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Securities & investment banking

Och-Ziff’s IPO breeds $915m loss

26 Feb 2008 updated at 23:55

Even as assets under management increased, hedge fund manager Och-Ziff Capital Management’s initial public offering in November produced expenses that led to a net loss of $915m (€613.2m) for 2007, according to generally accepted accounting principles.

The company’s IPO produced $3.3bn in expenses stemming from a reorganization of the business. However, the hedge fund manager’s revenues rose to $1.5bn in 2007 compared with $1bn in 2006.
There was also a cash payment of $750m to pre-flotation owners in the third quarter.
The company increased its staff by 46% to nearly 400 people globally compared to 267 at the end of 2006, in a reflection of the fund manager’s growth and compensation expenses rose 16% to $214.7m over the same time period. It expects to add more staff this year.
Assets under management rose 48% to $33.4bn for the year, with fund of hedge funds making up the majority of investors followed by foundations. Inflows increased 84% into its Europe Master Fund to $6.4bn. Inflows to its flagship Master Fund rose 28% to nearly $20bn.
Its Master Fund performance was up 11.5% compared with 5.5% from the S&P 500 Index. Daniel Och, Och-Ziff chief executive, said the company had benefited by minimizing leverage and staying away from investment vehicles tied to the sub-prime mortgage market. It also reduced its exposure to merger and arbitration strategies when deal volumes began to decline.
The hedge fund manager re-invested $1.6bn in proceeds from its offering and share sale to Dubai International Capital, mainly in its Global Special Investments Master Fund.
Dubai International Capital, the private equity firm of Dubai’s ruler, Sheik Mohammed bin Rashid al-Maktoum, purchased a 9.9% stake in Och Ziff for over $1bn in October.
The company has used joint ventures to boost its presence in emerging markets. It announced a joint venture with a partner based in Africa to target investments in mining and oil and gas exploration last month. It has a joint venture focused on real estate in India, and is investing in distressed loans and mortgages as well as alternative energy.
Och said: “Our results also reflect the benefits of the diversification of our strategy and well-established global presence, which we have been cultivating for a number of years. We believe that we can accelerate our growth through the continued expansion of our private investment platforms and private portfolio, which we expect to become meaningful contributors to our earnings power over time.”
Och-Ziff’s share price has declined since the day it started trading. Its fourth quarter earnings received a positive reception. Its share price closed Tuesday at $22.70, which is $9.30 less than its initial price of $32.00.

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