Sculptor Capital Management Inc (SCU) 2012 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Och-Ziff Capital Management Group's 2012 second quarter earnings conference call. My name is Shanay 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 would now like to turn the call over to Tina Madon, head of Investor Relations at Och-Ziff.

Great. Thanks, Shanay. Good morning, everyone, and welcome to our call. 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 2011 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 that are not prepared in accordance with US generally accepted accounting principles. Information and 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 web site. Furthermore, no statements made during this call should be construed as an offer to purchase shares of the Company or any 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 web site at www.ozcap.com.

With that, let me now turn things over to Dan.

Thanks Tina. Good morning, everyone, and thank you for joining our call. This morning I'll review our year-to-date investment performance through July 31 and assets under management as of August 1. I'll discuss the dynamics we are seeing around capital flows and review the investment opportunities we are focused on. Lastly I'll comment on the new partner incentive plan we announced today.

During the second quarter we protected investor capital in the difficult and often volatile market conditions that characterized May and June and maintained the strong absolute returns we generated in the first quarter of the year. On a year-to-date basis through July 31, our performance demonstrated our ability to adjust portfolio allocations between asset classes and strategies in response to changes in the environment. We remained opportunistic in moving capital to what we viewed as the best investment opportunities while reducing exposure in areas where potential returns did not offset increased risk.

As always, our returns are a function of our disciplined approach to investing, our active risk management process, and our limited use of leverage. These attributes position us to capitalize further on the investment opportunities that will arise from this environment.

Institution investors continue to indicate a strong interest in allocating to hedge funds as they seek to enhance returns and reduce volatility. However, capital inflows to the hedge fund industry slowed during the second quarter of this year as concerns about the ongoing issues in Europe was well as a weaker economic backdrop in the US and China continued to weigh on near-term investor confidence. Despite a tougher environment for flows right now, we remain confident that capital allocations to the hedge fund industry will increase as markets stabilize globally.

Now turning to our assets under management, as we announced this morning, our assets under management as of August 1 totaled $30.3 billion, increasing $1.5 billion or 5% from $28.8 billion on December 31 of last year due to $1.7 billion of performance-related appreciation and approximately $200 million of net outflows. These amounts included $200 million of performance-related appreciation for the month of July and $800 million of new net inflows on August 1, which included $442 million from the CLO we closed in July.

We continue to have an active dialogue with current and prospective fund investors globally. While the broader market and industry backdrop affects the amount and timing of flows, interest in both our hedge funds and dedicated credit platforms remains strong. We believe we are consistently one of the top managers of choice for multi-strategy absolute return funds and are attracting a leading share of the new flows to this product. Additionally, the capabilities we are building to our dedicated credit platforms will enable us to attract new flows over time, as well as develop and broaden our strategic relationships with investors.

Now let me give you a quick update on our funds' investment performance. Year-to-date through July 31, our Master Fund was up 5.6% net, our Europe Master Fund was up 3.9% net, our Asia Master Fund was up 2.7% net, and our Global Special Investments Master Fund was up 5.3% net. These returns were generated with 23% of the volatility of the S&P 500 Index on a weighted average basis for these funds. Our year-to-date performance was driven by our structured credit, corporate credit, and long/short equity strategies.

As I mentioned on our last call, we were fully vested at the end of the first quarter in the Master Fund. During the second quarter, we actively managed our portfolio by varying exposures over the quarter in relation to the volatility in the markets caused by ongoing issues in Europe and a weaker global macroeconomic environment. We ended the quarter with 7% of the Master Fund in cash, selectively redeploying capital to those asset classes that offered compelling investment opportunities.

As we look towards the second half of 2012, we remain optimistic about the investment opportunity set globally. While relatively high levels of volatility are likely to persist for some time, we believe this uncertainty presents opportunities for sophisticated investors with a long-term investment horizon and capital to deploy. We believe that as markets and investor sentiments have become increasingly interconnected, we benefit from the global perspective gained by our network of experienced investment professionals.

We continue to find interesting ideas in credit and equities, although we remain cautious about the economic outlook, as well as the timing of greater stability in Europe. However, difficult market conditions and periods of higher volatility further reinforce the attractiveness of absolute return strategies and the importance of manager selection. We believe that as a leading absolute return manager, we are well-positioned to further increase our market share over time.

Let me conclude today by briefly reviewing the new partner incentive plan we announced this morning. Joel will take you through the specifics, but our overall objective was to carefully balance the retention of our partners with maintaining a strong alignment of interests with our fund investors and Class A shareholders. Our partners are integral to our investment process and the management of our firm today. They are equally important to growing our business and ensuring an effective transition to future partners for the firm, which is essential to the continuity of the business over the long term.

There are two elements to the new structure. First, our partners have agreed to limit the annual conversion and sale rights of their units. And second, eligible pre-IPO partners may receive an annual performance award, which will be a mix of units and cash with the latter tied to the annual incentive income we earn. Both components are capped. These awards will be discretionary and based on the performance of the firm overall. I have elected not to receive any performance awards. Linking the performance awards our pre-IPO partners may receive to the annual financial results of the firm and capping the maximum size of the award that can be paid in any year will help ensure that the dilutive impact to Class A shareholders is modest.

We believe that this structure maintains the already strong alignment of interests between our partners, our fund investors and Class A shareholders. This approach also enables us to maintain a competitive incentive structure for our non-partner employees who are very important to the sustainability and growth of our business.

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

Thanks Dan. Today I will review our 2012 second quarter results and discuss how we are thinking about expenses for the third quarter. As Dan mentioned, I will also briefly review the details of the partner incentive plan.

For the 2012 second quarter, we reported a GAAP net loss of $116 million or $0.82 per basic and diluted Class A share. For your reference, a discussion of our GAAP results is contained in our press release.

Now let's turn to the details behind our 2012 second quarter economic income beginning with revenues. Management fees totaled $123 million, of which approximately $121 million was attributable to the fund segment and $2 million to other operations. Management fees increased 5% from the 2012 first quarter as assets under management increased approximately $1.1 billion or 4% from January 1 to April 1. From April 1 to July 1, our assets under management remained essentially unchanged.

Our average management fee for the quarter was approximately 1.7%, which included the effect of non-fee-paying assets, as well as our dedicated credit platforms and other alternative investment vehicles.

Incentive income was approximately $18 million during the second quarter and was all attributable to the fund segment. Of this amount, 51% or $11 million was attributable to incentive income earned on assets under management subject to the three-year performance measurement periods. The remainder was attributable to redemptions. Virtually all of the remaining incentive income due this year from assets in our three-year tranche will be crystallized in the fourth quarter.

Now let me turn to the 2012 expenses. Comp and benefits totaled $22 million during the second quarter with $21 million attributable to the fund segment and $1 million to other operations. Of the total, salaries and benefits were $20 million, which is primarily related to the fund segment. This amount was essentially unchanged from the 2012 first quarter. Second quarter comp and benefits also included $2 million of guaranteed bonus expense, which is essentially all attributable to the fund segment. Salaries and benefits remains at 16% of management fees in the second quarter. We expect this ratio to continue to be approximately 15% to 17% of management fees for the third quarter of this year.

Now turning to non-compensation expenses; non-comp expenses totaled $25 million in the second quarter, which was essentially all attributable to the fund segment. Non-comp expenses increased by 12% from 2012 first quarter primarily due to an increase in professional service fees. Non-comp expenses totaled 20% of management fees in the second quarter. We expect this ratio to be 19% to 21% for the third quarter of this year.

Our 2012 second quarter effective tax rate was 29%. We estimate that our effective tax rate for the third quarter of this year will remain in the range of 25% to 30%. As always, this range is based on our estimated 2012 full-year effective tax rate, which is subject to variables that won't be finalized until the fourth quarter of this year. These include the amount of incentive income we earn, the resulting flow of revenue and expenses through our legal entity structure, and the effect that changes in the stock price may have on the deduction for vesting RSUs. As a result of these factors, our tax rate could vary materially from our estimate.

Our 2012 second quarter distributable earnings were $67 million or $0.15 per adjusted Class A share. As you saw in our press release this morning, our dividend for the 2012 second quarter is $0.14 per class A share.

We used cash as we typically do to fund items related to the operation of our business. The most significant of these were withholding taxes to be paid on the vesting of RSUs and principal repayments on our variable rate borrowings.

Before turning to the new partner incentive plan, I want to spend a few moments again emphasizing the relationship between our investment performance and our earnings and dividend growth. As Dan mentioned, our year-to-date investment performance has been strong, particularly against the backdrop of the challenging and often volatile market conditions we have seen in the recent months. As we generate investment performance in our funds we manage, we sustain and grow our base of assets under management and earned incentive income. We earn that incentive income annually on the majority of our assets under management. Like our management fees, our incentive income is paid in cash and flows through to our distributable earnings. This is a significant driver of operating leverage in our model and also our future earnings potential.

In closing, let me review the revised transfer restrictions and the structure of the new partner incentive plan we announced today.

In 2014 and -- for 2013 and 2014, our partners will be able to exchange up to 10% of their vested units each year on a cumulative basis for Class A shares and sell those resulting shares subject to Exchange Committee review and approval. From 2015 to 2017, our Exchange Committee will determine whether to allow any additional exchanges and share sales, which will not exceed 10% of the partners' vested units per year.

Prior to the pre-IPO partners agreeing to these new restrictions, they would've been entitled to exchange 75% of their vested units for Class A shares and then sell those shares. In exchange for our partners' agreement to these new transfer restrictions and reflective of our pre-IPO partners' ongoing commitment to the firm, our Board of Directors adopted a new performance incentive plan. Under this plan, our pre-IPO partners are eligible to receive annual discretionary performance awards over a five-year period beginning in 2013. These awards will generally have two components. The first is an equity component. We may award a maximum of 3.6 million annually to our pre-IPO partners collectively or a maximum of 18.2 million units over the five-year period. These awards will conditionally vest on grant date subject to transfer restrictions I discussed earlier. The dilution to the Class A shareholders resulting from the issuance of the maximum number of units over the five-year period would be approximately 0.8% per year or an aggregate of 4% based on an adjusted Class A share count as of June 30.

The second component is the cash component. Our pre-IPO partners collectively may be eligible to receive annual discretionary cash awards based on incentive income we generate annually between 2013 and 2017. This award will be limited to 10% of the incentive income earned in a given year. However, this amount can not exceed $52.4 million in any year regardless of the amount of incentive income we earn in that year. So as an example, if we earn $600 million in annual incentive income in 2013, the most the pre-IPO partners could be paid is $52.4 million. If we earn $0 in incentive income in any given year, the partners would receive zero. The maximum that the pre-IPO partners can earn over the five-year period, again, assuming we generate a sufficient level of incentive income is $262 million. I would like to reiterate that the amount and composition of any award to our pre-IPO partners is discretionary and will be determined annually based on the performance of the business and the individual partners. As Dan mentioned, the objective of the plan and related changes is to maintain the alignment of the interest between pre-IPO partners and both our fund investors and Class A shareholders in relation to managing the longevity, growth, and stability of our business.

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

(Operator Instructions). And your first question comes from the line of Dan Fannon with Jefferies. Please proceed.

Good morning. I guess first just a couple clarifications around the new comp plan. Can you talk about the numbers of people that participated and then also did anyone not participate in the new comp plan?

There are 12 pre-IPO partners, two, including Dan, didn't participate in the plan.

Okay. And then will there be any salaries on a regular basis going forward?

No, nothing other than what we disclosed. No salaries.

Okay. And then I guess in terms of going forward, do you expect there to be any turnover as you think about the rest of the employees around this? Are there any other ramifications that you think will flow through to the firm as a result of this new agreement?

Not at all. We think if anything exactly the opposite. Let's remember the first part of the plan, the partners agreed to significantly limit their liquidity going forward. I think that's a strong statement by all of the partners about their individual and collective view of the value of the franchise versus the current value of the stock and their desire to be here individually and collectively, realizing that value.

Okay. And then I guess a question just on the backdrop for kind of flows and how you're thinking about demand. If you think about the conversations you're having with prospective investors, is it more around the credit products today or is it still kind of balanced also obviously with the Master Fund and the other vehicles you have?

It's both. I mean, traditionally the only dialogue we had was around the multi-strategy and around the absolute return funds. As we've been speaking roughly for the past two years, we've had dialogue also about credit products and about the concept of really being a money manager for these institutions. Sometimes that's called -- it -- different people put different names on that, but being a money manager, having a multi-product relationship, so we have developed some of those and we think that Och-Ziff is uniquely positioned to provide that for the LPs. It provides greater value for the LPs. It allows them to do what they want to do, have deeper, broader relationships with the firms that they really understand and have confidence in. and obviously from a shareholder and employee point of view, it gives us the opportunity to grow assets in different areas.

Great. Thank you.

Your next question comes from the line of Roger Freeman with Barclays. Please proceed.

Hi, good morning. Just a couple of questions. Okay, in the incentive plan, is the -- any stock awards, are there -- are those restricted and what's the vesting? If you said that, I apologize. I missed it.

Yes, I mean, it's the same liquidity restrictions we spoke about earlier in the speech. So everybody will be subject to the 10% restrictions over the next two years and then evaluated thereafter.

Okay. And then on the share sale restrictions, the -- if a partner leaves, they can still sell up to I guess the 75%, right? They have to hold 25% for two years after they leave?

No.

No.

No, it's the same. Everybody's subject to the same restrictions.

Oh, okay. Okay. Overall this seems like a -- actually a very good balance.

Okay, two fundamental questions. You mentioned, Dan, it sounded like there was some sort of volatility or I guess some volatility in the cash allocation during the quarter obviously given the market environment. Just curious, at the peak during the quarter was the cash balance significantly higher than 7%?

Well, we don't disclose interim numbers, but what we wanted to point out is that -- and I think you've seen it if you've watched for the past two years, our ability to move quickly as we see things change. And the major point is that very early in the second quarter, we made a decision that the risk coming out of Europe, as well as slowing growth in the US and China, but primarily risk coming out of Europe had increased dramatically and therefore we did adjust the portfolio both in terms of the total cash and the asset classes. And I think you saw that in May. May was an important month from an absolute return perspective. Our Master Fund was down roughly 44 basis points with the S&P down I believe about 6% and markets globally down about 10%. Investors don't forget that consistent pos absolute returns starts with protection during those down markets. And we feel very good that we were able to do that.

Okay. And just on the pretty good inflow number for the beginning of August, was there any concentration in that? I think in the first quarter pension funds were a decent contributor on the inflow side. Is that what drove this?

It was consistent. I would say the flows coming in were consistent with what we've seen historically. But look, we've had other months where the flows weren't as good and we've made clear that we don't look at it on a month-to-month basis. We like to be consistent. We're going to say the same thing in a month when the flows do look good. Most importantly we believe that on the multi-strategy absolute return we continue to differentiate ourselves. And even though flows there we believe are slower in terms of the industry, we think our market share, it remains very high, and we're going to remained focused on that.

In addition, flows and potential flows into dedicated credit products and the idea of institutions using Och-Ziff as a money manager, so the hedge fund allocation, historically when Och-Ziff got a hedge fund allocation from an institution, that was essentially the end of the potential for us to grow assets with that investor. The only way we could grow assets going forward was if the investor then decided at some point to increase their hedge fund allocation.

Now once we get the hedge fund allocation, we view that as the beginning of the relationship. We view that as the beginning of developing a relationship with the chief investment officer. We view that as the beginning of introducing their people in different investment areas to our people globally and in different investment disciplines with the goal of providing value to them. If we can provide value to them and show them that we have people in Europe, in Asia, in real estate, in different areas who are amongst the best in the market at what they do, then at some point those people if the institution is focused on those areas are going to also want to have a relationship with Och-Ziff. And so while that's been a slow, evolving process, we believe that we have what it takes. We have 450 people around the globe producing the investment product and we think the distribution is going to come.

And that's interesting. Has the effort to sort of cross-sell in that way been materially stepped up in the last year or so? It sounds like you're very focused on that now.

Yes, look, we don't think of it as a cross-sell. If you ask has the effort to make sure that the institutions that we have relationships with are getting more and more exposure to different parts of the firm. So really seeing our teams in Europe and seeing our capabilities in Asia and meeting with our credit teams and taking a deep drive, spending time with our equity analysts when appropriate, et cetera, spending time with our people in real estate and seeing what we have, our efforts to expand that absolutely are -- that's a major focus. But it's about providing value to the investor. It's about showing the investor the investment capabilities. It's about showing the investor that when they speak to any of these different areas, the basic methodologies of Och-Ziff, the rigorous due diligence, the risk management, the transparency, the consistency, the teamwork, the inclusion of operational and portfolio finance aspects seamlessly through the businesses, when they see that, they often come back and say we think we want to be more involved.

Yes, okay, all right. Thanks Dan.

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

Hi. I wanted to kind of follow up on Roger's question. Your asset mix by customer type was particularly stable this quarter. We've been noticing the fund of fund as a percent of your AUM has been shrinking for many, many quarters and the pension side has been increasing. But, again, this quarter is stable. Can you flesh out what's going on beneath the surface? Like this could've been just a very inactive quarter where no one really did anything, which is why the numbers didn't move. Or is there a reason to take the stability as maybe a positive sign as to the health of your fund of funds customers and maybe the outlook being healthy from your fund of fund customers as well? So is there a way to read that?

Well, I wouldn't read too much into one quarter. Obviously the fact that the fund of funds numbers didn't decline is a good thing versus if it had continued to decline. We do want to be clear. There are things going on in the fund of funds industry. And I'm sure -- it looks as if there are some adjustments taking place. We believe that the fund of funds that are invested with us, let's go back to something we've been saying for a long period of time. We have always believed that the fund of funds invested with us, they're very high-quality firms. We know the type of due diligence they do to understand the investment products, to think about what to do for clients, to think about providing solutions for clients. We remain extremely supportive. And to the extent that we're able to do things to help these clients of ours by providing information about markets, by providing value that they can provide to their direct clients, we're going to continue to be supportive.

Great. That's all for me. Thank you.

Your next question comes from the line of William Katz with Citi. Please proceed.

Okay, thank you. Good morning, everybody. Just sort of coming back to the opportunity in credit, I was just sort of curious. In terms of the CLO that you raised this particular month, could you talk about maybe the dynamics around the number of new LPs that could've participated in this or even just a percent of the existing base? And then secondly, as part of that, could you also talk to whether or not you're looking at trying to penetrate onto consultant channels your capability and any kind of traction you could help us relative to last quarter or just at the margin? Thank you.

Well, in terms of the CLO, the CLO business remains an important component of the growth in the credit business. In building the CLO business, we will be expanding our research capabilities. We'll be expanding our flow in certain areas of the credit markets. We'll be on the pulse of what's going on in certain areas to a greater degree than we might've otherwise been on the pulse. And so we think that is all good and makes sense.

I do want to remind everybody that in general in the market the fee structure in CLOs is lower than the fee structure in some of our other products. But we still feel that the CLO business going forward is an important component.

And I'm sorry, I didn't quite understand the second question about consultants. Could you repeat that?

Sure. I'm just curious if you (technical difficulty) long-only product if you will or just credit generally, many of your competitors will be trying to get onto consultant lists in an effort to then try and expand their distribution of product. I'm just sort of curious if -- A if you doing that and if so is there was any way you could sort of talk about what kind of traction you might be having.

Well, relationships with consultants is very important to any money manager who wants to deal with institutional clients. And there's no doubt that as you move to different products, sometimes it's the same consultant, sometimes it's different. Even if it's the same consultant, it can be different people within that consultant. So, for example, when we moved into the real estate area, we had to recognize there are different consultants that matter. As we evolve in different areas, there will be different consultants that matter and that will, you know, developing those relationships will be an important part of our business going forward.

And just one follow-up, Joel, and I apologize. I was writing quickly, but not obviously fast enough. On the tax guidance, was that just the third quarter or was that a second half of the year outlook?

Third quarter

Okay, thank you.

You're welcome.

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

Oh, great, thanks. Can you just tell us what the aggregate ownership is of the pre-IPO partners that are participating in the PIP?

Yes, it's approximately 300 million units are owned by the pre-IPO partners.

Marc, I'm included in the pre-IPO partners, but just to be clear, I am participating in the restriction on liquidity and the transfer restrictions, but I'm not participating in the partner incentive plan.

And then what the -- I think you said there was one other pre-IPO partner that's not participating?

That's correct.

Okay. And Joel, just in terms of the headcount on a go-forward basis, how should we thinking about headcount? And then maybe then, Dan, this is a question for you as well, just especially if you think about strategically the businesses that you want to build out or areas that you want to build out over time. Where are we in terms of headcount and where do you think we're headed?

We're about 448 people right now. And obviously as the business grows, the headcount will continue to grow. And to the extent that we need to add in particular areas, especially in credit, we're going to do that because we think that's valuable and that adds to the growth of the business. And, of course, as you know, even though the headcount grows, if asset and revenue grows, that more than offsets that cost.

We also, Marc, on headcount over the past 12 to 18 months while the overall headcount growth has been very slow and steady, beneath that it's been a very good opportunity for us in terms of upgrading, in terms of focusing on some of the changes in the investment world and where we want to put greater emphasis and where we want to put less emphasis. We do feel really, really good about the team just getting stronger and stronger in all areas.

Okay. And then, Dan, on the difficult environment that you called out for capital allocations, are we entering into a period you think for the hedge fund industry and maybe for you guys where sort there's more money moving around faster and manager selection is becoming a bit more fluid or are the discussions just taking longer, just generally sort of a market and volatility phenomenon in terms of longer discussions and longer conversion rates if you will of new clients?

Well, it's hard for me to comment on the industry overall. I mean, for us it's really -- it's pretty straightforward. On the multi-strategy absolute return fund, we believe that our differentiation versus the sector continues to increase. As I said, investors see what's going on. They see May of this year. They see what happened coming into August of last year. And so as much as the investing environment is difficult and often more uncertain, if we perform, it gives us more opportunity to differentiate.

In terms of credit products and multi-product money manager relationships, we feel very, very good about our potential and we feel extremely good about how institutions are responding to that. And a lot of the groundwork has been done. It takes a reasonable amount of time to get the breadth of an institution to see the breadth of Och-Ziff. You can't just do that in a day. And it takes time to set up those meetings and to get that dialogue going. So we feel very good.

I n terms of the industry itself, I think I'll let someone more focused on the -- it's hard for me to know exactly what's going internally at other funds right now.

Good. Okay, thanks.

Your next question comes from the line of Cynthia Mayer with Bank of America Merrill Lynch. Please proceed.

Hi, good morning. Maybe just to clarify on the new comp plan, how should we think about the $52 million maximum cash comp is in relation to what you've historically awarded? Should we think of this as incremental? Should we think of the 12% to 15% of revenues? Maybe you could just give some color in that?

So first, the $52.4 million is a cap. Remember, if we earn incentive, we'll get 10% of the incentive up to that $52.4 million. If we earn zero incentive, we get zero. So the $52.4 million is a cap because the idea was if we earn -- as I said earlier, if we earn $600 million in incentive, 10% of $600 million is $60 million, but we're only going to pay out $52.4 million. If we earn zero, we get zero. So the whole idea is to align the performance of the funds, the performance of the firm, so that we're aligned with our fund investors and our public investors and we add value to the business. And in order to do that, that's how we get paid. So I think that's the most important thing.

And I think in terms of your second questions, obviously there's a lot of variables that go into figuring out the end results of the firm. And this is going to be additional to the bonus line, but I think the most important thing to realize is the effect on the methodology used to compensate employees will not change. So obviously there will be some incremental effects, marginal effects from this. But, again, this is not material and as assets and revenue grows, it'll more than offset any of the marginal effects of this in terms of cash.

And, Cynthia, I would like to reiterate the last part of what Joel just said there. Our employees are an extremely important part of what we do here at Och-Ziff. I think we've made that very clear. I think I just went through that again. And we do not intend to make any changes to how we compensate employees going forward as a result of this plan.

Okay, thanks. And then maybe just to clarify on the three-year lock-up money, did you give the amount that generated the fees, the amount of the assets under management that generated --

No, that we don't disclose, but it was $11 million in incentive. And I did say -- as you noted, the majority of the remainder for this year will be realized in the fourth quarter, at the end of the year.

Okay. And on the three-year lock-up money, was that reinvested? And in general would you expect to see that reinvested as it matures?

The three-year lock-up money, once the three years are up, the investors have an option to either renew or go to a one-year lock-up. We don't have expectations. We'll determine that as they mature. But longer-term assets are now about 20% and the three-year tranche is 9%, which is similar to what we disclosed last quarter.

Great. And maybe last questions, just on the CLO, are the fees on those similar to your regular fees and what's the --

No, CLO fees -- in the market in general, CLO fees are lower than other alternative products. And our fees are in line with CLO fees in the market.

Okay. And any thoughts on opportunities for more raises like that?

Well, we're not going to comment on specifically what we're looking to do, but our intention is, as we've said is to build the CLO business as we see the right opportunities for investors.

Right, because as Dan said earlier, the CLO business is integral to our credit business and it helps us in many ways in the credit business. So since we're focused on growing the credit business, that could be one of the aspects of it.

Great. Thanks a lot.

Thank you.

Your next question comes from the line of Bulent Ozcan with RBC Capital Markets. Please proceed.

Good morning. Just had a few questions, the first one being about your fundraising efforts in Europe and Asia. Could you give us an update on the dialogue that you're having over there and contrast that to the US investors that you're talking to?

Sure. Well, Europe we continue to have dialogue in both areas. We continue to expand the relationships that we have. So when we talk about taking an institutional relationship that is a multi-strategy hedge fund relationship and broadening it across the full breadth of Och-Ziff, we're doing that in Europe as well as Asia. As a general matter, given the issues in Europe recently, investments out of Europe have been slower for roughly the past 24 months. Hard to tell when that will change.

But we're not going to reduce our commitment, our focus, our desire to build long-term relationships. We'd also like to point out that one of the areas we're very focused on going forward is buying distressed and troubled assets in Europe and it's very possible that some amount of that capital will come from European investors. And Asia similar, very focused on broadening and strengthening the relationships. Our market share of absolute return mandates remains extremely good. Many of the investors in Asia are large entities, in some cases sovereign wealth funds, in some cases other large entities. And so we think our opportunity to create multi-product relationships there is very good and we're focused.

I think the most important thing is that even though it does appear that flows from those two regions has slowed given the economic uncertainty in those two regions, we are not pulling back at all. We're not pulling back at all on the investment capability side. We're pushing ahead and looking to grow and expand our edge. And we're not going to pull back in terms of developing long-term relationships.

In terms of regulation, France passed a law, a transaction tax basically a couple of days ago. Does this limit the investment opportunities in France? And I've heard that Germany, Italy, and Spain might do something similar. Would that kind of reduce the set of opportunities that you would see over there?

Nothing that's been passed has had a significant impact our investment strategy or capabilities.

Okay. And then the final question is in terms of I don't know if you've heard anything new about carried interest, the entire discussion on Capitol Hill. Do you have any updates on that?

No, there's really nothing new. We don't expect anything to happen until after the election, if at all. But obviously we're in tune. We keep in touch with what's going on, but right now nothing new.

Okay. Thank you very much.

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

Thanks, Shanay. That concludes our call for today. If you have any questions, please contact me at (212) 719-7381. Media inquiries should be directed to Jonathan Gasthalter at (212) 687-8080.

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