

 
41,425

 
108,153

Incentive income: non-affil.
31,000

 
439

 
40,862

 
696

 
 
 
 
 
 
 
 
Liquid Hedge Funds
 
 
 
 
 
 
 

Management fees: affil.
1,183

 
14,004

 
13,283

 
49,137

Management fees: non-affil.

 
1,700

 

 
6,248

Incentive income: affil.
2

 
142

 
996

 
195

Incentive income: non-affil.

 

 

 
39

 
 
 
 
 
 
 
 
Logan Circle
 
 
 

 
 
 
 

Management fees: affil.
677

 
612

 
1,867

 
2,449

Management fees: non-affil.
14,000

 
13,219

 
40,755

 
37,915

Incentive income: affil.

 

 

 
6

 
 
 
 
 
 
 
 
Total
  
 
  

 
 

 
 

Management fees: affil. (including
    options)
$
123,491

 
$
134,414

 
$
377,269

 
$
413,057

Management fees: non-affil.
$
14,455

 
$
15,400

 
$
42,066

 
$
45,657

Incentive income: affil. (A)
$
17,396

 
$
48,773

 
$
71,334

 
$
155,154

Incentive income: non-affil.
$
31,000

 
$
439

 
$
40,862

 
$
735


(A)
See "Deferred Incentive Income" below. The incentive income amounts presented in this table are based on the estimated results of investment vehicles for each period. These estimates are subject to change based on the final results of such vehicles.

10

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

Deferred Incentive Income

Incentive income from certain Fortress Funds, primarily the private equity funds and credit PE funds, is received when such funds realize returns, or profits, based on the related agreements. However, this incentive income is subject to contingent repayment by Fortress to the funds until certain overall fund performance criteria are met. Accordingly, Fortress does not recognize this incentive income as revenue until the related contingencies are resolved. Until such time, this incentive income is recorded on the balance sheet as deferred incentive income and is included as "distributed-unrecognized" deferred incentive income in the table below. Incentive income from such funds, based on their net asset value, which has not yet been received is not recorded on the balance sheet and is included as "undistributed" deferred incentive income in the table below.

Incentive income from certain Fortress Funds is earned based on achieving annual performance criteria. Accordingly, this incentive income is recorded as revenue at year end (in the fourth quarter of each year), is generally received subsequent to year end, and has not been recognized for these funds during the nine months ended September 30, 2016 and 2015. If the amount of incentive income contingent on achieving annual performance criteria was not contingent on the results of the subsequent quarters, $69.4 million and $46.7 million of additional incentive income would have been recognized during the nine months ended September 30, 2016 and 2015, respectively. Incentive income based on achieving annual performance criteria that has not yet been recognized, if any, is not recorded on the balance sheet and is included as "undistributed" deferred incentive income in the table below.

During the nine months ended September 30, 2016 and 2015, Fortress recognized $82.3 million and $108.8 million, respectively, of incentive income distributions from its credit PE funds which were non-clawbackable or represented "tax distributions." Tax distributions are not subject to clawback and reflect a cash amount approximately equal to the amount expected to be paid out by Fortress for taxes or tax-related distributions on the allocated income from such funds.

Distributed incentive income amounts in the table below do not include incentive income which is not subject to clawback when received from the Fortress Funds. This also does not include any amounts related to third party funds, receipts from which are reflected as Other Liabilities until all contingencies are resolved.

Deferred incentive income from the Fortress Funds was comprised of the following on an inception-to-date basis.

 
Distributed-Gross
 
Distributed-Recognized (A)
 
Distributed-Unrecognized (B)
 
Undistributed, net of intrinsic clawback (if any) (C) (D)
 
Deferred incentive income as of December 31, 2015
$
1,490,276

 
$
(1,157,947
)
 
$
332,329

 
$
898,358

 
Share of income (loss) of Fortress Funds
 N/A

 
 N/A

 
N/A

 
484,585

 
Distribution of private equity funds and credit PE funds incentive income
197,274

 
 N/A

 
197,274

 
(197,274
)
 
Repayment of prior incentive income distributions (E)
(66,903
)
 
 N/A

 
(66,903
)
 
66,903

 
Recognition of previously deferred incentive income
 N/A

 
(82,287
)
 
(82,287
)
 
 N/A

 
Changes in foreign exchange rates
8,461

 

 
8,461

 
N/A

 
Deferred incentive income as of September 30, 2016
$
1,629,108

(F)
$
(1,240,234
)
 
$
388,874

 
$
1,252,572

 (F)
Deferred incentive income including Fortress Funds
which are not subject to clawback
$
1,777,277

 
$
(1,388,403
)
 
 
 
 
 

(A)
All related contingencies have been resolved.
(B)
Reflected on Fortress's condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015.
(C)
At September 30, 2016, no intrinsic clawback exists for any of the Fortress Funds. The net undistributed incentive income represents the amount that would be received by Fortress from the related funds if such funds were liquidated on September 30, 2016 at their net asset values.
(D)
From inception to September 30, 2016, Fortress has paid $776.4 million of compensation expense under its employee profit sharing arrangements (Note 7) in connection with distributed incentive income. If the $1.3 billion of gross undistributed incentive income were realized, Fortress would recognize and pay an additional $493.9 million of compensation.
(E)
In February 2016, Fortress paid $66.9 million to Fund III representing prior incentive income distributions received ($45.1 million net of employee amounts). As of September 30, 2016, no intrinsic clawback obligation exists for any of the Fortress Funds.
(F)
See detailed reconciliations of Distributed-Gross and Undistributed, net of intrinsic clawback below.

11

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

The amounts set forth under Distributed-Gross can be reconciled to the incentive income threshold tables (on the following pages) as follows:

 
 
 
 
 
September 30, 2016
Distributed incentive income - Private Equity Funds
$
780,459

Distributed incentive income - Private Equity Funds in Investment Period or Commitment Period

Distributed incentive income - Credit PE Funds
1,160,205

Distributed incentive income - Credit PE Funds in Investment Period or Commitment Period
10,586

Distributed incentive income - Permanent Capital Vehicle (see footnote (P) of incentive
income threshold tables)
7,043

Less:
 
 
 
Fortress Funds which are not subject to a clawback provision:
 
 
 

 
NIH
(94,513
)
 
 

 
GAGACQ Fund
(51,476
)
 
 
Portion of Fund I distributed incentive income that Fortress is not entitled to (see footnote K of incentive income threshold tables)
(183,196
)
Distributed-Gross
$
1,629,108


The amounts set forth under Undistributed, net of intrinsic clawback can be reconciled to the incentive income threshold tables (on the following pages) as follows:

 
 
 
 
 
September 30, 2016
Undistributed incentive income - Private Equity Funds
$
16,251

Undistributed incentive income - Private Equity Funds in Investment Period or Commitment Period
193,876

Undistributed incentive income - Credit PE Funds
849,407

Undistributed incentive income - Credit PE Funds in Investment Period or Commitment
Period
60,336

Undistributed incentive income - Permanent Capital Vehicles
4,330

Undistributed incentive income - Hedge Funds (total)
127,990

Undistributed incentive income - Logan Circle
382

Less:
 
Gross intrinsic clawback per incentive income threshold tables - Private Equity Funds

Undistributed, net of intrinsic clawback
$
1,252,572



12

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

The following tables summarize information with respect to the Fortress Funds and their related incentive income thresholds as of September 30, 2016:

Fund (Vintage) (A)
 
 Maturity Date (B)
 
 Inception to Date
Capital
 Invested
 
 Inception to Date Distributions (C)
 
 Net Asset Value ("NAV")
 
 NAV Surplus (Deficit) (D)
 
 Current Preferred Return Threshold (E)
 
 Gain to Cross Incentive Income Threshold (F)
 
 Undistributed Incentive Income (G)
 
 Distributed Incentive Income (H)
 
 Distributed Incentive Income Subject to Clawback (I)
 
 Gross Intrinsic Clawback (J)
 
 Net Intrinsic Clawback (J)
Private Equity Funds
 
 
 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

NIH (1998)
 
Closed Jun-15
 
$
415,574

 
$
(823,588
)
 
$

 
$ N/A
 
$ N/A

 
$ N/A

 
$

 
$
94,513

 
$

 
$

 
$

Fund I (1999) (K)
 
Closed May-13
 
1,015,943

 
(2,847,929
)
 

 
N/A

 
N/A

 
N/A

 

 
344,939

 

 

 

Fund II (2002)
 
Closed Dec-15
 
1,974,298

 
(3,446,405
)
 

 
N/A

 
N/A

 
N/A

 

 
289,531

 

 

 

Fund III (2004)
 
In Liquidation
 
2,762,992

 
(2,172,525
)
 
760,904

 
170,437

 
2,509,733

 
2,339,296

 

 

 

 

 

Fund III Coinvestment (2004)
 
In Liquidation
 
273,649

 
(231,692
)
 
55,938

 
13,981

 
290,629

 
276,648

 

 

 

 

 

Fund IV (2006)
 
Jan-17
 
3,639,561

 
(1,537,042
)
 
1,872,158

 
(230,361
)
 
3,446,902

 
3,677,263

 

 

 

 

 

Fund IV Coinvestment (2006)
 
Jan-17
 
762,696

 
(323,598
)
 
326,908

 
(112,190
)
 
736,253

 
848,443

 

 

 

 

 

Fund V (2007)
 
Feb-18
 
4,103,713

 
(1,848,412
)
 
4,213,755

 
1,958,454

 
3,191,603

 
1,233,149

 

 

 

 

 

Fund V Coinvestment (2007)
 
Feb-18
 
990,480

 
(259,786
)
 
389,761

 
(340,933
)
 
860,605

 
1,201,538

 

 

 

 

 

GAGACQ Fund (2004) (GAGFAH)
 
Closed Nov-09
 
545,663

 
(595,401
)
 

 
 N/A

 
N/A

 
 N/A

 

 
51,476

 

 

 

FRID (2005) (GAGFAH)
 
Closed Nov-14
 
1,220,229

 
(1,202,153
)
 

 
 N/A

 
N/A

 
N/A

 

 

 

 

 

FRIC (2006) (Brookdale)
 
Closed Dec-14
 
328,754

 
(291,330
)
 

 
 N/A

 
N/A

 
N/A

 

 

 

 

 

FICO (2006) (Intrawest)
 
Jan-17
 
724,525

 

 
(66,998
)
 
(791,523
)
 
819,274

 
1,610,797

 

 

 

 

 

FHIF (2006) (Holiday)
 
Jan-17
 
1,543,463

 
(954,223
)
 
1,000,416

 
411,176

 
1,443,756

 
1,032,580

 

 

 

 

 

FECI (2007) (Florida East Coast/Flagler)
 
Feb-18
 
982,779

 
(522
)
 
926,816

 
(55,441
)
 
1,001,318

 
1,056,759

 

 

 

 

 

MSR Opportunities Fund I A (2012)
 
Aug-22
 
341,135

 
(214,101
)
 
260,293

 
133,259

 

 
N/A

 
12,828

 

 

 

 

MSR Opportunities Fund I B (2012)
 
Aug-22
 
82,760

 
(51,798
)
 
62,950

 
31,988

 

 
N/A

 
3,197

 

 

 

 

MSR Opportunities Fund II A (2013)
 
Jul-23
 
160,653

 
(54,008
)
 
126,921

 
20,276

 
9,603

 
154

 
154

 

 

 

 

MSR Opportunities Fund II B (2013)
 
Jul-23
 
2,291

 
(753
)
 
1,804

 
266

 
286

 
23

 

 

 

 

 

MSR Opportunities MA I (2013)
 
Jul-23
 
36,868

 
(12,430
)
 
29,184

 
4,746

 

 
N/A

 
72

 

 

 

 

 
 
 
 
  

 
  

 
  

 
  

 
  

 
  

 
$
16,251

 
$
780,459

 
$

 
$

 
$

Private Equity Funds in Investment or Commitment Period
 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

Italian NPL Opportunities Fund (2013)
 
Sep-24
 
322,176

 
(17,774
)
 
346,810

 
42,408

 

 
N/A

 
6,214

 

 

 

 

Fortress Equity Partners (2014)
 
Mar-24
 
165,588

 

 
1,104,179

 
938,591

 

 
N/A

 
187,662

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
193,876

 
$

 
$

 
$

 
$






Continued on next page.

13

  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share and per share data)

Fund (Vintage) (A)
 
 Maturity Date (B)
 
 Inception to Date
Capital
 Invested
 
 Inception to Date Distributions (C)
 
 Net Asset Value ("NAV")
 
 NAV Surplus (Deficit) (D)
 
 Current Preferred Return Threshold (E)
 
 Gain to Cross Incentive Income Threshold (F)
 
 Undistributed Incentive Income (G)
 
 Distributed Incentive Income (H)
 
 Distributed Incentive Income Subject to Clawback (I)
 
 Gross Intrinsic Clawback (J)
 
 Net Intrinsic Clawback (J)
Credit PE Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long Dated Value Fund I (2005)
 
Apr-30
 
$
267,325

 
$
(269,739
)
 
$
176,000

 
$
178,414

 
$
50,768

 
$
2,688

 
$
2,777

 
$

 
$

 
$

 
$

Long Dated Value Fund II (2005)
 
Nov-30
 
274,280

 
(219,861
)
 
146,085

 
91,666

 
138,941

 
47,275

 

 
412

 

 

 

Long Dated Value Fund III (2007)
 
Feb-32
 
343,156

 
(307,613
)
 
143,578

 
108,035

 

 
N/A

 
3,604

 
7,904

 

 

 

LDVF Patent Fund (2007)
 
Nov-27
 
45,852

 
(33,968
)
 
26,201

 
14,317

 

 
N/A

 
23

 
1,471

 

 

 

Real Assets Fund (2007)
 
Jun-17
 
359,024

 
(435,302
)
 
17,153

 
93,431

 

 
N/A

 
2,850

 
11,565

 
4,181

 

 

Credit Opportunities Fund (2008)
 
Oct-20
 
5,680,587

 
(7,475,023
)
 
977,713

 
2,772,149

 

 
N/A

 
107,180

 
436,852

 
138,071

 

 

Credit Opportunities Fund II (2009)
 
Jul-22
 
2,376,497

 
(2,808,665
)
 
874,112

 
1,306,280

 

 
N/A

 
104,391

 
151,706

 
64,941

 

 

Credit Opportunities Fund III (2011)
 
Mar-24
 
3,408,679

 
(2,287,779
)
 
2,006,377

 
885,477

 

 
N/A

 
133,522

 
39,908

 
2,510

 

 

FCO Managed Accounts (2008 - 2012)
 
Apr-22 to Dec-24
 
4,598,123

 
(4,057,891
)
 
2,280,689

 
1,740,457

 

 
N/A

 
176,716

 
143,051

 
50,108

 

 

SIP Managed Account (2010)
 
Sep-20
 
11,000

 
(243,537
)
 
8,916

 
241,453

 

 
N/A

 
2,229

 
46,507

 

 

 

Japan Opportunity Fund (Yen only)(2009)
 
Jun-19
 
1,081,942

 
(2,145,680
)
 
541,988

 
1,605,726

 

 
N/A

 
105,951

 
205,898

 
81,877

 

 

Net Lease Fund I (2010)
 
Closed Dec-15
 
152,851

 
(227,108
)
 

 
N/A

 
N/A

 
N/A

 

 
9,743

 

 

 

Real Estate Opportunities Fund (2011)
 
Sep-24
 
552,544

 
(567,821
)
 
224,264

 
239,541

 

 
N/A

 
10,268

 
10,705

 
10,031

 

 

Global Opportunities Fund (2010)
 
Sep-20
 
394,241

 
(265,530
)
 
235,274

 
106,563

 

 
N/A

 
18,161

 
2,634

 
2,634

 

 

Japan Opportunity Fund II (Yen) (2011)
 
Dec-21
 
846,479

 
(750,532
)
 
881,368

 
785,421

 

 
N/A

 
102,533

 
48,107

 
20,801

 

 

Japan Opportunity Fund II (Dollar) (2011)
 
Dec-21
 
681,551

 
(602,385
)
 
676,595

 
597,429

 

 
N/A

 
76,145

 
39,306

 
7,989