Sculptor Capital Management, Inc.
Q4 2017 Earnings Call Transcript

Published: 16 Feb 2018

[Operator:]

Good morning, everyone and welcome to OZ Management's Fourth Quarter and Full Year 2017 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Adam Willkomm, Head of Business Development and Shareholder Services at OZ Management.

[Adam Willkomm:]

Thanks Leandra. Good morning everyone and welcome to our call. Joining me are Dan Och, our Founder and Chairman; Robert Shafir, our Chief Executive Officer; and Alesia Haas, our Chief Financial Officer. Today’s call may include forward-looking statements, many of which are inherently uncertain and outside of our control. Before we get started, I need to remind you that OZ Management’s actual results may differ, possibly materially, from those indicated in these forward-looking statements. Please refer to our most recent SEC filings for a description of the risk factors that could affect our financial results, our business and other matters related to these statements. The company does not undertake any obligation to publicly update any forward-looking statements. During today's call we will be referring to economic income, distributable earnings, and other financial measures that are not prepared in accordance with U.S. GAAP. Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, which is posted on our website. No statements made during this call should be construed as an offer to purchase shares of the company or an interest in any of our funds or any other entity. Earlier this morning we reported fourth quarter 2017 GAAP net income of $7 million or $0.04 per basic and $0.03 per diluted Class A share. The full year GAAP net income was $18 million or $0.10 per basic and diluted Class A share. As always, you can find a full review of our GAAP results in our press release, which is available on our website. On an economic income basis, we reported fourth quarter 2017 distributable earnings of $149 million or $0.27 per adjusted Class A share. For the full year distributable earnings were $278 million or $0.51 per adjusted Class A share. We declared a $0.07 dividend for the fourth quarter. If you have any questions about the information provided in our press release or on our call this morning, please feel free to follow up with me. With that, let me now turn the call over to Dan.

[Dan Och:]

Thanks Adam, and good morning everyone. To start, I'd like to welcome our new CEO, Robert Shafir to his first earnings call with OZ. Rob joins us most recently from Credit Suisse where he served as Chairman and CEO of Credit Suisse Americas, and Co-Head of Private Banking and Wealth Management which included oversight of CS's $400 billion asset management business. Rob has more than 30 years of experience leading global financial institutions and asset management businesses, and I believe he will be a tremendous asset to OZ. I will remain Chairman through March 2019 and afterwards expect to remain involved with the firm. I am committed to ensuring a smooth transition of my leadership responsibilities to Rob and positioning the firm for future success. Lastly we recently announced some significant governance changes to the firm going forward. Over the next two years, OZ will transition to a more traditional corporate governance structure, where each share has equal volume power. With that, I would like to introduce you to Rob and turn the call over to him for a few words.

[Robert Shafir:]

Thanks Dan. Good morning, everyone. It’s a pleasure to join the call. While at Credit Suisse I had the opportunity to get to know OZ over the course of 15 years, it has given me a unique perspective on what I believe is a premier alternative asset manager. In the first few days at OZ, I’ve seen firsthand a confirmation of what I believed about the company from the outside looking in. Top-notch investment talent, a proven investment process that has worked over the last 24 years, an inclusive and collaborative culture, and an emphasis on compliance and risk management as pillars for success. I'm excited for the opportunity to lead this great firm that Dan and his partners built. I believe the future is bright for active managers specifically in the alternative space and feel that all the capabilities necessary succeed in this environment exist within the firm. As we look ahead to 2018, our priorities remain the same. To deliver strong investment returns, exceptional service to our clients, build our client pipeline to grow our assets under management, and prudently manage our total expenses and strengthen our balance sheet. With that I’ll turn it back over to Dan to discuss the fourth quarter and full year 2017 performance.

[Dan Och:]

Thanks Rob. We are extremely pleased with our investment performance over the past year. Our funds across multi strategy, credit real-estate all had very strong results in 2017, and we started up 2018 with the best January performance in the history of the OZ Master Fund. The OZ Master Fund our largest multi strategy fund returned 0.6% net for the quarter and 10.4% net for the full year 2017. We are pleased with the broad-based nature of the Master Fund's performance. Merger Arbitrage produced another strong year of results and we see a supportive environment for robust deal flow heading into this year. We are happy with the return on capital achieved by structured credit in 2017, and while we did see some legacy exposure a lot, we redeployed capital in what we believe are attractive opportunities. Corporate Credit is a similar story experiencing positive outcomes in a number of long-held restructuring positions while deploying capital opportunistically with a bias towards Europe. Our convertible and derivative arbitrage strategy is poised to take advantage of opportunities we see this year in Europe and Asia. In long short equity, a number of our largest positions played out according to plan and we have meaningfully adjusted the portfolio to reflect our best ideas for 2018. This year is off to a great start with the Master Fund posting a 3.5% net return for January. Opportunistic Credit continues to post strong returns. OZ CO our largest credit fund was up 2.8% net in the fourth quarter, 11% net for the full year. Similar to the credit commentary I've just shared, Structures and Corporate Credit demonstrated strong performance across all geographies in 2017 and we look forward to another strong year in 2018. In the fourth quarter we closed another CLO in the U.S. adding approximately $611million in assets. We had a strong year in 2017 closing over $6.1 billion in CLOs including new issues, resets and refinancing resulting in OZ being a top 10 issue of CLOs both in terms of size and number of deals according to credit flux. We achieved these results while delivering attractive returns to our CLO equity investors and a consistent institutional approach for our CLO debt investors. This momentum continues as we’ve already closed almost 1 billion CLOs in January, and expect to price a new U.S. CLO next week adding at excess of $500 million in exits. In real-estate we continue to deploy capital in our opportunistic and credit real estate funds while also realizing investments. In 2017, we invested over $200 million and had full or partial realizations of 21 investments at an average growth multiple in excess of 2.2. In total, we have committed approximately 60% of our third opportunistic real estate bond and 18% of our recently closed Real Estate Credit Fund. Now turning to flows. Our January 1, outflows continue to normalize. The outflows were primarily concentrated on multi-strategy fund. Multi-strategy outflows were approximately $500 million down over 33% from October 1, and significantly lower than the $3.7 billion this time last year. As we have said before, our primary focus is on building a pipeline of client mandates across all of our businesses and we believe that our strong performance should translate to in-flows, although we cannot pinpoint the timing. I am confident that Rob will add immediate value to our client engagement process given the debt of its client and product development experience. Finally, at this will be my last earnings call, I want to conclude with few thoughts. I am proud of the firm that my partners and I built over the last 24 years. I plan to do all I can to contribute - continue to contribute to the firm's success. Together with our deep bench of investment talent and infrastructure support, I believe we are well positioned for the future. Our entire firm is focused on building upon our strong 2017 performance and we are happy with our start in 2018. With that, let me turn the call over to Alesia.

[Alesia Haas:]

Thanks Dan. Throughout my year-over-year review, any comparison to 2016 results will exclude the impact of the settlement expense. I believe this will provide a more comparable view of our core operating results. Our 2017 revenues were $833 million, an increase of 14% compared to 2016 driven by our broad based fund performance which resulted in $528 million of incentive income, a $295 million increase from a year ago. This incentive income increase was offset by a decrease in management fees which were $299 million for full year 2017, $195 million lower than a year ago. The management fee decrease was driven primarily by our lower multi-strategy assets and lower average management fee rate. Other revenues were $5.7 million for 2017, up $3.7 million year-over-year driven primarily by interest income on our CLO investments. In addition to our strong incentive income crystallized in the fourth quarter of 2017, our fund performance led to an increase in our accrued unrecognized incentive generated from extended fee paying assets. As of year-end, our accrued unrecognized incentive was $437 million up $108 million year-over-year and $35 million quarter-over-quarter. As we've said before, with the exception of the balance associated with real estate and energy funds, the remainder of this balance has no associate compensation expense as this was paid in earlier periods. Now turning to our operating expenses. Our full-year total expenses including interest was $495 million down 6% year-over-year. Excluding our bonus expense, our full-year other operating expenses totaled $240 million down 23% year-over-year. As we look at the component of our fixed operating expenses, salaries and benefits for the year totaled $97 million down 13% from last year driven by lower headcount. Our 2017 non-compensation expenses including interest were $143 million down 28% year-over-year. Our expense initiatives have resulted in reductions in all of our non-compensation expense categories. Our total cash bonus expense for the year was $255 million which includes our minimum bonus accrued in prior periods. Our total cash bonus as a percent of incentive income was 48% in 2017 as compared to 94% in 2016. Our tax receivable agreement and other payables was 18% of economic income for the year. While on the subject of tax, I wanted to comment briefly on the Tax Cuts and Jobs Act. At a high level we do not expect any law to change the way to make investment or fundamentally change the way we do business. With regards to the financial impact, assuming no changes to our existing structure if the Tax Cuts and Jobs Act have been affected at the beginning of 2017, we estimate our pro forma distributable earnings would have been $0.54 per share which is $0.03 per share higher than our reported results of $0.51. As of now we have no plans to convert to a corporation. We want to fully evaluate the long-term consequences and will be taking our time to do so. Now turning to our guidance expectations for 2018. As Dan said earlier, we cannot pinpoint the timing with respect to net flow and our multi-strategy funds, and as such our guidance will focus primarily on component of our fixed operating expenses. We expect full year 2018 salaries and benefits to be between $90 million and $95 million. We expect full year minimum annual bonus accrual to be between $80 million and $90 million. We expect full-year non-compensation expenses to be between $100 million and $110 million excluding interest expense. With regard to our interest expense, we are unable to provide guidance at this time due to potential changes in the U.S. risk retention rules which could favorably impact our CLO business. We are optimistic that we may no longer be required to comply with the risk retention requirements of the U.S. risk retention rules. However, this will become more clear with time. We will continue to hold risk retentions for our European compliance CLOs. Our guidance for full year tax receivable agreement and other payables after taking into consideration the impact of tax reform discussed earlier is 10% to 15% of our economic income. As a reminder, estimates are subject to many variables that will be finalized until the fourth quarter of the year and therefore could vary materially from the estimates provided. We forecast our adjusted Class A share count as of March 31, 2018 to be approximately $537 million down 2.5% from December 31, 2017. This forecasted share count will include several actions including year-end 2017 share based incentive compensation and grants to executives. These actions will be more than offset by 30 million shares forfeited due to expected changes in senior management contracts. While [indiscernible] has the contractual right to receive these 30 million shares upon their forfeiture, he is disclaiming his right and instead intends to dedicate some or all of the shares for strategic hires and/or other business initiatives. All guidance reflects our best estimates at this time, as either estimates we intend to update these amounts quarterly as we move forward. Now an update on our balance sheet. We closed the year with approximately $470 million in cash, a $140 million increase as compared to 2016. We believe our strength and balance sheet leaves us better positioned for our near-term priorities of investing in new funds and reducing our debt obligations, while at the same time allowing us to return capital to shareholders through dividends. We continue to evaluate and position our balance sheet to afford us maximum flexibility to drive shareholder value over the long-term. As a reminder given the majority of our incentive income is not known until the fourth quarter, distributions in the first three quarters of 2018 will be modest and likely consistent with our 2017 levels. To summarize the year, we are proud of our investment performance in 2017 and the resulting strong incentive income earned. We've seen the end of settlement related redemptions and continue to see outflows normalize. We believe our investment performance is the leading driver in our ability to grow our assets under management, and we are actively engaging with our clients to this end. We've reduced our expenses across the Board and continue to be vigilant at identifying future opportunities to lower our fixed operating costs to close the gap between our management fees and our operating expenses. Our increased cash position and accrued unrecognized incentive balance leaves our economic balance sheet well-positioned to support our business. I want to personally welcome Rob to our team, and echo his comments that we have all the tools within the firm to build upon our 2017 success, and with his leadership we will strive for strong execution across our business priorities. With that, we will open the line up for questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Robert Lee with KBW. Your line is open.

[Robert Lee:]

First, Dan best of luck as you kind of move on to other things and Rob best of this luck as you take on more responsibilities. Maybe first question go a little bit to kind of how you think fund raising and kind of near-term priorities - understanding the goals to kind of build up the pipeline of mandates. But could you maybe update us, I mean you've had really good performance in a lot of credit strategies, real estate, maybe update us on where you are or do you think you're ready to go out and start raising some new dedicated funds and whether it's credit opportunities or other credit strategies?

[Robert Shafir:]

Absolutely. Look you know we're limited in terms of being able to speak about our specific funds for regulatory reasons, but let's take each of the categories. In real estate as you heard we are 60% invested in OZ real estate grade. We've always been clear that we have plans to continue to expand that platform, that performance continues to be very strong. Real Estate Credit was the first step in broadening our portfolio. We'll continue to do things that will include both the U.S. and Europe. On the multi-strategy fund, you've seen a substantial decline. On the outflow side we think outflows have clearly normalized and our performance has been extremely good and continues to be strong. We believe that flows in the multi-strategy funds will be determined by our performance, our engagement with clients and the things that we've always offered them, as well as flows to the sector. So we think we’re extremely well positioned within that sector as we continue to perform. We also believe that at the margin, greater volatility and uncertainty in markets tends to be better for flows into multi-strategy hedge funds. On the credit side, our CLO's its obviously a very robust environment for CLO issuance, and you can see that our position both in performance and market share is quite strong and we continue to - we plan continue to press that. And on the opportunistic credit side, once again another strong year and we plan to push there so that's our - but full speed ahead on all initiatives. 2017 the goal was perform, execute and get outflows to normalize and now the focus is on inflows.

[Robert Lee:]

And maybe Alesia I apologize if you went through this but can you update on us - is it still I assume the policy to try to accrue incentive comp kind of over the course of the years as you did last year. And then I'm assuming it is, but as part of that with - as you talked about the change in share count and the 30 million shares I guess coming back into the - I guess I’ll call it overall pool that you could use for other purposes. I'm assuming it was some other kind of comp you had to give up in lieu of that. Can you maybe just update us on kind of how we should be thinking about share count or compensation kind of. Over time I am assuming some of the vesting that was expected over time based on stock performance and what not for I guess [11] has also changed, I'm just trying to get a sense of, kind of what we should be expecting for comp accruals - incentive comp accruals and kind of share count migration over time?

[Alesia Haas:]

Let me break it apart into a number of components. So first the answer is yes, we continue to accrue a minimum discretionary bonus. The guidance that we provided for 2018 is between 80 million and 90 million for the full year 2018. And as a reminder that assumes that we do not have any performance or incentive income generation within the funds as that is the minimum. To the extent we have performance, we do anticipate a higher amount of discretionary bonus to be accrued in the fourth quarter but that is subject to the performance over the course of the year. During the first three quarters of the year, you will see an accrual in the range - run rate for $80 million to $90 million for the year. That includes all of the employees and all of the known factors of our employment agreements with our team today. With regards to the share count, as we share with you we are forecasting a short-term decline in our share count. As of year-end 2017 we are at 551 million adjusted Class A shares and we see that trending down to 537 million. As I noted in my remarks, this is based on an expectation that 30 million units are forfeited. However, these 30 million units are intended to be used over time for the purposes of strategic hires or other business initiatives. Specifically with regards to Jimmy, Jimmy is very committed to the firm and we're very excited to see Jimmy and Rob complementary skill sets work together. We are expecting Jimmy will be entering into a new employment arrangement they're more closely aligned to potential compensation with his co-CIO role and responsibilities. And importantly we believe that will strongly align his economic interest with that of our clients. One of the changes we expect in this employment arrangement is the forfeiture of these units that I referenced earlier. The economic terms of this agreement have been incorporated into the guidance expectations that we provided both in terms of our minimum discretionary bonus accrual and our share count, but you can expect that there could be a discretionary component in his employment arrangement again. So if there's performance we could expect a higher fourth quarter accrual.

[Robert Lee:]

I mean, I'm just curious - so the follow-up, their changed has lockup arrangement with his new agreement?

[Alesia Haas:]

As these are expected actions, I can't comment on all the specifics but we anticipate entering into an agreement in the near-term and full disclosure will follow.

[Operator:]

Your next question comes from the line of Gerald O'Hara with Jefferies. Your line is open.

[Gerald O'Hara:]

I guess maybe just starting on expense side, non-comp guidance was clearly favorable I guess for the year 100 to 110. And if you talk a little bit about some of the either continued initiatives or new initiatives that we do believe you can sort of get into that range? Thank you.

[Alesia Haas:]

So we’re continuing to be disciplined at overall expense management and there is no material one single item that is causing this decline in expenses. However, we have established very strong procurement practices and are looking at every material contract, every type of event and are finding opportunities to become more efficient in many of our processes. So we have seen broad-based reductions across the board in all of our major expense categories, none that rise to a specific item I can point to you but we are very proud of what we've been able to achieve in bringing down those fixed expensive and getting us to a more efficient cost structure.

[Gerald O'Hara:]

And then maybe just as a follow-up, I heard your prepared remarks on - can change your value rate - with respect to the C-Corp conversion and no immediate plans. But just kind of curious if you had done any work over 2017 and maybe looking on a pro forma basis what that may have looked like had you been in a different structure?

[Alesia Haas:]

We have. So we did evaluate what we would look like if the Tax Cuts and Jobs Act, and we had converted to a C-Corp at the beginning of 2017 what that would look like for full year 2017 results. And when we evaluate that due to our tax receivable agreement, if we model this scenario our tax receivable agreement and other payables would have increased to 25% of economic income up from 18% as compared - which was our actual. And our distributable earnings would have been $0.46 per share or $0.05 lower than our reported results.

[Operator:]

Your next question comes from the line of Mike Carrier with Bank of America. Your line is open.

[Mike Carrier:]

I guess just a question on the balance sheet and capital strategy going forward. Alesia I think you mentioned in terms of the payout in 2018 similar either to 2017 at least for the first three quarters. But just bigger picture, when we look at the cash build on the balance sheet what you do guys need to say manage the business, what's the goal in terms of maybe like net leverage. I mean in longer term when we think about cash generation. How much is going to be needed for to say the business versus ultimately what could we - you expect as maybe a normalized payout longer-term?

[Alesia Haas:]

So the business needs are evolving. One of the things I mentioned earlier was the excepted changes around CLO risk potentials and we are waiting for further information on that front. However, as we said in the past, our current top priority as we use our distributable earnings to strengthen our balance sheet and after that we will be evaluating increased dividends or share repurchases based on what we believe is in the best long-term interest of our shareholders. We are currently positioning our balance sheet to have flexibility and increase optionality vis-à-vis our 2019 debt maturity.

[Mike Carrier:]

And then Rob just as you’re taking on the new role, I guess just giving your background and given how OZ is positioned. Just what are you going to be focused on over the next one to two years as you kind of use your kind of experience and contacts to benefit the firm?

[Robert Shafir:]

Well, I think one of the things Dan said earlier was sort of the outlook to the industry and I do think that as I look forward I think that the possibility of interest in alternative asset management products might actually pick up in a perhaps rising interest rate and higher volatility environment. So I think we’re reasonably well positioned given our investment capabilities and so forth there. But I think bigger picture, we really want to focus on our core competencies through our multi-strat products and our credit products and real estate products. And one of the things that I want to make sure of is that we’re really emphasizing the core and frankly in some ways deemphasizing things that are periphery and making sure that we maintain our global capabilities on behalf of our institutional clients. So I think big picture it is essentially embracing the strength of the firm and making sure those pieces work effectively together as we grow in our powerhouse strength here. And also building on to the adjacencies of those businesses an example might be where Dan talked about the real estate credit business. We have a very good high performing real estate private equity business a logical extension of that is to build a credit product. So looking for those types of opportunities where there is client interest and we have core competency are going to be the kind of things that we look to build alongside growing on our core respective products. I think the other side of this is obviously the clients. We have a lot of deep institutional relationships, some of those relationships have been put on hold post the settlement and I think the good news is we’ve had very strong investment performance. And in my experience over time as we distance ourselves from some of the past noise, you know one of our objectives is really going to be to turn that interest back into growth with those respective clients. So I think it’s about doing more on a strategic basis with our clients and focusing really where are core competencies are in terms of where we can deliver value to those clients.

[Operator:]

Your next question comes from the line of Ken Worthington with JPMorgan. Your line is open.

[Ken Worthington:]

Just there was a note in the release about talks of new GAAP recognition accounting principles for incentive income. And the comment was that Och-Ziff would adopt these. How is that going to change how you’re recognized or how we should view our incentive income being recognized on the income statement? Thanks.

[Alesia Haas:]

There will be no change to our open-end funds and our recognition of what we consider our annual incentive income generation. However we are expecting a change to the way we recognize incentive around our extended fee paying assets so specifically our accrued but unrecognized incentive amount. There will be an acceleration of these amounts and we’ll make in the first quarter technically our January 1, 2018 adjustments to our GAAP retained earnings to account for the changes in the revenue recognition standards. This will predominantly affect our closed end funds and more specifically our real estate funds. And we are expecting to recognize a fairly material amount likely greater than $100 million of that accrued but unrecognized incentive coming into January 1 adjustment. As you recall there is compensation due on these amounts and so from a economic income basis we will be reporting a net amount of this accelerated revenue less of associated compensation expense with it. And that is the only material change coming from the accounting standard.

[Ken Worthington:]

And then just on real estate, you mentioned in the prepared remarks I think Dan mentioned as well in his prepared remarks the real estate fund is 60% invested. Going back to the first two at what level of invested capital did OZ kind of go back to the market to start fundraising the next funds, mix real estate funds?

[Robert Shafir:]

There are contractual guidelines that are similar to other funds and it's been around those levels, I'm not evading the number but I think around 75% tends to be the contractual guideline.

[Operator:]

Your next question comes from the line of Bill Katz with Citigroup. Your line is open.

[Bill Katz:]

Dan and Rob congratulations to both you as well, I'm looking forward to also working with you Rob. So just coming back Alesia perhaps on the share count again one more time I apologize. So the 30 million forfeiture is this the P units that are outstanding or there is something else going on. And then is there a way to baseline the potential pickup in the incentive compensation maybe relative to 2017 with the guidepost as a partial offset?

[Alesia Haas:]

Can you repeat the second half of your question, I can answer the P unit part but I want to clarify your question on the second half with regards to the incentive income?

[Bill Katz:]

It sounded like there maybe - as a partial offset to Rob's question I think you responded that there could be a little more discretionary bonuses paid associated with this realignment just trying to gauge what that might be?

[Alesia Haas:]

The 30 million units getting up to 537 million units, these are our adjusted Class A shares. As you recall, we do not count our P unit or our performance shares in our adjusted Class A shares until the two performance - the dual triggers are considered with both the service period and the performance condition. So at this point in time that 30 million unit is nothing related to our performance shares. As I said these are forecast and these are our expectations so with regard to the incentive compensation, there is going to be a shift to align Jimmy that we expect more closely to fund performance that will be discretionary based on the fund performance. And while we have captured all elements of a minimum bonus accrual depending on how the performance of the fund goes there could be a higher bonus paid in the fourth quarter.

[Bill Katz:]

And then just couple of follow-ups. On the interest expense is there any way to tease out sort of what the interest expense is to support the core operations of the business versus any kind of funding that maybe associated with the CLO's?

[Alesia Haas:]

So the interest expense at this point in time associated with our bond this 4.5% on the $400 million balance which is roughly $18 million per year of run rate interest expense associated with the bonds. Anything and above that is related to our CLO business which is more than offset by interest income that is reported in the other revenue line.

[Bill Katz:]

And just one final one thanks for taking all the questions. Just in terms of the balance sheet you mentioned that as the fourth priority overall earlier. How should we think about, you said you point to 2019 events, so is it just a cash flow build on the balance sheet between now and then net of some modest distributions through now and the end of the year or there anything else you might be able to do to rationalize the balance sheet?

[Alesia Haas:]

We continue to evaluate all opportunities available to us and have discussions with the Board on what is the best use of our cash in terms of creating long-term shareholder value. Predominately the focus is on investing in new businesses looking at ways to reduce our debt obligations and returning capital to shareholders. Those are the three primary uses of cash in addition to general working capital needs.

[Operator:]

Your next question comes from the line of Patrick Davitt with Autonomous Research. Your line is open.

[Patrick Davitt:]

So could you speak maybe how client conversations evolve through all the negative press over the last couple of months, I think you guys did a good job of getting in front of it. But just wondering if there's a concern about that derailing the positive trend in redemptions?

[Dan Och:]

Our goal there was to get to the right place and we felt on bringing in a world class CEO, my continuing as Chairman and staying relative focus on the success and Jimmy is staying in his role was not only the best combination but that was going to be a powerful combination. And we got there and that's the key and that’s what clients are focused on. Obviously the press was there and we dealt with it but the key was to get to the right place and we’re there.

[Patrick Davitt:]

And then people are starting to worry about credit again and in particular with the view that risk is increasingly on the alternative side not at banks. Can you speak to your views on that and maybe what you're seeing in your own portfolios?

[Robert Shafir:]

Our performance continues to be very strong at the margin volatility and perception of risk has always created the best environment for almost all Och-Ziff products. So we feel very good about our credit exposure performance, all other issues across the credit products.

[Operator:]

And your next question comes from the line of Jonathan Casteleyn with Hedgeye. Your line is open.

[Jonathan Casteleyn:]

I wondered if you could talk about the CLO business in a rising rate environment i.e. one from a performance standpoint, and two from a forward issuance standpoint just because it's been a big driver of AUM recently at the firm?

[Robert Shafir:]

CLO issuance overall is robust. So I think we’re doing very well in a very good opportunity, we’re not the only ones doing well there. With CLOs the key is first of all the proper matching of assets and liabilities, timing on that and you heard what credit products has as both in terms of performance on the equity and debt side, as well as issuance. And I think the team shown that they have been quite capable and strong in those areas. We will continue to do that opportunistically. While our rising rate environment is not necessarily good or bad for CLO issuance, the key is what is the opportunity on the asset side and liability side, and do people think that we’re amongst the best to figuring that out, and so as long as we keep doing we think issuance will remain strong.

[Jonathan Casteleyn:]

And then secondly I know a lot of people try and spend time understanding what your monthly performance maybe. I'm just curious if you can talk to the attributes or the variables that may go into understanding month-to-month how your multi-strat performance will shake out?

[Dan Och:]

Well, the multi-strat, multi-strat performance is always a combination of the performance in different sectors and different geographies. So, you’re asking about what the components are, you're asking what factors would influence that.

[Jonathan Casteleyn:]

I think a lot of people spend time in intra month trying to figure out you know is Och is going to print positive or negative performance in multi-strat. I know it's still a lot going into it I’m just curious if you can sort outline to people how you think about on the 31st or 30th day of the month, how your performance shakes out and what variables are most important intra month for people to try and understand?

[Robert Shafir:]

Look we don't comment on intra month performance but we do pride ourselves in the ability to protect capital in down markets. We had conservative position in 2017, and we were positioned for volatility.

[Operator:]

I'm not showing any further questions. I will now turn the call over to Mr. Willkomm.

[Adam Willkomm:]

Thanks Leandra. Thank you everyone for joining us today and for your interest in OZ Management. If you have any questions please don't hesitate to contact me at 212-719-7381 Media inquiries should be directed to Jonathan Gasthalter at 212-257-4170. Thanks very much.

[Operator:]

This concludes today's conference call. You may now disconnect.