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Och-Ziff Profit Drops Amid Lower Incentive Income

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Och-Ziff Capital Management Group LLC (NYSE:OZM) unveiled its third-quarter results today with profit falling 10% on the back of lower performance fees and higher compensation and taxes. The New York-based hedge fund’s assets under management were $46.8 billion as of Sept. 30, as compared with $40.2 billion a year earlier.

Growth in management-fee revenue

Och-Ziff Capital Management Group LLC (NYSE:OZM) reported a profit of $23.2 million, or 9 cents a Class A a share, down from $28.9 million, or 15 cents a share, a year earlier. The hedge fund’s total revenue grew 9.3% to $306.7 million.

The institutional alternative asset manager’s revenue from management fees grew 22% to $171.9 million, and the income of consolidated Och-Ziff funds increased 60% to $106.5 million.

The hedge fund’s distributable profit, a measure excluding some costs pertaining to Och-Ziff’s 2007 initial public offering, dropped to $116.7 million, or 23 cents a share, from $130.3 million, or 27 cents, a year earlier.

The hedge fund’s incentive income, which is tied to how well the firm’s funds perform, dropped 61% to $28 million, partly offset by a 22% increase in management fees, which rise or fall with the amount of money overseen.

Daniel Och, who runs the hedge fund, said in a statement: “We continued to grow the assets in our dedicated credit, real estate and long-short equity products.” He added: “We believe that we are benefiting from the secular trend of the largest investors increasing their allocations to leading alternative asset managers across multiple asset classes.”

Och-Ziff’s negative flow in October

Tracking the hedge fund’s third-quarter performance, RBC Capital Markets said in today’s research report that the hedge fund continues to generate positive net flows in the third quarter, though flows turned negative in October.

The RBC analysts note that Och-Ziff Capital Management Group LLC (NYSE:OZM)’s top line growth of 9% exceeded their expectation. However, they point out that the hedge fund’s management fee revenues grew at a lower pace than their expectations. The analysts also pointed out that Och-Ziff’s incentive income of $60.5 million in the September quarter effortlessly exceeded their expectations. The analysts highlighted also that the hedge fund’s management fee revenues grew at a slower pace than assets under management.

The RBC analysts point out additionally that the hedge fund’s October performance numbers are not as good as compared to the year-ago results. However, the analysts note that the net flows of $5.4 billion year to date through October are the best they have seen they started tracking flows in 2009.

The RBC analysts have assigned an Outperform rating on Och-Ziff Capital Management Group LLC (NYSE:OZM).

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