| Daniel Och, Och-Zff Capital Management Group (Photo credit: Adrian Moser/Bloomberg) |
Assets continue to drain from Och-Ziff Capital Management Group, but the firm’s founder and CEO insists its worst days are behind it.
The beleaguered multistrategy firm reported that it suffered another $2.1 billion in outflows in April alone. This brings total capital redemptions for the first four months of the year to $6.9 billion and $13.8 billion since March 31, 2016. As a result, the firm now has $32 billion under management. Most of the outflows have come from its flagship multistrategy fund, OZ Master Fund.
Much of the firm’s shrinkage stems from its settlement with the government over bribery charges. Last September, Och-Ziff, including its subsidiary OZ Africa Management, agreed to pay $412 million to settle with the Department of Justice and the Securities and Exchange Commission. In addition, CEO Daniel Och agreed to pay nearly $2.2 million to the SEC on charges that he and CFO Joel Frank caused violations of the Foreign Corrupt Practices Act (FCPA). Frank also agreed to settle the charges.
Och-Ziff also said at the time it expected to enter into a deferred prosecution agreement with the Justice Department as part of a parallel criminal investigation. Then this past January the SEC filed bribery charges against two additional former executives it called “the driving forces behind a far-reaching bribery scheme.”
The huge drop in assets is especially troubling for a firm like Och-Ziff since it is one of the only publicly traded hedge fund firms. Investors buy the stock based on its prospects for revenue, earnings, and cash flow growth as well as the prospects for dividends.
Lately those prospects have not been good. For example, in the first quarter of this year alone the firm generated $86 million in management fees. This was down more than 45 percent from $157 million in the comparable period a year ago. So, if these metrics are in decline, investors are less likely to buy the stock if they are not confident the trend in unlikely to reverse.
Last year Och-Ziff suspended the dividend it pays its stock investors. However, on Tuesday it declared its second cash dividend this year.
Even so, the stock is now down to $2.33. This is above its low of $2.15 but still down 80 percent from its high.
However, Och insists the worst is behind the firm. And if he is right, this could be a unique opportunity for investors.
On a conference call, Och asserted the firm is just one quarter away from turning the corner based on its redemption policy with its investors.
“From that point forward we believe that multistrategy flows will return to being primarily driven by performance and broader industry trends,” Och said.
So far this year the flagship fund is not faring too badly.
In the first quarter the OZ Master Fund returned 4.1 percent, driven by gains in long-short equity special situations; merger arbitrage; and credit-related, convertible, and derivative arbitrage strategies. The fund has gained 11.9 percent for the 12-month period ending in March.
It tacked on another 0.68 percent in April, boosting its gain for the year to 4.82 percent. This return is better than those of other multistrategy funds, which have mostly been puttering along this year.
The firm’s OZ Credit Opportunities Fund climbed 3.2 percent in the first quarter. Och-Ziff says the gains in this fund were driven in part by realizations in corporate credit, structured credit, and successful resolutions in various distressed situations.
The fund returned 20.6 percent over the most recent 12-month period through March.
Och-Ziff explains that its opportunistic credit funds seek “mispriced investments across disrupted, dislocated and distressed” corporate, structured, and private credit markets.
At the end of the first quarter, Och-Ziff managed $5.3 billion in its opportunistic credit funds.
The big question now is whether investors will see an advantage to investing again with Och-Ziff’s funds.
