Sculptor Capital Management Inc (SCU) 2010 Q1 法說會逐字稿

Good morning everyone and welcome to the Och-Ziff Capital Management Group 2010 first quarter earnings conference call. (Operator instructions) I would now like to turn the call over to Tina Madon, head of Investor Relations at Och-Ziff.

Good morning everyone, and welcome to our call today. With me are Dan Och, our Chairman and CEO, and Joel Frank, our Chief Financial Officer. I'd like to remind you that today's call may include forward-looking statements. These statements reflect the current views of management about, among other things, assumptions with respect to levels of assets under management, future events and financial performance, many of which by their nature are inherently uncertain and outside of our control. Och-Ziff's actual results and financial condition 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 economic income, distributable earnings and other financial measures which are not prepared in accordance with US Generally Accepted Accounting Principles. 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 the For Shareholders page of our Website.

Furthermore, no statements made during this call should be construed as an offer to purchase shares of the company 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.

Thanks Tina. Good morning everyone and thank you for joining our call today. This morning I'll review our year-to-date investment performance as of April 30th and assets under management as of May 1st. I'll also discuss the current environment that we're seeing for capital flows and briefly update you on our business.

During the first quarter and in the month of April we continued our trend of generating consistent, strong risk-adjusted returns for our fund investors. As you have heard me say before, we invest and seek to generate performance that has low volatility and a low correlation to the equity markets. The stability of our returns over time is a function of our underlying risk management and investment processes, our low use of leverage and our emphasis on diversification. These attributes are and have always been intrinsic to our multi-strategy, multi-geographic approach which is unique in the marketplace.

In addition, having a true multi-strategy focus, combined with an ability to evaluate new asset classes globally and building expertise in those where we believe there is potential, enables us to be nimble in capitalizing on investment opportunities in many different areas.

The investment environment today presents a diversified opportunity set that plays to the strengths of our investment processes and our international capabilities. We are seeing attractive ideas in equity strategies which are normally dependent upon growth such as merger arbitrage and equity restructurings, while simultaneously seeing opportunities in dislocated assets such as distressed and structured credit.

Additionally, international economic growth is not as synchronized with the US as it has been in prior cycles and this divergence also creates compelling investment opportunities. Our multi-strategy, multi-geographic approach positions us to continue extending our track record of generating strong risk adjusted returns and creates additional capacity to grow assets under management.

Furthering the trend we have seen for several quarters, fund investors are continuing to indicate strong interest in our platforms. We believe we have been a leading beneficiary of the capital flows in the industry over the last six months and we expect this trend to continue. We remain confident that institutional investors view us as a manager of choice because of our consistent performance track record, our demonstrated alignment with our fund investors and our history of providing transparency and a robust infrastructure that is tailored to meet their requirements. These attributes continue to be extremely important to current and potential investors in our funds and we believe that they have led to sustained increases in our competitive positioning over the last couple of years.

Now let me turn to our business results, starting with assets under management. As we announced this morning, our assets under management as of May 1st totaled $26 billion, increasing $2.5 billion from $23.5 billion on January 1st of this year, due to $1.6 billion of capital net inflows and $900 million of performance related appreciation. These amounts included net inflows of $500 million on May 1st and $200 million of performance related appreciation for the month of April.

The net inflows we have seen year-to-date are following a consistent pattern of coming from a mix of existing and new investors that is diversified both in terms of geography and type, and we are still seeing specific interest on pension funds and international capital sources.

We believe that confidence among institutional investors in placing capital with alternative asset managers has continued to increase this year. As a result we think that the capital inflow cycle for the hedge fund industry is underway and that we are well positioned for additional growth in our assets under management. However, I would like to remind you that as always, it is difficult to predict the pace of investment, and we fully expect that the month-to-month trend in net flows will vary as they have historically.

Now let me turn to our funds' investment performance. Year-to-date through April 30th our Master Fund was up 3.6% net, our Europe Master Fund was up 5.1% net, our Asia Master Fund was up 6.3% net, and our Global Special Investments Fund was up 5.0% net. These results were primarily driven by investment disciplines dependent upon growth and those which focus on distressed and dislocated opportunities such as structured credit and distressed credits in the US and Europe, equity restructuring in the US and Europe and convertible arbitrage in Asia.

Now let me take a moment to update you on a change we have made to the allocation of partner capital between our funds. As I mentioned previously, we believe we are a manager of choice in large part because of our demonstrated alignment with our fund investors and because we tailor our business to meet their requirements. These attributes were catalysts for the decision my partners and I made during the first quarter to reallocate $714 million of our $1.5 billion investment in the Global Special Investments Fund to our other funds, although essentially all of this amount was reinvested in the Master Fund.

As a reminder, this capital was the after tax proceeds from our 2007 IPO, 100% of which was previously invested in the Global Special Investments Fund. Going forward our capital is still subject to the original five-year lockup from the time of our IPO and the amount remaining in the Global Special Investments Fund will still be used to invest in our private platforms. The majority of our fund investors' capital is in the Master Fund and this reallocation further aligns our exposures with theirs. It also reflects the fact that fund investors have become more selective in their appetite for exposure to private investments and are generally more focused on the range of opportunities we're seeing on a multi-strategy basis.

As always, we continue to pursue a patient, disciplined approach to investment and we believe that attractive ideas exist across all of our strategies. In this context our private investment business will remain an ongoing focus for us. Although they take longer to develop and are slower to evolve, we are targeting the private platforms and standalone investments which we believe will offer the greatest value to our Fund investors over time. For example, our second real estate platform had its first closing at the end of April.

With that now let me turn the call over to Joel.

Thanks, Dan. This morning I will review our 2010 first quarter results and also update you on how we are thinking about expenses. For the 2010 first quarter we recorded a GAAP net loss of $89 million, or $1.07 per basic and diluted Class A share. As always, a discussion of our GAAP results is contained in our press release for your reference.

Now let's turn to the details behind our first quarter 2010 economic income starting with revenues. Management fees totaled $100 million, of which $99 million was attributable to the Fund segment and $1 million to other operations, a 5% increase from the 2009 fourth quarter, due to the increase in assets under management from October 1st to January 1st of approximately $1.4 billion.

From January 1st to April 1st our assets under management increased by approximately $1.8 billion to approximately $25.3 billion. This increase was due to net inflows of approximately $1.1 billion and performance related appreciation of $744 million. Our average management fee remained at 1.7%. This is a blended rate that includes the effect of our non-fee-paying assets.

Now let me turn to the first quarter 2010 expenses. Our operating expenses are comprised of compensation and benefits and non-compensation costs. Comp and benefits totaled $22 million during the first quarter, with $18 million attributable to the Fund segment and $4 million to other operations. Of the total, salaries and benefits were $19 million, down slightly from the 2009 fourth quarter, with $15 million attributable to the Fund segment and $4 million to other operations.

First quarter comp and benefits also included $3 million of bonus expense which was essentially all attributable to the Fund segment. This amount is 39% lower year-over-year, reflecting a reduced level of onetime nonrecurring payments. Total salaries and benefits were 19% of management fees in the first quarter. We expect this ratio to be approximately 19% to 21% for the second quarter of this year.

Now turning to non-compensation expenses. Non-comp expenses totaled $21 million in the first quarter, with $20 million attributable to the Fund segment and $1 million to other operations. Our non-compensation cost declined 9% sequentially, driven principally by lower occupancy, insurance and business development expenses, but partially offset by higher professional service fees.

Non-comp expenses totaled 21% of management fees in the 2010 first quarter. We expect this ratio to be approximately 22% to 24% for the second quarter of this year. As I have mentioned on prior calls, expansion of our business over time will lead to growth in our fixed expenses. However, the rate of that growth should continue to be more than offset by the increased management fees due to growth in assets under management, thus illustrating the scalability of our model and the potential for incremental margin expansion.

I would also like to reemphasize that we don't manage the specific expense ratios, but rather to the requirements of the business. We always focus on providing resources for available opportunities in relation to both the current and expected economic results of the business.

Our first quarter 2010 effective tax rate was 15%. The lower quarterly tax rate was principally due to the deduction for vesting of RSUs which increased during the quarter due to the increase in our stock price, and the resultant flow of those economics through our legal entity structure. We anticipate that our effective tax rate over the next two quarters will be in the range of 15% to 20%.

As a reminder, our 2010 full year effective tax rate is subject to variables which generally will not solidify until the fourth quarter of this year, such as the amount of incentive income we earn, the resultant flow of revenue and expenses through our legal entity structure and the effect that changes in our stock price may have on the deduction for vesting RSUs. As a result of these factors, our quarterly and annual tax rate may vary, sometimes substantially, from our estimates.

First quarter 2010 distributable earnings were $49 million or $0.12 per adjusted Class A share. As you saw in our press release this morning, our dividend for the 2010 first quarter will be $0.09 per Class A share.

As in prior quarters, we used cash to fund items related to the operation of our business. The most significant of these relates to withholding taxes to be paid upon the vesting of RSUs. With that, we will be happy to take your questions.

(Operator instructions) Your first question comes from the line of Roger Freeman from Barclays Capital.

It's Steven Truong here for Roger. Could you talk a little bit more about the shift from the Global Special to the Master Fund and the relative investment opportunity and give some color as to why the shift, please?

Absolutely. First of all, in terms of the numbers, as I said, it was approximately $714 million out of $1.5 billion so roughly half. That money remains subject to the same lockup and other general terms and conditions. It was really done for two reasons; number one, it's a representation of the view the partners had that the opportunities in the liquid multi-strategy fund are compelling and are likely to remain compelling, as well as the added benefit that it further aligns our interests with Fund investors, who as you've seen, are investing more of their capital in the Master Fund.

Thank you. And I'm just wondering on the expense front, you talked a little bit about the growing capacity for AUM and perhaps can you talk about expense growth trends going forward as it relates to, say, headcount and the non-comp as well?

Look, I think the important thing is that we manage the business to what it needs as opposed to ratios or anything else and of course the scalability of the business I think is important because as assets grow, management fees grow and that more than covers increased expenses. And as the business grows, as I said before, we will support the business, we'll support our Fund investors and whatever the business needs, but again, not the specific ratios but more to what the business requires.

As a reminder, when assets dropped we were very clear that we were not managing to an expense ratio; we were running the business and its resources to do the right thing for the Fund LPs, so therefore, as assets are rising there is some benefit to that.

Thank you. Then lastly, just in terms of the flows, the pace certainly seems to be healthy going into the year and can you talk about how has that been facilitated by the removal of the one-year high water mark condition and can you talk about the pipeline going forward perhaps? Thank you.

The removal of the one year high water mark has not been a significant factor. That was just one of a number of things that we've done over the years to align our interests with the Fund LPs. It's generated by many things we've discussed in the past.

We think that investors, number one, they're returning to the space. Number two, they're more focused than ever on manager selection. Number three, it's not just track record; it's also -- it's risk management, it's infrastructure, it's transparency. We believe the fact that we didn't change the liquidity terms on any of our Fund investors during a period -- 2008 or 2009 or any other time period was relevant as well. So it's all the things that we've mentioned in the past and the consistency of the performance in the organization.

Your next question comes from the line of Dan Fannon from Jefferies.

I wanted to talk a bit about the new business that's coming in the door and can you talk about the customers? Is this a broader or bigger allocation to alternatives or are they moving money around, do you think, within more liquid strategies or away from private equity? I'm just trying to get a sense of how the asset allocation pie is changing for some of your clients.

If you look at the numbers for the industry as a whole and some of the studies being done for the industry as a whole, I think it's fair to say that there's more of an interest from pension funds, there's more of an interest from the large international entities than there was let's say five years ago. I think that's an industry shift and we certainly are participating in that shift. So we think that the quality of the investor, the intended longevity of the investor, the diversification in terms of type of investor, as well as the geographic diversification; we feel very good about all that.

Okay. Then as you look at all the regulatory debate that's going on, can you highlight for us what you guys are focused on in terms of potential changes to your business, both risks as well as potential opportunities?

Look, we look at it on top of everything that you read and basically know the same thing that you do. As things are passed, as legislation is passed we'll deal with it, but that's I think our focus. And of course as you said there's a lot going on and there's a lot you read and things change every day, but until there's something specific that's legislated or anything specific that's passed, we'll stay on top of it, but we know as much as you do.

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

Maybe on that last question maybe your answer is to be determined still. But I'm just sort of curious if you maybe could give us a little sense of where the legislation stands on carried interest. And then the extent that there were to be any changes, I wonder if you could talk a little bit strategically about how you might, if at all, address compensation?

I think, Bill, again, I think my answer is going to be, we're going to have to see what the legislation is. There's all different rumors; there's all different pieces of information. We'll react to it when we actually know or there's something that is actually legislated.

You know, there are some things in the legislation that are potentially positive; there are some things that are potentially negative. We do think one thing that's very important is from what we've seen, there doesn't seem to be anything that inhibits our ability to perform for the Fund LPs which is obviously what continues to be our major focus.

Okay. Second question; maybe you sort of addressed it personally in your own commentary, but sort of curious as you look at your assets in total, wondering if there are any capacity constraints we should be thinking about? Obviously with more money going to the OZ Master Fund, I would presume that the answer is no, but just as you think about either in the US, by some of the sub-products that drive the Master Fund or even geographically should we be worried about any size issues?

First of all, I'll remind you that our assets did peak at substantially higher levels than this and we did not have a problem generating returns at that time. In addition, as I mentioned during the opening comments, this time period is interesting in that the diversity of opportunity set is in many ways larger than it has been historically.

It is unusual, in that given the de-synchronization in the global economy, given the fact that there are many industries and companies doing well while the others are still suffering the effects of over-leverage and the difficult economy, there's both a lot to do in the growth oriented areas of our investing business, such as merger arbitrage and equity restructurings at the same time there's a lot to do in the dislocated assets area such as distressed and structured credit.

We also believe that the de-synchronization globally makes our international investment capabilities even more differentiated. Having large numbers of people on the ground, having been there for long periods of time is even more differentiated at these times. So as you've seen from the diversification of the portfolio, there's no area -- our multi-strategy approach and our diversification puts us in a position where there's no area. And perhaps it would be a good idea for Joel to run through those allocations and give you a sense of the diversity.

Master Fund, long-short equity is about 37%; convertible arbitrage about 18%; structured credit about 15%; private investment 10%; credit or distressed credit another 10%; merger arbitrage about 6%; cash and unencumbered capital 4%.

Terrific. One last question, and again maybe it's just too early to tell, but to the extent that there's any legislation that would affect banks' abilities to own proprietary trading and other type of alternative asset managers, where are you strategically in thinking of bolstering your franchise via acquisition, or is it just that the internals are so strong that you need not look at anything that might be more distracting?

As Joel said, in terms of legislation itself, obviously we're going to wait and see what, if anything develops and we'll make the appropriate decisions at that time. The other thing I'd add, Bill, on your last question about opportunity and capacity, I do want to point out that the partners of the firm did just move $714 million of their capital to the multi-strategy fund, so that clearly expresses their belief about the ability to generate returns for the fund LPs.

Your next question comes from the line of Marc Irizarry from Goldman Sachs.

Can you just give us the breakdown of the Fund investors; what are you seeing and also what are you seeing from fund of funds as a percentage of your total assets? And maybe you can give us a sense of the mix of LPs in the Fund?

Yes, let me -- why don't I give that to you, Marc? Pensions are about 25%; fund of funds about 21%; foundations and endowments 17%; corporate institutional about 12%; our capital, the Partners' capital is around 10%; family office high net worth about 8%; and private bank about 7%.

Okay. Dan, can you talk maybe about the fund of funds business broadly versus direct investing at the hedge funds? Are you seeing any changes there that suggest that maybe your multi-strat model is taking some share of what would have been maybe fund of funds assets in the past?

Sure. Look, from what we're seeing thematically and from what we're reading, I do think it's fair to say that there's a general trend amongst some of the larger investors to look at investments directly into managers, often to augment their fund of funds, but that's part of the natural evolution.

I will say that I think our fund of funds experience may be different from others in the industry. We feel very strongly that the 21% of our investors represented by the fund of funds that we deal with are a very high quality group of institutional investors, these fund of funds. We think they're very professional. We are impressed by the level of due diligence that they do. We believe from what we see that they add value to their investors, which is ultimately what's important to their business.

So I do want to be clear that we can answer the question in general about fund of funds and some of the issues that they have, but I do want to be clear that the fund of funds invested in Och-Ziff in general are very high quality organizations that represent strong relationships for us.

Okay. Then just back to the Global Special Investments Fund for a moment; what were the redemption features for LPs in that fund and what's the third-party capital that you have in there now?

We generally don't give that kind of detail, Marc, to be honest with you.

But Marc, I do think it's fair to say conceptually you've seen the numbers. The investors have indicated that their preference is to invest in the liquid multi-strategy fund or if they're going to invest on the private investment side, to invest directly in a platform with a specific area. That's something we started talking about around the time of the IPO and we believe it's still intact. So your observation that the Special Investment Fund did not grow as much as one may have anticipated several years ago is correct, but it's because investors have decided to be more targeted.

Okay. Then just along those lines, the investment opportunities obviously then versus now, can you just talk maybe about the things that you saw in the Special Investments platform? Are you seeing the investment opportunities more widely available in liquid form, be it African resources or whatever, some of the investments that Global Special Investments has ahead of it, are those now more widely available in more liquid areas or are those opportunities just being made in the illiquid portion of the Master Fund?

I think there are two factors that are relevant. Clearly the partners do see very strong opportunities in the Master Fund, hence the reallocation of approximately $700 million to that Fund. On the Special Investment side, on the investment side it's really not a change from what we've been talking about.

Since the time of the IPO we've been saying that our view is that the private investment platforms should be more targeted. We identified certain areas; real estate, energy and alternative energy and certain other geographic regions. We remain committed to those. Clearly, as we said, that investment process is a longer process, not just for us but for any involvement in the private investment side, but we remain committed. Our focus is on areas where we see the opportunity to generate very strong returns and want to put our own capital as the lead, and that has not changed.

Great. Then Joel, just on the management fee tax rates, should we still be assuming 35% or given your guidance for the next couple of quarters is there some lower rate on management fees that we should be expecting in terms of tax rate?

Yes, I think the guidance I gave was 15% to 20% for the second quarter. And obviously as we said before, there are a lot of things that affect that, which is the RSU vesting and the price of the stock, how it flows through the model, but the 15% to 20% was what I said previously.

And what about for next year; what's sort of the more normalized rate to expect?

It's too early to tell next year. Again, a lot of it depends on variables that we can't even predict until the end of this year, never mind next year.

Okay. Joel, just headcount in the quarter?

It was 382 people in total.

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

Just to follow-up on Marc's question; can you help us with a roadmap on helping to predict the tax rate, like if the share price is up 20% that drops the tax rate down but if the share count falls - just a little more detail so even though you guys don't have the metrics, at least we can kind of make our own bets to help us with the model?

I think the key points, Ken, to keep in mind are as I said before, the things that are going to affect the model are going to be the RSU vesting, the price of the stock, how it flows through the model and various other factors. I think the information I've given you is our best estimate and I think that's what you should use.

Okay. This is maybe a little pie in the sky, but asset level about $25 billion now; you guys had peaked out in the mid-30s. When you were at the kind of mid-30s before, anything that you wish you had done to make the business more effective at these higher asset levels that you're planning on implementing over the next couple of quarters, given that you're smaller but on your way back to being a much bigger AUM based company? Does that make sense?

It does. Look, we're always focused on generating the best returns and investment ideas. We're always focused on growing the business intelligently in order to further enhance our ability to generate those returns, so whether it's international growth or growth by investment discipline, that's always been our focus.

One thing we're very proud of is that we maintained that focus even when assets dropped. We maintained our focus to our international platforms while some others retrenched. We added on the investment side. Structured credit was an area we were not in that we added to. We continued to hire where appropriate. So, as a reminder, we don't target on assets under management level; we target let's be the best we can be for the fund LPs in every way, shape and form, then that will drive the assets under management level.

Fair enough. Then lastly, a number of quarters ago, two, three, four there was a lot of talk about pricing pressure and customers, and some which I think are even your customers, were in the press talking about we're going to renegotiate these fees down. Your performance has been great; you acted well for investors during the downturn; are these conversations still - are investors still putting pressure on you guys to lower fees? Like, obviously your fee rate is stable so nothing had happened, but are those conversations -- at least are the asks still occurring?

We haven't seen that type of pressure. As I said, the conversations are primarily about manager selection. As we mentioned in the past, the only significant conversations we had on that front were in relation to investors committing to a three-year lockup as opposed to just a change in the current terms. So we're pleased to say that the focus seems to be on manager selection and we believe that's where it's going to stay.

Your next question comes from the line of Cynthia Mayer from Bank of America.

I guess just as a follow-up to that last question, what are your assets now with a three-year lockup and how popular has that been?

We generally don't disclose that but we've been pleased with the interest in that particular tranche.

And you continue to offer that I guess?

Yes.

Okay. Also, within the Master Fund, can you give us a sense of how much is invested in the US versus overseas and just remind me how you manage currency and how actively you use currency for returns?

Let me give you the breakdown geographically; it's 57% US; 28% Europe; and 15% Asia. And in general, we generally hedge out the currency exposure for the funds.

Okay. It seems like the Master Fund is attracting funds faster than the narrower Asia and Europe Funds and I'm just curious what role you see those playing and who those appeal most to?

We still consider them to be extremely important and I do want to remind you that all the European and Asian funds are, are alternatives we offer to investors to invest directly. So the platforms are really set up to provide the opportunity for the Master multi-strategy fund as well as to the extent an investor wants to invest directly.

Despite the substantial decline in assets under management in both the European fund and the Asian fund in 2008 and 2009, we did not reduce the resources at all in line with that reduction. We maintained full focus and full commitment. So it's really just effectively a sleeve that's available if the investors decide to allocate that way.

Okay. Last question; just wondering what you're seeing in terms of sovereign wealth funds, because it seems like you're mentioning clients like pension funds and endowments more. Is there any shift or decreased or increased interest from sovereign wealth funds?

I think it general, I think it's fair to say the sovereign wealth funds are -- they're becoming larger and more significant investors in the alternative investment class. We've been working very hard for a number of years. I think the fact that we're already investing in many of these different geographic regions -- I think that's very important.

We build our geographic regions -- if you look at our history, we've always built our geographic regions to be investors. And that means two things; that means it's designed to benefit the current fund LP and it means that we build a reputation in the region and then investment often flows from that. So, we do feel good about that area as a source of future growth.

Your next question comes from the line of Robert Lee from KBW.

Most of my questions were asked but just one last one. With the hedge fund industry entering kind of a new positive cycle and obviously a lot of your competitors have healed, those who still exist, particularly the larger ones; are you starting to see more competition or more pressure, whether it's people trying to hire away some of your talent, whether it's on the investment side or even the marketing and distribution side, are you seeing any evidence of that in the industry as kind of -- I guess I'll call it a preferred manager over the years?

Well, I think we've always had that. If you look at our business model it's to hire, train and retain the best people, it's to give people access to the full resources. I think we've been clear from the beginning that we believe we have the best team in the world doing this. Part of that is to understand that we should expect our people to be desirable to others. So even during the time period that you're referring to where perhaps that wasn't going to occur, we always assumed it was still there.

So we haven't seen any substantial change on that front, but we like to think that we don't wait until there's a problem to react. So whether that's the diversity of the ownership, the expansion of the executive managing director and managing director roles, the employee stock ownership, things we've done in terms of compensation and promotion; that's the same answer we would have given you five years ago, three years ago and today.

Okay. Maybe on a similar topic, the last year you took advantage of the dislocations out there, I believe, to hire some personnel to staff up some new investment platforms, and I'll use the word upgrade, although I tend not to like to use that word. Do you kind of feel like right now, given that you're pretty well on the investment side, while you're always looking for maybe that incremental person that can add value, you're pretty much where you need to be, and that as you continue to grow assets, it's really just -- you really don't see the need to add much in the way of headcount, whether it's in the distribution side or investment side?

I think in general that's fair to say. You look at our headcount now, you look at our headcount and resources when assets had peaked, but most importantly, as Joel said, this is not about managing to an expense level. We are always always focused on bringing in very good people, senior, junior, midlevel, domestic, international, new business, old business. That will never change. That is always a focus here and that will never change.

Follow up question from Roger Freeman (sic) from Barclays Capital.

Two questions; one is sort of bigger picture question around the need, the desire for greater transparency across financial services and how you think your position, particularly as a public company and the higher transparency standards that holds you to, do you look at that as sort of in this new world order as giving you a material advantage over competitors as you're out raising funds?

We do. We think that we've always tried to be proactive about being transparent. We constantly poll our investors for ideas and things that they're looking for. And I think that even if we were still private, we'd like to think we'd be amongst the leaders if not the leader in that area, because we've been proactive. But there's no doubt that as a public company the additional disclosure and other involvement does create a sense of stability that adds to that.

Great. And I may have missed this earlier when you talked about it, but in terms of reallocating some of the capital out of the Special Investments Fund, just going back to what you had originally said at the time of the IPO, I believe one of the reasons you were putting money into this was to get it to a size where you could attract more external capital. And so I guess I just wanted to ask how you're thinking about that now?

The goal was to have the capital to invest in our private investment platforms, number one, because we saw such attractive investment opportunity; number two, because we felt that was a great way to align interest with investors as we developed these new platforms. That hasn't changed at all.

As we said over the past couple of years, the development of those platforms, probably as is the case with all late 2007 plans in the financial world, the development of those platforms has been a little slower than we anticipated. It is in motion. As we mentioned earlier on the call, we did just have a closing of the second real estate platform and so things are in motion.

But we made a decision based on the fact that that process was slower, how strongly we felt about the opportunities on the multi-strategy side, an added benefit that had further aligned our interest given where investors are putting capital. But we are still -- we remain committed to the private investment platforms in the same way, shape or form that we've made clear over the past several calls.

Got it. Okay. Actually, just one other one I just saw, just quickly. On the comp expense in the first quarter, just conceptually, it's down a bit year-over-year despite a year ago having sort of high water marks still hanging over your head as you were starting to accrue kind of thinking about the full year basis. I just wanted to kind of get your thoughts on why that would actually be down?

And that it's slightly down and don't forget, if you're looking at total comps the guaranteed bonuses were where the reduction was, not the salary expense.

Okay. So it was really because you did take advantage in terms of some of the hiring last year, so that's really kind of the way to think about why that was higher.

Exactly.

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

Thanks Madge. Before we conclude today, let me take a moment to briefly reiterate three points that we believe are important to understanding our future growth potential. First and foremost, we are well positioned to generate strong risk adjusted returns both now and in the future. The current investment environment is unique in the breadth of the opportunities it presents, which plays to the strength of our investment processes and international capabilities.

Second, our multi-strategy, multi-geographic approach positions us to continue extending our track record of generating strong risk adjusted returns on all the capital that is invested with us and create additional capacity to grow assets under management.

And third, we believe that the capital inflow cycle is underway in the hedge fund industry and that we have been a leading beneficiary of those inflows over the last six months. We expect that trend to continue, leading to additional growth in our assets under management.

With that, Joel and I look forward to updating you on our growth and progress as we move through this year. Now let me turn the call back to Tina.

Thanks Dan. Thank you everyone for joining us today and for your interest in Och-Ziff. If you have any questions please don't hesitate to call me at 212-719-7381. Media inquiries should be directed to Steve Bruce at 212-371-5999.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.