Och-Ziff Hedge Fund Had $7.6 Billion in Outflows Last Year

(Bloomberg) -- The comeback billionaire Dan Och hoped for during his last year running his hedge fund firm never arrived.

Och-Ziff Capital Management Group LLC saw $7.6 billion in client withdrawals last year despite posting the best performance in his flagship hedge fund since 2013, the company said in a statement Friday. Still, the firm, founded by the former arbitrage trader in 1994, collected inflows to start 2018 off right.

While redemptions have slowed, Och’s New York-based firm had a tumultuous time as it grappled with the aftermath of settling a five-year bribery probe, last-minute changes to Och’s succession plan, and its shares hitting record lows. It’s now up to Robert Shafir, a former executive at Credit Suisse Group AG who succeeded Och as chief executive officer on Feb. 5, to lead the turnaround. He took control after co-chief investment officer Jimmy Levin was passed over for the job.

“Succession planning has been very topical across the entire space of alternatives, and to not execute it as cleanly as possible is not a good thing,” Gerald O’Hara, an analyst at Jefferies Group LLC, said by phone. “The firm is largely on watch by consultants and gatekeepers as they go through organizational change.”

While the firm lost $603.5 million on Jan. 1 as it fulfilled redemption requests for 2017, it pulled in $866.2 million over the remainder of the month. Assets stood at $33.3 billion as of Feb. 1, down less than 1 percent from the prior year as fund gains buffered outflows.

For 2017, “the goal was perform, execute, and get outflows to normalize. Now, the focus is on inflows,” Och said on an earnings call Friday. “We believe that our strong performance should translate to inflows, although we cannot pinpoint the timing.”

Distributable Earnings

In its earnings report today, Och-Ziff reported distributable earnings of $149.4 million, or 27 cents a share, in the quarter ended Dec. 31, compared with $7.5 million, or 1 cent, a year earlier. For the full year, the gain was $278.3 million, compared with a loss of $121.3 million in 2016.

Och-Ziff’s flagship multistrategy fund, OZ Master Fund, gained 10.4 percent last year, after posting lackluster returns for three straight years. Gains in other funds helped the company more than double its income from performance fees to $528 million for the year, the company said Friday. Och-Ziff made $299.3 million from management fees, a 40 percent decrease from 2016.

Shafir said on the call that he plans on focusing the firm on its “core competencies” of multi-strategy, credit and real estate investing. Och-Ziff should benefit from an environment of rising interest rates, which is likely to renew interest in alternative asset managers among investors, he added.

Earlier this month, Fitch Ratings reinforced its negative outlook on Och-Ziff, which has $400 million in debt maturing next year, saying that asset flows may continued to be pressured this year as the firm attempts to stabilize its management team.

Och will continue as chairman through March 2019, and said Friday that he expects to remain involved with the firm afterward. In late December, he told investors in a letter that he’d changed his mind about appointing Levin -- a star trader whom he’d groomed to eventually take over -- his successor, opting instead for an outside hire. He named Shafir last month, shortly after the Wall Street Journal reported details of the fallout between Levin and his mentor.

To read Bloomberg’s profile of Jimmy Levin, click here.

Shafir left Credit Suisse in 2016 amid a restructuring at the Zurich-based bank. He was based in New York and worked there for nine years, where he was at one point the highest-paid member of the firm’s executive board. In addition to overseeing the Americas for Credit Suisse, Shafir was chairman of the Americas and co-head of the firm’s private banking and wealth management unit. He joined from Lehman Brothers Holdings Inc., where he was head of equities and a member of the executive board.

Alesia Haas, Och-Ziff’s chief financial officer, said Friday that Levin remains committed to the firm and that he will be entering into a new employment agreement with the company that more closely aligns his compensation with fund performance. As it is now, Levin’s compensation is heavily tied to share performance, which has underwhelmed.

The shares rose 6.9 percent to $2.62 at 10:18 in New York. Still, the stock is down more than 10 percent from a year ago and 92 percent from when it was first issued in 2007.

©2018 Bloomberg L.P.

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