Och-Ziff Loss Narrows; Revenue, Fee Income Plummet

Feb 13 2009 | 3:55am ET

Och-Ziff Capital Management said yesterday that it posted a loss in the fourth quarter, but a much smaller one than a year earlier.

The New York hedge fund firm said its quarterly loss was $112.2 million, down from $774.6 million in the fourth quarter of 2007. While the firm’s revenue posted an equally stark decline, dropping for than 80% to $146.3 million—due mostly to the precipitous drop in incentive income to $6.7 million, just over 1% of last year’s total—Och-Ziff also managed to cut expenses, with compensation and benefits expenses falling 60%.

Plus, as one analyst pointed out during a conference call with the firm, its unusual high-water mark policy differs from other hedge funds, to its favor. While many hedge funds will be struggling to recoup last year’s losses for years, Och-Ziff’s high-water marks are only for one year, meaning that the firm will begin collection performance fees again next year even if the firm’s funds don’t reach their previous hights.

“That's a pretty big competitive advantage, because your employees know that next year there is incentive comp for sure in the cards,” Barclays Capital’s Roger Freeman said, referring to Och-Ziff’s ability to hold on to its talent.

Och-Ziff’s assets fell 19% in 2008 to $27 billion. The firm’s assets fell another $4.7 billion in January, undoubtedly greased by the fact that the firm fought the urge to suspended or limit redemptions. The decision “meaningfully impacted” its assets last year, founder Daniel Och said.

“It does appear that the redemption cycle is not yet over,” Och said. “We’re not immune to the impact of the ongoing industry-wide redemption cycle regardless of our performance.”

Performance last year was nothing to speak of, to be sure: The firm’s flagship OZ Master Fund fell by more than 15%. Still, it started the New Year on the right foot, rising 3.12% in January.


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