Och-Ziff Capital Management Group's assets under management fell 6.4% in the quarter and were 11.8% down in the year ended Sept. 30 to $39.3 billion, showed the firm's earnings report released Wednesday.
During the year ended Sept. 30, investment fund outflows totaled $5.5 billion, of which $3.4 billion occurred during the third quarter. Additional outflows of $2.5 billion occurred in the month of October, Och-Ziff's report said, noting that the firm's AUM fell a further 5.9% to $37 billion as of Nov. 1.
Och-Ziff's assets have declined 18.6% from peak assets of $48.3 billion as of March 31, 2015, said Joseph Snodgrass, a company spokesman, in an e-mail.
For the 12 months ended Sept. 30, fund outflows and other distributions totaling $6.3 billion were offset by investment gains of $1 billion, for net outflows of $5.3 billion.
The firm's flagship multistrategy hedge funds experienced an aggregate decline of 20.7% to $23.4 billion in the year ended Sept. 30, the highest among Och-Ziff's three primary investment strategy units, the earnings report said. Assets of the OZ Master Fund fell 18.6% to $19.8 billion; the OZ Asia Master Fund was down 10.4% to $1 billion; OZ Europe Master Fund declined 47.2% to $468 million; and the OZ Enhanced Master Fund dropped 26.1% to $825 million.
By contrast, Och-Ziff's credit-oriented and real estate funds in aggregate experienced net growth in the year ended Sept. 30. Opportunistic credit funds increased 8.6% in the year to total $5.3 billion; institutional credit strategies rose 2.9% to $7.3 billion; and real estate funds increased 5.2% to $2.1 billion.
Och-Ziff's announcement of high outflows comes on the heels of the company's $412 million in settlements with the U.S. Department of Justice and Securities and Exchange Commission on Sept. 29 relating to charges in connection with the Foreign Corrupt Practices Act. The company's earnings report outlined an agreement to purchase up to $400 million of Class A preferred units with some of Och-Ziff executive directors, including Daniel S. Och, chairman and CEO. Proceeds of the preferred unit sale were “used in part to pay the FCPA settlements,” the report said.
“These settlements ended the investigation of the firm without restricting our ability to invest on behalf of our clients. This is a deeply disappointing episode, but we have learned from this experience and have taken significant steps to strengthen the firm,” Mr. Och said during an analyst call Wednesday, according to a transcript.
Mr. Och also discussed on the analyst call the firm's communications post-settlement with its pension fund investors, which make up 38% of the firm's client base.
“Since we announced the investigation settlement in the late September, we've had a significant number of conversations with (limited partners) to explain the settlement, walk through the steps we've taken to transform the firm,” Mr. Och said, adding that “we believe this communication strategy has worked well and these conversations have been productive.”
Mr. Och indicated that the firm still expects redemptions in the final quarter of 2016 to “remain somewhat elevated,” admitting that “it is too early to tell (how high redemptions will be with) any specificity because a final notice period for the quarter expires on Dec. 1,” according to the transcript.
