Och-Ziff Capital Management Group continues to suffer from a decline in assets amid lackluster performance in its hedge funds and the U.S. government’s ongoing bribery investigation of the firm.
The New York hedge fund firm headed by Daniel Och reported that total assets under management fell by $3.2 billion in June alone. This put total assets at $39.2 billion. As a result, assets under management in the first half of the year are off by about 12 percent. Over the past one and a half years, assets are down nearly 15 percent.
Most of the June drop — approximately $2.7 billion — is due to redemptions alone. The rest is due to performance.
The OZ Master Fund, Och-Ziff’s main multistrategy fund, posted a 0.91 percent loss in June. It is down 2.14 percent for the first half of the year. Meanwhile, the OZ Asia Master Fund and OZ Europe Master Fund each posted losses in June and are down 3.56 percent and 1.61 percent, respectively, for the first six months of the year.
Shares of Och-Ziff, one of the only publicly traded hedge fund firms in the world, fell more than 3 percent Tuesday morning, to about $3.70 per share. The stock is now down 87 percent from its high price, reached about 14 months ago.
The firm’s revenues and stock price are heavily dependent on management income and performance fee income. If assets decline and the funds are posting losses, it is not surprising to see the stock go down.
However, the firm and the stock also apparently continue to be plagued by the bribery investigation, which the company is hoping to resolve soon. This is a very serious matter that would no doubt spook existing or potential institutional investors.
As we have earlier reported, two years ago the hedge fund firm said it had received subpoenas from the Securities and Exchange Commission and requests for information from the Department of Justice. They are related to an investment by a foreign sovereign wealth fund in some of Och-Ziff’s funds back in in 2007 and investments by some of the funds in a number of companies in Africa.
In its first-quarter conference call with investors in its stock, Och-Ziff’s chief financial officer, Joel Frank, said the firm was hopeful the matter could be resolved by midyear, although he conceded the exact time of a resolution is difficult to know. However, he warned: “It is possible that the timetable may take longer than we hope. We are doing everything we can to bring the process to close in the best way possible for the business, our shareholders, our LPs and our employees.”
The company disclosed it has established a $200 million reserve in anticipation of a settlement of the investigation. In its first-quarter conference call with investors, Och-Ziff warned it is “probable that the final amount of the monetary settlement will be greater than the reserve, but at this point in time we’re unable to reasonably estimate what that amount would be.”
In fact, in the first quarter the company’s noncompensation expenses were up about $17 million, which the company conceded is “due mostly to higher legal expenses related to our ongoing FCPA investigation.”
Although Foreign Corrupt Practices Act violations probably won’t shut down the firm as, say, an insider trading case might, it is becoming very clear Och-Ziff needs to settle these matters sooner rather than later if it hopes to stem the decline in assets. This is especially critical in an environment where investors are becoming increasingly frustrated and unforgiving of hedge funds that continue to lose money.
