Sculptor Capital Management Inc (SCU) 2014 Q4 法說會逐字稿

Good morning everyone, and welcome to the Och-Ziff Capital Management Group's 2014 Full Year and Fourth Quarter Earnings Conference Call. My name is Corine and I will be your operator for today. At this time, all participants are in listen-only mode. (Operator Instructions)

I would like now to hand over to Tina Madon, Head of Investor Relations of Och-Ziff. Please proceed.

Thanks, Corine. Good morning everyone, and welcome to our call. Joining me today 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, many of which are inherently uncertain and outside of our control. Och-Ziff's actual results may differ, possibly materially, from those indicated in these forward-looking statements. Please see our 2013 Annual Report and the press release we issued earlier today for a description of the risk factors that could materially affect our financial results and our businesses and other matters related to forward-looking statements. The Company does not undertake any obligation to update publicly any forward-looking statement.

During today's call, we'll 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 our website. 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.

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

Thanks, Tina. Good morning everyone, and thank you for joining us. 2014 was a strong year for our firm in many ways and we are pleased with the progress we have made in becoming a multi-product alternative asset manager. Last year, our assets under management grew by 18% to $47.5 billion, reflecting the growth across our funds from a combination of strong capital net inflows and performance-related appreciation. Over the last five years, our assets have grown at a compound annual rate of 16%, due to the strength of our investment performance and the success we have had in diversifying our business. During this time period, more than half of the increase in our asset base was driven by the growth in our dedicated credit and real estate platforms and other single strategy funds. At the end of last year, these funds represented 28% of our total assets, compared with approximately 3% five years ago.

The diversification of our business has also substantially increased the duration of our asset base. Last year, we grew our long-term assets, those with initial commitment periods of three years or more, by 42% over the prior year to approximately $15 billion. These assets now represent 32% of our total assets, compared with just under 3% five years ago. We grew our asset base not only through additional capital allocations from our existing investors, but also by developing new relationships, which increased the number of LPs invested in our funds by 7% last year. We continued to leverage the synergies between our strategies to identify new opportunities, as well as deliver customized solutions to our LPs to help them meet their investment objectives.

Our gross inflows of capital were at record levels for the firm last year, after increasing 37% from the prior year. Interest in our funds remained high, which we expect will continue into 2015. And lastly, we were very successful in adding new talent to further broaden and deepen our bench. We increased the number of investment professionals on our teams globally by 11% and we continued to invest in the best talent to further enhance our global infrastructure.

Now let me turn to our products. Joel will walk you through the details of our standard disclosures later on, but some highlights to give you color on each. The assets in our multi-strategy products were $34 billion at the end of last year, increasing 7% year-over-year. This growth was driven by a combination of capital net inflows and performance-related appreciation, primarily in the OZ Master Fund, our global multi-strategy fund. It had $1.3 billion of net inflows in 2014, driven by a diverse mix of investors globally.

Interest remained high in the Master Fund and in our multi-strategy investment approach generally from investors seeking absolute return funds to help them enhance their returns and mitigate risk. The Master Fund generated a net return of 5.5% last year and a net annualized return of 12.8% since the firm's inception, with 36% of the volatility of the S&P 500 Index and a Sharpe ratio of 1.8.

The assets in our dedicated credit products were over $10 billion at year-end, increasing 49% from the prior year. In aggregate, these products have been the largest driver of our asset growth over the last three years, increasing more than $9 billion during that period, through both strong capital net inflows and performance-related appreciation.

The assets in our opportunistic credit platform totaled $5.1 billion at year-end, adding $749 million of net new capital last year. Of this amount, the OZ Credit Opportunities Master Fund, our global opportunistic credit fund, attracted $627 million of net new capital and ended the year with total assets of $1.2 billion, more than doubling since the end of 2013. It generated a net return of 8.9% in 2014 and a net annualized return of 18% since inception.

Our closed-ended opportunistic credit funds have also performed extremely well, with gross IRRs in excess of 20% since inception and MOICs of 1.5 times or more. Institutional Credit Strategies, our asset management platform that invests in performing credit, closed four CLOs in 2014, totaling $2.5 billion of additional fee generating capital. Assets in this platform, which we launched less than three years ago, totaled $5.2 billion at year-end.

In real estate, we closed our third real estate opportunity fund at $1.5 billion, more than doubling the size of our real estate assets under management. Through the end of last year, our first real estate opportunity fund generated a gross IRR of 25% since inception and a MOIC of 2 times. Our second real estate opportunity fund generated a gross IRR of 36.7% since inception and a MOIC of 1.6 times.

Our real estate team employs a situation-specific opportunistic investment strategy combined with a disciplined risk assessment process. This drove the strong performance of our first two funds throughout rapidly changing investment environments and was the catalyst for the high interest level we saw for our third fund. As you can see from these results, our credit real estate funds have generated outstanding performance and that performance is highly valued by our LPs. For this reason, we are confident that these platforms should continue to attract significant additional capital and be major contributors to the growth of our asset base in the future.

Our multi-strategy platform will also benefit and continue to deliver strong returns and growth, as our credit, real estate and other single-strategy funds grow. Our deep expertise in these asset classes and the synergies between our investment teams enables us to identify and capitalize on a broader range of attractive investment opportunities within our multi-strategy funds. We are excited about the opportunities across our business and we feel that we are stronger and better positioned competitively than we have ever been. We firmly believe that we have the best team of people in the business. The expertise, focus and intense commitment to building our firm is central to the value we deliver to our LPs and to achieving our position as a leading alternative asset manager. We intend to build on these attributes in the coming year.

Looking ahead, our strategic focus will be on creating value for our LPs by generating consistent positive returns across all of our funds and growing and further diversifying our business, as well as continuing to increase our long-term assets. This includes the development of permanent capital vehicles such as BDCs that build on the investment expertise within and across our strategies.

In addition, we are excited about the opportunity that the energy market dislocation creates for our business. We have strong expertise across the capital structure in energy and, in particular, we have a differentiated combination of talent in the distressed credit and private energy investment areas. This gives us the ability to opportunistically increase energy exposure in our existing products, if it becomes attractive to do so, as well as to potentially raise additional capital specifically targeted at the energy sector.

We have a long history of maintaining deep investment expertise across a broad range of assets and geographies, patiently waiting for dislocations or distressed in those areas and then opportunistically deploying capital when we deem it attractive. Similar to the approach we took to build our credit platform in the US following the financial crisis, this approach can be further enhanced by opportunistically raising dedicated capital as well.

The success we have achieved to date in creating value and a broader range of investment opportunities for our LPs has created more opportunities to grow and diversify our business. We believe that our ability to deliver against these objectives should result in continued strong asset growth, greater diversification among our strategies, deeper relationships with our existing LPs and additional new investors placing capital with us. Over time, these elements should accelerate our earnings and dividend growth.

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

Thanks, Dan. For the 2014 full year, we reported GAAP net income of $142 million or $0.82 per basic and $0.80 per diluted Class A share. For the fourth quarter, our GAAP net income was $85 million or $0.49 per basic and $0.47 per diluted Class A share. As always, a full discussion of these results is in our press release, which is available on our website.

Before reviewing our economic results, I wanted to take a moment to highlight the expanded disclosures in our press release. We have added four new exhibits, which provide more information about our funds, as well as greater detail about capital activity, performance, and accrued but unearned incentive income from our longer-term assets.

This information will allow you to see where and how our business is growing, as well as the potential earnings from the incentive income generated by our longer-term assets. Although we won't know if this incentive will be crystallized until the end of the commitment period for these assets, it illustrates the diversity of our business and our previously undisclosed potential earning power.

Now turning to the details of our economic income results. Our total revenues for the 2014 full year were $1.2 billion and in the fourth quarter they were $592 million. Full year management fees totaled $649 million, a 19% increase year-over-year, as average assets grew 24% for the same period through a combination of strong organic growth and performance-related appreciation. The strength of this result demonstrates the powerful effect that asset growth has on our revenues. Fourth quarter management fees were $167 million, essentially unchanged on a sequential basis, and our average management fee for the fourth quarter was 1.43%. Full year incentive income totaled $559 million, 48% lower than the incentive income we earned in 2013 due to lower performance across our funds last year.

Now for a brief recap of our operating expenses. Full year 2014 comp and benefits expense was $359 million, a 12% decrease over the prior year, primarily due to lower cash bonus expense as incentive income declined. Full year salaries and benefits were $104 million, 15% higher year-over-year, due to new hires we made globally. Fourth quarter salaries and benefits were $27 million, essentially unchanged sequentially. For the full year and fourth quarter, salaries and benefits were 16% of management fees. For the first quarter of 2015, we anticipate this ratio will increase slightly to 17% to 19%.

Full year cash bonus was $255 million, a 19% decrease from 2013 due to the lower incentive income we earned. This amount included the performance awards paid to certain Executive Managing Directors under the terms of the Partner Incentive Plan. It also included bonuses paid in connection with the recommendation of incentive income from our first real estate fund in the third quarter of last year. Inclusive of these amounts, cash bonuses were 21% of total annual revenues last year compared to 19% in 2013. The growth in assets under management that we achieved last year and the substantial progress we made in becoming a multi-product alternative asset manager reflects the intense focus of our employees on creating value for our LPs. This mindset is central to our culture and to the way we are building our business for the future. Our firm is comprised of very talented people who, through their commitment and expertise, are essential to the outstanding investment performance that we have generated and the strong asset growth that we have achieved.

Full year non-comp expenses were $126 million, unchanged from the prior year. Fourth quarter non-comp expenses were $35 million, a 13% increase sequentially, primarily related to higher interest and infrastructure expenses. For the full year and fourth quarter, non-comp expenses were 19% and 21% of management fees respectively. For the first quarter of 2015, we anticipate this ratio will increase slightly to 22% to 24%, mainly due to higher interest expense related to our bond issuance last November.

Our effective tax rate for the 2014 full year and fourth quarter were 19% and 15% respectively. For the 2015 full year and first quarter, we estimate that our effective tax rate will be in the range of 20% to 25%. As always, these estimates are subject to many variables that won't be finalized until the fourth quarter of this year and therefore could vary materially.

Distributable earnings for the 2014 full year were $590 million or $1.16 per adjusted Class A share. For the fourth quarter, they were $255 million or $0.50 per adjusted Class A share. Our fourth quarter dividend was $0.47 per Class A share, bringing our 2014 full year dividend to $1.07 per Class A share.

We are very pleased with the performance and progression of our business in 2014. We ended the year with 18% more in assets under management, with 28% of our assets diversified among strategies other than our multi-strategy funds, such as dedicated credit and real estate funds and with 32% of our assets now having a maturity of three years or more.

Our diversified and longer-term assets have a substantial amount of accrued, but unrecognized incentive income, which is reflective of the unrecognized value inherent in our firm today. Our business is significantly larger and more diverse than it was a year ago and we will continue to build on this momentum into the coming year. The performance of our funds, our talented investment and infrastructure teams, and the competitive differentiation of our business globally position us for further growth in assets, earnings and dividends, and in turn growth in the value of the firm.

We believe there are three elements that are especially important to consider when valuing our business. The first is the strength of our asset growth over time. Over the last five years, our asset base has grown at a compound annual rate of 16%. Over the last three years, that has been 18%. These growth rates were driven by our multi-strategy platform, as well as our credit and real estate platforms, which are two of the fastest-growing areas of the business.

I'd like to re-emphasize the outstanding performance of all our funds, in particular, the exceptional performance of our credit and real estate funds. However, we don't think that we have come close to realizing the growth potential of either our credit or real estate platforms. Besides our multi-strategy funds, these platforms represent a substantial opportunity to grow assets under management. We believe that we are well positioned to continue to deliver strong asset growth in the future, strong asset growth, strong growth in revenues for both management fees and incentive income.

The second is the effect that increasing diversity of our asset mix has on our ability to generate incentive income. Having more sources from which to earn incentive income should increase the consistency of this revenue source in the future, even as market conditions change. An added benefit of a diversified asset mix is that over time, we should recognize a greater proportion of our incentive income during the year rather than earning it all in the fourth quarter. The end of the investment period and harvesting of assets in our closed-end credit funds and our first two real estate funds are examples of this. As we monetize investments and return capital to investors in these funds, the incentive income we crystallize throughout the year should increase.

The third is the profitability of our business, which has averaged a 61% pre-tax margin over the last five years. Our business is not capital intensive and fixed expenses have been low historically, [even though] we have made substantial investment to support the growth of the firm. The largest component of our expense base is bonuses, which are discretionary and as you saw in our results this morning, variable based on the economics of the firm. While expense levels may vary somewhat in the short term; over the long term, we should be able to deliver meaningful operating leverage on our incremental asset growth, another important contributor to our future earnings and dividend growth.

With that, we'll be happy to take your questions.

Corine, could we please prompt for questions?

Yes, we certainly can. Thank you. (Operator Instructions) Dan Fannon, Jefferies.

Good morning. This is actually Jerry O'Hara stepping in for Dan this morning. Thanks for taking our questions. I guess, for starters, in the past you've disclosed there was a appending redemption and I'm not sure if you can really speak to this, but from a certain pension plan. Can you actually confirm that at this point that's sort of through the pipeline and if, in fact, that redemption has occurred?

We don't talk about specific redemptions or the timing of those redemptions.

Okay. Fair enough. And then clearly, there's growing momentum outside of just the Master Fund. Can you talk a little bit about where you are in terms of building out distribution capabilities, potentially future expenses or is that something where you feel you are comfortable at current levels?

Well, we think we have a very substantial opportunity to grow the credit business, we've talked about this. I mean, we used to say the first billion is the hardest. 1 billion to 10 billion is hard, but we think there's a lot of opportunity. I feel the same way on the real estate side. I think the disclosure today is important, because you are seeing something that our LPs have seen for a long period of time. That in addition to the very strong performance in the multi-strategy fund, the performance in these other verticals is exceptional and we have some other areas such as energy, where we think we have opportunity as well. So the growth in the [runway] is substantial. I mean, Joel is the expert on the expense side, but I think you've seen, we increased [investors] about 11% this year. And we've invested in infrastructure and so we are very confident in very substantial growth potential and very comfortable with the expense side.

And look, we'll continue to invest in infrastructure and both on the investment side, but don't forget, asset growth generates management fees and gives us opportunity to earn incentive, which will more than offset that expense. I will also add by the way in terms of distribution beyond just asset growth in the strategies, all the different types of products, permanent capital products and so on are things that we are doing and we are looking at. So we are looking at different levels of distribution. It could be REIT, it could be other types of closed-end funds, different types of raising capital. So I think that's important to consider as well.

Fair enough. Thanks for taking the questions. And actually before -- I'd be remiss, thank you for the additional disclosure on the carve-out strategies, that's much appreciated.

Thank you.

Bill Katz, Citi.

Okay. Thanks. Good morning everybody. Just also great new disclosure. Just one qualifying question, are you planning on providing this on a quarterly basis or just annually?

We will provide it on a quarterly basis.

Okay, that's terrific. Thank you. So as I look at some of that new disclosure, you kept what you do and you can [always have] other questions. Very strong returns in your credit which you already highlighted. When you think about on a go-forward basis, are we exiting a period of just outstanding returns? Or do you think you can continue to underwrite toward the type of MOICs and net IRRs that you put up here the last few years, particularly in the opportunistic credit funds?

Well, we think if you look at all of our products, the multi-strategy funds, the real estate funds, Real Estate I and Real Estate Fund II were both raised and invested in very different environments. Credit, we've been very strong in terms of allocating when things are very attractive and not being particularly exposed during declines. That opportunistic investing is a very important part of what Och-Ziff is all about. And we believe that we've got a long track record in each of those areas of doing very well during periods of market decline and being very well prepared to take advantage of the opportunities that they develop. We think we're going to continue to do that. We think we're going to continue to differentiate and we think that's going to work well for us.

Okay. Okay, that's helpful. Second question is, I presume it's just mix. If you look at the fee rate, management fee rate that has been declining as a percentage of average AUM, is it just mix or is there any kind of pricing dynamic underneath that that's shifting as well?

No, it's all mixed. You saw the growth in the credit funds and other funds that have lower fees, especially our institutional credit assets. And so it's just a mix of assets, it has nothing to do with changes in pricing.

Okay. And just a couple more from me. Thanks for taking all the questions. In some of your (inaudible), you did highlight that on January 1, you had a sizable outflow and then the rest of the month you had very strong inflows, it looks like. I know it's the early question to comment specifically, but can you talk -- was this a specific outflow? Was it a set of outflows and maybe the sort of the profile the type of investor that was pulling money out?

No. It was nothing specific and by the way, if you look at the outflows as a percentage of AUM, it's really none out of the ordinary. Don't forget, we're dealing with a higher level of AUM than we ever used to. So I think it was around 3% of AUM or something like that, which is not uncommon at year-end when people are taking money out for a variety of reasons. So it's nothing specific and really nothing extraordinary in relation to that.

Okay. And this is my last question, I apologize to -- I was distracted for MOIC. Could you just go over exactly you said about the timing on a quarterly basis of incentive income? It sounded like there could be a little bit more consistency. I've just missed the tenor of the discussion, I apologize.

No, basically, you saw the $331 million related to longer-term assets that will be realized at some point. We can't predict exactly when and how that will [lose to earn]. But the fact that our longer-term assets are growing in this diversification of the business, you've seen that we're collecting more and more incentive on a quarterly basis rather than everything at year-end. So we think over time as that grows and there's more diversity, you'll see differentiation in terms of timing of when you collect the income. And again, I'll give you guidance on the $331 million to the extent that I can, but I can't tell you exactly when that's going to be earned.

Okay. Thanks very much.

Robert Lee, KBW.

First, let me just also add that I appreciate the added disclosure, it's very helpful. Just curious, I mean clearly you saw a good demand for the Master Fund last year. Given the challenges a lot of your hedge fund peers had the past year, I mean how do you perceive that that's impacting investor appetite generally for hedge fund strategies? I mean are you seeing -- do you expect to see notable shifts from out -- within hedge funds, kind of reallocations, do you think it's making some LPs reconsider their exposures just more broadly? Just kind of curious on your take on that.

Well, I don't really have a view on the industry, we're not really privy there. I can tell you from the vantage point of where we sit at Och-Ziff, we see substantial interest in a lot of our products. We see continued strong interest in our multi-strategy funds. Some have argued that the recent volatility in the world is going to increase that interest, that may be the case we'll see.

Obviously, we see very strong interest in the credit and real estate products. There is interest in what we're doing in energy and certain other areas. Look, we just think that our model of performance, risk management, infrastructure and operations culture drives value for LPs that's unique, which drives asset growth. We think what you're seeing over the past five years is that we're not only doing that in the multi-strategy format, we're also doing that in certain individual product areas. And what we believe is starting to occur.

At the beginning as we've discussed, most of the investors into the newer products were multi-strategy investors who knew Och-Ziff, who then came to the products. What you're now seeing is investors whose first relation with Och-Ziff is through credit or through real estate or through some other avenue. And that can drive a lot of asset growth over time and that can be very beneficial in terms of creating new distribution platforms and new institutional LPs.

Yes, it gives people the opportunity to invest in different asset classes across the board. So if you don't have a credit business and you don't have a real estate business and you don't invest in energy assets and they want to look for that somewhere else, obviously, that could be an issue if we can't allow them to do that here. So we offer them a lot of opportunity. They can cross-invest, they can add assets and we can be a real solutions provider for them. So I think that's very important.

And maybe a follow-up on some of the new strategies. I mean, you talked about energy and BDC. I mean, are those actively -- have you started to actively raising capital for those at this point or are those kind of to come over the course of 2015?

Well, there was a press release about the BDC we're doing with NorthStar, so that's going to take some time to generate, but that's going to happen. We can't talk about funds that we're raising right now, but certainly we have capacity in energy and in our other sleeves as well to raise assets. We have a very, very strong investment infrastructure and expertise across all asset classes and we think that presents tremendous opportunity for us.

And appreciate taking my question. Just one last one. Clearly, you continue to distribute about 90% plus of cash flow. Share count, it's up about 5% year-over-year. If my memory serves me, usually around the first quarters, right around now is when you'll have the new issuance for new restricted stock that's granted. Any -- kind of any update on your thoughts about maybe in the future deploying some cash flow towards share buyback?

Look, we are always considering that type of stuff and, of course, even on the distribution, what we'll do is we always talk about what's best for our investors, whether that's distributing the cash, reinvesting the cash, buying back stocks. So that's something we always consider and we'll continue to do that right now. And as you could see in the fourth quarter, we think distributing the majority of our distributable earnings is the right thing to do.

All right. Great. Thanks for taking my questions, and thank you for the added disclosure.

Thank you.

Ken Worthington, JPMorgan.

Hi, good morning. This is (inaudible) for Ken Worthington this morning. Thank you for taking our questions. Can you please talk about the CLO environment and your plans to raise funds over the next six months?

We plan to continue to opportunistically expand our CLO business. I think you've seen over the past three years, we've grown it substantially, but more important to us has been the performance that has driven that growth. That is going to continue to be our strategy. So the CLO environment is a combination of the asset side, the liability side, certain other structuring features. We think we're very well positioned to opportunistically take advantage of that. So we do intend to grow it, but the timing will depend and size will depend on the opportunities available.

Great. Thank you.

Patrick Davitt, Autonomous.

Hey, good morning, guys. Could you give us any broad color around your credit exposures in oil and energy and gas and how comfortable you are with those?

Yes, look, our exposures -- actually, whatever our exposures were, we're extremely comfortable, because there was -- on the downturn, there was no material effect to profits from our funds. So we are very comfortable with that. And we think that the dislocation to the extent that we think there's opportunity presents greater opportunity for us to invest. So we'll invest as we always do. We just don't say, hey, the dislocation presents opportunity. We'll, through our investment expertise, review the opportunities and if there is something that we can do in terms of increasing our exposure across all our products and whether there's capital that can be raised in relation to that, we'll do it.

Okay. And then on the accrued incentive fee, I assume that's before compensation. Is it fair to assume the comp ratio on that would be similar to the broader firm or is there some contractual compensation rates there that may be higher or lower?

Are you referring to the $331 million of unearned accrued incentive?

Yes.

No, I mean there's nothing unusual, the same formula we always use in relation to compensation.

And then just finally, could you talk about if any material changes in your broad positioning in the Master Funds over the last few months, given the volatility in oil and global market?

No material changes.

Yes. Okay.

Craig Siegenthaler, Credit Suisse.

Thanks. Good morning.

Good morning.

So just a big picture question left here. So when I look at the business, 2014 overall looked like a softer absolute performance year relative to the prior two and also net flows steadily declined throughout the year. So I'm just wondering can you elaborate on your commentary that momentum in your business is stronger than it's ever been, and should this kind of equate to stronger net flows then versus kind of what we saw in the fourth quarter and January?

Well, look, I think we've been clear struck in flows, it's very hard to predict over any one quarter in a specific period. The five-year compounded growth in AUM is 16%, last year was 18%. The model I mentioned earlier, performance, risk management, culture, infrastructure is what we think drives things, we think we're -- on the multi-strategy fund, we think we're as strong as we've ever been. The other products we mentioned are strong as they've ever been. The visibility in all of our areas is larger than it's been. So we think that positions us very well for our future growth going forward. Exactly what happens over the next quarter or in the time period, we're never going to know.

Look, and just as a reference, we had $10.7 billion in gross inflows, $5.3 billion of that was in our multi-strategy funds, just to give you an example. And again, it's across all strategies and there's growth in our credit fund, there's growth in our real estate fund, $1.5 billion in our new real estate fund, $3.3 billion across our credit strategy. So I think that's an important metric. And so you can't predict flows, but I think that's an important metric to keep in mind.

Actually just one follow-up here on the joint venture with NorthStar, I know you can't comment on the capital raising fund or timing. But is this going to be a public or private BDC? And can you comment on the type of credits they'll be looking at, just in terms of size?

It's going to be an unlisted BDC and it's general corporate credit. We really can't go into a lot of details.

Okay, great. Thanks for taking my questions.

Jonathan Casteleyn, Hedgeye.

Hi, good morning. Obviously, a very strong continued ramp in total assets under management, it's almost $48 billion. I was curious, on a go-forward basis, is there ever a point where the firm hits the threshold, where it becomes more unwieldy to manage, i.e. credit performance as AUM grows? Do you ever envision having to shut down strategies because of total asset management growth?

We've structured our growth historically and our products historically, so that we can continue to grow the firm, grow its investment professionals, do it in a way that benefits everybody. When we went to launch our credit products four or five years ago, we said we're going to do a couple of different things, we said that we're going to show that for LPs who enter the credit products, they're going to get amongst the best performance available, we think we exceeded that.

We also made clear it was going to benefit our current multi-strategy investors. We've dramatically expanded the number of investment professionals we have in credit. We've dramatically expanded our capabilities in relationships. Every time we grow on an area, we make sure that it enhances the capabilities in the other products and we think our investors see that in that. So we're going to continue to grow.

So just sort of big picture, if AUM were to double here, do you think you would still have the performance generating ability for clients, et cetera?

I don't know that we talk about a particular type of growth. Our goal is to grow steadily and consistently. Our goal is to grow by performance and providing value to LPs and letting them decide that we're the best place in the world for them to invest capital. Therefore, that's how we'll grow. You also have to remember that the ability to grow in some of these different areas is important.

As we said earlier on the call, five years ago, 3% of the firm's assets were in funds other than the core multi-strategy funds. Today, that's 28%. Five years ago, 3% of the firm's assets were in long-term committed capital, so that's 28%. So we think we've shown in the past five years that we've grown these other products in a way that has made the multi-strategy fund stronger and better. That's how we're going to continue to grow assets.

Understood. And then obviously a good start in real estate, $2 billion in AUM. How big is the opportunity set for you and, obviously, there is competitors out there with several hundred billion dollars out there in assets under management. I mean, is the initial strategy is an investment in physical real estate or is it financial, can you just talk about the opportunity set there broadly?

Well, the current funds, Och-Ziff Real III is an opportunistic fund that generally focuses on the equity side. Real estate is a very big asset class, I think we got a very deep team. We think that we are going to slowly, steadily and consistently expand it, that's how we've done things. Want to be clear, we think we're very, very well positioned in each of the verticals we mentioned and as a firm to grow and we think that's the potential for substantial asset growth. Having said that, we're going to do it steadily and consistently as we've done historically.

Okay. And last question, obviously, volatilities tick up here in the first quarter. I understand, incremental volatility is good for alpha generation, it allows you to exercise opportunities in the marketplace. Is there ever a threshold involved that it becomes problematic, it becomes your enemy as far as managing multi-strategy? Is there a specific historical level that you think has been relevant, et cetera?

We do have a long track record of showing that. We generally do very well in terms of taking advantage of volatility, but look, it's about risk management, it's about an intense investment focus, it's about never losing our humility to markets and we're going to stay with that.

Thanks a lot.

Thank you.

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

Thanks, Corine. Thank you. Thank you everyone for joining us today and for your interest in Och-Ziff. If you have any questions, please give me a call at 212-719-7381 and media questions should be directed to Jonathan Gasthalter at 212-687-8080.

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