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Hedge Funds

Och-Ziff about-face illustrates succession challenges at hedge fund firms

Daniel S. Och, chairman and chief executive officer of Och-Ziff Capital Management Group

Dan Och's note to clients two days before Christmas, telling them that star trader Jimmy Levin wasn't going to get the top job at Och-Ziff Capital Management Group after all, shows how tough succession can be at hedge funds.

Mr. Och, who founded Och-Ziff more than two decades ago and is still its CEO, told clients he had changed his mind about Mr. Levin and would seek a successor from the outside, according to people familiar with the firm, who asked not to be identified because the information is private.

Mr. Och, 56, said in the note that after conferring with the board, he decided it wasn't the right time for Mr. Levin, 34, to take over, according to the sources. He added he hoped Mr. Levin would remain co-chief investment officer. Mr. Och didn't give a reason for his change in thinking. He shocked Wall Street in February when he promoted Mr. Levin and awarded him an incentive package worth as much as $280 million.

Succession an issue at several firms

Several hedge fund founders have been vexed recently with succession planning, a process that can be disruptive to clients and staff. Mr. Levin's rapid rise upset some people at the firm, and a few executives have departed.

In March, billionaire Ray Dalio, who started Bridgewater Associates in 1975, announced the second shakeup within a year at the top ranks of his $160 billion firm. Israel Englander, chief of Millennium Management, was caught off guard in January when his potential successor abruptly resigned with plans to start a competitor. George Soros and Seth Klarman also have struggled to prepare the next generation of leadership at their firms.

Mr. Och founded the hedge fund with $100 million from the Ziff brothers, the publishing scions, and built it into a behemoth with almost $50 billion at its 2015 peak. Then came a U.S. probe into bribery in Africa that ended last year with a unit of Och-Ziff pleading guilty to a conspiracy charge as part of a settlement that included a $412 million criminal penalty. The firm's assets now stand at $32.2 billion after client redemptions.

"It's not worth spending time wallowing," Mr. Levin said in a July interview. "It's definitely been a challenging time, but to move forward we're just focused on what we can influence, and that's our investing."

The firm's main fund returned 9.9% this year through November. Even so, in the first three quarters, clients pulled a net $8.2 billion from its multistrategy funds, which account for almost half of Och-Ziff's assets. The company's stock price has plummeted about 20% this year. A spokesman for Och-Ziff declined to comment.