Back in early February, Fortress Investment Group (NYSE:FIG) was the first alternative asset manager to launch an IPO in U.S. markets. Yesterday the company had its first earnings conference call and management did a good job of explaining this new-fangled business for public investors.

Fortress manages $36 billion in assets in private equity and hedge funds. The firm makes money primarily by charging 2% of total assets and 20% of the profits.

In fiscal Q1, Fortress posted a 13% increase in revenues to $416.3 million, but net income dropped by 52% to $62.1 million. Over the past year, the company has ramped up its employee count by 45% to 637, and Wall Street salaries are not cheap.

A key metric in the alternative investment world is "distributable earnings." This is the pre-tax fee income that excludes unrealized illiquid investments and certain expenses. Think of it as a firm's cash flows.

Unsurprisingly, Fortress is showing healthy gains in distributable earnings. The private equity segment's distributable earnings increased by more than five times to $148 million in Q1. Fortress recently closed $2.84 billion in its latest private equity fund and expects to raise a total of $5 billion. This will be another lucrative source of distributable earnings going forward.

Where is the money going? Like Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) Warren Buffett, Fortress is making bets on the railroad sector. So far this year, Fortress agreed to purchase Florida East Coast Industries (NYSE:FLA) for $3.5 billion and RailAmerica for $1 billion. Fortress also continues to invest in senior housing and has even dipped into the subprime mortgage market.

As for the hedge fund business, things were mixed. While distributable earnings for liquid hedge funds sank 53% to $33 million, the hybrid hedge fund segment more than doubled to $44 million.

Fortress definitely has a solid business and is benefiting from the tidal wave in private equity and hedge funds. Yet the company is subject to extreme volatility, and that can be unnerving for investors. During the past two weeks, the stock has slid 12% to $29, despite a robust equities market, and I suspect we'll see the jumpiness continue.

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Berkshire Hathaway is an Inside Value pick. Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,162 out of 28.794 in CAPS.