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Morning Brief: Och-Ziff Reports $7.6 billion in Withdrawals

The firm experienced more redemptions over its settled bribery charges despite solid performance from its flagship multistrategy fund.

  • By Stephen Taub

Och-Ziff Capital Management’s woes continue. The embattled multistrategy hedge fund firm said it experienced a total of $7.6 billion in withdrawals from all of its funds in 2017, according to the firm’s fourth-quarter earnings report. Including performance gains, company-wide assets fell 14.5 percent, to $32.4 billion, as of year-end. Assets in Och-Ziff’s flagship multistrategy funds, however, fell 35 percent — to $13.7 billion — driven in large part by $9.2 billion in net capital outflows, primarily from the OZ Master Fund, the company’s largest multistrategy fund. Performance-related appreciation amounted to $1.8 billion.

“The company’s multi-strategy funds experienced elevated redemptions during 2017 driven in part by the investigation matter,” Och-Ziff stated in its fourth-quarter report, published on Friday, referring to the company’s eventual settlement of bribery charges that plagued the firm for several years. The rash of redemptions came even as the OZ Master Fund posted a 10.4 percent gain last year, making it one of the better-performing multistrategy funds. Its gains were driven by merger arbitrage, structured credit, corporate credit, long-short equity, and special situations, according to the company. It suffered a “modest loss” from convertible and derivative arbitrage, according to the report.

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JANA Partners identified its newest activist target. In a fresh 13D filing, the hedge fund firm headed by Barry Rosenstein disclosed it owns 7.3 percent of fast food chain Jack in the Box, asserting it believes the shares are undervalued and represent an attractive investment opportunity. JANA also said it had held discussions with the company regarding its capital structure, margins, capital allocation, franchise mix, and operations and may have further discussions that may also include governance and board composition.

JANA also said it may take additional steps in the future, although it did not get specific. JANA initially took a position in the stock in the third quarter and reduced its position in the fourth quarter. However, it has been aggressively buying shares since the beginning of January. Shares of Jack in the Box surged 7 percent on Friday, to close at $91.60.

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Shares of Avis Budget Group jumped more than 3 percent on Friday, to close at $40.02, after SRS Investment Management launched a proxy fight with the car rental giant. The hedge fund firm headed by Tiger Global Management alum Karthik Sarma said it has nominated five individuals as directors to the Avis Board at the company’s 2018 annual meeting. SRS owns a 31 percent economic interest in Avis and has been the largest stockholder for the past seven years. It also currently has two representatives on the board.

In a press release, SRS says it is the only hedge fund that has remained the largest investor in any Fortune 500 company for the past seven years. “Over the past two years, through its representation on the board, SRS has engaged more closely with the Avis management team and non-SRS representatives of the board,” SRS stated in the press release. “Although this additional involvement has strengthened SRS’s belief in the great long-term value of the business, it also has made clear that the company cannot achieve its full potential under the stewardship of the current Legacy Board.”

In a press release, Leonard Coleman, lead independent director of Avis Budget Group, said he is disappointed that the company will be engaged in a “costly and distracting” proxy fight. “As SRS knows firsthand through its existing Board representation, the Avis Budget Group Board is highly focused on maximizing stockholder value and has provided effective oversight of the management team as it has successfully led the company through multiple market cycles and positioned it well for the future,” he said in the release.

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