Fortress Reports Third Quarter 2014 Results and Announces Dividend of $0.08 per Share

Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the “Company”) today reported its third quarter 2014 financial results.

FINANCIAL SUMMARY

• Fortress declares a cash dividend of $0.08 per dividend paying share for the third quarter of 2014
• Management Fee Paying Assets Under Management (“AUM”) of $66.0 billion as of September 30, 2014, an increase of 3% from the previous quarter and an increase of 14% from September 30, 2013
• GAAP net income of $10 million, or $0.02 per diluted Class A share, for the third quarter of 2014, compared to GAAP net income of $101 million, or $0.12 per diluted Class A share, for the third quarter of 2013
• GAAP net income of $85 million, or $0.17 per diluted Class A share, for the nine months ended September 30, 2014, compared to GAAP net income of $166 million, or $0.21 per diluted Class A share, for the nine months ended September 30, 2013
• Pre-tax distributable earnings (“DE”) of $55 million, or $0.12 per dividend paying share, for the third quarter of 2014, compared to pre-tax DE of $65 million, or $0.13 per dividend paying share, for the third quarter of 2013
• Pre-tax DE of $323 million, or $0.72 per dividend paying share, for the nine months ended September 30, 2014, compared to pre-tax DE of $313 million, or $0.64 per dividend paying share, for the nine months ended September 30, 2013
• Net cash and investments of $3.18 per dividend paying share as of September 30, 2014, up 5% from June 30, 2014
• $1.0 billion, or $2.29 per dividend paying share, of gross embedded incentive income across funds and permanent capital vehicles as of September 30, 2014, that has not been recognized in DE
• Total uncalled capital, or “dry powder,” of $7.5 billion as of September 30, 2014, including approximately $5.4 billion available for general investment purposes

BUSINESS HIGHLIGHTS

• Raised $1.2 billion of capital across alternative investment businesses during the quarter, bringing total third-party alternative capital raised year-to-date through September 30, 2014 to $4.6 billion
• Recorded $2.2 billion of net client inflows for Logan Circle during the quarter, bringing total net client inflows to $4.4 billion year-to-date through September 30, 2014
• Investment performance summary as of September 30, 2014:
  • Third quarter 2014 net returns of 1.8% for Drawbridge Special Opportunities Fund (“DBSO”) LP, 1.1% for Fortress Macro Fund Ltd and 1.5% for Fortress Asia Macro Fund Ltd
  • Year-to-date 2014 net returns of 7.7% for DBSO LP, (4.9)% for Fortress Macro Fund Ltd and (4.0)% for Fortress Asia Macro Fund Ltd
  • Private Equity fund valuations increased 3.2% during the quarter and 5.2% year-to-date through September 30, 2014
  • Annualized inception-to-date net IRRs for the Credit Opportunities Fund and Credit Opportunities Fund II of 25.4% and 18.2%, respectively
  • 14 out of 16 Logan Circle fixed income strategies outperformed respective benchmarks year-to-date through September 30, 2014 and 15 of 16 strategies have outperformed respective benchmarks since inception

“Fortress is on track to deliver another strong full year of financial results,” said Fortress Chief Executive Officer Randy Nardone. “At $0.72 per share, we recorded our highest first three quarters of pre-tax distributable earnings since 2007. AUM closed the quarter at an all-time high of $66 billion, reflecting robust investor demand for Fortress and Logan Circle strategies and our permanent capital vehicles. Strong investment performance has continued to contribute to very substantial embedded value, both in our funds and on our balance sheet. Given these strengths, we are confident that we will have another strong full year, with catalysts in place for considerable upside in 2015 and the years ahead.”

SUMMARY FINANCIAL RESULTS

Fortress’s business model is highly diversified, and management believes that this positions the Company to capitalize on opportunities for investing, capital formation and harvesting profits that can occur at different points in any cycle for our individual businesses. Fortress’s business model generates stable and predictable management fees, which is a function of the majority of Fortress’s alternative AUM residing in long-term investment structures. Fortress’s alternative investment businesses also generate variable incentive income based on performance, and this incentive income can contribute meaningfully to financial results. Balance sheet investments represent a third component of Fortress’s business model, and the Company has built substantial value in these investments, which are made in Fortress funds alongside the funds’ limited partners.

The table below summarizes Fortress’s operating results for the quarter and year-to-date period ended September 30, 2014. The consolidated GAAP statement of operations and balance sheet are presented on pages 13-14 of this press release.

CONSOLIDATED GAAP RESULTS

Fortress recorded GAAP net income of $10 million, or $0.02 per diluted Class A share, for the third quarter of 2014, compared to GAAP net income of $101 million, or $0.12 per diluted Class A share, for the third quarter of 2013. Our diluted earnings per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group units and fully vested restricted partnership units to Class A shares.

In 2014, Fortress formed a new liquid hedge fund and a new private equity fund that Fortress determined qualify as variable interest entities of which Fortress is the primary beneficiary and therefore consolidates those funds. Consequently, Fortress’s financial statements include the assets, liabilities, related operations and cash flows of these funds and other consolidated entities (collectively, the “Investment Company”). In our consolidated financial statements, Fortress’s results and the results of the consolidated funds are disclosed under the Investment Manager caption and the consolidated funds’ related amounts are further detailed under the Investment Company caption.

Fortress also consolidates New Media Investment Group Inc.’s (“New Media” or the “Media Business”) (NYSE: NEWM) financial position and results of operations. Although New Media’s operating results impact GAAP net income, it does not have a material impact on the net income attributable to Fortress’s Class A shareholders, Class A basic and diluted earnings per share or total Fortress shareholders’ equity, as substantially all of the operating results of New Media are attributable to non-controlling interests. In our consolidated financial statements, New Media’s results are disclosed under the Non-Investment Manager caption.

The year-over-year decrease in Fortress’s third quarter 2014 GAAP net income was primarily driven by a $214 million increase in GAAP expenses and a $58 million decrease in Other Income, partially offset by a $172 million increase in GAAP revenues.

The increase in GAAP expenses was primarily attributable to $163 million of expenses associated with the Media Business as a result of the consolidation of New Media beginning in February 2014, as well as a $41 million increase in Investment Manager expenses related to compensation and benefits.

The decrease in Other Income was primarily related to $26 million of losses in the fair value of options and common stock in our publicly traded permanent capital vehicles in the third quarter.

The increase in GAAP revenues was primarily attributable to $165 million of revenues from the Media Business as a result of the consolidation of New Media.

CONSOLIDATED SEGMENT RESULTS (NON-GAAP)

This section provides information about each of Fortress’s businesses: (i) Credit Hedge Funds and Credit Private Equity (“PE”) Funds, (ii) Private Equity Funds and Permanent Capital Vehicles, (iii) Liquid Hedge Funds, and (iv) Logan Circle.

In the third quarter of 2014, Fortress reorganized its segments by: (i) reclassifying its investments in and resulting pre-tax DE from the Fortress Funds, which were previously presented under the principal investments segment, to each of the other segments that the investment relates to, and (ii) reclassifying one of its private equity funds, WWTAI, from its Private Equity Funds segment to its Permanent Capital Vehicles segment. Prior period amounts have been reclassified to reflect this segment reorganization.

Fortress uses DE as the primary metric to manage its businesses and gauge the Company’s performance, and it uses DE exclusively to report segment results. All DE figures are presented on a pre-tax basis. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortress’s GAAP results. Fortress urges you to read “Non-GAAP Information” below.

Pre-tax DE was $55 million in the third quarter of 2014, down from $65 million in the third quarter of 2013. This decrease was primarily due to higher segment expenses and lower net investment income, partially offset by higher management fees and incentive income.

Management fees were $149 million in the third quarter of 2014, up from $136 million in the third quarter of 2013, primarily due to higher management fees from the Credit Hedge Funds, Logan Circle, Liquid Hedge Funds and Permanent Capital Vehicles, partially offset by lower management fees from the Private Equity Funds.

Incentive income recorded in the third quarter of 2014 totaled $88 million, up from $42 million recorded in the third quarter of 2013, primarily due to higher incentive income from the Credit PE Funds and Permanent Capital Vehicles and a reduction in the reversal of accrued incentive income from the Liquid Hedge Funds in third quarter of 2013, partially offset by lower incentive income from the Credit Hedge Funds and Private Equity Funds.

Additionally, Fortress had $1.0 billion in gross undistributed, unrecognized incentive income based on investment valuations as of September 30, 2014. This includes $949 million from our funds and private permanent capital vehicle and $64 million from options in our publicly traded permanent capital vehicles.

Net investment income (loss) totaled $(12) million in the third quarter of 2014, compared to $12 million in the third quarter of 2013. The decrease in net investment income was primarily due to losses and impairments related to investments held on our balance sheet.

The Company’s segment revenues and distributable earnings will fluctuate materially depending upon the performance of its funds and the realization events within its Private Equity businesses, as well as other factors. Accordingly, the revenues and distributable earnings in any particular period should not be expected to be indicative of future results.

ASSETS UNDER MANAGEMENT

As of September 30, 2014, AUM totaled $66.0 billion, up from $63.8 billion as of June 30, 2014. During the third quarter, Fortress recorded $2.2 billion of net client inflows for Logan Circle, had a $0.9 billion increase in invested capital, raised $0.7 billion of capital that was directly added to AUM and had $0.4 billion of market-driven valuation gains. These increases to AUM were partially offset by (i) $1.2 billion of capital distributions to investors, (ii) $0.6 billion of Liquid Hedge Fund redemptions and (iii) $0.2 billion of payments to Credit Hedge Fund investors from redeeming capital accounts.

As of September 30, 2014, the Credit Funds, Private Equity Funds and private permanent capital vehicle had approximately $4.8 billion, $2.1 billion and $0.6 billion of uncalled capital, respectively, that will become AUM if deployed/called. Uncalled capital or dry powder – capital committed to the funds but not invested and generating management fees – includes $2.0 billion that is only available for follow-on investments, management fees and other fund expenses. Notably, approximately 78% of alternative AUM was in funds with long-term investment structures as of September 30, 2014, which provides for a stable, predictable base of management fees.

BUSINESS SEGMENT RESULTS

Below is a discussion of third quarter 2014 segment results and business highlights.

Credit:

• DBSO LP net returns of 1.8% for the third quarter of 2014 and 7.7% year-to-date through September 30, 2014
• Credit Opportunities Fund, Credit Opportunities Fund II and Japan Opportunity Fund recorded annualized inception-to-date net IRRs of 25.4%, 18.2% and 29.6%, respectively, through September 30, 2014
• Credit PE Funds distributed $0.4 billion of capital back to limited partners during the quarter, bringing capital distributions year-to-date through September 30, 2014 to $1.4 billion
• Raised $165 million of capital across Credit Hedge Funds and $30 million across Credit PE Funds during the quarter

(See supplemental data on pages 20-21 for more detail on Credit results)

The Credit business, which includes our Credit PE Funds and Credit Hedge Funds, generated pre-tax DE of $36 million in the third quarter of 2014, compared to $40 million in the third quarter of 2013. The year-over-year decline in DE was primarily driven by higher expenses and lower net investment income, partially offset by higher incentive income and management fees.

The Credit PE Funds generated pre-tax DE of $18 million in the quarter, up from $9 million in the third quarter of 2013, as increased realization activity resulted in $41 million of incentive income recorded in the quarter. Positive Credit PE Fund performance in the last twelve months also contributed to a $232 million year-over-year net change in gross unrecognized Credit PE incentive income, which totaled $844 million as of September 30, 2014.

At quarter end, the Credit PE Funds had $10.2 billion of incentive eligible NAV above performance thresholds as all flagship Credit Opportunities and Japan Real Estate Funds were valued above their preferred thresholds and eligible to generate incentive income.

The Credit Hedge Funds generated pre-tax DE of $18 million in the quarter, down from $31 million in the third quarter of 2013, primarily due to lower incentive income and lower net investment income.

DBSO LP, Fortress’s flagship credit hedge fund, had net returns of 1.8% in the third quarter and 7.7% for the nine month period ending September 30, 2014. At quarter end, the Credit Hedge Funds had $5.4 billion of incentive eligible NAV above performance thresholds and eligible to generate additional incentive income. The Credit Hedge Funds raised $165 million of third-party capital in the quarter, primarily for the DBSO funds, of which $155 million immediately contributed to AUM. The Credit Hedge Funds have raised $947 million of third-party capital year-to-date through September 30, 2014.

Private Equity:

• Fund portfolio investment valuations increased 3.2% in the quarter
• Raised $361 million of capital for WWTAI in the quarter and reclassified its financial results from the Private Equity Funds segment to the Permanent Capital Vehicles segment
• Newcastle Investment Corp. (NYSE: NCT) raised $198 million of capital in the quarter
• New Media Investment Group (NYSE: NEWM) raised $115 million of capital in the quarter
• Raised $101 million of capital for the Italian NPL Opportunities Fund in the quarter
• Previously announced spin-off of Newcastle’s senior housing assets expected to be completed in November 2014

(See supplemental data on page 18-19 for more detail on Private Equity results)

The Private Equity business, which includes Private Equity Funds and Permanent Capital Vehicles, recorded pre-tax DE of $25 million in the third quarter of 2014, down from $37 million in the third quarter of 2013, primarily due to higher expenses and lower net investment income, partially offset by higher Permanent Capital Vehicle incentive income.

The Private Equity funds generated $18 million of pre-tax DE in the quarter, down from $30 million in the third quarter of 2013, primarily due to higher operating expenses and lower net investment income. During the quarter, the Private Equity business raised $101 million of capital for the Italian NPL Opportunities Fund, bringing total third-party commitments to approximately $830 million.

Private Equity Fund valuations increased 3.2% in the quarter, primarily due to appreciation of Springleaf Holdings, Inc. (NYSE: LEAF), a publicly traded portfolio company investment held within Fund V, and certain privately held portfolio company investments.

The Permanent Capital Vehicles generated $7 million of pre-tax DE in the quarter, flat compared to the third quarter of 2013, as increased incentive income and management fees were offset by higher expenses. During the quarter, the Permanent Capital Vehicles raised $673 million of capital, including $361 million for WWTAI, $198 million for NCT and $115 million for NEWM. Year-to-date through September 30, 2014, the Permanent Capital Vehicles have raised $1.1 billion of capital.

WWTAI, which has been reclassified from the Private Equity Fund segment to the Permanent Capital Vehicle segment, has filed IPO documents with the SEC. Fortress’s ability to complete an IPO of WWTAI is subject to certain conditions, including but not limited to, the SEC declaring the registration statement relating to the IPO effective and approval of an application to list WWTAI’s common stock on the NYSE. There can be no assurance these conditions will be satisfied.

In June 2014, NCT announced plans to spin off all of its senior housing assets into a new publicly traded real estate investment trust, New Senior Investment Group Inc. (“New Senior”). New Senior will be externally managed by an affiliate of Fortress and will primarily target senior housing related investments. The spin-off has been approved by NCT’s Board of Directors and is expected to be completed with the distribution of shares of common stock of New Senior (NYSE: SNR) on or about November 6, 2014 to shareholders of NCT.

Liquid Hedge Funds:

• Fortress Macro Fund and Fortress Asia Macro Fund had a net returns of 1.1% and 1.5%, respectively, for the third quarter of 2014
• Raised approximately $247 million of capital during the quarter and $2.1 billion year-to-date through September 30, 2014

(See supplemental data on page 22 for more detail on Liquid Hedge Funds results)

The Liquid Hedge Funds recorded a pre-tax DE loss of $4 million in the third quarter of 2014, compared to a pre-tax DE loss of $9 million in the third quarter of 2013. The year-over-year improvement in pre-tax DE was primarily due to a $26 million reversal of accrued incentive income in the third quarter of 2013.

Net returns for the quarter ended September 30, 2014 for the Fortress Macro Funds, Fortress Asia Macro Funds, Fortress Partners Funds and Fortress Convex Asia Funds were 1.1%, 1.5%, (1.4)% and (0.5)%, respectively. Net returns year-to-date through October 24, 2014 for the Fortress Macro Funds, Fortress Asia Macro Funds and Fortress Convex Asia Funds were (9.3)%, (7.3)% and (4.5)%, respectively.*

Liquid Hedge Funds ended the quarter with $7.5 billion of AUM, up 9% from the third quarter of 2013, primarily due to $2.4 billion of capital raised in the last twelve months, partially offset by $1.6 billion of redemptions in the last twelve months.

Subsequent to quarter end, the Liquid Hedge Funds raised approximately $168 million of additional capital, which will be added to AUM in the fourth quarter of 2014. As of September 30, 2014, there were $603 million Liquid Hedge Fund redemption notices outstanding, $296 million of which will be paid primarily within one quarter.

Logan Circle:

• 14 out of 16 Logan Circle fixed income investment strategies outperformed their respective benchmarks year-to-date, and 15 of 16 strategies have outperformed respective benchmarks since inception
• Traditional asset management AUM totaled $31.1 billion at September 30, 2014, an increase of 32% compared to September 30, 2013
• Net client inflows totaled $2.2 billion in the third quarter of 2014 and $4.4 billion year-to-date through September 30, 2014

(See supplemental data on page 23 for more detail on Logan Circle results)

Logan Circle, our traditional asset management business, recorded a pre-tax DE loss of $2 million in the quarter, flat compared to the third quarter of 2013, as increased management fees were offset by higher operating expenses and lower net investment income.

Logan Circle ended the quarter with $31.1 billion in AUM, a 7% increase compared to the prior quarter and a 32% increase compared to the previous year. The year-over-year increase in AUM was primarily due to net client inflows of $5.9 billion and market-driven valuation gains of $1.6 billion. Since Fortress’s acquisition of Logan Circle in April 2010, Logan Circle’s AUM has grown at a CAGR of 25%.

Notably, 14 of 16 of Logan Circle’s fixed income strategies outperformed their respective benchmarks year-to-date through September 30, 2014. Since inception, 15 of 16 Logan Circle fixed income strategies have outperformed their respective benchmarks and as of September 30, 2014, eight were ranked in the top quartile of performance for their competitor universe.

LIQUIDITY & CAPITAL

As of September 30, 2014, Fortress (excluding New Media and Investment Company consolidated VIEs) had cash and cash equivalents of $332 million and debt obligations of $75 million.

As of September 30, 2014, Fortress had $1.1 billion of investments in Fortress funds and $0.1 billion of investments in options in Permanent Capital Vehicles. As of September 30, 2014, Fortress had a total of $149 million of outstanding commitments to its funds.

In addition, at quarter end, the NAV of Fortress’s investments in its own funds exceeded its segment cost basis by $572 million, representing net unrealized gains that have not yet been recognized for segment reporting purposes.

DIVIDEND

Fortress’s Board of Directors declared a third quarter 2014 cash dividend of $0.08 per dividend paying share. The dividend is payable on November 17, 2014 to Class A shareholders of record as of the close of business on November 12, 2014.

The declaration and payment of any dividends are at the sole discretion of the Board of Directors, which may decide to change its dividend policy at any time. Please see below for information on the U.S. federal income tax implications of the dividend.

NON-GAAP INFORMATION

DE is a primary metric used by management to measure Fortress’s operating performance. Consistent with GAAP, DE is the sole measure that management uses to manage, and thus report on, Fortress’s segments, namely: Private Equity, Permanent Capital Vehicles, Credit Hedge Funds, Credit PE Funds, Liquid Hedge Funds and Logan Circle. DE differs from GAAP net income in a number of material ways. For a detailed description of the calculation of pre-tax DE and fund management DE, see Exhibit 3 to this release and note 11 to the financial statements included in the Company’s most recent quarterly report on Form 10-Q.

Fortress aggregates its segment results to report consolidated segment results, as shown in the table under “Summary Financial Results” and in the “Total” column of the table under “Consolidated Segment Results (Non-GAAP).” The consolidated segment results are non-GAAP financial information. Management believes that consolidated segment results provide a meaningful basis for comparison among present and future periods. However, consolidated segment results should not be considered a substitute for Fortress’s consolidated GAAP results. The exhibits to this release contain reconciliations of the components of Fortress’s consolidated segment results to the comparable GAAP measures, and Fortress urges you to review these exhibits. Fortress also uses weighted average dividend paying shares and units outstanding (used to calculate pre-tax DE per dividend paying share) and net cash and investments. The exhibits to this release contain reconciliations of these measures to the comparable GAAP measures, and Fortress urges you to review these exhibits.

CONFERENCE CALL

Management will host a conference call today, Thursday, October 30, 2014 at 10:00 A.M. Eastern Time. A copy of the earnings release is posted to the Investor Relations section of Fortress’s website, www.fortress.com. The conference call may be accessed by dialing 1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Fortress Third Quarter Earnings Call.” A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.fortress.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Thursday, November 6, 2014 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “18383849.”

ABOUT FORTRESS

Fortress Investment Group LLC (NYSE:FIG) is a leading, highly diversified global investment management firm with $66.0 billion in assets under management as of September 30, 2014. Fortress applies its deep experience and specialized expertise across a range of investment strategies - private equity, credit, liquid hedge funds and traditional asset management - on behalf of over 1,600 institutional clients and private investors worldwide. For more information regarding Fortress Investment Group LLC or to be added to its e-mail distribution list, please visit www.fortress.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Fortress’s sources of management fees, incentive income and investment income (loss), estimated fund performance and the amount and source of expected capital commitments. These statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund or redemption amounts may differ, possibly materially, from these forward-looking statements, and any such differences could cause the Company’s actual results to differ materially from the results expressed or implied by these forward-looking statements. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report on Form 10-Q, which is, or will be, available on the Company’s website (www.fortress.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. The Company can give no assurance that the expectations of any forward-looking statement will be obtained. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND

This announcement is intended to be a qualified notice as provided in the Internal Revenue Code (the “Code”) and the Regulations thereunder. For U.S. federal income tax purposes, the dividend declared in October 2014 will be treated as a partnership distribution. The per share distribution components are as follows: