Sculptor Capital Management Inc (SCU) 2013 Q2 法說會逐字稿

Good day. Good morning everyone, and welcome to the Och-Ziff Capital Management Group's 2013 second quarter earnings conference call. My name is Carolyn, and I will be your coordinator for today. At this time, all participants are in listen-only mode. All lines have been placed on mute to prevent any background noise.

(Operator Instructions)

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

Thanks, Carolyn. Good morning everyone, and thank you for joining us. With me are Dan Och, our Chairman and CEO and Joel Frank, our Chief Financial Officer and Senior Chief Operating Officer. As a reminder, today's call may include forward-looking statements. Among other things, these statements reflect management's view, current views on assets under management, the capital flow environment, expense levels, financial performance, investment opportunities, and strategic business priorities, many of which are inherently uncertain and outside of our control. Och-Ziff's actual financial results, investment performance, and assets under management may differ, possibly materially, from those indicated in these forward-looking statements. Please see our 2012 annual report for a description of the risk factors that could affect our financial results and our business. The Company does not undertake any obligation to publicly update any forward-looking statement, whether due to 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 GAAP. 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 a website at www.ozcap.com. 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 web cast replays will be made available later today. You can find the details for both on our website. With that, I will now turn the call over to Dan.

Thanks, Tina. Good morning everyone, and welcome. This morning I will review our year-to-date performance and assets under management. I'll update you on the investment environment we see, and on our capital flows. Lastly, I will touch on our growth initiatives. The year-to-date investment performance of our funds through July 31 was very strong. We again demonstrated our ability to protect capital through effective asset allocation and exposure management in response to a volatile market environment in late May and June. We maintained the strong returns we generated in the first part of the year, and extended that performance as market conditions became more constructive in July. Our ability to consistently deliver this type of performance is, as always, a function of our disciplined investing and risk management processes.

These attributes are hallmarks of our business and are deeply embedded in our corporate culture. They are integral, not only to our approach in our long-standing multi-strategy products, but also in our credit-related and real estate platforms and dedicated long/short equity product. As we expand and diversify our business, we are employing the same fundamental base methodology to investing and active risk management that we have used since the inception of Och-Ziff. Now turning to our assets under management. As you saw in the 8-K we issued this morning, our assets under management as of August 1 totaled a record $36.7 billion. This amount reflects growth of $6.4 billion, or 21%, from August 1 of last year, and $4.1 billion, or 13%, from $32.6 billion on December 31. The year to-date increase was driven by approximately $2.3 billion of performance-related appreciation and $1.8 billion of net inflows, which includes the two CLOs we closed in the first half of this year. These amounts also include approximately $300 million of performance-related appreciation for the month of July and $300 million of net inflows on August 1.

Pension funds remain our largest source of new capital on a year-to-date basis, and private banks have also been a substantial contributor to our net inflows. We continue to meet with current and prospective investors, and conversations with both have increased. We remain focused on attracting new investors to our platforms, as well as increasing the share of assets from existing investors. Our well-established multi-strategy platform and our growing platforms in credit, real estate, and long/short equity create a diversified suite of products that enhances our ability to attract new capital from varying sources. Our year-to-date net inflows reflect a strong reception from fund investors to our dedicated credit platforms, particularly in the US. Our objective in this business is to be a leading global cross-cycle credit manager. We currently have approximately $6.2 billion of assets under management in our dedicated credit platforms, including our CLOs.

We believe that the market opportunity to grow this business is substantial. We are not simply trying to capture yield. Instead, we are investing where we see value based on the fundamentals of the underlying assets, such as in commercial real estate related credit, leveraged loans, and distressed corporate credit. For example, during the second quarter we took advantage of the sell-off in corporate credit markets, and added to existing distressed positions that we believe were oversold in the dislocation. Our growing CLO business compliments this effort by increasing our visibility and access to a broad range of credit assets. We are building and expanding our dedicated credit and long/short equity platforms, based on the global expertise of our investment teams and infrastructure. The synergies between our investment teams and products result in increased opportunity for our fund investors, both in terms of potential returns and in relation to varying platforms to choose from, from which to generate those returns.

These initiatives are a natural extension of our existing expertise and business. Real estate is also an area where we see potential for meaningful growth and another asset class that capitalizes on our long-standing expertise. We are not only investing opportunistically in high-quality physical assets, but also identifying opportunities in areas such as commercial real estate credit. The synergies between our real estate and structure credit teams have created, and we feel will continue to create, a broad range of new ideas that we are well-positioned to capitalize on. We believe that each of these strategies has substantial long-term growth potential in terms of assets under management. They are also important sources of product diversification, complimenting the growth opportunity we see in our multi-strategy product. These four areas, multi-strategy, credit, real estate, and long/short equity are our current strategic priorities, although we will continue to look for other opportunities to expand the business.

Now let me give you a quick update on our fund's investment performance. Year-to-date through July 31, our Master Fund was up 7.6% net, the Europe Master Fund was up 6.7% net, and our Asia Master Fund was up 8.1% net. These returns were generated with 46% of the volatility of the S&P 500 index on a weighted average basis for these funds. Our year-to-date performance was driven primarily by our credit-related and long/short equity strategies. In the US we added to both our long/short equity and merger arbitrage strategies during the second quarter, and we ended the quarter fully invested in the Master Fund. While we remain cautiously optimistic about US growth prospects, and are measured in our approach to making investments, we continue to believe the current environment plays to our strengths. Our global teams work collaboratively to identify attractively priced investment opportunities where we believe market volatility has driven pricing away from fundamental valuations. We remain focused on what we believe are compelling opportunities in credit and long/short equity. With that, let me now turn the call over to Joel.

Thanks, Dan. This morning I will review our 2013 second quarter results, and discuss how we are thinking about expenses for the third quarter. For the second quarter, we reported GAAP net income of $5 million, or $0.03 per basic and diluted Class A Share. As always, our press release includes a detailed discussion of our GAAP results. Now let me turn to our 2013 second quarter economic income, starting with revenues. Management fees totaled $135 million, increasing 7% from the 2013 first quarter, as assets under management grew approximately $3 billion from January 1 to April 1. From April 1 to July 1, our assets under management grew another $1.2 billion to $36.1 billion. Our average management fee for the quarter was approximate 1.53%. As a reminder, this average reflects the effect of the assets in our dedicated credit platforms, CLOs, real estate funds, and other alternative investment vehicles, as well as our non-fee paying assets.

Year-to-date through the end of the second quarter, our credit platforms and CLOs represented approximately two-thirds of our total asset growth. The management fees for these products are generally lower than those for our multi-strategy products, which reflect market convention for credit assets. However, our average management fee is reflective of our strategic focus on growing our business through product diversification. We therefore anticipate that this fee will fluctuate based on the mix of products that drive our growth. Incentive income was approximate $23 million for the second quarter. This amount was primarily attributable to redeemed investors. As a reminder, in the third quarter of this year, approximately $790 million of our three-year multi-strategy assets will crystallize incentive income.

Now let me turn to our second quarter expenses. Comp and benefits totaled $25 million during the second quarter of this year. Of this amount, salaries and benefits were $22 million, essentially unchanged from the first quarter, and the remainder was bonus expense. Salaries and benefits were 16% of management fees in the second quarter. We anticipate that this ratio will continue to be approximately 16% to 18% of management fees for the third quarter of this year. Now turning to non-compensation expenses. Non-comp expenses totaled $34 million in the second quarter, increasing by 11% sequentially, primarily due to professional fees related to business operations, infrastructure, and expenses associated with regulation and compliance. We expect our non-comp expenses to moderate going forward. Non-comp expenses totaled 25% of management fees in the second quarter. We anticipate this ratio to be 24% to 26% for the third quarter of this year.

Our second quarter effective tax rate was 21%. We estimate that our effective tax rate for the third quarter of this year will remain in the range of 20% to 25%. As always, this range is based on our estimated full-year effective tax rate, which is subject to variables that won't be finalized until the fourth quarter of this year. As a result, our tax rate could vary materially from our estimate. Our second quarter distributable earnings were $77 million, or $0.16 per adjusted Class A Share. As you saw on our press release this morning, our dividend for the second quarter is $0.14 per Class A Share. One of the largest components of the cash we use was to fund withholding taxes, which will be paid upon the vesting of RSUs. In closing, I'd like to emphasize the earnings power of our business. As Dan mentioned, we are focused on diversifying and growing our assets under management. We have always seen strong growth in our credit platforms, and we believe that this is a significant for incremental asset growth in each of our products.

Our ability to generate consistent positive returns when markets are more stable and protect capital when they are not, as we have done again this year, is a key driver, not only to attracting new assets to our platforms, but also to growing these assets we already have under management. Through performance-related appreciation alone, our assets are up approximate 7% year-to-date, out of a total growth of 13% through August 1. As our assets grow, our management fees increase. We also earn incentive on the majority of those assets. So as they grow, they should yield increasing amounts of incentives. We expect that over time, our revenue growth will more than offset any growth in our operating expenses and the effective equity-based compensation grants. That embedded operating leverage is a powerful driver of our future earnings. With that, we will now take your questions.

Thank you.

(Operator Instructions)

Your first question comes from the line of Dan Fannon from Jefferies. Please go ahead.

Thanks. Good morning. I guess, Dan, was wondering as you think about, or as your conversations with LPs today, how have they changed? Are the focuses around fees, liquidity, or investment capabilities? Kind of where are the hot points today, or what the discussion points in terms of new and prospective investors are out there for you guys?

The change, which is it is been happening for some period of time. We've been we've been talking about the fact that clients are viewing us more and more as a solutions provider. They see excellence at many levels of the firm. They understand that Och-Ziff is a performance-driven organization. They see excellence, not only in the multi-strategy capability, but also in the credit area, the real estate area, and the long/short equity area. So the discussions with the clients are still about the things they care about, the performance, the risk management, the operations, the culture, the team, et cetera. But the one thing that we've seen over the last several years is an evolution, more and more to think about Och-Ziff as a performance-driven solutions provider. And we think you are starting to see that.

Okay, that's helpful. And then Joel, a question just to clarify from the press release around the AUM and the net flows. Since June 30, it says approximately $200 million of outflows. Can you clarify that with the $300 million I think you said you got as of August 1 with kind of what's happening?

Yes, I think what Dan -- I think the thing to focus on, Dan, is the gross flows year-to-date, which on -- gross inflows are about $4.9 million. Outflows are about $3.1 million, which gives you a net of $1.8 million, and that's just organic. And then the performance is around $2.3 million. So it is a little bit over $4.1 million through August 1. I think those are the right numbers to focus on.

And of that, the CLOs contributed what?

CLOs in total contributed around $2 billion.

Great. Thank you.

Thank you for that question. The next question we have comes from the line of William Katz from Citi. Please go ahead.

Okay, thanks very much. Good morning, everybody. Just you mentioned that your strategic focus --

Bill, can you speak up, because we cannot hear you?

Sure, is this any better?

Yes.

Can you guys hear me?

Yes.

Sorry about that. You sort of kicked off, Dan, 4 key sort of product areas, if you will. Can you talk a little bit about distribution? Two parts, if you of will. One in terms of retail. I know private banking's been an area, but more generically about retail. It seems a lot of your peers are trying to tap more into the affluent, emerging affluent retail sector. And then as part of that you've, I think previously you talked about selling the equity loan short portfolio directly, the capability directly to investors rather than just do the multi-strat. Can you update us on the initiative there as well?

Sure. On the retail side, we do think that it is an excellent long-term opportunity. And our goal is to make sure that Och-Ziff is amongst the best, hopefully the best, alternative that any distribution platform will want to choose, and that any ultimate buyer will want to buy, and I think the private banks are a good example of that. Early on we did not pursue most of the private banking channels. We thought that they needed time to develop in terms of how they thought about the interest of the underlying LP. We now feel very good about where those platforms are, and we think that our market share in those platforms has become extremely strong and has a lot of growth going forward. We intend to pursue the retail, other retail channels in the same way, while maintaining the integrity of our product structure and of our fee structure. That's a very, very important thing for us going forward. In terms of the distribution on long/short equity, it's really -- it is what we talked about.

As we became to be recognized as a solutions provider, as we came to be recognized not just in multi-strategy but in other products, we recognize that we should expand the size of our sales force, expand the size of our investor relations team globally. And so the opportunities we see are to distribute, not just the long/short equity product, and the credit products are a good example. We started speaking about the credit products two or three years ago. We've got $6.2 billion in assets under management. So we're very, very proud of that number, but when we look at the AUM of some of the other alternative [matters] in the credit side and see our capabilities, we think we've got a lot of growth there. We feel the same way about the long/short equity product, the same thing about the real estate product, and also we want to remind you about some of the International opportunities. Europe is a very good example. For several years, Europe was very quiet in terms of potential investors, potential LPs, for some obvious reasons. We definitely see a pick-up from Europe. We think we're extremely well-positioned to capture market share there, and we plan to execute.

Okay, just a couple more for me. Thanks for all the questions. Maybe for Joel. When you, I understand the fee rate versus AUM mix, but when we think about the margin of that business, is that margin at this point, because of incremental growth and the credit real estate portfolios, et cetera, is that comparable to the overall margin of the firm? And then secondly, can you just talk a little bit about the sequential change in the share count?

Yes. In terms of margins, the way we look at an overall basis, and obviously that number is to help you model what you need to model. It is all incremental growth. So we don't necessarily look at incremental margin because there's a lot of scalability in this business. So we don't necessarily look at incremental margin by business. It is overall asset growth, which is going to lead to revenue growth, both in management fees and in incentive fees, if we can continue to perform. And to us that's incremental asset growth that's very important to the firm, and also as Dan keeps mentioning, to be able to provide different solutions to different parts of the firm. In terms of the share count, basically we issue shares both on a -- for compensatory grants and for new hires. The key here is, we are investing in our business, and we like the alignment that that creates by issuing shares to people, whether it is compensatory share or whether it is to new hires. We like the alignment with our shareholders, the alignment with our business. We think it is very important to invest in our business that way, and that investment will lead to the growth that I'm talking about and will be very good for shareholders.

Okay, thanks.

Thank you.

Thank you. The next question we have comes from the line of Robert Lee of KBW. Please go ahead.

Great. Thanks, and good morning, everyone. I guess first question I have is just looking at the other multi-strat funds, just kind of curious, I mean it seems like that bucket's kind of bigger than Europe Master and Asia combined at this point. Maybe getting a little bit more color within. Is that predominately kind of a long/short equity, are there any kind of large strategies, particularly large strategies within that? And then maybe trying to get a sense of how that bucket's been performing year-to-date?

I'm a little unclear. Were you asking for the allocations in the multi-strategy fund, or are you asking specifically --

Well, where you break out the $3.3 billion of other multi-strategy funds, just the funds within that $3.3 billion (multiple speakers)

I think what you're asking. So we have the Master Fund and the Europe Master Fund, and then there some other funds that follow those funds. So it is all the same strategy. So when you look at our strategy mix, for the most part, which is in the press release or I can give it to if you don't have it. It is for all the multi-strategy funds, whether it is Master Fund, Europe Master Fund, obviously geographic differences, those strategies are going to pretty much follow that mix. May change a little bit, but it is pretty much following that mix.

Okay. Great, thanks. Looking at the -- thinking about the credit funds, real estate funds, not so much the CLOs, but I guess just wanted to clarify. Those are more, I guess what I would call P/E-style funds in that you're not marking to market fee-paying assets quarter-to-quarter. I'm just curious, well, number one confirming that, but also do have current commitments for those funds? I mean, are those kind of more draw-down where you're only pulling in the -- you have the commitment, but you're only earning the fees as you draw-down the asset?

Yes, just to clarify. All of our funds are mark-to-market consistently. So there is no such thing as non-mark-to-market. Everything is mark-to-market, and the fees are generated off those marked assets. In terms of real estate, yes, you're right. It is a private equity structure, and is definitely callable capital. We still have some other structures that might follow that, but the majority of our assets aren't. But yes, you're right in terms of real estate and longer term assets. We may have some of that mix.

So there's not a lot of assets that have been -- that you know are committed, contractually committed, but you -- they haven't been drawn down yet?

That's correct.

Great. One last question, just on capital management. Maybe it's a little bit of follow-up to Bill's question. But clearly you've given the structure understandably very distribution-oriented, but you have seen, as you issue shares and grow the business, share count kind of rise at a pretty decent clip. Any thought to, at some point, maybe adding more share repurchase into the mix? How do you think about that in terms of future use of the cash generation?

Right now we have no plans to repurchase shares, because we think -- look, as I said earlier, we think that providing compensatory shares and giving them to new hires aligns everybody with the firm and the shareholders, and it incents them to get the firm to grow faster and to grow more, which is a benefit to shareholders. So we think that's where the real benefit is. As I said, at the moment we have no plans to repurchase shares.

Great. Thanks for taking my questions.

Thank you. The next what we have comes from the line of Roger Freeman from Barclays. Please go ahead.

Hi, good morning. As you talk to institutional investors, either existing ones that are allocating more to you, potential new prospects, what is your best guess, if you can generalize at all, about where they're allocating from either asset classes, or maybe types of asset managers they are using? I'm asking because the traditional managers, [when we talk to them], there's just kind of this clear theme that institutions reallocating away from them to other strategies, asset classes, alternatives come up in that mix, and I'm wondering how much you think you factor into that?

Our best guess, and we don't know, Roger, because when someone allocates capital to us they don't necessarily tell us what bucket it came from. But we feel very confident that the vast majority of our current assets under management are from what institutions would've called the alternative allocation or the hedge fund allocation. In terms of assets either from the equity allocation or assets from the fixed income allocation, we think right now they're relatively small, but those are definitely very, very substantial areas of growth opportunity for us. You are absolutely correct on that. When we talk about this concept of being a solutions provider, when you look at our product suite, credit obviously is a great place for an institution to look at very low yielding fixed income, and achieve a lot more yield and a lot more capital appreciation, a lot more return, and the long/short equity is clearly a very natural place for them to allocate from the equity bucket. So we do believe that those trends, we think they have begun, we think they will happen, we think we are extremely well-positioned, hard to know the timing.

Okay. Thanks. I guess my other question, I think you probably answered it, Joel, before, but around the margin profitability of the credit CLO sort of bucket. When you think about the variable or profit-sharing on that, on the incentives, you don't take a different approach than you do for the rest?

No. (Multiple speakers) It is simply building the business. Again, in the case of CLOs, it is also getting information, gaining access to the market, which helps us build other parts of our credit business, but again, it is scalability. So it doesn't mean that you separate each business and have a support [function] in each business. You're able to use different resources in the firm to support it. So we look at overall margin as opposed to individual products.

Yes, okay. All right, thanks.

The next question comes from the line of Ken Worthington at JPMorgan.

Hi, this is Paul [Langson] on for Ken. Just haven't distribution questions. So it was interesting that pension funds have been a big source of new capital, and do you think this is part of the broader asset liability mismatch theme that we've been hearing about in the sector actually playing out, or is it more concentrated where a few large clients decided to allocate, and just a product of increased sales efforts in the channel?

I'm not sure it is either. Pension funds clearly have made a decision to move into hedge funds, but more specifically hedge funds that they believe give them what they need. There's been a trend, while it was initially through fund-of-funds, the trend is now do it direct with managers, and we believe that they are doing it in a more concentrated fashion. So we think that because of what we've been able to do for them we've been one of the beneficiaries of that, and that's why you know our theme. That's why we're going to remain a performance-driven solutions providing organization, and hope to step the top of that. But as we said, to the extent that opportunities develop in retail, to the extent the private banks become more significant, to the extent that Europe becomes more significant, to the extent that other types of investors become more significant, our goal has always been to be the best producer of alpha, of excess return, of risk adjusted return, along with everything else that we provide so that we could be at the top of those, ride those crests as well.

I think it is also part of our marketing effort to focus on all those areas that Dan just mentioned, not just pension funds and not just private bank platforms, as an example, but accessing all different areas, and geographically and investor type.

Okay. Then just to dive a little bit deeper into Bill's retail question on the private bank distribution. Is this coming in the form of structured funds where the private bank comes in as a large LP and then gives retail clients pro rata shares, so effectively allowing smaller investors to come in at something like $250,000 or $500,000 clips? Or is it more targeting the ultra, ultra high net worth segment of retail where investors are coming in at $1 million to $5 million?

I'm not sure they call it a structured fund because that has certain connotations.

Right.

As a general matter what it is, is the private bank, the institution, we just interface with the institutions. So they do comingle their investors, and the minimum depends on the institution.

Okay. And just one last question, thanks for answer the questions. Just on sovereign wealth funds. I don't see that in the breakout of client -- I'm just wondering where they fit into the current breakout that you have, or if that's really a large focus?

They are not segregated out, we don't segregate them out. They're in corporate and other institutional, that's the line item they'd be in.

Okay. Great, thank you very much.

Thank you. The next question we have comes from the line of Cynthia Mayer from Bank of America Merrill Lynch. Please go ahead.

Hi, good morning. Thanks. Maybe just to clarify on the redemptions in 2Q which give rise to the incentive fees. Is it possible to generalize about what products those were from, and do those represent clients leaving all together or shifting to other products? In other words, if a client wants to move to credit, for instance, do they then crystallize the performance fee and move on?

Yes. I mean, look, to generalize it, it is mostly out of multi-strat, but to your point, it is not necessarily full withdrawals. They may move to other products. It is a mix. It could be a mixture of both.

Okay. And then just to clarify on the expenses, you noted in the release that the comp and the non-comp has been growing a little faster than the management fees, but also said over time there should be leverage. So are you still -- you still think of the comp and non-comp as growing over time less quickly than the management fees, or are you thinking about the leverage as coming from a combination of management fees and performance fees?

No, I think it's a little bit of both, but more to the point that expenses won't grow as fast as the assets and the management fees grow. I think that's the real power. But of course an overall basis, revenue is important, but incentive really offsets bonus expense more than the management fees paying for our fixed expenses.

Okay. Great. And then I'm just wondering if you've had any update on your largest holder, Dubai, because obviously they sold a part of their stake back in the spring, but they haven't really updated since, I think February, something like that. Have you had any conversations with them, do you have any sense of where they are going with their stake?

No, we don't.

Okay. And maybe just one more. When you look at the, I think you mentioned year-to-date most of the -- two-thirds of the flows are coming from credit and CLOs. Any shift in that recently, or is it pretty consistent throughout the year?

I think it was pretty consistent throughout the year, but obviously these things can shift over time, but currently, as we said, that's what the mix is.

Right through August -- I mean, right through July?

Through June, June 30.

Okay. And then any shift in July, or is it sort of the same pattern?

It is a mixture. It shifted slightly, but nothing material.

Okay. Thanks a lot.

We do see a lot of interest in the other products, and in the multi-strategy, the performance, not just this year, not just last year, but whether it's 3-year performance, the 5-year performance, or quite frankly, the 19-year performance, just continues to be very strong, and the long/short equity, while it is a relatively new product and therefore relatively small, there's a lot of interest.

Did this suddenness of the backup in rates in June change the tone of conversations at all with your clients?

Did it change the tone? Yes. But one of the things -- that seems to be something that worked for us. Earlier in the year when clients would ask us, so what are you concerned about? One of the things that we would highlight is that we thought that that was complete complacency about the level of rates in the US, not a prediction they were going to go up, but just complete complacency. So when the backup occurred, it was just another example. A lot of clients came to us and said, just got a sense, there's another example of Och-Ziff thinking ahead about opportunity and risk management. It didn't change what they did that month or that quarter, but we do think that over time a perception by institutions that perhaps rates aren't going to stay this low, and a recognition that even if they do, that doesn't give them the return they need. It is going to drive some allocations, but it is a longer process than one month or one quarter with these institutions.

Great. Thanks a lot.

Thank you.

The next question we have comes from the line of Bulent Ozcan from the Royal of Canada.

Good morning. Thank you for taking my question. I have a general question on the strategy. I'm [thankful for] all the comments on the strategic initiatives. So my question is, what are the longer term aspirations for Och-Ziff? We talked about the short and medium term goals, but are you looking to do maybe acquisitions, lift-offs? Are you trying to partner with other firms to offer products and to acquire skill sets that you don't have today?

A broad question for an earnings call, and obviously we're not going to comment anything specific in terms of corporate actions or other, but our long-term goals are to be the best absolute return manager, the best solutions provider, one of the major players. For now, you heard our strategic alternatives. For now, our strategic alternatives are multi-strategy, credit, long/short equity, and real estate. Over time, we think that we will grow and evolve. As we develop investment capabilities, our goal is always going to be to be at the forefront of that investment capability.

Okay. Are there any plans to go on a retail -- basically pursue the retail clients? Similar to what Blackstone is doing with their 40 Act Fund? Have you contemplated anything in that direction?

As we said earlier, we don't have any a specific plans on the retail side, but we do think it's an excellent long-term opportunity. We do think that, as we did with the private banks, we will be -- our goal is to position ourselves as hopefully the best alternative for any of these platforms, but we are thoughtful about our product, the integrity of the product and investment process, as well as the integrity of our fee structures.

My final question deals with the private banks. It seems that you're getting more traction with them. What has changed that you see more inflows from private banks versus last year?

We think all that's changed is that they've had more time to see what we do. Historically, the longer an investor's been with our firm, the more they appreciate what we are able to do. You have to have remember, private banks are a conglomeration of individual investors and their FAs making decisions. So like everybody, when they come to a universe of hedge funds, they are aware of the firm's reputations, they see short-term issues and long-term issues. So we believe that the longer they get to observe what we do, the stronger we become on an absolute relative basis.

Thank you very much for taking my questions.

Thank you.

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

Thanks, Carolyn. Thank you everyone for joining us today, and for your interest in Och-Ziff. If you have any questions, please don't hesitate to call me at (212)719-7381. Media inquiries should be directed to Jonathan Gasthalter at (212)687-8080.

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Have a good weekend.