Sculptor Capital Management Inc (SCU) 2016 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to Och-Ziff Capital Management Group's 2016 second-quarter earnings conference call. My name is Mark, and I will be your operator for today.

(Operator Instructions)

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

Thanks, Mark. Good morning, everyone, and welcome to our call. Joining me are Dan Och, our Chairman and CEO; and Joel Frank, our CFO.

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 2015 annual report and a press release we issued earlier today for a description of the risk factors that could affect our financial results, our business and other matters related to the forward-looking statements. The Company does not undertake any obligation to update publicly any forward-looking statements.

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 our website. 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 or any other entity.

This morning, Dan will address our business results and Joel will update you on the investigation and review our financial results. We've made significant progress forward, but our discussions with the government are ongoing and we don't yet a resolution to this matter. We therefore won't be able to take any questions on it today. We understand that reaching a settlement, it is important to you as it is to us, and we will provide you with an update when we are able to.

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

Thanks, Tina. Good morning, everyone. During the second quarter, and through July, risk assets generally continued their rally off the February lows, but this rally has not been uniform. While the S&P reached new highs, a number of the major indices in Europe, Japan and China posted losses during the second quarter and first half.

Overall we believe that security prices in many asset classes are being distorted as investors search for returns in a world of low to negative interest rates. The mandate of a multi-strategy fund is to navigate through and generate returns in complex markets. We have done so successfully throughout our history, which has differentiated us competitively and is the reason that LPs invest with us.

While our multi-strategy performance improved during the second quarter and into July, we are still not satisfied with our year-to-date returns in this area. Performance in certain parts of the portfolio has been more challenging, particularly in our US equity long-short strategy, which has negatively affected our year-to-date performance.

As part of our ongoing review process we have taken a number of steps with the objective of improving performance. We've made adjustments at the portfolio level, at the position level, and to our equities process. While the core of our investment and risk processes are unchanged, we always strive to improve and adapt, and these changes are a part of this ongoing evolutionary process.

From a positioning standpoint, we further reduced gross exposures in the OZ Master fund during the second quarter. We continue to run with low-net exposure and remain focused on generating returns through disciplined securities selection, not through directional debts on the equity markets.

Year-to-date through July, the OZ Master Fund generated a net return of minus 1.7%. Losses in long-short equities more than offset gains in our credit strategies and in convertible and derivative arbitrage. Our convertible and derivative arbitrage, corporate credit, structured credit and merger arbitrage strategies are having solid years. Our allocation to merger arbitrage declined as a number of transactions that we were involved in closed.

Our credit products, which collectively represent about one-third of our AUM, continue to be a bright spot for us. In opportunistic credit, year-to-date performance has been distinctive on both an absolute basis and versus our peers.

For example, our Global Credit Opportunities Fund has had strong performance, with a year-to-date net return of 6.4% through July. We remain focused on creating value by applying process-driven strategies that produce specific realizations and are not a direct result of market movements. We have already had multiple realization events this year and expect more to come.

Overall the credit markets remain attractive for our investing style as we seek to optimize our overall positioning and pursue catalyst-driven outcomes. In Institutional Credit Strategies, our performing credit platform, our CLOs continue to generate market-leading performance with cash-on-cash returns in equity averaging 22.6% through August 1.

Our fundamental credit selection continues to positively distinguish our performance from competitors, while our dynamic portfolio management style remains a key differentiator versus other managers. We believe our strong track record will allow us to raise significant additional capital in the US and in Europe in the future.

In real estate we continue to remain cautious and disciplined in our approach to deploying capital in our third opportunistic fund, given the macroeconomic backdrop in the first half of the year along with current valuations for traditional real estate properties. That said, our opportunistic real estate pipeline is robust and largely focused on niche asset types in the US and more traditional assets in Europe.

We are also taking advantage of the strong capital flows into real estate by actively monetizing investments from our earlier funds at attractive valuations. In addition to our opportunistic funds, we continue to expand our real estate credit platform, which focuses on current income and downside protection. We believe this strategy resonates with LPs in the current low interest-rate environment.

Now let's turn to assets under management. As of August 1, our assets under management totaled $39.1 billion. Year-to-date we have had net outflows of approximately $5.5 billion, distributions of $492 million, and depreciation of $370 million. The majority of our net outflows continue to be from our multi-strategy funds, which remain affected by both the cyclical and idiosyncratic headwinds we discussed on our last call.

Since the end of 2009, we have experienced a reasonably consistent level of multi-strategy gross outflows on a quarterly basis. We're currently experiencing some elevation in these outflows, relative to this historical trend, which we believe is due in part to pressure space by the broader hedge fund industry.

Our multi-strategy gross inflows, which have had a student similar historical trend, have been substantially lower this year. We believe this is the result of a number of factors, including the macroeconomic backdrop, individual LP allocation decisions and the effect of the investigation. In our other products, such as credit and real estate, AUM has remained steady.

We believe the diversification of our platform benefits us and differentiates us from many managers, as we have various products that can raise capital in different environments, regardless of what is in or out of favor at any given point in time. We have experienced many difficult market cycles throughout our history and have learned that maintaining our strong investment discipline rather than making directional bets or chasing markets leads to the best long-term performance for LPs.

We are fundamental investors and we typically make investments for12 months or more. While security prices can be affected by many factors in the short-term, as we have certainly seen in the first half of this year, we firmly believe that fundamentals drive valuation over the long-term.

Lastly, I'd like to update you on two significant positive developments for our business. The first is that certain of our partners are in discussions to commit up to $500 million to the firm. Joel will provide more details on this.

Second, I'm pleased to announce that our Board of Directors has elected William Bar to our Board effective August 9. Bill served as the 77th Attorney General of the United States and was most recently General Counsel of Verizon Communication. He is one of the most respected attorneys in the country and brings unmatched expertise in legal, compliance, risk management and governance. We are constantly focused on bringing world-class talent to all aspects of our business and we are extremely pleased to be able to add someone of Bill's caliber to our Board.

Over the last 22 years, we have built an enduring institutional business with a leading market position in an industry that has experienced extraordinary growth and evolution. A number of elements have contributed to our success and differentiated Och-Ziff from its peers. We have a proven investment process and a long history of generating superior performance.

We've a high-quality diverse base of LPs that represent some of the most sophisticated institutional investors in the world and with whom we have built a strong partnership over many years. Our investment client service and infrastructure teams bring credible experience, creativity and skill to what they do each and every day.

They have been with Och-Ziff for a long period of time and that continuity is invaluable. It is for these reasons that my partners and I together have such deep conviction about the future of this fund.

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

Thanks, Dan. This morning we reported a GAAP net loss of $78.6 million or $0.43 per basic and $0.44 per diluted Class A share for the 2016 second-quarter. You can find a full discussion of our GAAP results in our press release, which is posted on our website.

Now let me turn to our economic income result. For the 2016 second-quarter, we reported a distributable earnings loss of $184 million at $0.35 per adjusted Class A share. This loss reflects an additional $214.3 million reserve that we have taken in anticipation of the monetary settlement associated with our ongoing FCPA investigation, bringing the total reserve recorded year-to-date to $414.3 million. While the settlement is still under discussion, we don't expected it to be higher than the amount of the reserve we have taken.

Since our last call, we have entered into advanced settlement negotiations with the government. Pinpointing the exact timing of the settlement remains difficult, but we are hopeful that we will be able to resolve this matter in the near-term. I want to emphasize that we are doing everything we can to bring this process to closure in the best way we can for the Business, our shareholders, our LPs and our employees.

As you saw in our press release certain of our partners are discussing a potential financing transaction with a special committee of the Firm's Board in which these partners would purchase up to $500 million a perpetual preferred unit. These units are initially selected to have a dividend rate of 0% for three years, which would increase over time, and they would not be convertible into Class A shares. Execution of this financing is dependent on customary conditions including satisfactory resolution of the investigation.

The capital commitment being discussed would strengthen our balance sheet and give us substantial financial flexibility. The proceeds would be used to fund a monetary settlement in connection with resolution of the investigation and for general corporate purposes. We will determine our uses of cash based on what we believe is the best interest of the firm and the shareholders as we move forward.

Now for a quick recap of our second quarter economic income results, excluding the reserve. Our distributable earnings for the quarter were $30 million or $0.06 per adjusted Class A share, excluding the reserve. Taking into account the reserve and because we haven't reached a final settlement, we believe it's prudent to retain this quarter's Distributable Earning. Looking forward, our dividend policy remains unchanged and we intend to continue to pay out substantially all of our Distributable Earning.

Our economic income revenues were $142 million, a 19% decline from the first quarter of this year due to a combination of lower management fees and incentive income. Management fees were $133 million, 8% lower sequentially as our average AUM declined by 6% and our average management fee was also lower at 128 basis point, reflecting the effect of net outflows for our multi-strategy fund.

In the first quarter of this year, incentive income was $31 million which included tax distributions on incentive income that had been accrued on our longer term asset. In the second quarter, incentive income was $8 million, mostly reflecting realizations in our closed-end credit and real estate fund. Our operating expenses totaled $87 million for the quarter, 5% lower sequentially. Comp and benefits were $36 million, of which $29 million was salaries and benefits and the remainder was cash bonuses.

Salaries and benefits declined approximately $1 million or 3% quarter-over-quarter as our headcount declined. Non-compensation expenses were $51 million, 11% lower sequentially due primarily to a reduction in technology cost and certain consulting cost.

We continually review our operating expenses with a view to ensuring that they are aligned with our revenues and are appropriately scaled to the needs of our business. We are also focused on making sure that we are as operationally efficient as possible.

Our headcount has come down by 10% since the beginning of the year, and we don't anticipate making many new hires through year-end. We therefore expect that our salaries and benefit expense will trend down from here.

We expect a non-compensation expenses decline in 2017 based on two factors. One, the decreased legal cost associated with the investigation. Two, the savings identified through an ongoing review of our expense base.

We expect the range of savings in 2017 to be $35 million to $50 million off of the full-year 2015 base of non-compensation expenses of $201 million. But of course this is just an estimate. I will continue to give you guidance as we move forward. Excluding the reserve, our effective tax rate was 46% and we anticipate that our tax rate will be 45% to 50% in the third quarter, based on our current estimate of the Firm's full-year economics for 2016.

With that we will now take your question. Again as Tina mentioned, we won't be able to take questions related to the investigation but we are happy to answer others you have.

(Operator Instructions)

Michael Carrier, Bank of America.

Joel, maybe first question just on the discussions with the managing directors, on the commitment of the $500 million. I just wanted to understand, I know you gave for the first three years would be 0%. How do we look at it longer term, and then when I think about that type of financing and then also just the current debt that you have, yet still having the policy of paying out the vast majority on the distribution, just want to get the outlook longer-term, in terms of having that balance sheet structure versus the payout.

So look in the preferred as you said, it is perpetual preferred units with 0% dividend for three years. Not convertible to A units, it will strengthen the balance sheet, we think it's customary. But we are not finalized on negotiations so once it's finalized, once we have details, we can give you more information on that.

In terms of the dividend policy, it's like I said. We haven't changed our dividend policy. We plan to pay out the majority of our distributable earnings. As we move forward, we will see the needs of the business, the cash needs of the business and so on, but that's our policy and we intend to stay with that policy going forward.

Okay, that's helpful. And just as a follow-up, in terms of the flow outlook, you mentioned the two things that I guess have been weighing on the flows both on the industry side and on the investigation. When you separate the business on the multi-strat and how the conversations are going with clients, you obviously still have the long-term performance track record and there could be consolidation, hedge fund industry.

On the other side, with credit you continue to do well. So when you think about the conversations given some of the industry challenges out there, just where has that been trending for Och-Ziff? Because like I say, you have the performance but obviously you have this overhang, but has that been starting to moderate as you have been taking reserves and pushing things out? Or has it continued to be an overhang on the flow picture?

I think you asked to two separate questions. One about the industry and one about us specifically. In terms of the industry, in the credit and real estate, where our performance continues to be very strong and we don't see industry issues, things are moving in the right direction.

On the multi-strategy side, our gross outflows are somewhat higher than they been historically. You get those numbers quarterly in the 10-Q. Our gross inflows this year have been substantially lower than they've been historically.

We think that's some combination of industry issues and some combination of our specific issues with the investigation. That is amongst the reasons that we are so focused on finalizing things and putting this behind us so that we can move forward as an organization.

Okay. Thanks a lot.

Bill Katz from Citi.

Okay, thank you very much for taking my question this morning. Just coming back to the $500 million. Should we think about this as down the line a call-on capital such that the pardons could extract the $500 million once you get to the transition period, or is that now permanent capital in place?

Look, we are going to assess the cash needs of the business as we move forward. And we will determine exactly what we are going to do in relation to calling down the preferred. But as I said, obviously the details have to be ironed out and we'll give you more information, but the way I would look at it is the business needs a certain amount of cash and we will figure out what that is as we move forward.

Okay. Second question is on the cost savings. Could you maybe spend another moment or two to talk about where you expect to get the savings, what kind of timeline you get the savings? It sounds to me like it is all coming to the non-comp line. How should we think about comp as for the count in 2017 as a result of some of these initiatives?

Well, there are two things. First of all, as I mentioned headcount is down about 10%. So I think you will see most of the benefits in salaries and benefits starting 2017.

So there will be some reduction there. In terms of non-comp, we are constantly looking at it, seeing where we can save money, and of course there are legal fees related to the investigation so at some point, that will reduce so that will be savings. Obviously if this thing is over sooner than later, then I can give you better guidance going forward.

I think -- we are always like at the business in relation to economics efficiencies and what the business can do and what it should do, and of course it's need so we will evaluate it as we go forward. But again in terms of what I said in 2017, our expectation on overall expenses, non-comp expenses, is $35 million to $50 million annually. You'll see some benefit from the head-debt count reductions starting in 2017.

So the $35 million-ish next year could be more, just the absence of the legal charges, or is there actually deep infrastructure changes that are underway as well?

Not infrastructure changes, but because of efficiencies, we will say through technology and other things we've done, we are able to save some money. So you will see some efficiencies there beyond the legal fee.

Okay. And then just last question, you have obviously done a very nice job with performance on some of the non-multi-strat initiatives. If I look at your peers they seem to be gathering assets at a much higher rate than you are.

How much of that holdback might be just investigation related, or is there an opportunity here to potentially ramp and leverage some of the good performance to really drive some meaningful beat-paying AUM growth?

It is hard to determine exactly how different factors play in. As you just made clear, that is one of the reasons why we are looking forward as an organization to putting this investigation behind us. And moving forward. And we believe that in all our product areas, our opportunities should improve.

Okay, thank you very much.

Dan Fannon from Jefferies.

Thanks. So another question on the preferred. I guess does this have any impact on the existing notes that are outstanding? And could you remind us of what the covenants are against those today?

Well the bonds we have outstanding are no covenants, the revolver there are some covenants, but we are not going to tie the two together. Meaning that the preferred is being issued to pay the monetary settlement and for general corporate purposes. We will decide what's the best use of any excess cash we have is for the business and how to apply it, but that we'll do as we move forward.

Our focus obviously is to get this investigation over. Come to some type of settlement. And then when we have details on the preferred, which you already know is perpetual with 0% interest rate for three years and not convertible to A units, but when we have more details we will give it to.

And as we move forward, we will give you better guidance on how the cash is going to be used and we'll have better sense in terms of what the business needs as well.

Okay, thanks. And then in terms of your LPs, and Dan was hoping you could give a little bit of color on some of the conversations you guys are having today in terms of longer-term allocations. It does seem based on your breakdown that fund-to-funds seem to be the biggest source of redemptions here in the most recent period, but if you look at that subset of your breakdown, are there areas you would think would shrink more or faster than others and others that might be growing more overtime?

Right now, there are some in the hedge fund industry there are certainly some overall pressures that I think you are all aware of that have been discussed. Our view is we have been in this business for 22 years. We always believe that investors will continue to go to the managers who deliver what they are looking for.

Returns, risk management, infrastructure, operations, consistency, et cetera. For 22 years, that has allowed us to be at the leading edge of the industry. And that is our focus. We are going to make sure we stay there.

And as you point out, the fact we are diversified, the fact we have opportunistic credit products, institutional [loan only] credit products and real estate products give us the ability to grow even if one of our businesses on an industry basis is not fully in favor.

Okay. Thank you.

Robert Lee, KBW.

Thanks. Good morning, everyone. First question I know, Joel, you've got to go back and assess what your capital need is going to be post-settlement and see how everything thing shakes out. But maybe at a high level, is it fair to assume that once you pass the settlement that looking ahead, whether it is because of retention rules and CLOs or as you rollout new strategies in credit, real estate an maybe elsewhere that your capital retention needs may be somewhat higher than maybe they have been historically? Whether it is to fund your own commitments to new strategies, or again, CLO capital retention and things like that?

The answer to that is yes, and I think what you are pointing out is, which is a benefit to our shareholders, is where there's opportunity for us to invest in new products, where there is opportunity to do that we are going to do that, and we think that is actually a huge positive for everybody. And it's not just CLO retention type stuff. It is new products across the board, whether it is any type of product.

And I think you are pointing out that exact point that, that is something that business will need cash for, and that's something we might use when we describe general corporate purposes.

I was just curious, I mean understanding that there's a lot of moving parts with fundraising right now. Not the least of which is getting the settlement behind you. But I'm just curious, I look at the opportunistic credit to your closed-end strategy. They look like pretty much all the funds -- where performance has been good are at the end of, through their investing period. So to speak.

And it looks like that is a place where there should be an opportunity for you to have a new fund out there and raising capital. So is there one thing big thing you can comment on? Is there one currently, is that kind of a place that we should look, once you get a settlement that you can start fundraising pretty quickly?

We think the key in opportunistic credit is to only go to raise the capital when you see an opportunity that you feel strongly about. Deliver on the performance, not just in terms of IRR but in terms of a whole dollar return. And then return the capital to investors when the opportunity has played out.

As you pointed out, we think we have delivered at the very high-end of all of those expectations in all of our opportunistic credit funds, which positions us extremely well to be aggressive when we see the next opportunity. But we don't -- by definition -- we don't raise an opportunistic credit fund because the other, last opportunistic credit fund just returned capital. We raised opportunistic credit funds when we see things for our clients to do that we feel very strongly about. So there are a number of things we are focused on that have the potential to play out.

You do note that we are in -- focused on the real estate credit platform right now. We feel very strongly about that area. We feel strongly about other areas where banks aren't doing some of the things we used to do.

We are focused on areas such as energy, where the dislocations have created opportunities, and so we think there will be things to do, be we are not going to raise opportunistic credit funds just because the timing of our last opportunistic credit fund returned capital. We are going to do it when we see things that we feel strongly about where we think we can really deliver for our clients.

Those are my questions thank you.

Alex Blostein from Goldman Sachs.

Hello, good morning guys. Another one around the reserve and the funding on the reserve.

Joel, just to be clear, if you're saying $414 million is the max and you don't expect to do more. You guys are doing a little over $100 million of [Aftech TE] and drew on the revolver, I think $120 million. Why raise the $500 million pref from the partners?

All about flex ability on the balance sheet until we see resolution of this thing, and then just having that flexibility as we move forward to do different things with the business. And we will determine like we always do.

If we have excess cash what the best things to do with that excess cash for our shareholder, whether that's investing in products, whether that's doing other things that's what we'll figure out. But it's all about flexibility of the balance sheet until we have resolution of this thing.

Got you, but the $400 million-and-change is the final number that we should be thinking about.

We think it's going to be the final number. It may be lower, but we think that's the max -- at this point.

Got you. Great. And then a couple questions just around the business. You guys have a fair amount of accrued but not recognized incentive fees, particularly around both the real estate fund as well as the opportunistic credit.

What's the environment, I guess, to exit right now? We've heard from a number of your peers that the exit environment has improved, so as we think about the timing of recognition of the incentive fees through the P&L, what's your latest views on timing?

Well look, we have about $215 million in accrued incentive. As the opportunities come up, we will exit those investments. And to Dan's point, we do it to maximize value to our investors, so if we can sell something at the right levels or if we think that it's not going to go up any further, then we will make the decision. So you can see over time every quarter there some of this.

This quarter was our longer-term assets, real estate and credit, and we will continue to do that. I can't project exactly what it's going to be and when it's going to be. But being the type of investors we are, we're focused on maximizing value for those investments.

Got you. And then just a last cleanup question, as we think about the run rate management fee rate exiting the quarter, help us maybe given the makeshift in the business kind of think through the rest of the year. Where should be management fee rate be?

The average rate is about 1.28%. If assets come down in our multi-strat funds which are the higher fee paying assets, that may reduce a little bit, but it all depends on the mix because obviously as Dan had mentioned, there are not a lot of inflows at this point that, but when this thing is over, I'm not saying there's going to be immediately inflow, there'd be some overhang -- but the mix of that, this may change, and some of the assets may grow, so we can't predict what flows are going to be.

But at this point in looks -- we are at 1.28%. It looks like the multi-strat is the one that is being most effective, so you can make your projections from there.

Got it, good, thanks guys.

Ken Worthington from JPMorgan.

Hello, good morning. Maybe first, Dan, you mentioned that you are making some changes to the investment process. Maybe can you give us more color on these changes that you are making?

That's something that we constantly do in each of our investment areas. We constantly evaluate what is working, what is not working as well as it could. Are there any new things we can be doing?

In the multi-strategy funds, particularly in the long-short equity area largely in the US, we have acknowledged that we went through roughly a 12 month year period where our underperformance was more than we thought it should be. So we have been very clear with clients that we are not satisfied with that. We are not just saying it happened and there is nothing we can do.

We focused on looking at position, size, are there any sectors that particularly underperformed, are there any things that we looked at and said if we could have done them differently we would have, and are there any commonalities to that? We looked at impacts other markets, this world is constantly evolving and we are very focused both quantitatively and qualitatively on what other markets and other impacts globally are affecting things that they didn't used to impact, and making those modifications.

So core investment process fundamental analysis methodology of hedging and reducing risk are all unchanged, but we have acknowledged to our clients and to you on this call that we were not satisfied with that roughly 12 month period, and so we focus deeply every day on improving things.

Have you made actually any changes? To long-short US, or is it just short evaluating what is going on?

The items that I mentioned, and to answer the last question. I meant to be clear that those are the types of things that we have changed and modified, yes.

Okay. On CLOs, you mentioned that the performance through August 1 is really, really good. There's -- if I am correct, no CLOs raised this year.

I assume, is it FCPA that is sort of withholding back maybe additional launches here? And if that is that case, once FCPA gets resolved, how quickly can you start to launch funds and raise funds again?

Look, I think the CLO fund issuance is dependent more on market conditions and opportunities. We do think that we will be able to issue more this year, it's just a matter of our market conditions and the right place to do it more than anything else.

Okay. Interesting, because what we have seen from your peers is they're still launching CLOs. And a reasonable amount of them. Can you flesh out maybe way you think market conditions aren't good for raising right now?

Look, it's all about us evaluating the best thing for investors. That includes the CLOs and at this point we are looking at the market. We will make decisions as we move from.

When we launched the CLO business, we made clear our goal was not just to raise assets and be as big as we could be. Our goal was to generate top performance and then hope that, that would lead to growth and becoming larger. And so as Joel alluded, we set up a structure both in the US and Europe where we have the ability to focus on the asset side, focus on the liability side, move in and out when we see opportunity.

I think people would agree that 22.6% in today's interest-rate environment and fixed income environment is extremely attractive. And that's going to continue to be our focus.

Okay, great. And maybe just lastly, Joel, how did you fund the reserve this quarter? I know you're planning on issuing the 0% preferred. What sort of bridges the financing that you are using?

Don't forget the investigation isn't over yet so there is no -- it is just an accrual, not an actual payment, and so we think that obviously this preferred which is -- which we are in negotiations and discussions about will be able to more than pay that and give us some operating excess.

Got it, okay. Makes sense. Thank you very much. Bill Katz from Citi.

Thanks, just a couple follow-ups. Just coming back to the $500 million for a moment. Can you give us a sense of what percentage of the partners kicked in or kicking in for this, and what if any restrictions they may have in terms of staying with the franchise as a result of this?

So we are not done, this is still under discussions. And when we have more details we will be glad to give them to you.

And then just one last for me, thanks for taking them all this morning. On the hedge fund, can you break down the attrition between the more typical institutional LPs and maybe on the high network side where you have been selling the equity long-short portfolio, maybe size the standalone equity long-short portfolio as of June 30?

If you're talking about capital coming in and out for different types of investors it has been across-the-board. Again, it is the multi-strat, so lever our liquidity in the multi-strat.

I think if you look at the quarterly numbers we put out, you can see they -- and obviously if you have any specific questions, just give Tina a call. She will walk you through the different --

Okay, thank you very much, guys.

Robert Lee from KBW.

Actually, my questions were asked. Thank you.

Thanks Rob.

Michael Carrier from Bank of America.

Joel, just a quick follow-up on the expenses. Just wanted to make sure we understood. When you look at that $35 million to $50 million just from a timing -- I just want to make sure we got it in terms of it being mostly in 2017, so no impact from that in the second half.

Then I know taxes are tougher the longer you go out. You gave the update for the second half of this year, but given that you have those synergies or efficiencies coming in, in 2017, any outlook -- preliminary outlook for taxes in 2017?

Just to be clear, there will be some benefit in the third quarter, fourth quarter but not material and most of it as I disclosed will be 2017. In terms of -- so for expenses, most of it is 2017, including the effect of the headcount reduction, which you'll see in salary and benefits beginning in 2017. I'm sorry what was the second part of your question?

Just on the tax rate. You mentioned the second being elevated just given the mix and where you accrued. Just wanted to know if you had any preliminary on 2017 just given that was obviously more elevated than it had been?

It is too early to tell. Obviously it's based on our projection for the year which is total revenue. You know the tax rate's affected by the amount of revenue and how close with model. So it's too early to say for 2017, but we will give you guidance as we get closer.

Got it, all right, thanks a lot.

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

Thanks, Mark. Thank you everyone for joining us today and for your interest in Och-Ziff. If you have any questions, please don't hesitate to contact me at (212) 719-7381. Media inquiries should be directed to Joe Snodgrass at (212) 887-4821.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.