Och-Ziff Capital Management Group's assets under management totaled $43.2 billion as of March 31, down 5% from three months earlier and down 10.6% from a year earlier.
The alternative investment manager's earnings report, released Tuesday, said the $2.3 billion drop in assets under management during the quarter was driven by net outflows of $1.1 billion, distributions of $195.2 million and $1 billion of performance declines.
Daniel S. Och, chairman and CEO, said net outflows came primarily from the OZ Master Fund, “reflecting both cyclical and idiosyncratic headwinds. The first quarter was challenging for the hedge fund industry,” according to a transcript of Tuesday's earning call.
In the year ended March 31, assets managed in Och-Ziff's multistrategy hedge funds declined 18.8% to $27.5 billion. By contrast, the firm's credit strategies rose 12.4% to an aggregate $12.4 billion over the same time period. Growth in real estate funds over the 12-month period was a negligible 0.5% to $2.1 billion. Assets run in the company's “other” category of strategies declined 8.9% to $1.2 billion over the yearlong period.
Net-of-fees returns for Och-Ziff hedge funds in the three-months ended March 31 all were negative: the OZ Europe Master Fund was -2.4%; OZ Asia Master Fund, -3.2%; OZ Master Fund, -3.4%; Och-Ziff European Multi-Strategy UCITS Fund, -4.9%; and OZ Enhanced Master Fund, -5.8%.
“During the quarter the (hedge fund) industry experienced its worst net outflows since the second quarter of 2009 as weak performance and volatile market conditions caused investors to reduce their exposure to the industry,” Mr. Och explained to analysts on the earnings call, according to the transcript, adding that “some other identifiable factors affecting flows were investors rebalancing to maintain asset allocations or to achieve different risk-return profiles.”
One of those factors, he said, was a long-running federal investigation under the Foreign Corrupt Practices Act into allegations of bribery involving Libya's sovereign wealth fund.
Joel Frank, the firm's chief financial officer, addressed the issue during the earnings call, noting that Och-Ziff has entered into “discussions with the government, and we are moving forward toward the resolution of this matter” and has established a $200 million reserve fund for a potential settlement, according to the transcript. Mr. Frank added that the firm's management “believe 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.”
Mr. Frank also said the company has prepared for a settlement with the government by retaining first-quarter 2016 distributable earnings and will “assess any additional sources of capital that may be needed” when the final settlement amount is determined.
The exact timing of the settlement can't be predicted, Mr. Frank said, according to the call transcript.
Bloomberg contributed to this story.
