M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, July 2, 2007

Yet Another Alternative Asset Manager Going Public (Och-Ziff)

Och-Ziff Capital Management Group LLC today filed a registration statement for an initial public offering of up to $2 billion of series A stock units.  Och-Ziff is one of the largest alternative asset managers in the world, with approximately $26.8 billion of assets under management as of April 30, 2007.  It is run by former Goldman Sachs Group Inc. equities trader Daniel Och, and was founded with Ziff family money.  The number of shares and the price for the offering weren't disclosed.  But all of the offering proceeds will go to the current partners of Och-Ziff.  Yet another pay-day for hedge fund managers. 

And it is yet another offering where investors will have only limited voting rights.  According to the registrations statement, the current owners of Och-Ziff will retain their ownership interest through Class B share units which will have no economic rights but will have voting rights.  So long as these Class B owners continue to hold more than 40% of the total voting power of the outstanding shares, the Class B holders will have the right to designate nominees for election to the company's board of directors, based on their ownership of outstanding voting securities.  Initially, this will give the Class B shareholders the ability to designate five of the seven nominees for election to the Och-Ziff board.

Not a great deal -- once again fund managers are not only cashing out, but doing so in a way which disenfranchises investors -- setting the stage for future conflict.  Still, this is a bit better than Blackstone which gave its investors no voting rights.  For those still contemplating investing, you'd likely be much better off investing directly in Och-Ziff's main fund (OZ Master Fund, Ltd.) which Och-Ziff disclosed has returned 17% since inception a total return basis, net of all fees and expenses compared to only 11.6% by the S&P 500 during the same time.  But, unfortunately, SEC rules foreclose this for all but wealthy investors (see my post on this irrational distinction here). 

The filing also shows that the industry still sees an active ipo market for fund advisers in the wake of the Blackstone ipo.  This appears true despite the recently introduced congressional bill to tax as corporations publicly traded partnerships that directly or indirectly derive income from investment adviser or asset management services.   In the past few weeks, GLG Partners LP, Europe's third-largest hedge-fund manager, announced that it will go public in the United States through a $3.4 billion transaction with the Special Purpose Acquisition Company Freedom Acquisition Holdings Inc., creating GLG Partners Inc. a publicly traded company on the New York Stock Exchange.  In addition, Pzena Investment Management, Inc, a value-oriented investment management firm with approximately $28.5 billion in assets under management also filed to go public.  And Third Point LLC , a New York-based hedge-fund firm with $5.1 billion in assets under management founded in 1995 by the notorious Europe-hater Daniel S. Loeb , announced on June 14 that it plans to raise $666 million in an IPO on the London Stock Exchange.  So it goes . . . .


Hedge Funds, Private Equity | Permalink

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