The Morning Brief: Och-Ziff Assets Plunge by $2 Billion in a Month

The bleeding continues at Och-Ziff Capital Management Group, even after the hedge fund giant settled bribery charges with the government. Total assets under management fell from $39.3 billion as of September 30 to $37 billion on November 1, the firm said in its latest quarterly earnings report. If you take into consideration that its main multistrategy fund was profitable in October, the decline in AUM is closer to $3 billion in the past month alone. In the 12-month period ending in September, AUM declined 12 percent, mostly due to net outflows from the firm’s multistrategy funds. Assets under management in the credit, real estate, and other single-strategy funds totaled $15.9 billion, accounting for 41 percent of assets under management as of September 30. These assets rose 5 percent year-over-year. Och-Ziff, one of the only publicly traded hedge fund firms, also said it did not declare a dividend for the third quarter.

One piece of good news: Third-quarter distributable earnings, excluding adjustments related to taxes and the bribery settlement, came in at $51.9 million, or 10 cents a share. Although this is sharply down from a year ago, the earnings still came in above expectations. The stock, which earlier in the day was up more than 3 percent, closed Wednesday down 2.24 percent, at $3.05. This is down 30 percent since the end of September and down 77 percent from its high in May 2015.

As for its multistrategy funds, the firm’s flagship OZ Master Fund rose 0.59 percent in October, boosting its gains for the year to 1.66 percent. The OZ Europe Master Fund gained 0.53 percent last month and is up 1.71 percent for the year. However, the OZ Asia Master Fund lost 0.65 percent in October and is now down 4.03 percent for the year.

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Kentucky Retirement Systems is the latest pension fund to reduce its commitment to hedge funds. The state investment fund plans to yank at least $800 million out of the $1.5 billion it has committed to the asset class, according to a Wall Street Journal report, citing interim executive director David Eager. Kentucky is the latest among a growing list of pension funds to redeem assets from their hedge fund holdings, including Rhode Island, New Jersey, New York City and Calpers.

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Kentucky plans to redeem $600 million from hedge funds by July and the other $200 million by July 2019. The proposal must be approved at the next full board meeting on December 1. According to the Journal report, Kentucky Retirement Systems’ hedge-fund portfolio has lagged other asset classes. Its portfolio of hedge funds generated a five-year annualized return of 3.93 percent, compared with 5.14 percent for equities and 4.74 percent for fixed income. State insurance money generated a 3.91 percent annualized return from its hedge funds, compared with 5.18 percent for equities and 4.41 percent for fixed income. At the end of June, Kentucky had investments with 16 hedge funds, including funds offered by Coatue Management, Davidson Kempner Capital Management, Glenview Capital Management, Jana Partners, and Magnetar Capital.

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Activist hedge fund Blue Harbour Group gained 0.80 percent in October, boosting its gains for the year to 8 percent. This compares with a gain of 2.5 percent for the Russell 2000, its targeted benchmark. The $3.5 billion activist hedge fund firm, led by Cliff Robbins, focuses on small and midcap North American companies. This year’s gains have been driven by BWX Technologies, which in July completed the spin-off of its Power Generation business on Blue Harbour’s recommendation. BWX is the sole manufacturer of naval nuclear reactors for submarines and aircraft carriers. Blue Harbour also made money this year from Rackspace, which agreed to be acquired by Apollo Global Management, and Progressive Waste, which was acquired by Waste Connections.

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Shares of hedge fund favorite Valeant Pharmaceuticals International fell another 11.5 percent, to close at $21.12.

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