Och-Ziff Capital Management Group is unlike most other hedge funds for a number of reasons. The most obvious: It is the only pure-play US-based publicly-traded hedge fund firm.
As a result, the company, which trades on the New York Stock Exchange, is required to disclose things like revenues and earnings every quarter, which most hedge fund managers have no interest in doing.
It also has chosen to disclose much more information about itself than other hedge funds. For example, it updates its performance every month in regulatory filings, a policy that recently publicly shamed Fortress Investment Group into doing the same as well. Fortress, also publicly-traded, manages hedge funds as well as other types of alternative investments, such as private equity and real estate.
So, it is interesting to learn from these filings and conference calls with investors that Och-Ziff has bucked another trend within the hedge fund industry.
It has very quietly been tying up more and more investor assets. Since the beginning of 2010, it has offered investors the opportunity to lock up their capital for three years in exchange for paying a lower management fee of 1.5 percent versus 2 percent for most everyone else.
In the third quarter — the first period it disclosed this relationship — 12 percent of its assets were locked up for three years. This share rose to 13 percent of the company’s $27.9 billion in assets by year-end. Under this arrangement, Och-Ziff accrues its incentive fee during the three-year period, but does not actually receive it until the fourth quarter of the third year, which is the December 2012 three-month period.
While this understates current earnings, it provides a boost at the end of 2012, which could come in handy if it is a bad year for hedge funds in general. Securities analysts like this policy. They call this sticky money, which in turn makes it easier for them to predict future earnings, which ultimately drive a stock’s price.
The lock-up money, however, has not really hurt the management fee, which has held steady at a blended 1.7 percent.
Och-Ziff has been able to convince investors to tie up their money, in part, because it was not among the scores of other funds that abruptly erected gates at the end of the 2008 or early 2009, preventing investors to withdraw their money after the global markets melted down. At the time many irate investors vowed, “Never Again!” But, apparently, they trust tying up their money with Och-Ziff for three years.
Och-Ziff is not the only hedge fund firm that has convinced investors to tie up their money for a few years. Maverick Capital, for example, gives investors a menu of different “commitments.”
Under Maverick’s long-standing policy, you can commit your money to the traditional one year and pay the standard 2 percent management fee and 20 percent performance fee, or, you can commit the capital for three years and pay 1.75 percent and 17.5 percent, or five years with the accompanying 1.50 percent and 15 percent fees.
These are not lock-ups because investors who commit to three or five years can withdraw their money as if they opted for the one-year policy. However, their fees would then be adjusted.
Currently, a vast majority of Maverick investors have committed their money for either three or five years. This paid off after 2008, when Maverick’s flagship fund was down about 26 percent. It saw less than 10 percent of its assets withdrawn, most from those who made one-year commitments, although most of those people did not leave.
Today, two-thirds of Maverick’s capital has been invested with the firm for 10 years or more.
