Och-Ziff Distributable Profit Soars As Firm Scraps Annual High-Water Mark

Feb 11 2010 | 3:52pm ET

Och-Ziff Capital Management saw its distributable profit increase more than eightfold in the fourth quarter, as it cut its net loss and took in a quarter-billion dollars in new assets. The New York-based firm also announced a change in its fee structure.

Och-Ziff said distributable earning for the last three months of 2009 were $281.4 million. That’s almost 10 times the similar figure from the year-earlier period, when distributable earning were $28.9 million. It’s also up sharply from the third quarter, when the figure stood at $34.2 million.

The firm, which lost more than $11 billion in assets under management in 2008, is also continuing to rebuild its asset base. Och-Ziff managed $24 billion at the beginning of this month, $500 million more than at the beginning of January. Half of that increase came from fresh inflows.

“The capital inflow cycle for the hedge fund industry has begun,” CEO Daniel Och said.

Those new investors have a new performance fee structure. Och-Ziff, responding to its institutional investors, has done away with its annual high-water mark, which allowed the firm to begin charging performance fees again after one year, whether or not it had made up its losses. In its place is a perpetual high-water mark.

The firm, one of the largest hedge funds in the world, also made another concession to transparency, hiring a third-party administrator to verify its assets.

The one-year expiration did not kick in last year, as Och-Ziff was able to clear its high-water mark towards the end of last year. Thanks to the strong performance, the firm collected $345.6 million in incentive fees in the fourth quarter, up slightly from the year-earlier period. Management fees, by contrast, fell 29% from the fourth quarter of 2008 to $94.3 million, reflecting its lower asset base.

Och-Ziff also narrowed its fourth-quarter loss. The firm’s net loss was $47.2 million, down from $112.2 million a year earlier. Revenues soared more than threefold to $440.6 million.


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