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Executives

Tina Madon - Managing Director and Head of Investor Relations

Daniel Saul Och - Founder, Chairman, Chief Executive Officer and Executive Managing Director

Joel Martin Frank - Chief Financial Officer, Senior Chief Operating Officer, Principal Accounting Officer, Executive Managing Director and Director

Analysts

Daniel Thomas Fannon - Jefferies LLC, Research Division

William R. Katz - Citigroup Inc, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Paul Lanks - JP Morgan Chase & Co, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Bulent S. Ozcan - RBC Capital Markets, LLC, Research Division

Och-Ziff Capital Management Group LLC (OZM) Q2 2013 Earnings Call August 2, 2013 8:30 AM ET

Operator

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

Tina Madon

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 in our business. The company does not undertake any obligation to publicly update any forward-looking statements, 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 U.S. 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 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 webcast replays will be made available later today. You can find the details for both on our website. With that, I'll now turn the call over to Dan.

Daniel Saul Och

Thanks, Tina. Good morning, everyone, and welcome. This morning, I'll 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'll 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 exposure management and 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 fundamentals-based 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 total 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 2 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. A 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 U.S. 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, leverage loans and distressed corporate credit.

For example, during the second quarter, we took advantage of the selloff in corporate credit markets, and added to existing distressed positions that we believe were oversold in the dislocation. Our growing CLO business complements 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 results -- result in increased opportunity for our fund investors both in terms of potential returns and in relation to varying platforms to choose from, which should 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 structured 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, complementing the growth opportunity we see in our multi-strategy product. These 4 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 funds investment performance. Year-to-date through July 31, our Master Fund was up 7.6% net. Our 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 U.S., we added to both the 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 U.S. 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 had 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.

Joel Martin Frank

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's 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 approximately 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 2/3 of our total asset growth. The management fees of these products are generally lower than those for our multi-strategy products, which reflects the 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 approximately $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 3-year multi-strategy assets were crystallized 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 the 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 in our press release this morning, our dividends for the second quarter was $0.14 per Class A share. One of the largest components of the cash we used 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 opportunity 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 approximately 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 incentive. 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.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes of the line of Dan Fannon from Jefferies.

Daniel Thomas Fannon - Jefferies LLC, Research Division

I guess, Dan, I was wondering as you think about your conversations with LPs today, how have they changed? Are they -- are the focus 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?

Daniel Saul Och

Well, the change, which is -- it's been happening for some period of time. 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 of 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 Och-Ziff as a performance-driven solutions provider, and we think you're starting to see that.

Daniel Thomas Fannon - Jefferies LLC, Research Division

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 happened?

Joel Martin Frank

Yes, I think -- Dan, so I think the thing to focus on, Dan, is the gross flows year-to-date, which on -- our 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's a little bit of $4.1 million through August 1. I think those are the right numbers to focus on.

Daniel Thomas Fannon - Jefferies LLC, Research Division

And of that, the CLOs contributed what?

Joel Martin Frank

CLOs, in total, contributed around $2 billion.

Operator

The next question we have comes from the line of William Katz from Citi.

William R. Katz - Citigroup Inc, Research Division

Just -- you mentioned the strategic focus [indiscernible]

Tina Madon

Bill, can you speak up because we can't hear you?

William R. Katz - Citigroup Inc, Research Division

Sure, is this any better? Can you hear me?

Tina Madon

Yes.

William R. Katz - Citigroup Inc, Research Division

Okay, sorry about that. So you ticked off, Dan, the 4 key sort of product areas, if you will, can you talk a little bit about distribution in 2 parts, if you will? One, in terms of retail. I know private banking has 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 talked about selling the equity long/short portfolio directly, the capability directly to investors rather than just through the multi-strat. Can you update us on the initiative there as well?

Daniel Saul Och

Sure. On the retail side, we do think that 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. 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's what we talked about. As we became to be recognized as a solutions provider, as we came be recognized, not just in multi-strategy, but in other products, we recognized 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, the credit products are a good example. We started speaking about the credit products 2 or 3 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 -- when we look at the AUM of some of the other alternative matters in the credit side and CR 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 pickup from Europe. We think we're extremely well-positioned to capture market share there and we plan to execute.

William R. Katz - Citigroup Inc, Research Division

Okay, just a couple more from me. Maybe for Joel, 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 of 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?

Joel Martin Frank

Yes. So in terms of margins, the way we look at it, on an overall basis, and obviously, that number is to help you model what you need to model. It's 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 the business. It's overall asset growth, which is going to lead to revenue growth both in management fees and incentive fees if we 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 -- for compensatory grants and for new hires. The key here is we're investing in our business, and we like the alignment that, that creates by issuing shares to people, whether it's compensatory share or whether it's to new hires. We like the alignment with our shareholders, the alignment with our business. We think it's 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.

Operator

The next question we have comes from the line of Robert Lee, KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

I guess, first question I have is just looking at the other multi-strat funds. Just kind of curious, I mean, since that bucket's kind of bigger than Europe Master and Asia combined at this point, maybe getting a little more color within -- is that predominantly kind of the 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.

Daniel Saul Och

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

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Well, where you break out the $3.3 billion of other multi-strategy funds, just kind of the funds within that $3.3 billion bucket?

Daniel Saul Och

I think what you're asking, so we have like the Master Fund and the Europe Master Fund, and then there's some other funds that follow those funds so it's 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 you if you don't have it, it's for all the multi-strategy funds, whether it's Master Fund, Europe Master Fund, obviously, geographic differences. Those strategies are going to pretty much follow that mix. It may change a little bit, but it's pretty much following that mix.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

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

Daniel Saul Och

Yes, just to clarify. Every -- 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's a private equity structure, and it is definitely callable [ph] capital, and we 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.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

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

Daniel Saul Och

Yes, that's correct.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And one last question, just on capital management, maybe just a little bit of follow-up to Bill's question, but I mean, 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. I mean, any thoughts to, at some point, maybe adding more share repurchase into the mix? How do you think about that in terms of future use of cash generation?

Daniel Saul Och

Well, 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, and as I said at the moment, we have no plans to repurchase shares.

Operator

The next question we have comes from the line of Roger Freeman from Barclays.

Roger A. Freeman - Barclays Capital, Research Division

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

Joel Martin Frank

Look, our best guess, and we don't know, Roger, because when someone allocates capital, they don't necessarily tell us exactly 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 have called the alternative allocation of the hedge fund allocation. The -- in terms of assets, either from the equity allocation or assets from their 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 institutions 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're extremely well-positioned, hard to know the timing.

Roger A. Freeman - Barclays Capital, Research Division

Okay. And I guess my the 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, it's -- you don't take a different approach than you do for the rest of the AUM, right?.

Joel Martin Frank

Yes. It's simply building the business. In the CL -- in the case of CLOs, it's also getting information, gaining access to the market, which helps us build other parts of our credit business, but again, it's scalability. So it doesn't mean that you separate each business and have a surprise function of 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.

Operator

Our next question comes of the line of Ken Worthington at JP Morgan.

Paul Lanks - JP Morgan Chase & Co, Research Division

This is Paul Lanks. I'm on for Ken. Just have a couple of distribution questions. It's 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, and the effect they're 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?

Daniel Saul Och

I'm not sure it's either. Our 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 that 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 stay at the top of that, but most -- as we said, to the extent that opportunities develop in retail, to the extent that 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's always been to be the best producer of alpha, of excess return and risk-adjusted return, along with everything else that we provide so that we can be at the top of those, ride those crest as well.

Joel Martin Frank

Yes, and I think it's 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 in investor type.

Paul Lanks - JP Morgan Chase & Co, Research Division

Okay. And 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 to $5 million?

Daniel Saul Och

Well, I'm not sure they call it a structured fund because that has certain connotations. The general matter, what it is, is the private bank, the institution, we just interface with the institution. So they do co-mingle their investors, and the minimum depends on the institution.

Paul Lanks - JP Morgan Chase & Co, Research Division

Okay, all right and just one last question. Just on sovereign wealth funds, I don't see that in the breakout of clients. I'm just wondering where they fit into the current breakout that you have or if that's really a large focus?

Daniel Saul Och

They're 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.

Operator

The next question we have comes from the line of Cynthia Mayer from Bank of America Merrill Lynch.

Cynthia Mayer - BofA Merrill Lynch, Research Division

So maybe just to clarify on the redemptions in 2Q, which gave rise to the incentive fees. So is it possible to generalize about what products those were from? And do those represent clients leaving altogether 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?

Daniel Saul Och

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay. And then just to clarify on the expenses, you noted in the release that the comp and the non-comp have been growing a little faster than the management fees, but also said, over time, there should be leverage. So are -- 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?

Daniel Saul Och

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 under management fees really. I think that's the real power. But of course, on an overall basis, revenue is important, but incentive really offsets bonus expense more than the management fees paying for our fixed expenses.

Cynthia Mayer - BofA Merrill Lynch, Research Division

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. Do you -- have you had any conversations with them? Do you have any sense of where they're going with their stake?

Daniel Saul Och

No, we don't.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay, and maybe just one more. When you look at the -- I think you mentioned year-to-date, most of the -- 2/3 of the flows are coming from credit and CLOs. Any shift in that recently or is it pretty consistent throughout the year?

Daniel Saul Och

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.

Cynthia Mayer - BofA Merrill Lynch, Research Division

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

Joel Martin Frank

Through June. June 30.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay. And any shift in July? Or is it sort of the same pattern?

Daniel Saul Och

It's a mixture. It shifted slightly, but nothing material.

Joel Martin Frank

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

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

Daniel Saul Och

Well, did it change the tone? Yes. But one of the things -- that seems to be something that worked well 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 there was complete complacency about the level of rates in the U.S., 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 I -- 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's going to drive some allocations, but it's a longer process than one month or one quarter with these institutions.

Operator

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

Bulent S. Ozcan - RBC Capital Markets, LLC, Research Division

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

Daniel Saul Och

A broad question for an earnings call, and obviously, we're not going to comment on 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 -- 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'll grow and evolve. As we develop investment capabilities, our goal is always going to be at the forefront of that investment capability.

Bulent S. Ozcan - RBC Capital Markets, LLC, Research Division

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

Daniel Saul Och

Well, as we said earlier, we don't have any 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'll be -- our goal is to be 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.

Bulent S. Ozcan - RBC Capital Markets, LLC, Research Division

And 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?

Daniel Saul Och

Well, we think all that has changed is that they've had more time to see what we do. Historically, the longer an investor has been with our firm, the more they appreciate what we're able to do. You have to remember, private banks, our conglomeration of individual investors and their FAs making decisions. And so like everybody, when they come to a universe of hedge funds, they're 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 and relative basis.

Operator

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

Tina 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.

Operator

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

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Source: Och-Ziff Capital Management Group LLC Management Discusses Q2 2013 Results - Earnings Call Transcript
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