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9. Och-Ziff Capital Management Group/ $33.5 billion

Location:

New York, NY

Founded:

1994

2016 Hedge Fund 100 Rank:

No. 4

2016 Capital:

$44.6 billion

2015 Hedge Fund 100 Rank:

No. 3

2015 Capital:

$46 billion

Years on List:

Website:

www.ozcap.com

Address:

9 West 57th Street
New York, NY 10019

Phone:

212-719-0000

Fax:

212-887-4924

Other Offices:

London, Hong Kong,
Mumbai, Beijing and Dubai

Profile & News

Firm Overview

Hedge funds are infamous for their lack of transparency to the outside world. Och-Ziff Capital Management, one of the biggest institutional alternative asset managers in the world, doesn’t have that luxury. It is one of the few U.S.-based publicly-traded hedge fund firms, with a listing on the New York Stock Exchange. As a publicly traded company, Och-Ziff must disclose information most hedge funds prefer to keep private, and it must balance the interests of investors in its funds with those of investors in its stock.

The conservative investing style of founder Daniel Och has certainly appealed to investors in Och-Ziff’s funds; the firm’s capital increased from $100 million in 1994 to $44.6 billion more than two decades later, in 2014. But assets fell precipitously throughout 2016 and early 2017, as the firm suffered $13 billion in redemptions over 13 months. Total assets fell to $31.9 billion through the end of March 2017. The primary cause: uncertainty over a lingering probe by the U.S. Department of Justice into whether Och-Ziff violated the Foreign Corrupt Practices Act.

The feds and the Securities and Exchange Commission had investigated whether employees of Och-Ziff paid bribes to officials while doing deals related to natural resources companies in Africa and during the course of securing an investment from Libya’s sovereign wealth fund (with some of the money allegedly being funneled to Zimbabwean president Robert Mugabe’s government). In September 2016, Och-Ziff reached a settlement with the government over the bribery charge; it agreed to pay a $400 million penalty, an African subsidiary pleaded guilty and the firm accepted a deferred prosecution agreement.

The employee at the center of the investigation, Michael Cohen, resigned from the firm in 2013, according to the Wall Street Journal. In January 2017, the SEC charged Cohen and Vanja Baros, an analyst for the firm in its European office, with violating the FCPA by paying “tens of millions” in bribes and misrepresenting their dealings to investors.

Och-Ziff stock has suffered as well, falling some 85 percent since its November 2007 IPO and nearly 75 percent since January 2014 as investors and Wall Street have shown dissatisfaction with the company’s results and outlook in recent quarters. The firm’s weaker performance results over the last few quarters mean it has also earned lower performance fees, which have impacted its revenues. The firm reportedly told investors it would cut the management fee for three of its multistrategy funds by 25 basis points, further eroding fee income. The firm suffered large net outflows from its funds last year and in early 2016. On its earnings call in February, Och-Ziff said its expenses for 2016 will be more than what analysts have been expecting.

Och-Ziff was founded in 1994 by Och with $100 million in seed money from the billionaire Ziff brothers in exchange for a 10 percent stake in the company. Och was one of several hedge fund honchos who got their start in the legendary Goldman Sachs risk arbitrage group headed by Robert Rubin. Och has qualified for Alpha’s Rich List for eleven years, earning $140 million in 2015.

Strategy

The multistrategy firm manages convertible and derivative arbitrage, corporate credit, long-short equity special situations, merger arbitrage, private investments and structured credit funds. The funds generally do not use leverage in making investments.

Funds and Fees Overview

Och-Ziff Capital Management manages multistrategy funds, credit funds, collateralized loan obligations and real estate funds, among others. These include OZ Master Fund, OZ Europe Master Fund, OZ Asia Master Fund and OZ Global Special Investments Master Fund.

Management fees range from 1 percent to 2.5 percent of the net asset value of a fund, charged annually. The incentive income received by Och-Ziff is 20 percent of the net capital appreciation allocated to each client. Och-Ziff receives the incentive income annually for most funds and at the end of the three-year lockup for others. Management fees for the collateralized loan obligation funds are 0.5 percent based on the par value of the collateral and cash held. Incentive income from CLOs equals 20 percent of the excess cash flow.

Real estate funds’ fees are based on the amount of capital committed by each investor.

Annualized Return Since Inception: Capital Commitment	percent Management Fee
Up to $50 million	1.5 percent of net assets per annum
$50,000,001 to $100 million	1.25 percent
$100.1 million to $199,999,999	1 percent
>$199,999,999	0.75 percent

A minimum initial investment in a fund managed by Och-Ziff is $5 million.

Clients

Regulatory Assets Under Management (RAUM)*
Discretionary	$51.74 billion (115 accounts)
Nondiscretionary	$0 (0 accounts)
Total	$51.74 billion (115 accounts)

Employees	422
Clients	100 total	66 percent non-U.S.
Fiscal Year Ends	December
All data as of December 31, 2016. *Regulatory Assets Under Management (RAUM) includes no deduction of offsetting liabilities, thus representing gross AUM, not net AUM. RAUM calculations include leverage, proprietary assets and uncalled capital commitments, among other items not required in the calculation of AUM.

Owners and Executives:

Name	Position	Position Held Since
Daniel Och	Founder, CEO, Executive Managing Director, Chairman	01/1998
David Windreich	Executive Managing Director, Head of U.S. and European Investing	01/1998
Jeanne Haas	Chief Financial Officer and Executive Managing Director	12/2016
Michael Levine	Chief Legal Officer and Executive Managing Director	01/2017
Charles Mendelson	Chief Compliance Officer and Managing Director	03/2017
Wayne Cohen	Chief Operating Officer and Executive Managing Director	09/2009