Sculptor Capital Management Inc (SCU) 2010 Q4 法說會逐字稿

Good morning everyone, and welcome to Och-Ziff Capital Management Group 2010 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 a listen-only mode. All lines have been placed on mute to prevent any background noise. (Operator Instructions). I will now turn the call over it Tina Madon, Head of Investor Relations at Och-Ziff.

Great. Thanks, Francis. Good morning everyone, and welcome. With me today are Dan Och, our Chairman and CEO, and Joel Frank, our Chief Financial Officer. I would 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, certain expense levels 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. For the discussion of the risks that could affect our results, please see the risk factors described in our 2009 Annual Report. The Company does not undertake any obligation to publicly update or revise any forward-looking statements, 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 USGenerally 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 Management Group LLC. Telephonic and webcast replays will be available later today. You can find the details for both on our website at www.ozcap.com.

Let me now turn the call over to Dan.

Thanks, Tina. Good morning everyone. As we begin 2011 we want to take a moment to thank you for your continued interest in Och-Ziff. We are committed to maintaining strong relationships with the investment community, and we appreciate your continued support. This morning I will review our 2010 investment performance and assets under management as of January 1st and February 1st. I will also comment briefly on January's performance. I will then discuss our priorities for the coming year in the context of the investment environment we see, and also our outlook on capital flows for both of hedge fund industry and Och-Ziff. Joe will then take you through our financial results, and after that we will take your questions.

2010 was a very strong year for us. We were pleased with both our investment performance and the growth in assets under management related to new capital inflows. The value of our multi-strategy investment process was clearly evident in our results. The flexibility of our approach enabled us to adjust our capital allocations, to navigate through rapidly changing and often volatile market conditions, and take advantage of new opportunities. As a result, we again generated consistent positive non-correlated returns for our fund investors.

Central to our ability to deliver these results were the emphasis we placed on a consistent and disciplined approach to investing and managing risks, including our limited use of leverage, and the level of diversification we maintain in our portfolios, which is a function of our ability to opportunistically invest across multiple strategies and geographies. We believe that these attributes combined with the stability and transparency of our franchise are highly valued by our fund investors. We saw a steady pace of inflows during 2010, as institutional investors increased their allocations to the industry overall.

Capital was added to our funds by both new and existing investors. In our conversations with them throughout the year, we consistently heard that manager selection remains a key consideration. We believe that our inflows were at the high end of the range of those allocated to asset return managers and investor perception that we are manager of choice. Our performance and the growth in our business over the last year is also a testament to the caliber of our investment professionals and support staff. Their experience, skill, and unwavering dedication to our business were essential to the enhanced competitive positioning that we believe we achieved during 2010.

As we turn to 2011, our objective remains simple. To continue to create value for our fund investors by focusing on performance, which is supported by a world-class infrastructure and client service. Over the coming year, our strategic priorities are consistent with this objective. First, to continue generating strong non-correlated risk adjusted returns by pursuing high quality investment opportunities via our multi-strategy model. Second, to take advantage of our strength as a firm in order to attract new capital to our funds. And third, to continue to offer innovative investment products in order to meet the needs of our fund investors.

Our ability to move capital to the areas we believe offer the most compelling risk/reward was important in 2010, and we expect the same will be true for 2011. We also believe our international capabilities will remain an important competitive advantage. Early 2011 has been very different from early 2010, with greater consensus around market expectations globally. We are optimistic about the investment environment for our strategies, and believe that the opportunity set is broader than what we saw during the same period a year ago.

In particular, we expect further acceleration this year in equity event-driven activity worldwide, which plays to the strengths of our multi-strategy model, and our ability to invest on a global basis. Our equity investment capabilities have traditionally been very strong and long short equity and merger arbitrage and always been key strategies in our portfolios. We also believe that there will continue to be compelling investment ideas in structured credit. During the fourth quarter and continuing into this year we have increased our capital allocations to each of these strategies in response to the opportunities we have been seeing,while simultaneously reducing our cash position. We anticipate that we will capitalize further on these strategies globally in the coming year.

As we look to 2011 and beyond, we believe that institutional investors will need to further diversify their holdings, and increase the proportion of non-correlated returns in their portfolios. As a result, we think that capital flows to hedge funds will accelerate further. We believe that the degree of institutional differentiation we have been able to achieve positions us to continue to attract a meaningful share of these flows.

Now let's turn to our business results, starting with assets under management. As of January 1st of this year, our assets under management totaled $26.7 billion, increasing 17% or $4.1 billion from $23.5 billion on January 1st 2010. As you saw in our 8-K last week, our assets under management on February 1st were $28.4 billion. This included an $800 million net increase from January 1st, comprised of approximately $300 million of net inflows, and $500 million of performance driven asset appreciation. I want to reemphasize that month-to-month capital flows can vary, sometimes substantially, based on the timing of when investors decide to place capital with us.

In 2010, we experienced ongoing demand from a diversified combination of new and existing investors, with specific interest from public and private pension funds, corporates, private banks, and other institutions. This was true of our inflows in the first two months of this year, and we expect this trend to continue. As I mentioned earlier, institutional investors remain extremely focused on manager selection. They place high importance on performance track record, infrastructure, transparency, and demonstrated alignment of interest. We believe that these aspects of our business clearly distinguish us in the hedge fund industry.

Now let's turn to our funds investment performance. For the full year through December 31st, our Master Fund was up 8.5% net, our Europe Master Fund was up 7.5% net, our Asia Master Fund was up 9.9% net, and our global special investments fund was up 13.4% net. On average, these returns were generated with less than 25% the volatility of the S&P500 Index.

As I said at the beginning of my remarks, our returns last year reflect the power of our multi-strategy model, and the benefit to our fund investors of our ability to shift capital allocations between strategies. We were active in all of our strategies at varying points throughout the year, with the most significant contributors to our overall performance being structured and distressed credit and equity long/short. In January, we continue to perform well. For the month ended January 31st, our Master Fund was up 1.6% net, our Europe Master Fund was up 2.4% net. Our Asia Master Fund was up 1.1% net, and our global special investments fund was up 2% net.

As I mentioned earlier, we see a broad range of opportunities evolving globally in 2011. We are actively capitalizing on them. We remain intensely focused on generating returns in each of our funds, and we believe that our approach to investing positions us well to continue generating strong performance for our fund investors over the long term.

With that, let me now turn the call over to Joel, who will take you through the details of our financial results.

Thanks, Dan. Today I will review our fourth quarter and full-year 2010 results, give you perspective on how we are thinking about expenses for the 2011 first quarter, and briefly review our financial model. For the 2010 fourth quarter, we reported a GAAP net loss of $23 million, or $0.24 per basic and diluted Class A share. For the full year, our GAAP net loss was $294 million, or $3.35 per basic and diluted Class A share. As always, a discussion of our GAAP results is contained in our press release.

Now let's turn to the details behind economic income, beginning with revenue. Full-year 2010 management fees totaled $429 million, an 18% increase from the prior year, as average assets were higher in 2010 compared to 2009 due to net inflows and performance-related appreciation. Fourth quarter 2010 management fees were $113 million of which $111 million were attributable to the fund segment, and $2 million to the other operations. Management fees increased by a total of 5% from the third quarter, as our assets under management grew by approximately $1 billion from $25.3 billion on July 1st to $26.3 billion onOctober 1st. From October 1st to January 1st of this year, assets under management grew by approximately $1.3 billion to $27.6 billion, resulting from approximately $1 billion in performance-related asset appreciation, and $300 million in net inflows. Our average management fee remains at approximately 1.7%. This is a blended fee that includes the effect of our nonfee paying assets.

Full-year 2010 incentive income total $446 million, a 28% increase from the prior year. This increase was due to positive investor performance across all our strategies, and the absence of high water marks in 2010. The assets in our three-year structure and private platforms are approximately 13% of total assets under management at year end. As a reminder, these assets are subject to longer measurement periods as it relates to incentive crystallization. We are eligible to receive cumulative incentive income on the assets in our three year structure beginning in 2012.

Now let me give you a quick recap of our operating expenses. Full-year 2010 comp and benefits were $226 million, a 5% increase over the prior year. Of this amount, salaries and benefits were $76 million, essentially unchanged year-over-year. In the 2010 fourth quarter, salaries and benefits were $18 million, 7% lower sequentially. Salaries and benefits in the fund segment increased $2 million, or 15% from the third quarter, which is more than offset by a $4 million decline in other operations.

For the 2010 full year and fourth quarter, salaries and benefits were 18% and 16% of management fees respectively. For the first quarter of 2011, we expect that salaries and benefits will continue to be 16% to 18% of management fees. Full-year 2010 cash bonus expense was $150 million, 7% higher than prior year, due to increased revenues with $143 million attributable to the fund segment, and $7 million to other operations. The total cash bonus amount included the guarantees which have been accrued throughout the year.

In 2010 cash bonuses were 17% of the total annual revenues, compared to 20% in 2009. We followed the same methodology in 2010 that we have always employed, which is to determine discretionary bonuses based on the full year economic results of the firm, including the incentive income crystallized at year end. As always, our objective of determining bonus payments, is to maintain a competitive compensation structure as well as a stable franchise and culture, and 2010 was no different. We will continue to focus on sustaining a strong alignment with our fund investors and our Class A shareholders.

Now let me turn to non-compensation expenses. Full-year 2010 noncomp expenses were $85 million, down 10% from the prior year. The largest component of the year-over-year decrease was lower interest expense on our variable rate borrowings due to the decline in LIBOR, as well as the early retirement of a portion of our term loan in 2009. Also contributing to the decrease were lower insurance costs and occupancy expenses. Partially offsetting these decreases were higher professional services fees.

Fourth quarter 2010 noncomp expenses were $22 million, with $20 million attributable to the fund segment, and $2 million to other operations. Noncomp expenses were essentially unchanged compared to the third quarter. For the 2010 full year and fourth quarter, noncomp expenses were 20% and 19% of management fees respectively. For the first quarter of 2011, we expect that noncomp expenses will be 19% to 21% of management fees.

Our effective tax rate for 2010 full year and fourth quarter was 19% and 18% respectively. For the first quarter of 2011, we estimate that our effective tax rate will be in the range of 20% to 30%. Let me reiterate that our effective tax rate is subject to variables which do not generally solidify until the fourth quarter of a given year, such as the amount of the incentive income we earn, the resulting flow of revenue and expenses for 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 tax rate can vary substantially from our estimates.

Distributable earnings for the 2010 full year and fourth quarter were $461 million, or $1.13 per adjusted Class A share, and $303 million or $0.74 peradjusted Class A share respectively. As you saw in our press release this morning, our 2010 fourth quarter dividend was $0.71 per Class A share, bringing our 2010 full year dividend to $1.01 per Class A share.

As in prior quarters we used cash to fund items related to the operation of our business. In the fourth quarter the most significant of these was withholding taxes paid upon the vesting of RSU. In closing I would like to reemphasize both the scalability and the earnings power of our model. Growth in assets under management drives the growth of management fees, which we expect will more than offset any increase in operating expenses.

Asset growth can also yield increasing amounts of incentive income, as we continue to generate strong returns on a larger base of assets. Discretionary cash bonuses which are correlated with the full year economics of the firm, are the main offset to the incentive income, and therefore the growth in the incentive can be a powerful driver of the growth in our distributable earnings. As has always been our policy, we expect to continue to pay out substantially all of our annual distributable earnings.

With that, we will now take your questions.

(Operator Instructions). And your first question is from the line of Bill Katz from Citigroup. You may proceed.

Thank you, and good morning everybody. I just want to follow-up, maybe Joel on your last point there, in terms of the margin. Very strong margin sequentially year-on-year. As you look out into 2011 and beyond, what are some of the major expense drivers here? Is there any pressure on comp which was flat I guess in some of your comparables here. I am trying to see how much scalability there really is here?

Obviously Bill, you know that expenses have remained pretty much flat year-to-year, and bonuses are fully discretionary, based on the economics of the firm which we don't know until year end because incentives doesn't crystallize until year end. So you can't predict what revenues are going to be going forward, but in terms of expenses we don't see anything out of the ordinary.

Okay. That is helpful. And then maybe just I think numbers came in much higher than what everyone was expecting generally speaking, in terms of distributable earnings per share, and it seems like it probably focused on the performance fee side of the business. Can you talk a little bit about where some of the leverage was specifically, that drove the very strong performance fee showing?

Well, that there are a lot of components that feed into the number which is not crystallized until year end. But performance itself is the main driver of the incentive, and our results are just simply a good example of the operating leverage, and the power of the incentive.

Okay. Just one last one. Dan, you mentioned before you think this is a continuing upcycle here, and your manager of choice. Can you talk a little bit about the economics of the business in the last couple of calls, there have sort of been whether it be high water mark changes, or the shift to longer date of asset crystallization periods. We are not hearing any of that today which I think is a good thing, but any other shifts in the economics of the business to be aware of?

We do not see any substantial shifts coming in the business.

Okay. Thanks.

I will point out that our average management fee is 1.7%, and I believe that since we have been public, it has remained at that level.

Okay. That is helpful. Thank you.

Your next question is from the line of Roger Freeman from Barclays Capital. You may proceed.

Good morning. Just to follow-up on Bill's question around the performance fees. We know what the returns were, so I think for all of us, if you came in higher than we were modeling based on sort of the 2 and 20 and what we know about, and cross investments into the Special Fund, et cetera, from the Master. Is the difference actually that there were some realizations in the Special Fund that actually crystallized performance fees, is that why we were low this quarter?

Realizations in our private investments are a part of a normal model. It is no different than it normally would be in any year. It is really a matter as I said earlier of performance and asset growth driving the incentive, and the operating leverage in the business. The incentive is a very powerful number.

Right. Except just to be clear, or at least so I am clear, you generate performance fees off of the Special Fund when you actually realize, i.e. not from quarterly marks?Is that right? So it would actually vary from period to period, obviously it is part of the normal amount, but you could have a lot more one year than the other?

In terms of marketing the book, we mark to market all of the time, and realizations are not predictable, and they are an occurrence that occurs throughout the year as part of our normal process.

Okay.

So getting to your point, there is nothing out of the ordinary. This is a normal model, the way it works, and the normal model will generate incentive and there is a lot of operating leverage in the business.

Right.

And Roger, as Joel said, there are a number of different components that go into it. It wasn't any, it wasn't necessarily just one item that caused the number to be higher than expectations. It is a number of different components that really don't finalize until the end of the year.

There is no extraordinary item or anything like that you can point to.

Okay. That is helpful. And just I guess in terms of the inflows, you said and I haven't been able to go back and do the math fast enough, but 13% of the AUM is now in the three year structure?I think it was 10% last quarter. Is that just a function of basically all of the new flows since then going into these structures?

Well, 13% is the longer fee paying assets. That is not all in, the majority of which is in the three year structure but not all of it. There are some private funds, et cetera, in there as well.

Roger the number last quarter was 12%, not 10%.

Oh, okay.

We have not seen a meaningful change in the composition of flows in terms of share class structure. We haven't seen anything that indicates that there is going to be any change from where the patterns have been.

But what is just to remind me though, what is the pattern, what percentage of the inflows, the gross inflows are going into the three-year structure?

We haven't disclosed that number. What we have been doing and what we intend to do at this point is each quarter is give you the number. But we have received flows. Our flows are coming from a very diverse set, as know, private banks were significant in 2010. They continue to be significant. Public pensions, international, and if I understand your question to say, should we expect a shift to a higher level of the inflows going into the longer term traunches, while we can't predict, there is nothing we have seen to indicate any shift.

Okay. That is helpful. And lastly you sort of touched on in terms of source of flows. [Industry] investors, I guess especially pension funds, it sounds like at least from some of the other discussions with asset managers that 2010 can be kind of characterized as the year of a lot of discussions, a lot of RFPs, but not really a lot of fundings, and that really in the last few months, there seems to be a shift on particularly the pension fund side, to start to actually make the allocations, or would you agree with that?

Well, I think we would agree with the statement that activity interest, understanding of the value, Board level discussions about allocations are continuing, and probably accelerating. In terms of predicting, does that mean that the first half of 2011, or 2011 overall is going to be better than 2010, we don't really know. Our view and I think we have made this clear, our view, is we just want to keep giving investors a reason, both current investors and future investors to be with Och-Ziff, and make us a manager of choice.

So for example, this year, one of the things that our investors are very conscious of, is not just the performance, but the risk. They are aware that our returns were achieved with on average roughly 25% of the volatility of the S&P500. They remember the summer of this year when markets were down, and Och-Ziff still had positive performance. So we keep doing those things right. We do agree with your implication about the long-term trend, but difficult to predict exactly what is going to happen in 2011.

Okay. Great. Thanks.

Your next question is from the line of Dan Fannon with Jefferies. You may proceed.

Good morning. In your prepared remarks, you talked about a compelling investment opportunity environment, and I think you also kind of echoed some of the themes we have heard for from you for the last year or so, about flows coming into hedge funds, or the outlook positive there. Can you talk about I guess your backlog or specifically your RFP activity today, versus what it was a year ago?

Sure. Well, look, in terms of the first part of your question, because you are correct, we did make some comments about the investment environment. We feel there are certain areas that play well to our strengths and our traditional strengths where there is more opportunity globally, and we expect 2011 to continue to offer opportunities. So one area clearly is the event-driven area. Och-Ziff has always been very strong there. And you have seen an increase in our allocation, in our long/short event driven equity from the middle of last year to today, from something in the 18% to 20% range. Joel will run through the allocations later, but to about 36%. At the same time, we continue to find investment opportunity in some of the areas like structured credit, that were drivers in the first half of 2010. So overall, I feel very good about the investment opportunity in our strategies. The bottoms-up buzz from the analytical teams is very strong, and that is important.

In terms of flows and backlogs, it doesn't really work that way in this business. We have conversations. Each institution has its own plan. Sometimes the Board makes an allocation decision, and then the team goes and finds managers. Sometimes they work with a consultant, to put together a model portfolio, and then go to the Board. So continuing off Roger's question, the long term cycle looks very good. But we just, as we maintained for the last couple of years, we are not really able to predict the next quarter or the next six months.

Okay. That is helpful. And then are there new concerns or issues that clients or consultants are focused upon in response to the SEC inquiries, or firms that might be considered your peers? And I guess in terms of the fallout of some of those other firms either seeing redemptions or potentially closing shop, are you a potential beneficiary of reallocation?

Well, we felt that clients always considered infrastructure financial controls, compliance, and all of those issues to be important. And over the last several years have become more important virtually every year. We believe that continues to be the case. Don't know that it is the result of any one incident. But we believe that institutional investors are focused on those issues.

Okay. Thank you.

Your next question is from the line of Cynthia Mayer from Bank of America Merrill Lynch. You may proceed.

Hi. Good morning. Can you talk a little about your real estate and other, looks like it is growing quickly in the fourth quarter, and also I guess you still characterize it as in early development stages. When do you think that would really contribute to the growth of the firm?

Well, the real estate business, it is an important business to the firm. You are correct that the assets understand management aren't as significant as to the other adjectives you could have used, but the business itself is very important. It is instrumental in some of our other businesses, such as the structured credit business. It is instrumental in terms of providing more investment products to our institutional investors. Very difficult for us to predict when and if real estate and any other of the other longer term businesses will generate the type of asset growth that you seem to be referring to. But we are very committed to each of the businesses, and think that they are an important part of Och-Ziff

Okay. And then maybe just looking at the flows for last year, is there any way to get some color on the gross sales and redemptions, to give a sense of the turnover in the assets, and any particular trends worth noting there?

I mean we generally don't discuss those kind of details no particular trends noted. It was a mixture of different investors and different assets.

Okay. And maybe, you mentioned guaranteed compensation. At this point, how much of the comp is guaranteed for this year, so that if for some reason performance didn't materialize, what would have to be paid out?

We don't guarantee a material portion of comp. There is not going to be anything substantially different than what you have seen in the past.

Okay. Great. Thanks a lot.

Thank you.

Your next question is from the line of Robert Lee with KBW. You may proceed.

Thank you. Good morning everyone. Two quick questions. One on, I am just curious on the Europe Master Fund, I mean assets there I guess were pretty much flat year-over-year, and had some positive importance. Kind of suggesting that to the extent there has been some outflows, it has been from that product. Can you maybe just provide some color, just kind of the relative demand for the different products, and maybe why that one in particular is kind of not seeing the same inflows, maybe of the Master Fund or the Asia fund?

Well, obviously, I can't tell you what investors are thinking or how they are making decisions. But I think as a general matter particularly in 2010, there was a lot of concern and uncertainty about Europe, the Euro, and some of the European economies. Our European franchise is a very, very important part of Och-Ziff. It was a significant contributor in 2010. Its performance, especially given what was going on, was very strong in 2010. We have been there since 1997. We have a very large team. We have approximately 65 people.

Even today, quite frankly, the uncertainty you are seeing creates a lot of opportunity. The information flow we receive from those teams is very valuable. So we do believe that in terms of flows to the regional fund, investors were somewhat hesitant, given the overall uncertainty. But investors in the multi-strategy fund note that roughly 33% to 35% of our assets were invested in Europe during the year. They consider that very important, and most of them, many of them are very familiar with our team and the senior management there, and understand how strong they are.

Alright. Thanks. And maybe a follow-up on flows. If you look, I mean they stayed obviously pretty strong month-to-month with obviously some variability. But if you look back kind of a year ago, you had a couple of quarters, the first two quarters I guess where they were extraordinarily strong. You see some kind of slow-down into some kind of a relatively consistent range. Any kind of color you can provide on why you kind of had that acceleration earlier last year, and then it kind of settled down. Was it a pent-up demand coming off of a difficult 2009, or change in other kind of changes in institutional behavior or key patterns?

Well, we don't know the answer. Our sense is that the slow-down that you are referring to was an industry phenomenon, or that was our sense. Most importantly, we believe that whether it is dialogue we are hearing at very high levels, what we are hearing from consultants, what we are seeing in meetings, we believe that the interest is there. The understanding of the value created is there, and if we continue to generate the performance and do the other things that matter, we are confident flows will come, and that our share will remain strong.

Okay. Thanks. And maybe one last question for Joel. The management fee rate has been very sticky around the 170 level. I guess as we look forward with the deferred fee structure I guess I will call it, now at about 13% of assets, and if I am not mistaken has 1.5% management fee, I was a little surprised that we haven't started to see a little bit of deterioration in the management fee rate. Is it reasonable to think that we should start to see that? Is there something else happening underneath the surface that is going to keep it from dropping too much?

Not at all. I think obviously we can't predict flows, we can't predict where people are going to invest. But based on what we see in the structure now, you shouldn't see that number change materially.

Okay. Great. Thank you very much.

We also want to remind you in terms of the capital that comes in the three-year traunch, it does not take incentive fees during the first two years. But as Joel said during the call, during 2012 we will begin to crystallize some of the earlier investments into that traunch. It is not that we never take the inventive. It is just that the crystallization is delayed.

Great. Thank you very much.

Your next question is from the line of Kenneth Worthington with JPMorgan.

Good morning this is Funda Akarsu for Ken Worthington. Investment dollars have been concentrating in the biggest firms with the most established brands. Are you hearing about that trend easing, as concerns around risk diminish?

We are not. We have not heard anything about that. We also, our view is not that assets are necessarily going just to the biggest firms. We think assets-- (audio break).

Ladies and gentlemen, please stand by. Your conference will resume shortly. Again thank you for your patience. Please stand by. Ladies and gentlemen, please continue to stand by. Your Och-Ziff conference will resume shortly. Please continue to stand by. You may proceed.

I am not sure where we got off in terms of cut off, in terms of answering the question. But we are not seeing, we haven't seen anything to indicate a change in that trend. And as I was saying, we don't think it is necessarily all large firms that are receiving capital, and all small firms that are not. We think that particularly post the financial crisis there has been significant differentiation amongst managers by institutional investors, and that manager selection has been even more important. And so we think it is the firms that showed that they were performing, performing with the proper risk controls, aligning interests with investors, transparency disclosure, and the things that we have gone through, but we haven't seen any indication of any changes.

Sir, your next question is from the line of Mark Irizarry from Goldman Sachs. You may proceed.

Thanks. Can you just talk about the breakup of the AUM by client types, Joel, you may have given us some percentages around that. And also have your existing LPs, are they looking to move into the three-year traunch? Is that something that they can do, or is your AUM base sufficiently constructed with sort of shorter duration capital relative to three year?

Let me give you the breakdown first. Pension is about 23%, fund to fund is 22%. Foundation endowment 16%, corporate institutional and other about 12%. Affiliated capital is 9%, family office and individual and private banks are about 10%. And answering in terms of structurally what they can do, investors can transfer into the three-year traunch if they wish. We haven't seen a lot of that interest there, but they can if they wish.

So we think most of, to the extent that was going to occur, Marc, we assume most of that has occurred, since they have had over12 months to make that decision.

Okay. And then Danny are you surprised at all there is not more of a willingness for institutions to lock into that three year traunch, obviously you introduced it with some expectation. Does that say anything about the state of affairs of the industry, or is it just is there just not much to sort of read through from that?

Well, it is another option that we offer to investors. We think it is consistent with our approach of aligning interests. If one thinks it, I don't think historically that there has been much three-year capital in the hedge fund industry. So we took it as a very strong statement, we took it as a very strong statement about the commitment by these investors. We took it as a very strong statement about what we have done to differentiate our firm.

And then Joel, can you tell us what your performance fee earning AUM is as of today or February 1, and the also what was head count at the end of the year?

Let me give you the head count first. The head count was 405 people in total. And had terms of with 20% of profits, 13% of the AUM is deferred for a period of time until starting in 2012.

Thanks.

Thank you.

Your next question is a follow-up from the line of Roger Freeman from Barclays Capital. You may proceed.

Hi. It is Stephen here for Roger. We got cut off. I think you just gave the mix in terms of clients. Did you also give the mix in terms of investments within the Master Fund?

You mean how capital is allocated, let me give you that.

Thank you.

As Dan mentioned, long/short equity is about 36%, Convertible arbitrage 17%, structured credits 17%, private investment 7%, credit related is 12%, merger arb is 6%, and cash of 5%.

Thank you.

And that concludes the question and answer session today. I will now turn the call over to Ms. Madon.

Thanks, Francis. Thank you everyone, for joining us today, and for your interest in Och-Ziff. If you have any questions please do not hesitate to contact me at (212)719-7381. Media inquiries should be directed to George Sard or Jonathan Gasthalterat (212)687-8080.

Ladies and gentlemen thank you all for your participation in today's conference call. This concludes the presentation, and you may now disconnect.