Fortress Investment Group LLC has $5 billion in unrealized losses from private-equity funds started since 2005, the beginning of a two-year buyout boom, more than its largest New York rivals combined.

Blackstone Group LP, the biggest private-equity firm, had an unrealized loss of $861 million in the period and KKR & Co.’s buyout funds are down $708 million, according to regulatory filings in the past six weeks. Funds at Leon Black’s Apollo Global Management LLC posted a profit.
The numbers, some disclosed for the first time, show how the largest buyout firms have navigated the damage from investments made before the 2007 financial crisis and allow clients to compare performance as managers seek new money. Blackstone, run by co-founder Stephen Schwarzman, aims to close its seventh buyout fund this month. Wes Edens, who co-founded Fortress and oversees private equity, plans to raise a fund next year, after abandoning an attempt in 2009.
“If we were to consider investing in Fortress, the first issue would probably be the performance of the more recent, larger vintages,” said William Atwood, who helps oversee about $10 billion as executive director of the Illinois State Board of Investment in Chicago. “It might make sense to wait and see if things turn around.”
Edens’ funds invested about $13.8 billion in private equity since 2005. That amount has declined 36 percent to $8.8 billion, including distributions, according to a May 10 filing with the U.S. Securities and Exchange Commission. The loss can widen or turn into a profit depending on how the holdings fare in the future.
The shortfall over the past five years more than offset gains in earlier funds, leaving Fortress’s private-equity investors with a paper loss of $1.3 billion on $20.9 billion in initial assets since the firm was founded in 1998, a decline of 6 percent. Clients received $9.1 billion in distributions.
Performance suffered in part because the firm made 66 percent of its private-equity investments in 2005 or later, more than peers over similar periods. Blackstone, KKR and Apollo all posted profits in their buyout funds over similar periods and over the life of their firms.
Officials at the four New York-based firms declined to comment for this story.
The Fortress filing broke down amounts on how much capital each fund invested, how much it returned to clients, and what the remaining holdings are worth. Fortress included information on how much its investments need to gain for the firm to earn incentive income. Those figures show 12 buyout funds are currently below that mark and together need to rise $9 billion to claim a share of profits. The funds haven’t lost any companies to bankruptcy and the holdings may recover.
“Managers have traditionally obfuscated performance,” said Harold Bradley, chief investment officer of the Ewing Marion Kauffman Foundation, which oversees $1.7 billion. “That prohibited comparative analysis. The new data is a start.”
Blackstone started publishing similar information earlier this year, after an exchange of letters with the SEC. The firm, in a letter dated Dec. 15, agreed to comply with a request by the regulator to provide investors “with a more meaningful understanding” of the performance of each of the firm’s “significant” funds.
Blackstone said all private-equity funds that have fully invested their capital commitments are earning a share of profit, or carried interest. BCP V would need to gain $4.8 billion to reach the threshold. Blackstone doesn’t include real estate funds under private-equity.
KKR has invested $36.7 billion in traditional private equity since 1996 and posted a gain of $15.5 billion, or 42 percent, according to a June 3 filing. Funds started since 2005 account for $21.6 billion, or 59 percent, of the capital deployed and are down $708 million, or 3 percent.
KKR increased its holdings by $2.5 billion during the first quarter and Blackstone’s private-equity investments gained by about $3.4 billion. The figure includes realized and unrealized gains. Apollo Apollo has invested $24 billion through funds dated 1998 or later, and distributed $20.2 billion to clients, according a filing dated March 22. With assets worth $16 billion still held by the funds, investors got a return of $12.2 billion in the past 12 years. Two funds started since 2005 invested $15.3 billion and are up $2.2 billion, or 14 percent.
The 2006 Fund VI, which has invested $10.8 billion, was valued at $11.6 billion as of Dec. 31, including distributions. The fund had dropped to $6.5 billion in the first quarter of 2009, according to a person who has seen the marks and who asked not to be identified because the information is private.
(Source: Bloomberg)