Sculptor Capital Management Inc (SCU) 2008 Q4 法說會逐字稿

Good morning, everyone, and welcome to Och-Ziff Capital Management Group's 2008 fourth-quarter and full-year earnings conference call. My name is Francis and I will be your coordinator for today. At this time all participants are in listen-only mode. All lines have been placed on mute to prevent any background noise. (Operator Instructions). I would now like to turn the call over to Ms. Tina Madon, Head of Investor Relations.

Great. Thanks, Francis. Good morning, everyone, and we appreciate you joining us today. With me are Dan Och, our Chairman and CEO, and Joel Frank, our Chief Financial Officer. Dan will review our fourth-quarter and full-year 2008 business results and address our 2009 priority. Joel will then take you through the details of our financials. After that we will take your questions.

I'd like to remind you that today's call may include forward-looking statements. These statements reflect the current views of management with respect to, among other things, future events and financial performance, many of which by their nature are inherent, uncertain and out of our control. Actual results and financial conditions may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

The Company does not undertake any obligation to publicly update or revise any forward-looking statement whether as a result of new information, future developments or otherwise. During today's call we will be referring to certain financial measures not prepared in accordance with US Generally Accepted Accounting Principles. A reconciliation of our non-GAAP measures to the most directly comparable GAAP measures is available in our earnings release which is posted on the for shareholders page of our website.

Furthermore, no statements made during this call should be construed as an offer to purchase shares or an interest in any Och-Ziff fund. Today's call is being recorded and is copyrighted material of Och-Ziff Capital Management Group LLC. Telephonic and webcast replays will be made available later today; you can find the details for both on our website at www.OZcap.com. Now let me turn the call over to Dan.

Thank you, Tina. Good morning, everyone, and thank you for joining our call. As we embark on our second year as a public company we want to thank you for your continued interest in us and we remain committed to building a long-standing relationship with the investment community. As Tina mentioned, I'll briefly update you on our 2008 fourth-quarter and full-year results. I'll also address our areas of focus in 2009 against the backdrop of what continues to be a challenging environment.

There's no question that 2008 was one of the most difficult years in decades for the global financial markets with particularly harsh conditions in the third and fourth quarters. As you are all aware, the impact on the hedge fund industry has been significant and has resulted in a substantial reduction in overall assets.

While we're not immune to these factors we see a significant differentiation occurring amongst players in the hedge fund industry. This began prior to the financial crisis and has broadened and accelerated due to the events that have occurred over the last 18 months. Although assets have depreciated across the industry, of potentially greater importance is the degree of differentiation that larger institutionally oriented firms, like ours, have been able to and continue to achieve due to their structure and the way they manage their business.

In our business the following elements have always defined us and have been central to our model -- investment strategies that are not based on extensive beverage; a disciplined focus on the capital preservation; generating returns without concentrated directional debts; active risk management of market exposures; transparency in our communication with and disclosures to our fund investors; and a strong institutional orientation with the appropriate scale and infrastructure.

These elements were integral to how we navigated such tough market conditions last year and maintained a strong alignment with our fund investors. The consistency of our approach throughout 2008 meant that we were able to focus on maintaining our core business rather than reinventing our model to adapt to the rapidly changing operating environment. This is a point of pride for our firm and we view it as another key element of what so positively differentiates us within our industry.

We are optimistic about the investment opportunities we are seeing and our ability to generate high-quality risk-adjusted returns for our fund investors. We believe the opportunity set for new investment ideas is more compelling than it has been in many years.

We also see a competitive landscape that has shifted in our favor. Two years ago there was nearly $2 trillion of capital committed to hedge funds levered between 3 and 5 to 1 on average. Now total committed capital is closer to $1 trillion with substantially less leverage. Additionally, two years ago the proprietary trading desks at commercial and investment banks were extremely active and competitive. Today for obvious reasons they are much less active and will likely be so for some time.

Both the expanding opportunity set and the changing competitive landscape are positive factors for our fund investors. We believe that Och-Ziff is uniquely positioned to capitalize on these developments and gain market share as institutional investors begin to reallocate capital.

With this in mind our objectives for 2009 are threefold. First, to create the best value for our fund investors by being intensely focused on generating investment performance while also protecting capital. Second, to make continued investments in our private platforms both to grow those that we highlighted last year as well as to establish new platforms where we see opportunity. And third, to focus on bringing in new capital to all of our portfolios.

Now let me turn to our fourth-quarter and full-year 2008 business results beginning with assets under management. As of January 1st of this year our assets under management totaled $22.1 billion which included $4.9 billion of December redemptions paid in January. These redemptions reflected a sharp uptick in investor demand globally to rebalance or reduce exposures to the equity markets and to alternative managers in response to the difficult environment.

We believe our redemptions were also meaningfully impacted by the fact that many hedge funds imposed gates, suspended or froze redemptions or otherwise restricted access to investor capital. We provided and continue to provide liquidity to our fund investors in accordance with the predefined terms of our funds.

At this juncture we believe that the industry wide redemption cycle is not yet over. In light of market conditions that remain unstable globally, we believe institutional investors will have continued liquidity needs and will consequently reduce their exposures further.

As I have said before, regardless of our performance we are not immune to additional redemptions from our funds. However, our discussions with fund investors are still extremely positive and we believe that they will continue to put capital with firms like ours who are consistent in their adherence to the liquidity terms of their funds.

While the fact that we provided liquidity to our investors may adversely affect us in the short term, we believe it creates an important competitive distinction in the long term and will be integral to attracting new capital across all of our portfolios.

Now let me turn to our fund's investment performance. For the full year through December 31st, our Master Fund was down 15.9% net; our European Master Fund down 17.4%; our Asian Master Fund was down 30.9%; and our global special investments Master Fund down 8.3% net. This performance was driven primarily by the declines we experienced in all of our funds from September through December of last year.

However, on a full-year basis we significantly outperformed major markets worldwide. In 2008, as you are all no doubt aware, the S&P 500 was down 37%; the FTSE down 28%; the Nikkei down 41%; and the Hang Seng index down 46%.

In January, despite meaningful declines in these markets, we continued to outperform. For the month our Master Fund was up 3.1% net; our European Master Fund up 1.1% net; our Asian Master Fund up 2.5% net; and our global special investments Master Fund was up 0.8% net.

Nevertheless we do want to remind you that we enter 2009 with high water marks which means we are obligated to make our fund investors whole for the full amount of the negative investment performance in our funds in 2008 before we begin to earn incentive income this year. With this in mind our focus in 2009 will be generating strong investment performance as it has always been throughout our 15-year history.

While our fund's returns are influenced by the macro environment we are intensely focused on pursuing the investment opportunities we think are the most compelling. Some examples of these opportunities are -- credit instruments such as structured products and distressed debt; equity financing prospects in industry sectors that require recapitalization; convertible arbitrage given the substantial price depreciation that has occurred and convertible bonds; and financing related to real estate transactions.

We are very active in all of these areas. We will continue to make investments and deploy capital as opportunities arise. We will continue to be very patient and thoughtful in our approach. I want to remind you that we have a long history of generating strong performance which is why we are excited about the investment opportunity set we see, especially in the context of, as I mentioned earlier, a competitive landscape we believe is shifting in our fund investors' favor.

Our long-term growth strategies remain intact including the build out of the private investment platform and the initiation of new platforms where we see opportunity. For example, we hired four senior real estate professionals in Asia at the end of last year who will be located in Singapore, China, India and Hong Kong. In partnership with us they will build a leading platform which will invest in real estate and related securities throughout Asia and the Pacific.

We continue to believe that these platforms represent compelling investment opportunities, perhaps even more so now than when we began talking about them a year ago. As a reminder, the areas we have been focusing on are energy and alternative energy, real estate, emerging markets, African natural resources and our subprime mortgage servicer. We believe that our ability to identify and act quickly on opportunities such as these is and will continue to be a strategic advantage for us as markets recover globally. Now let me hand the call over to Joel who will take you through our financial results.

Thanks, Dan. Today I will review our fourth-quarter and full-year 2008 results and also give you some perspective on how we are thinking about 2009. For the full year 2008 we reported a GAAP net loss of $511 million or $6.86 per basic and diluted Class A share. For your reference, a discussion of our GAAP results is contained in our press release.

Now let's turn to economic income and distributable earnings. As I mentioned in prior earnings calls, we ease economic income to measure the pretax operating performance of our core business and distributable earnings to measure the after-tax performance of this business and to help us determine the earnings available for distribution to shareholders.

Now let me review the components of economic income starting with revenues. Full year 2008 total revenues were $587 million, a 48% decline from the prior year. The primary driver of the decline in total revenues was the reduction in incentive income in 2008 due to the negative investment performance across all our funds. We crystallize incentive income annually on the last day of the year.

Full year 2008 management fees were $571 million, up 20% from the prior year driven by higher average assets in 2008 as compared to 2007 due to the timing of capital flows in both periods. Fourth quarter 2008 management fees were $133 million, down 10% from the third quarter due to the $2.8 billion increase in assets under management from July 1st to October 1st. The decrease in assets resulted from both performance related asset depreciation of $2.5 billion and third-quarter net outflows of approximately $300 million.

As a reminder, the majority of our fourth-quarter redemptions were paid in January of this year and will therefore impact our first-quarter 2009 management fees. On a full-year basis our assets under management declined by $11.1 billion, again due to both performance related asset depreciation of $5.7 billion and net outflows of $5.4 billion. This is inclusive of fourth-quarter redemptions requests paid in January of this year. These outflows were driven by the unprecedented market conditions we saw globally in the third and fourth quarters of 2008 and the resulted impact on investment sentiment.

In the fourth quarter, as Dan mentioned, a major contributor to our redemptions was the fact that we provided liquidity to our fund investors in accordance with the predefined terms of our funds. Our average management fee remains approximately 1.7% after taking into account the impact of changes to assets under management in 2008. This is a blended rate that includes the effect of our non-fee paying assets.

Operating expenses are comprised of compensation and benefits and non-compensation costs. Our full-year 2008 compensation and benefits were $141 million, 32% lower than the prior year. Of this amount salaries and benefits were $66 million, 41% higher year over year. This increase was due primarily to annualized salary and benefits expenses related to the growth in headcount that occurred in 2007.

In the 2008 fourth quarter salaries and benefits were $17 million, essentially unchanged from the 2008 third quarter. For 2008 full-year salary and benefits were 12% of management fees and for the fourth quarter they were 13%.

For the first quarter of 2009 we expect salaries and benefits to be approximately 20% to 22% of management fees which includes compensation related to the expansion of our Asian real estate business. The increase in this ratio also reflects the impact of lower management fees due to the decline in assets under management in the 2008 fourth quarter.

Our full-year 2008 cash bonus expense was $75 million, 53% lower than prior year. This amount included guarantees which have been accrued for throughout the year, but excluded the fair value of the RSU's awarded to managing directors as part of their bonus compensation. These RSU's are included in our weighted average adjusted Class A share count.

Bonuses are based on the overall results of the firm and therefore are discretionary and variable. In 2008 cash bonuses declined significantly from what we paid in the prior year as incentive income was substantially lower than 2007. In prior years cash bonuses have on average been 12% to 15% of total annual revenues and in 2008 they were 13%.

Our employees understand their importance to the Och-Ziff franchise and our appreciation of their efforts, particularly in the last year. However, they also understand the importance of being aligned with the firm and both its fund investors and Class A shareholders in good markets and bad.

In the context of an extremely difficult year in 2008 that presented significant challenges in managing the overall economics of our business, our management team worked to maximize our commitment to our employees as well as to our shareholders and partners. We will continue to focus on maintaining this alignment in the future.

Full-year 2008 non-comp expenses were $130 million, up 30% from the prior year. Of this increase approximately one-third was driven by the interest expense in our term loan. We entered into the loan in the third quarter of 2007 so interest expense was incurred for only part of that year. The remainder of the increase was attributable to higher insurance costs and annualized expenses related to the infrastructure build out and the growth of the business in 2007.

Fourth-quarter 2008 non-comp expenses were $35 million, 15% higher than the 2008 third quarter. The sequential increase was principally related to higher professional service fees and higher interest expense due to the LIBOR reset on our term loan. For the full year 2008 non-comp expenses were 23% of management fees. For the first quarter of 2009 we expect this ratio to be approximately 33% to 35%. The increase in this ratio is principally the result of lower management fees due to the decline in assets under management.

We continue to evaluate our business in terms of opportunities available and the economic environment. As always, we will manage the business to sustain and build the franchise and to maximize value to our fund investors and our shareholders. This evaluation is ongoing which permits us the greatest flexibility in how we balance the allocation of our resources.

At this point in the year, because market conditions remain unstable, we believe that it is difficult to accurately assess the operating environment which will impact the magnitude of both revenue and expense bases on a full-year basis. Our full year 2008 affective tax rate was 39% and in the fourth quarter it was 19%. These rates reflect the absence of meaningful incentive income in the fourth quarter as well as the tax deduction from the vesting of RSU's granted to employees in connection with our IPO.

As in 2008, our 2009 full-year effective tax rate will vary depending on the amount and flow of revenues and expenses through our legal entity structure. We would expect an estimated tax rate of 40% to 42% for the first three quarters of the year as taxable income is comprised only of management fees less operating expenses. The fourth quarter will be a function of the magnitude and the character of the revenues we earn and how they flow through our structure.

Full-year 2008 distributable earnings was $192 million or $0.48 per adjusted Class A share. Fourth-quarter 2008 distributable earnings was $33 million or $0.08 per adjusted Class A share. Again, the primary driver for the year-over-year decline in both periods was the absence of a meaningful incentive income in 2008.

As you saw in our press release this morning are 2008 fourth-quarter dividend will be $0.05 per adjusted Class A share. As in prior quarters, we use cash to fund items related to the operation of our business. The most significant of these items was prepaid D&O insurance of approximately $12 million which will be amortized over the full year in 2009. With that we will be happy to take your questions.

(Operator Instructions). Roger Freeman, Barclays Capital.

Good morning. I just want to start off on the comp front. What kind of -- how do you feel about your competitive position? Obviously it's sort of a tough environment for everybody, but when you think about being below high water marks probably for the year and could pay bonuses with average AUM being so much below this year versus last year. But you're a little bit different from others; your high water marks are only one year. Do you think that's a pretty big competitive advantage, because your employees know that next year there is incentive comp for sure in the cards?

In general, we've got a long history of sharing and including employees in the success of the firm through equity ownership and other means. We think that everyone at the firm understands that while this is a very difficult environment we are extremely well-positioned once markets stabilize and once growth comes back to the industry. We believe that people are aware of that externally and internally and that is a very, very strong positive factor for our firm. So we feel very good on that front.

Can you update us on -- how much have you resized to date and how do you feel about where you are sized right now to the level of AUM?

There have been some modest declines in headcount which is effectively equal with all regions of the business. And look, Roger, we manage the business in accordance with the economics of the business, the opportunities that we see and the resources we have. So we'll continue to reevaluate the business and those opportunities and the economics as we move forward in this environment.

Okay. Now Dan, you made some interesting comments that you think that I guess by virtue of not having thrown gates down that you're going to be at a significant advantage going forward. I assume that you've gotten specific feedback to that effect and I was wondering if you could elaborate a little bit on that. And maybe tied to that, are there going to be any -- is there any negative feedback about the fact that you do have only one of your high water marks if you -- if you're not back at those high water marks this year is there going to be some ill will from LPs around that issue?

On the first question I want to be clear, we're not going to comment on other firms and what they did or did not do, we're going to talk about what Och-Ziff did, why we're proud of what we're able to do and why we're proud of the fact that it's our ongoing business model that helped us navigate the major issues that existed in 2008 for the hedge fund industry. Negative surprises in performance, loss of liquidity, I think it's fair to say in general that investors were not pleased with freezing and suspending of redemptions, gates, etc.

We are very confident that the fact that we were not only able to maintain our liquidity but do it as part of a systematic long-term process of managing our business and our portfolios will be a big positive as institutions allocate going forward.

On the second question, we have not had discussions or comments with investors in terms of the high water mark. I think they're focused on what we're focused on, generating the performance. One month does not a year make, but January is a good example of the -- (inaudible) reminded what I said; the opportunity set we're looking at is one of the best we've seen in many years.

And my comments on the competitive landscape are very important. Och-Ziff has always been in a very strong position in terms of accessing deals and being in a premier position in terms of the best investment opportunities, but that has absolutely accelerated dramatically.

Actually what do you make of the January performance, actually not just for you but for the industry? The S&P was actually down 8.5%, HFRX was up, you were up, others were up. Is that a sign, obviously it's just a month, but that there's normalization at least of market relationships?

We never like to get too wrapped up in one month's performance, obviously it would be easy to because this would be a good month that you're pointing out, but we like to be consistent. So we feel very good about the one year, two-year, three-year opportunity set for our fund LPs. We do want to remind you, we said consistently, Och-Ziff is about generating strong risk-adjusted performance for investors, that's what drives this firm, it what we've always been focused on and that's what we're focused on.

Last question. What's your credit exposure now? I think it was about 10% from last quarter?

It's increased modestly; it's close to the 15%.

Okay. All right, thanks.

What we did, Rodger, as you would guess, in the fourth quarter when there was some substantial sell offs we increased our exposure.

Right, okay. Thanks.

Marc Irizarry, Goldman Sachs.

Great, thanks. Dan, can you just go through a little bit more detail on how you're positioning your strategies right now in the Master Fund, what the breakdown amongst different strategies looks like?

I'll give you that quickly, Roger (sic). Equity restructuring is about 16%, special investments around 15%; as Dan mentioned, credits around 15% or so, convert arb is around 14%, and the rest is unencumbered capital or cash.

Just to comment qualitatively on that, that is a cash position of almost 40%. So the January return was achieved with that high cash position. We remain concerned about the overall economic environment, so we continue to be cautious. But January is an example that we believe we can generate the return while continuing to preserve the capital.

Okay. And then Dan, you mentioned obviously that you expect industry wide redemptions are not over. Can you talk a little bit about what you have seen so far to date in February, in terms of expected redemptions in the first quarter? Is this going to be as bad as what we saw in terms of the fourth quarter or year-end redemptions, or what are you seeing now in terms of your redemptions for the first quarter?

We don't have our numbers yet and, as you know, we disclosed them at the same time broadly through our 8-Ks. So my comments really refer to anecdotal industry comments. There are cross currents. On the one hand, there is a lot more stability than the fourth quarter where there was a lot of panic in all financial markets. And I think you have seen that as indications, credit markets, credit spreads have tightened, and new issuance in investment grade credit has actually been reasonably strong so far in the first quarter.

On the other hand, anecdotal evidence -- I'm speaking with other fund managers, listening to commentators, it appears that due to the overall instability in the environment and general liquidity needs, it does appear that the redemption cycle is not yet over.

Okay. Then what has changed in terms of your discussions with fund investors in terms of fees, and also are you seeing a movement towards -- obviously, your transparency is among the highest; but what have you done to change the transparency in your funds to your fund investors? And then maybe a comment on fees.

Institutional investors have realized more than ever that the most important decision they make is which manager they choose. They understood that part of the financial crisis, now it is front and center, that is the decision process -- who do they want to be with and who do they not want to be with. That is a major part of our discussion with our current investors and prospective investors.

Our guess is that down the road there will be some level of intelligent discussion about aligning interests, particularly where the possibility of longer-term lockups exist, but we have not had substantial discussions with investors about fees. The focus really is on the differentiation. Warren Buffett put it best about 18 months ago. He said, I'll paraphrase -- when the tide goes out we'll see who's wearing a bathing suit and I've heard many investors make the same comment.

Joel, can you give us the headcount at the end of the period, both total and investment professionals for year end?

Yes, it's 412 people in total and investment professionals about 195.

Okay. And then you mentioned the guidance on the first quarter in terms of comp. Does that include any bonus accruals in the number that you gave?

No.

Okay, great. Thanks.

Hojoon Lee, Morgan Stanley.

Good morning. (inaudible) my questions have been answered. Can you give us a sense of the (inaudible) in your funds --?

We can't hear you, could you speak up?

Sorry, can you hear me now?

Yes.

Could you give us a sense of the investor mix breakdown in your funds right now?

Yes, let me give you a sense of that. Basically it's about -- for the overall firm it's about 28% fund to funds; about 28 -- about 20% pension; about 18% foundations; corporate and institutional another 12%; and then it's a mix -- obviously 10% of the capital is ours, affiliated capital, since we invested our IPO proceeds; and the rest are private banks and family office type.

Okay. I guess based on the last update it seems like the fund to fund segment has -- you've seen the most redemption pressure from that segment of the investor (inaudible)?

That's correct.

And is that just a matter -- is this just because -- my understanding is most of your fund to fund investors are managing assets for institutions. So are they just getting redemptions on their end or are they just kind of trying to preserve cash balances the way you guys are?

We believe that they are getting redemptions on their end. That's what they are telling us and that seems to be fairly well understood around the industry.

Okay, great. And then just a question on -- this is kind of comp-related, but could you provide us with an update on year-end stock grants that will be reflected in your fully diluted share count in 2009?

I would think you're talking about additional stock grants (multiple speakers) 12-31?

Yes.

Anything that we've granted are already fully in the numbers that you see.

Okay. Okay, great. That's helpful. Thank you.

Ken Worthington, JPMorgan.

Good morning. Dan, in the context of relative returns in 2008 versus peers and indexes, I know capital preservation is a focus and the Master Fund was down a lot, the Asia Master Fund was down a lot. I guess what are you doing to be better in terms of capital preservation? And is there a way to, as you back test 2008, to be better at capital preservation without taking away from the upside? Is there risk management processes that can be improved, are there capital allocation processes that can be improved? I guess what are the lessons from 2008 that you're applying to 2009?

As we've said in the past, Asia is the one area where we felt we should have -- we could have and should have done some things differently in 2008 and we've made some adjustments accordingly. We are as committed as ever to Asia as a geographic region and we believe that the changes that we've made position us extremely well going forward.

Across the rest of the firm, I do want to remind you that at the end of august of last year our other funds were flat to up slightly on the year. It was only when the very, very substantial dislocation came during the last four months of the year that we saw any deterioration in performance. And we entered that period with a very high cash position. So we were not one of the funds that were unwinding.

As you saw from the question about our credit exposure, we actually were extremely liquid and were buying into those sell-offs. having said that, given the fact that virtually every asset class declined, virtually every spread expanded and widened, we were not able to -- we were not able to protect ourselves from any and all losses.

So of course at Och-Ziff we're always focused on learning, changing, trying to do any little thing better that we can. But we believe that 2008, despite the performance being negative rather than positive on an absolute basis, we believe it continued to demonstrate the strength of our model. I also want to remind you that historically coming out of these dislocations we've had some of our best performance. so we're hopeful that that will be the case again.

All right, great. Thank you. And then on sales, you mentioned that for the industry the redemption cycle, probably not over yet. Is there a reason to think, even if the magnitude is different for Och-Ziff, that Och-Ziff -- as you talk to your customers, will you be any different than the direction of the industry over the next three to four months?

If you remember in the fourth quarter our answer to that -- in the fourth quarter just looking at what the numbers were -- our answer to that would have been definitively yes, except for the fact that so many other funds froze redemptions and through up gates and otherwise blocked investors' access to liquidity, that they had to come to us and say I need to take capital from you because they won't give it to me. We saw that to a large extent at the very end of our redemption period.

So we continue to believe we're in the same position where the answer to your question should be yes based on what investors want to do. We don't know what other funds will allow or not allow. Now we think that intermediate term and long term we're in a much better position. It will be up to the investors to ultimately decide, but a much better position with the investors than funds that did not give them access to their capital. But on a quarter-by-quarter basis that can affect the arithmetic you're referring to.

Okay, thank you. And then two questions for Joel. The tax rate was lower than we expected for the fourth quarter, I think it's based on the RSU's vesting. What would be the tax deduction for 2009 for the vesting RSU's this year? Even if we can get a good sense it will just better help us with our model?

Well, we couldn't because keep in mind that it depends on the value of those units at the time they invest. So it's really very difficult for us to project something like that.

Okay, worth a shot. And then I guess lastly, on the non-cash bonus, to follow up on the last question, I look at the share count, the share count didn't really budge quarter over quarter, it actually looks like it fell. In terms of the non-vested stock awards, any help on helping us gauge what you gave out and how it vests and (technical difficulty) when it vests over the next couple of years?

Keep in mind that all the numbers, all the grants are in there. The adjustments will be for people coming and going, so you're going to see the number move around a little bit but it's never going to be significant. And I think you'll get insight into looking at that number every quarter because that's going to give you full transparency.

Okay, thank you very much.

Cynthia Mayer, Merrill Lynch.

Good morning. In terms of the outflows, it sounds like the greatest pressure was from fund to funds. But I'm also wondering, was there any difference in terms of US or non-US investors? And as you look forward are you expecting any pressure from maybe petrodollar clients with the oil price where it is right now?

In general outflows from non-US clients were greater than US clients. Europe probably the highest and I think that's generally true across the industry. We don't see any -- we don't expect any direct impact from the decline in oil price in terms of [lows].

Okay. And could you talk a little bit about (technical difficulty) as your three priorities bringing in new capital? What specifically are you doing for that? I don't think you mentioned any trends in the gross inflows. But how specifically would you bring in new capital?

The number one thing to bring in new capital is to perform. That's what we're about, that's what we've always been about and that is what we're focused on. We also want to get in in front of current and prospective investors and talk about the opportunities set, how we're pursuing it, why we think our -- I think one thing investors saw in 2008 is that our model of paying everyone off the same P&L, our model of not having silos, of not incentivizing people to generate revenue, of having a centralized risk management run by the senior people at the top is very powerful. So it is really about -- it is about performing, it is about getting in front of investors and telling our story. That's the key.

Are you increasing marketing teams or anything like that?

Not in any significant fashion. Our model, which may be different than some, is to -- our goal is to build the best business, build the best products, deliver the best transparency and results and that will sell itself rather than just try and sell more.

Okay. And I think in the third-quarter conference call you talked a little about the potential to acquire assets from other hedge funds. And you said you weren't looking at anything specifically, but you could see that there were a lot of opportunities. I'm just wondering if you could revisit that. Are you seeing -- still seeing opportunities? Is that a way you're interested in going or do you just want to grow organically?

I think what we were referring to in the third quarter was the ability to hire talent from other funds.

Oh, okay. Would you be interested in acquiring assets from other hedge funds?

We don't have any specific plans, that's (technical difficulty) what we're focused on. Our goal is really to -- I know I'm repeating it, but it's what we do and what we've done. Our goal is to, number one, focus on our portfolios and our current investors. And any expansion in assets is going to be based on we've earned it and investors think that we deserve it. That is really the only way to build a strong asset base long-term in this business.

Okay. And then lastly, I'm just wondering if you could give some color on what is in the global special investments Master Fund at this point and (technical difficulty) liquid it is and how much is in cash.

The largest allocation in that fund is cash. We've been extremely patient. We made clear to investors that we thought that what occurred -- when the world changed in roughly July of 2007 we did not anticipate the magnitude of change that occurred, but we did make clear, if you'll recall, we had had that new zero allocation to credit for 18 months.

So while we didn't predict the timing, we were very, very well aware of the substantial excesses. And we thought there would be a repricing of assets in the world and sellers don't reprice assets because they should generally, the reprice assets because they have to. And that often takes time. So we've been extremely patient, we have -- more than 50% of that fund is cash and we are very well-prepared to pursue opportunities.

Okay. And maybe if I could just ask one more. Last fall you must have seen some amazing opportunities, but you clearly were preserving liquidity. Are you at all tempted to create a different structure investment with a longer lockup in case this happens again or because of the opportunities you're seeing now?

We've made clear to investors that we're open to what we call the intelligent discussion, which is to the extent investors want to talk about committing capital for longer periods of time, because they believe it matches assets with liabilities, because it aligns incentives in certain ways, we are absolutely receptive to those types of discussions

Okay, thanks a lot.

[Matthew Hind], Jefferies & Co.

Good morning. Going back to the question on the fees, you said that you anticipate some level of discussion down the road for longer-term lockups. Would that likely be accompanied by a lower fee structure? And if it does turn to this would you anticipate that your policy of granting liquidity would kind of play to your advantage in that situation?

Our best guess is that if institutions are going to look to commit for longer periods of time they're going to focus on a further alignment of interest which can have to do with a number of factors, timing of when incentives paid and other factors. The key is, as we said, there's been a substantial differentiation in the hedge fund world and what investors are focused with, both at the analytical level and at the senior CIO level, which firms do we want to be with, which firms do we not want to be with? Once that decision is made then the discussions of alignment of interests become relevant.

Okay, thank you. And in terms of the investment opportunities that you highlighted earlier in your prepared comments in Africa and Asia-Pacific, etc., would those likely be allocated to the special investments fund given the level -- the high levels of liquidity you have there? Or would that kind of be disbursed throughout the fund strategies?

Those assets in general are longer-term and less liquid and that is why for the past years we've been saying our plan is in general to raise separate dedicated funds to those assets, to allocate from the special investment fund, to the extent the multi-strategy funds have capacity in their special investment area, they'll receive their pro rata appropriate level of allocation, but the majority of the allocation growth in those areas is likely to come from the longer lockup products.

Great, thank you.

Roger Freeman, Barclays Capital.

I just had a question. Can you just remind us with the mortgage servicer what you -- your interest in that is to identify subprime loans to buy out of that, is that how you look at that?

That is correct.

And so the portfolio that you've built up there, how do you think about some of the proposals that could come out of the fourth leg of the financial stability program here? There's some ideas here that are coming up like resetting mortgages so that mortgage payments are no more than 38% of income levels and that sort of thing. Does that pose a risk to whatever and however you value the portfolio?

First of all, in terms of your question about the portfolio, I do want to remind you -- we have not bought one loan for the RCS portfolio since January of 2008. And we think that that level of patience and level of discipline is one of the things that makes our firm unique and that investors continue to notice more and more.

In terms of your second question, that's a factor that you have to build into the investment decision. Changes can be made and likely will be made. Number one, being conservative we like to assume all changes are going to hurt you because if you build that into investment prospects you protect capital.

Number two, you do have the ability to structure the portfolio to protect against some of that. For example, if you buy loans which will be hurt if laws extend maturities and you make sure to also buy some level of mortgage product that gets helped if maturities get extended. You have to diversify not just by geography but by vintage, prime versus subprime, but the most important factor, you are correct.

And I think that's part of what caused the sell off in the mortgage market during the fourth quarter. From what were already perceived to be extremely levels where many people's models said you can't lose from these levels unless you see depression level declines in housing prices and then people started to realize that those changes could occur and you saw the sell off. So when we invest we will not have 100% certainty, but we think we've shown more patience than perhaps anyone else.

Okay, thanks.

Cynthia Mayer, Merrill Lynch.

I know we're not even halfway through the month, but I'm just wondering if you could tell us if the Master Fund is up this month as well.

You know the answer to that. Second business day of each month the 8-K comes out and, as you know, that's our policy.

Okay, thank you.

That concludes the question-and-answer session today. I will now turn the call over to Mr. Och for final remarks.

Thank you. To briefly recap, despite the market turmoil over the last year we view 2008 as an important year of differentiation for us. We were able to successfully extend our performance track record and sustain the model we have operated with since our inception, all of which helped us maintain the trust of our fund investors. Although the markets will continue to be challenging and will likely remain so for much of this year, attractive investment opportunities do exist and we are firmly focused on positioning our franchise for asset and earnings growth as the markets stabilize.

I went to reiterate a few points that I think are essential to evaluate in our firm and its long-term potential. First, we believe a significant differentiation is occurring amongst the players in the hedge fund industry. In our view institutionalized and well-managed firms such as Och-Ziff continue to be best positioned to attract investor capital when the markets begin to stabilize.

Second, we see a greater number of compelling new investment ideas than have existed in many years and opportunities for our fund investors create opportunities for our firm.

Third, a substantial shift in the competitive landscape has occurred and this is to our fund investors' benefit. There are fewer firms competing for attractive investment opportunities and the firms that have a proven record of generating returns with limited use of leverage are best positioned to attract capital and grow.

And finally, we're not immune to the impact of the ongoing industry wide redemption cycle regardless of our performance. Although our consistent adherence to the liquidity terms of our funds may adversely affect us in the short term, we believe it will benefit us in the long term and be a critical factor in helping to attract capital. Joel and I look further forward to sharing further updates with you as we move through the year with that let me now turn the call back to Tina.

Thanks, Dan. And thanks, everyone, for joining us today and for your interest in Och-Ziff. If you have any questions please don't hesitate to contact me at 212-719-7381. Media inquiries should be directed to Steve Bruce at 212-371-5999. This concludes our call and you can now disconnect.

Thank you all for your participation in today's conference call. You may now disconnect.