Sculptor Capital Management Inc (SCU) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and good morning, everyone, and welcome to Och-Ziff Capital Management Group's 2011 fourth-quarter and full-year earnings conference call. My name is Ann, and I will be your coordinator for today. At this time all participants are in listen-only mode. (Operator Instructions).

I would now like to turn the call over to Tina Madon, Head of Investor Relations at Och-Ziff.

Great. Thanks. Good morning, everyone. We appreciate you joining us today. With me today are Dan Och, our Chairman and CEO, and Joel Frank, our Chief Financial Officer and Senior Chief Operating 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 a discussion of the risks that could affect our results, please see the risk factors described in our 2010 annual report. 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 that 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 Class A 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.

With that, let me now turn the call over to Dan.

Thanks, Tina. Good morning, everyone. As we begin 2012, we wanted to take a moment to thank you for your continued interest and support. We remain committed to maintaining strong relationships with the investment community.

This morning I will review our investment performance for 2011 in January of this year, and I will discuss our assets under management as of January 1 and February 1. I will touch on our priorities for 2012 in the context of the investment opportunities we see and what we are hearing from our fund investors.

I will also share our perspective on capital flows for both the hedge fund industry and Och-Ziff. After that, Joel will take you through our financial results, and then we will take your questions.

2011 was a particularly volatile year characterized by the most difficult and challenging market conditions since 2008. Performance across equity markets worldwide was widely divergent with the S&P 500 up 2.1%, the euro stocks 50 down 13.1%, and the Nikkei down 15.6%. The European debt crisis, together with global macroeconomic conditions that became weaker as the year progressed, resulted in a significant deterioration in investor confidence.

Throughout last year, the value of our consistent approach to investing and managing risks, our multi-strategy model, our limited use of leverage and our strong infrastructure were clearly evident. We successfully protected investor capital by reducing exposures in our portfolio early in the year and remained nimble as market conditions evolved.

We maintained an active and thoughtful process, not only in relation to managing risk at the portfolio level, but also in how we managed liquidity, counterparty exposures and other areas of our business. The consistency of our approach and the stability of our franchise, combined with our strong investment and investment expertise, were integral to how we accomplished this.

Our performance and the growth of our business in 2011 also demonstrated the caliber of our investment professionals and support staff. We continue to believe that we have the best team of people in the industry, and that focus and dedication were integral to the quality of our performance in another exceptionally difficult year.

Our dialogue with fund investors was very active throughout 2011, and interest in Och-Ziff remains high. Our ability to consistently protect capital, our long track record, our strong alignment of interests with fund investors, our transparency and our institutional-oriented infrastructure differentiate us competitively. As a result, we saw more than $1 billion of capital net inflows last year, despite a very difficult environment for the hedge fund industry.

As we turn to 2012, we think that institutional investors will look for additional opportunities to mitigate risk and enhance their returns. We believe that continued levels of macro uncertainty, limited liquidity and muted global growth will likely weigh on investor confidence. However, we also believe that capital allocations to the hedge fund industry will begin to increase as markets stabilize globally and as volatility decreases throughout the year.

We think that the degree of institutional differentiation we have achieved positions us to continue to attract a meaningful share of these flows. Our priorities for 2012 remain consistent with what they have been in prior years. First, to create value for fund investors by generating positive absolute returns with low volatility as we seek to capitalize on high quality investment opportunities in other strategies. Second, to take advantage of our organizational strength and investment expertise to attract new capitals to our funds. And third, to develop new investment products and platforms to meet the needs of our fund investors, which in turn will help to diversify and grow our business. We believe that our continued ability to achieve these objectives is the catalyst for increasing our assets under management and growing future earnings.

Now let me turn to our assets under management. On January 1 of this year, our assets under management totaled $28.4 billion, increasing 3% or approximately $800 million from $27.6 billion on January 1, 2011. This included approximately $1.1 billion of net inflows and $285 million of performance-related asset depreciation. As you saw on our 8-K last week, our assets under management on February 1 were $29 billion. This included a $600 million net increase from January 1 of this year, reflecting approximately $500 million of performance-driven asset appreciation and $100 million of net inflows.

In 2011 we experienced ongoing demand from a diversified combination of new and existing investors with the greatest interest coming from pension funds and collaborative bank platforms. Allocations from pension funds increased to 28% of our assets under management on January 1 compared to 23% a year ago. Private bank allocations increased to 12% from 10% in the same period. We anticipate that these trends will continue in 2012.

Given the impact that last year's incredibly difficult market conditions had on the hedge fund industry, manager selection increased in importance in 2011. We believe that investors increasingly differentiate between managers based on the attributes that have long been hallmarks of our business, including track record, infrastructure, transparency and developing new platforms to meet investor needs.

Institutional investors continue to look for opportunities to expand their relationships with us. We are seeing increased interest in our credit capabilities, which resulted in rapid growth in our credit-focused platforms in 2011. Structured and distressed credits had been significant contributors to our investment performance over the last several years. Our track record and investment expertise in these assets classes are strengths that are attractive to investors as they seek to take advantage of credit-related opportunities in the US and Europe.

Now let's turn to our funds investment performance. For the full year through December 31, our Master Fund was down 48 basis points net. Our Europe Master Fund was down 4.9% net, our Asia Master Fund was down 3.8% net, and our Global Special Investments Master Fund was up 3.2% net. These returns resulted in limited performance-related depreciation to our assets under management last year at an average we generated with about a quarter of the volatility of the S&P 500.

As I said at the beginning of my remarks, our returns last year reflected the power of our multi-strategy model and our ability to be flexible in adjusting our capital allocations. We were active in all of our strategies at varying points throughout the year with the most significant contributors to our overall performance being US structured and distressed credit and US long/short equity.

In January our performance was strong. For the month ended January 31, our Master Fund was up 1.6% net, our Europe Master Fund was up 1.9% net, our Asia Master Fund was up 2.6% net, and our Global Special Investments Master Fund was up 1.3% net.

Looking forward to 2012, we are optimistic about the investment opportunity set and our ability to generate consistent positive absolute returns for our fund investors. Although we remain cautious, we continue to believe the dislocations created by the current environment will benefit those investors with flexible capital to deploy, and this plays to our strength.

In particular, we see compelling ideas in global long/short equity, as well as US and European distressed and structured credit. We believe we are well positioned to take advantage of investment opportunities across multiple geographies within each of our strategies. We will continue to pursue a patient-disciplined approach and remain intensely focused on generating turns in each of our funds.

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

Thanks, Dan. This morning I will review our 2011 fourth-quarter and full-year results, recap how we are thinking about expenses for the first quarter of this year and then briefly review our financial model and dividend policy.

For the 2011 fourth quarter, we reported a GAAP net loss of $137 million or $1.17 per basic and diluted Class A Shares. For the full year, our GAAP net loss was $419 million or $4.07 per basic and diluted Class A Shares. As always, a discussion of our GAAP results is contained in our earnings press release.

Now let me take you through the details behind our economic income results, beginning with revenues. Full-year 2011 management fees totaled $486 million, a 13% increase from the prior year as average assets were higher in 2011 compared with 2010. Of the total, approximately $472 million was attributable to the fund segment and $15 million to other operations. Management fees in the 2011 fourth quarter were $119 million, of which approximately $116 million was attributable to the fund segment and $2 million to other operations. Management fees declined by 5% from the third quarter as our assets under management declined by approximately $800 million from $29.3 billion on July 1 to $28.5 billion on October 1. From October 1 to January 1 of this year, assets under management remained essentially unchanged.

For the 2011 full year, our average management fee was approximately 1.7%, which included the effective non-feepaying assets, as well as our dedicated credit platforms and other alternative investment vehicles. As Dan mentioned, we have experienced rapid growth in our credit platforms over the past year, and they totaled just over $1 billion as of January 1. These platforms generate lower management fees, which are reflective of the market for these products, maintain a 20% incentive structure and generally have longer lockups. We offer the ability for our fund investors to access opportunities that are specific to the credit markets worldwide and are an important source of our asset growth and diversification for the firm. We anticipate we will see additional allocations to these platforms this year.

Full-year 2011 incentive incentive income totaled $65 million, an 85% increase from the prior year due to lower investment performance across our funds.

Now let's turn to operating expenses. Full-year 2011 comp and benefits expense was $193 million, a 14% decrease over the prior year. Of this amount, salaries and benefits were $73 million, 4% lower year over year. In the 2011 fourth quarter, salaries and benefits were $18 million, essentially unchanged on a sequential basis.

For the 2011 full year and fourth quarter, salaries and benefits were at 15% and 16% of management fees respectively. For the first quarter of 2012, we expect that ratio will be 16% to 18%. Full-year 2011 cash bonus expense was $120 million, 20% lower than in 2010 due to lower incentive income. We have $113 million attributable to the fund segment and $7 million to other operations. This total cash bonus amount included the guarantees accrued throughout last year.

In 2011 cash bonuses were 22% of total annual revenues compared to 17% in 2010.

For discretionary bonuses, we follow the same methodology that we have always used. We determine bonuses based on the full-year economic results of the firm, including the incentive income crystallized at year-end with the objective of maintaining a stable franchise and culture through a competitive compensation structure.

As Dan noted, the quality of our investment performance last year and our ability to protect capital in the most difficult and volatile market conditions that we have seen since 2008 is a reflection of the skill of our employees. We have always emphasized the fact that the firm is comprised of an extremely talented team of people who through their efforts and expertise are integral to helping our business perform and expand. We believe that combination of our track record, people and infrastructure are extremely important to current and prospective investors and in turn will drive the future growth in our assets under management.

Now let me turn to non-compensation expenses. Full-year 2011 non-comp expenses were $86 million, 2% higher than the prior year. For the fourth quarter, non-comp expenses were $21 million, a 4% decline sequentially with $20 million attributable to the fund segment and $1 million to other operations. For both the 2011 full year and fourth quarter, non-comp expenses were 18% of management fees. For the first quarter of 2012, we expect this ratio will continue to be 18% to 20%.

Our effective tax rate for the 2011 full year and fourth quarter were 27% and 17% respectively. For the 2012 full year and for the first quarter, we estimate that our effective tax rate will be in the range of 25% to 30%. However, as always, these ranges could vary substantially as we move through the year should our actual economics result vary from our current estimates. These estimates are subject to many variables that will not be finalized until the fourth quarter. The most significant of these are the amount of incentive income we earned, the resulting 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.

Distributable earnings for the 2011 full-year were $200 million or $0.48 per adjusted Class A Shares and for the fourth quarter were $17 million or $0.04 per adjusted Class A share.

As you saw in our press release this morning, our 2011 fourth-quarter dividend was $0.04 per Class A share, and our 2011 full-year dividend was $0.40 per Class A share.

In closing, I would like to again emphasize the relationship between the stability and growth in our assets under management and the future earnings power of our business. We ended 2011 with nearly $29 billion in assets under management with more than $1 billion of net inflows and minimal performance related asset depreciation last year, despite challenging market conditions and a difficult year for the hedge fund industry. The stability of our assets under management is essential to sustaining our future earnings power as we earn both management fees and incentive income on that base of assets. We believe our ability to generate consistent positive absolute returns across market cycles, combined with our ability to offer diverse platforms to our fund investors, differentiates us competitively and thus positions us to gain a large share of new inflows to the industry as markets stabilize.

Competitive investment performance is at the core of how we earn incentive income and is integral to the value we provide to our fund investors. As our assets grow and we continue to generate positive risk-adjusted returns in that increasing base, our management fees and incentive income grow. In combination, these factors are powerful drivers of growth in our future distributable earnings. Our dividend policy continues to pay out substantially all of our distributable earnings each year, which has historically resulted in high dividend yield driven by both management fees and incentive income.

With that, we will be happy to take your questions.

(Operator Instructions). Roger Freeman, Barclays Capital.

In terms of your discussion, just two questions. One, is there any change in the timeline? You know the periods to gain new funds committed for (technical difficulty)-- has lengthened a lot with the rise in (technical difficulty)-- risk aversion last fall. Has that lengthened at all? And secondly on -- was there second sort of pension funds and private banks, what percent of your pipeline, if you will, say they were represent what they represent of your AUM today? I'm just curious if that is a much larger portion in terms of (technical difficulty)-- level going (technical difficulty)--?

In terms of the first part, I don't think we would say that the context has necessarily been lengthened because of the investor uncertainty last year. I think that investors generally were less inclined to make investments during a significant part of last year due to risk in the economic end market environment.

As we often -- I hope we have got the point across, it is really difficult to talk about pipeline because we have a constant set of dialogue with a lot of different investors in different geographic regions and about a number of different platforms and potential platforms.

But, as you saw, I think the key numbers to focus on, last year pension funds did increase from about 23% to 28% of our assets, and I think it is fair to say that the composition of discussions we are having is similar to what we were having last year.

Okay. That is helpful. And then on the performance fees in the fourth quarter, were they driven by the special investments given where the funds stood, or is it just the noise of where (technical difficulty)-- came in relative to (technical difficulty)-- performance?

They were driven both by crystallization on incentive for withdrawing investors and some relation, normal realization on side pocket investments.

Okay. And then are there -- if we try to think about high water marks, particularly in Europe and Asia (technical difficulty)-- not as simple as just looking at the 2011 total return again because of (technical difficulty)-- AUM. Any guidance there may as to what (technical difficulty)-- we would need on average to get the high water marks?

No, I think the easiest way is just looking at the absolute returns that we produce. You can get the best sense from that.

Okay.

And the most important thing there, I think two things to look at. Number one, the Master Fund, which represents the majority of the assets down 48 basis points last year, up 1.6% for January, so you can do the arithmetic there. We did talk about $285 million in asset-related depreciation last year and $500 million in asset-related depreciation in January. So, as we have highlighted in the past, the stability and the lack of downside is not only important to our fund LPs, but it's important to shareholders because it just preserves the earnings power and lets us get right back to what we want to be doing.

Ken Worthington, JPMorgan.

As of January 1, Och-Ziff was still 21% cash, and I think you talked about the concerns that held you there to a somewhat large cash allocation at the beginning of the year. But given the economic data, equity market returns, has the cautious stance moderated a little bit, and are you seeing more high conviction opportunities in the market today versus just like a month and a half ago? But if so, are there any themes that are worth calling out?

Yes, the cautiousness has moderated for two basic reasons. If you remember last year what we were discussing during the spring and early summer was concern about certain economic uncertainties, particularly in Europe, as well as the US economy. While we are not out of the woods on either of those, those clearly are better than they were and the fact that we did not see substantial dislocations in the market because the markets were less concerned than we were.

In the fourth quarter, we talked about the fact that dislocations were creating significant investment opportunities, particularly in distressed credit, structured credit and equity to long/short, and that has continued. So the cash position has been decreasing, and we expect that to continue to be the case.

Great. In the prepared remarks also, you talked about the development of new products as a key priority for 2012. Like what realistically are investors seeking? Like obviously they want no risk and high returns, but what are they realistically seeking? And then in terms of themes there, are they looking for products in particular regions? You obviously mentioned credit, actually you mentioned credit a couple of times. Are their other things worth mentioning in a public forum as well?

The number one thing investors are focused on with us at this time in terms of new products are on the credit side, and that is why we mentioned them. They are interested in direct dedicated allocations to credit, and they are interested in doing it with Och-Ziff. They have seen our performance over the past several years. They have also seen -- they have watched over cycles that we tend -- we have been very good historically at getting out of these credit products when they become more expensive and, therefore, avoiding what in the past tends to be substantial declines when they occur. And that is very important.

As Joel mentioned, these products tend to be lower management fee than the hedge fund products. We have maintained the 20% firm allocation, which we think is extremely important, and they tend to be longer lockup. So it is growth in the business. It's very good for our investors. It takes strong teams that we have and let's them get stronger and makes us a stronger player in the marketplace. So it is something that we are very excited about.

Dan Fannon, Jefferies.

Looking at the breakdown of customers, as you think about the geography for where those customers sit and the breakdown that you are in and then as you look forward, part of the demand is it growing faster outside the US, or is the US still -- do you expect this to be the primary source of growth?

Well, let me give you what the current breakdown is by geography, and then I can give you the variance from the prior year. So we give you a sense. So North America currently is 72%, Europe is 17%, and then Asia and Middle East everybody else is different. And the growth areas North America increased by about 2%, other areas about 1%, and then Europe was down about 3%.

And thematically what was going on is very simple. We had significant demand from public pensions in the US. Europe last year for reasons that are probably obvious, there was just less demand than there has been historically.

Having said that, we stayed fully focused and committed, not just on the investment side but on the investors side, and we believe that Europe represents a very substantial opportunity for us. It has been strong in the past, and we think that will continue.

Okay. That is helpful. And in terms of your discussions with clients or prospective clients, are there concerns --- before a year ago, there was talk around fee pressure. That appears to have abated, but in terms of Och-Ziff specifically, are people focused on capacity constraints or your size being an area of concern as they think about allocating more capital to you or becoming a first-time customer?

No, if anything, that is beginning to reverse. They are noting a few things. They are noting that in the type of volatility they have seen in the past few years, our nimbleness tends to be better than others in the market. Our ability to anticipate tends to be better than others in the market. They also see the arithmetic. That while our main fund is $20 billion, when they look at the allocations to each area, we tend to be smaller than many of our competitors in terms of allocations to an individual sector with more overall resources.

And let me add to that also, the infrastructure itself and the way we operate within a hedge fund this size is extremely important to our fund investors. The controls, the independent review, the objectivity that we have and the fact that the infrastructure is integrated together is extremely important and very valuable.

Bill Katz, Citi.

I apologize, you may have covered this already. I missed a little bit of the call. In terms of the credit opportunity, is that embedded as an opportunity within one of the master finds, if you will, or is that a separate area? And do you anticipate reasonably good growth there in terms of resources and then opportunities to carry assets?

The Master Fund has been and continues to invest in all of these areas of credit. Several investors have come to us and asked us to create vehicles to allow them to make specific dedicated allocations. So it is pure growth in the business. It is not capital coming out of one fund to go to the other. It is an opportunity for us to access different pools of capital from current clients, as well as take in capital from entities and institutions that are not currently clients.

Okay. So the math of that then would be the fee rate on that fund would probably come down a little bit, but the growth of the assets might accelerate? Is that fair?

Yes, as we said, the management fees tend to be lower than the hedge funds. We have maintained the 20% incentive structure. They tend to be longer lockup, but it is absolute pure growth in the business. It is additive.

Terrific. And just one last one, in terms of the conversation, the dialogues you are having with prospective clients, you mentioned that the capacity is not an issue. But what are two, maybe top three reasons you are hearing or commonalities in choosing Och-Ziff over some of the other competition out there?

Well, it is a lot of different factors. First of all, if you look at our numbers last year, our net inflows were approximately $1.1 billion. Our gross inflows were substantially larger than that. Now obviously outflows count as well, but in terms of all the questions about pipeline, investors making decisions who they are choosing, the gross inflows are extremely important, and that was a very substantial number.

It is both performance. It is ability to navigate risk from a market point of view. It is feeling comfortable that when they enter a period such as last summer and they think about safety of assets, counterparty exposure, liquidity management, they still remember the episode in 2008, the losses that some funds incurred, the locking up, the gating. I know that is not something that is discussed in markets generally. But institutional investors are very focused on it, not because they are upset about what people did, because they want to anticipate what will occur going forward.

Then you start to add the infrastructure, the operations, the transparency, the way it all works together at this firm, that is extremely important. One of our goals is to get investors to come in and see it operate live, see how the investment professionals work together, see how the operations and technology people are linked together. We think that is unique, and we think it works very well for the investors, and we know that when they see it there is no substitute for that.

Marc Irizarry, Goldman Sachs.

The three-year tranche AUM that is set to earn some performance fees, can you just remind us when bad reaches its period of -- its measurement period ends, how much that AUM is, and then maybe what is -- the strategies that it is in? How are those high water marks versus just the overall high watermark?

The longer-term assets, as you know, are 18%, so it is about 9% of that 18%. And the maturity dates on these particular tranches vary over the next couple of years. So we will have some points at this point during 2012 and some points obviously next year as well.

And any perspective on the -- is this all Master Fund assets, and any perspective on high water marks on those assets?

The majority are Master Fund assets. Obviously performance-related information we don't predict, but, you know, in the Master Fund, we were down 48 basis points last year, and we were up 1.6% in January. So we are well past our high water marks and beyond that.

Any of that money that came in 2010, obviously the performance was positive in 2010. So high water marks on three-year capital in the Master Fund should be insignificant if relevant at all.

Got you. And then, Dan, can you just talk about when you meet with your LPs the willingness to look at their fixed income allocation overall and maybe think more about your role as an alternative manager versus maybe the traditional way they think about fixed income?

Well, that is something that we have been very focused on for the past year or so. We do believe that that is going to evolve. It is hard to predict the timing. It is one of those areas that ultimately we will be frustrated with how long it takes, but we will ultimately be extremely satisfied with the results.

At the end of the day, most institutions look at their fixed income portfolio and it is not what it used to be. Given current rates, if their liability assumption is something in the range of 7.5%, their fixed income portfolio yields dramatically less than that. And they do have to sit down at the board level and make decisions about how they are going to deal with that.

So given the perceived safety of fixed income, given the fact that by definition arithmetically, it has worked extremely well, it is probably going to take longer. But there is no doubt that the move by investors into our dedicated credit fund is the beginning of that, and we think that represents a very substantial opportunity.

Great. And then just one more. It looks like you are having some success on the private bank side, and it sounds like you are optimistic about the outlook there for fundraising. Is it an increase in the number of platforms, or are doing more with the same number of platforms if you will?

It is primarily the latter. It is continued blows from the same platforms. We continue to remain very selective about the platforms that we deal with, and we are very confident and comfortable with the relations that we have.

Cynthia Mayer, Bank of America/Merrill Lynch.

Just a follow-up on the three-year lockup assets. Just to clarify, the way those are designed, does the measurement period fall throughout the year, or are they all designed to have performance ending in the fourth quarter?

It is throughout the year. (multiple speakers) -- at some point in the year.

Right. So if you continue to sell a lot of those, conceivably your performance fees would be more evenly distributed throughout the year all the time?

Well, I don't know if you would call it evenly distributed, but we would collect some incentive at different points in the year. You are right.

Okay. And on the credit products you mentioned, they have longer lockups. Are those also generally three year?

Yes.

Though it does have lower base fees and lockups, in a sense we could see assets coming in but not delivering much earnings punch right now?

Well, that is true, although we do collect management fees. You are right. It will not be right away. Some of them could be a little bit longer than three years as well, but obviously a tremendous growth opportunity and good diversification of the business. And the key is that it is additive. It is growth in the business, it is a new asset class, and it is a new opportunity.

Yes and it sounds large. Can you give a sense of what percentage of money coming in is going to that at this point?

Well, last year we had about $4.4 billion of gross inflows. About 15% of those gross inflows went to the credit funds, but the credit funds have been -- were established prior to last year. Obviously a good portion of the growth was last year.

Got it. Okay. And just on the distribution, it looks like you distributed all the earnings in Q4, but you have been averaging something more like 80%. How should we think about that for next year? Is it something to think about in percentage terms or some other way to model it?

I would think look at historic levels. It will be normalized at historic levels.

Robert Lee, KBW.

Actually I just wanted a quick question on the credit business. I'm just curious. I mean I guess it is the same more or less the same team running the strategies for the Master Fund and the others, but I'm curious from a compensation perspective.

My sense is one of your virtues in the past is that everyone got paid off the same pot of performance, so to speak, and now you have some standalone strategies, which one team focuses on. How do you keep -- I'm assuming they get paid directly on that performance as opposed to -- well, they are getting paid directly on that performance. So how do you keep them focused on the broader picture if they maybe have a little bit more incentive to focus on specific products?

We have not changed the compensation structure, and so we don't have that issue. Don't forget in the past, we still have. When investors wanted a dedicated European product, we did create that for them. When they wanted a dedicated Asian product, we did create that for them. We are not changing the compensation structure.

Everything I mentioned about how the people at this organization worked together and when investors see that, investment professionals across different geographic regions, across investment disciplines, working with portfolio finance people, working with operations people on safety and custody of assets, working with compliance people on making sure that we are doing everything that we should do while maintaining the flexibility we need, and it is so important to this firm, and we are not making any changes.

And let me add for the majority of the firm, we get paid off the same P&L, which kind of aligns with the fund investors because what we are trying to do is perform for the fund investors without taking outside risks. So, to your point, there is not a silo here where somebody is getting paid off of something -- revenue they produced and trying to reduce more revenue to get paid. They are doing what is best for the fund investors, and we will allocate capital accordingly. So I think what Dan said and that point is extremely important to our fund investors.

Great. That was it. Thanks for taking my questions.

Roger Freeman, Barclays Capital.

A couple of follow-ups. One, can you remind us on lockups, the employee lockups. I believe that they (technical difficulty)-- late this year are some of them do. (technical difficulty)-- that is fair, right?

Yes.

Do you anticipate any movement at that point? (technical difficulty)-- folks that have (technical difficulty)-- particularly among the senior partners as that (technical difficulty)-- managing round or that when you think about either people getting promoted up or (technical difficulty)-- replace them from outside and drives (technical difficulty)-- which would end up being driven to (technical difficulty)--?

We do not anticipate any significant movement. It is something we have been very focused on. We have been focused on it in two ways. Number one, promoting people, which we have been doing since the IPO; continuing to grow internal talent and move people up to new positions; very detailed discussions with the senior people about their roles and opportunities, and we feel very strongly that the senior people are committed, united, focused, etc.

Great. And just on the three-year money (technical difficulty)-- a number of questions. Can you help us all size how much of the amount of AUM that comes off the lockups this year and where it may be weighted during the year?

Generally, look, I told you it was about 9% of the 18% longer-term assets. A portion of that will come up this year, a portion will come up next year. It is kind of hard for you to model it because you are not going to know exactly what the performance is in those tranches. But I think that will give you some sense for what is happening over the next couple of years.

Okay. And lastly just your AUM by asset class? You talked about pieces of it but -- (technical difficulty)--

Are you talking about strategy-related AUM?

Yes, strategy related. Yes.

Yes, it is in the press release, but let me just give you -- I will write it down. I will give it to you anyway.

All right. It is 24% long/short equity, 14% converts, 18% structured credit, 13% credit, 6% private investments, merger up 4% and 21% cash, which Dan mentioned earlier.

Okay. My apologies for that.

Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the call over to Ms. Madon. Please proceed.

Thanks. So thank you, 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 George Sard or Jonathan Gasthalter at 212-687-8080.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.