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Alternative Investments
Wesley R. EdensChairman and CEO
Fortress Investment Group
Fortress Investment Group LLC 2
Fortress Investment Group
• First public global alternative asset manager listed on the New York Stock Exchange with $35.1 billion assets under management
• Over 550 employees with headquarters in New York and affiliates with offices worldwide
• Today, Fortress has three primary business lines with a broad investor base
FORTRESS INVESTMENT GROUP
Global Alternative Investment Manager
Private Equity$19.9 billion
• Fortress Investment Fund I to IV
• Fortress Residential Investment Deutschland
• Drawbridge Long Dated Value I and II
• 5 co-investment funds
Castles$4.7 billion
• Newcastle Investment Corp. (NYSE: NCT)
• Eurocastle Investment Ltd (Euronext Amsterdam: ECT)
Hedge Funds$10.5 billion
• Drawbridge Special Opportunities
• Drawbridge Global Macro
• Fortress Partners Fund
• Drawbridge Relative Value
As of December 31, 2006.
Fortress Investment Group LLC 3
Our History
• Founded in 1998 as an asset-based investment management firm focused on performance
• One of the only companies to manage both private equity and hedge funds
Assets Under Management
($ in billions)
$1.7$4.5 $6.2
$10.5$2.2
$5.1
$9.7
$19.9
$1.7
$1.7
$4.7
$0.9
$35.1
$17.6
$11.3
$4.8
2003 2004 2005 2006
Hedge Funds Private Equity Castles
CAGR: 96%Hedge Funds 85%
Private Equity 110%
Castles 76%
Total 96%
CAGR Since 2003
As of December 31, 2006.
Fortress Investment Group LLC 4
Growth of Hedge Funds and Private Equity
• Alternative investments constitute one of the fastest growing sectors
• From a niche industry for wealthy individuals, it has turned into a mainstream industry for institutions seeking high return/low volatility investments uncorrelated to their other assets
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q32006
0
2,000
4,000
6,000
8,000
10,000
Assets Under M anagement ($bn) # of Funds
Hedge Fund Assets Under Management
AUM ($ in billions)
CAGR: 25%
Source: Hedge Fund Research Industry Report Q3 2006
# of F
un
ds
$1.3 trillion
Source: BUYOUTS Magazine
Capital Raised by US Private Equity Firms
$5 $6 $11$18 $23
$35
$55
$33
$54
$36
$10$21
$67
$182
$139
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q32006
($ in billions)
CAGR: 27%
Fortress Investment Group LLC 5
Continued Demand for Alternatives
• Aging populations across the world and pension plan asset/liability mismatch are expected to fuel demand for alternative assets
• Aggregate pension deficits in the U.S. for all under-funded plans total approximately $489 billion (£79.3 billion in the UK)
$(489)
$(155)
$(600)
$(500)
$(400)
$(300)
$(200)
$(100)
$-
U.S. UK
Pension DeficitsPrivate Defined Benefits,
Contributions vs. Distributions(3)
(1) Data from PBGC 2005 Databook, published in June 2006.(2) Data from UK Pension Regulator's Purple Book, published in December 2006.(3) 2000-2010 estimated by Morgan Stanley Research. Source: Department of Labor – Private Pension Plan
Bulletin No. 12, Federal Reserve, company reports, Morgan Stanley Research.
(1) (2)
$30$40 $37
$84
$164
$98
$87 $89 $92 $95
$119
$131$136 $137
$150$155
$161$168
$176$185
$109
$147$141
$145
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E
Contributions Distributions
($ in billions)($ in billions)
Fortress Investment Group LLC 6
What Are Alternative Investments?
• “Alternative Investments” cover a broad world of investment categories where the common element is a manager’s ability to create value on an absolute return basis
“BETA”
TRADITIONAL INVESTMENTS
“ALPHA”
ABSOLUTE RETURN
money market
fixed income
equity private equity
hedge funds
Fortress Investment Group LLC 7
Why Are Alternative Investments Attractive?
• Positive returns in both up and down markets
• Low correlation with traditional assets
• Enhance portfolio returns while lowering the overall risk
• High margin
• Paid for performance
• High growth
WHY ATTRACTIVE TO INVESTORS? WHY ATTRACTIVE TO MANAGERS?
Fortress Investment Group LLC 8
Our Culture
“We Are Investors First”
• In the alternative asset management business, performance is everything
• Top tier returns in every business
• Consistent performance over time
Note: Returns on hedge funds and private equity are shown net of all management and performance fees as of September 30, 2006.
(1) Annualized returns for Fortress Funds shown since inception.(2) Annualized return for the ten-year period ended June 30, 2006.(3) Assumes liquidation of private equity fund investments at the NAV of the applicable fund, without
taking illiquidity or other potential discounts into effect. (4) Annualized return for the five-year period ended September 30, 2006.(5) Excludes Fortress Partner Fund returns (with Partners Fund return is 13.7%). (6) Excludes Drawbridge Relative Value Fund returns (with Relative Value Fund return is 13.3%). (7) Annualized total return since Oct-02 IPO of Newcastle through January 17, 2007.
Historical Performance(1)
Private Equity$17.5bn
Hedge Funds$9.4bn
Castles
Fortress PE
39.7%(3)
Thomson PE
Index(2)
8.9%
Liquid Hedge Funds
14.2%(6)
Hybrid Hedge Fund
13.7%(5)HFR
Composite Index(4)
9.7%
Castles51.5%(7)
MSCI US REIT Index(7)
28.7%
$3.0bn
Fortress Investment Group LLC 9
First Total TotalClosing Date Equity Invested/ Realized Gross Net
Investment Date Capital Committed Proceeds IRR IRR($ millions)
Fund I Nov-99 $872.8 $946.1 $1,656.4 38.5% 31.6%
Fund II June-02 $1,250.0 $1,619.4 $2,283.7 82.9% 59.6%
Fund III Sep-04 $2,170.2 $1,963.2 $668.2 76.9% 57.9%
Fund III Coinvestment Fund Nov-04 $250.0 $216.0 $18.1 76.4% 58.4%
Fund IV Mar-06 $3,563.4 $2,192.0 $84.9 31.5% 5.3%
Fund IV Coinvestment Fund Apr-06 $750.2 $483.0 $0.0 47.7% 30.8%
FRID Mar-05 $2,036.7 $1,046.8 $423.1 119.5% 88.2%
Other Coinvestments Various $3,308.3 $2,918.5 $266.8 74.7% 69.4%
Total All Investments $14,201.5 $11,385.0 $5,401.2 55.6% 45.8%
Inception Through December 31, 2006Investment Record
Fortress Private Equity – A Very Different Approach
• Fortress is one of the world’s largest private investors ($19.9B AUM)– Cash-flowing– Asset-based
Inception through December 31, 2006
Fortress Investment Group LLC 10
17%
36%
12%
48%
129%
33%
59%
14%17%
57%
145%
97%
-5%
34%
132%
25%
88%
113%
1%
60%
12%15%
76%
24%
51%
16%
30%
75%
20%
18%
55%
43%
70%
46%
79%
49%
136%
19%
12%
-7% -6%
48%
32%
63%66%
3%
15%
2%
13%16%
9%
27%
12%
78%
67%
**
14%
49%
26%21%
70%
110%
. 3%. 1%. 3%
7%
101%
26%
28%
8%
14%
24%24%
150+% 150+% 150+%
-50%
0%
50%
100%
150%
Private Equity Investment Record
• Fortress’s private equity funds have produced 45.8% net investment IRRs through December 31, 2006
• 85 private equity investments (since 1995), only 1 write-off to date, representing less than 1% of invested capital
Note: A significant number of the funds' more recent portfolio investments have not yet been resolved; any such unresolved investment could upon resolution result in a loss.
*Performance figures provided in the bar chart above are investment level and are presented gross of management fees, incentive income, taxes and other fund expenses. Excludes recent investments without meaningful performance history and Long Dated Value Funds. Net returns to investors will be lower.
** Represents full write-off of one investment in Q1 2002 in the amount of $50 million.
Realized
Partially Realized / Unrealized
Gross Since-Inception Returns By Investment*
2006
Fortress Investment Group LLC 11
• Focus on undervalued assets and companies which can be improved through
intensive investment management
• Investments generally fall into two categories:
Private Equity Investment Strategy
› Discounted pricing due to structural
complexity, distress or disfavor in
capital markets
› Value “on the buy” – from efficiently
managing asset resolutions, often in
liquidation scenario
› No good or bad assets, just good or
bad prices
› Attractive cash flow yields
› Scalable businesses in large, capital
intensive sectors
› Attractive industry fundamentals
CASH FLOWING UNDERVALUED ASSETS
Fortress Investment Group LLC 12
Public Co Stock Price Appreciation(1)
Accessing Public Markets
Selected Portfolio Companies
(1) As of April 16, 2007.
Cell towers Airplanes
Newspapers
German apartments
Senior living facilities
German commercial real estate
UK real estate
• By accessing public equity markets for growth capital, Fortress has been able
to create significant investment value post-IPO
• Today, we have a total of seven public companies in our portfolios, and own a
total of ~$11.5 billion in stock
0%
50%
100%
150%
200%
250%
300%
Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07
GSL+233%
ECT+259%
MAY+80%
BKD+156%
AYR+36%
GFJ+10%
GHS+26%
Fortress Investment Group LLC 13
Innovation in the Alternative Management Industry
“Blackstone is following a path blazed by Fortress Investment Group LLC…” – WSJ, 5/2/2007
“Carlyle – next for the market?” – FT, 4/17/2007
“Apollo Management Said to Be Considering IPO” – Seeking Alpha, 4/4/2007
“. . . Every hedge fund and private equity fund is at least considering an initial public offering following the success earlier this year of the IPO of Fortress Investment Group LLC.” – Associated Press, 4/24/07
“…Wall Street has been buzzing about who will be the next firm to announce plans for an IPO and invite the public into a world once reserved for high-net-worth individuals and institutional investors.” – Fortune Magazine, 4/2/07
“Fortress To Pave Way with IPO” --Financial Times, 11/9/06 “Blackstone and several rivals have been exploring
IPOs in the wake of the successful stock market listing of hedge fund Fortress Group in January.” – WSJ, 3/17/07
Fortress Investment Group LLC 14
Curiosity + Hard Work = Innovation
• Ultimately, performance is everything
• Status quo is overrated
“I’ll be happy to give you innovative thinking. What are the guidelines?”
Fortress Investment Group