Och-Ziff Has First Inflows in Two Years as Refocus Pays Off
(Bloomberg) -- Och-Ziff Capital Management Group LLC is finally bringing investors back into the fold after suffering eight straight quarters of outflows.
The hedge fund firm, founded by billionaire Dan Och, lured $381 million in client cash in the first three months of this year, marking the first quarter of net inflows since 2015, the company said in a statement Wednesday. While Och-Ziff’s flagship multistrategy fund continued to have withdrawals, losing about $552 million, they were offset by $1 billion of inflows to the firm’s Institutional Credit Strategies from newly-issued collateralized loan obligations.
The firm continued to post net inflows of $11.6 million in April through May 1, according to the statement.
Redemptions for the New York-based firm have petered since reaching close to $5 billion in the first quarter of 2017. Och-Ziff has had to grapple with the fallout of settling a five-year bribery probe, changes to Och’s succession plan, executive departures and a slump in shares. Robert Shafir, a former executive at Credit Suisse Group AG who succeeded Och as chief executive officer on Feb. 5, has been leading a turnaround that’s included shrinking or shuttering non-core businesses, including the company’s European and Asia hedge funds, while growing the multistrategy, credit and real estate businesses.
Read more about Och-Ziff closing its Asia fund
“It feels like we’re in the process of bottoming out on the outflows” in the flagship multistrategy fund, Shafir said on an earnings conference call Wednesday. “Between our performance, what looks like industry demand, and the passage of time we feel like we are restoring the confidence of our clients and are hopeful -- frankly, more than hopeful -- I’d say, confident that we will begin to turn that tide.”
He said that the volatility that’s returned to global markets this year has increased appetite among investors for multistrategy hedge funds, and that should translate into inflows to Och-Ziff’s flagship fund.
In the meantime, the firm’s CLO business accounted for Och-Ziff’s fresh capital. CLOs are a type of collateralized debt obligation that pool high-yield, high-risk loans and slice them into securities of varying risk and return.
In addition to the $1 billion in assets brought in from issuing new CLOs in the U.S. and Europe in the first quarter, Shafir said the company closed a $500 million CLO in April and will be closing another $465 million CLO in the next two weeks.
Global demand for yield has been fueling sales of CLOs, which provide a steady stream of fees to the managers who put the complicated structures together. But those fees are a fraction of those charged to manage hedge fund assets. Senior and subordinated management fees typically total about half a percentage point of the total balance of the CLO per year for an established manager, while Och-Ziff charged an average 1.26 percent to manage assets in its multistrategy funds at the end of last year.
In its earnings report today, Och-Ziff reported distributable earnings of $45.3 million, or 8 cents a share, in the quarter ended March 31, compared with $35.7 million, or 7 cents, a year earlier. Shares rose 8 percent to $2.15 as of 1:23 p.m. in New York.
Och-Ziff’s management fee earnings "remain essentially nil," while its decision to shut its Asia fund to focus on its main investment strategy "will likely further weigh on near-term management fee revenues," Goldman Sachs Group Inc. analyst Alexander Blostein wrote in a note today.
Assets stood at $32.7 billion as of May 1, up about 2 percent from a year prior as strong investment gains over the last year have buffered outflows.
Bloomberg reported earlier Wednesday that its $500 million Asia hedge fund is shuttering, and in March that it was closing its the $230 million European hedge fund. Both strategies will continue to be executed through the flagship multistrategy fund. The Asia Master Fund surged 23.1 percent in 2017, while the Europe Master Fund gained 4.8 percent.
Read more on Och-Ziff’s Asia fund here
Shafir is moving quickly to make changes after his appointment was viewed by investors as part of a poorly executed succession plan. The firm’s decision to choose Shafir, an outsider from the banking world, over co-Chief Investment Officer Jimmy Levin, caught many off guard.
Last year, Och-Ziff saw $7.6 billion in client withdrawals, despite handing investors in its flagship fund a return of 10.4 percent -- the best performance since 2013. The OZ Master Fund returned 2.3 percent this year through April 30, compared to a 0.9 percent loss by the HFRX Global Hedge Fund Index, an early indicator of industry performance.
Both S&P Global Ratings and Fitch Ratings revised Och-Ziff’s credit outlook to stable from negative last month, after the firm said it would issue debt to help repay $400 million of bonds maturing next year.
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