Och-Ziff Capital Management Group LLC (OZM) is one of a handful of publicly traded hedge funds. Och-Ziff Capital reported a sharply higher quarterly profit that beat Wall Street expectations after the investment management company's incentive income surged on strong returns at its funds. Och-Ziff Capital is poised to grab a bigger market share as more investors look to put money into hedge funds.
Already one of the industry's biggest firms, the New York-based company had $33.1 billion in assets as of Feb. 1, 2013, 15% higher than $28.8 billion as of December 31, 2011. The company manages the assets for public pension funds, including the states of Massachusetts and Florida, endowments and wealthy investors. The assets reflect year-to-date performance-related appreciation of $700 million and capital net outflows of approximately $200 million.
The hedge-fund manager suffered hefty redemptions during the financial crisis since it didn't limit investor withdrawals, as some other funds did. The increase is assets under management (AUM) is a positive sign for Och-Ziff Capital as it continues to rebound from the financial crisis.
The increase in assets under management increased due to the improved investment returns of the Och-Ziff managed hedge funds. As the assets increase, Och-Ziff can increase company profits through higher investment income and incentive income, or the fees that hedge fund managers earn when their funds perform well.
The hedge funds managed by Och-Ziff Capital performed well in 2012 and are projected to do even better in 2013. The OZ Master Fund had full-year net returns through December 31, 2012 of 11.6%. The OZ Europe Master Fund returned 8.6%, the OZ Asia Master Fund returned 7.0% and the OZ Global Special Investments Master Fund had a return of 9.8%.
The company produced estimated net returns for January 2013 in the OZ Master Fund of 1.9%, the OZ Europe Master Fund of 3.4%, the OZ Asia Master Fund of 3.7% and the OZ Global Special Investments Master Fund of 0.5%.
For the fourth quarter, Och-Ziff reported a profit of $50.7 million, or $0.34 per share, versus a loss of $137 million, or $1.17 a share, a year earlier. Och-Ziff's distributable earnings which calculate cash flow to investors and which analysts track were $351.3 million, or $0.77 per share, versus $16.8 million, or $0.4 per share, in the year-earlier period.
Total revenue increased nearly 300% with a jump to $724 million from $181.3 million. Incentive income surged to $568 million from $43.1 million, an increase of 1200%.
Strong earnings helped boost the company's dividend to $0.75 per share, exceeding the $0.66 cents Wall Street expected. The $0.75 dividend is a 7.22% dividend yield based on current stock price. The dividend is payable on February 26, 2013, to shareholders of record on February 19, 2013. Och-Ziff paid out $1.11 in dividends for the full year 2012.
Och-Ziff Capital has a market cap of $4.4 billion and trades at 0.53 sales from the 4th quarter 2012. On February 8, 2013, Barclays reiterated an overweight rating on Och-Ziff.
First Call analysts' consensus has projected Och-Ziff will produce 2013 EPS of $1.20 and $1.34 for 2014. First Call consensus is a buy recommendation with a 2.1 rating.
The average industry price earnings (PE) ratio is 23 for the capital markets. Based on the projected $1.20 in 2013 EPS and the industry PE, Och-Ziff Capital Management Group has a 12-month target price of $27.60.