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Sculptor Capital Management: Sculpting A Future Income Stream

Damon Judd profile picture
Damon Judd


  • Growing assets under management with total 1-year return over 140%.
  • Distribution yield exceeds 12% so far in 2021.
  • Shareholder friendly management team that is making wise decisions on capital allocation.
Positive Negative Form.

kristo74/iStock via Getty Images

In my quest for the holy grail of long-term income investing I have been seeking more than just alpha. I look for undervalued or under followed companies that offer a high yield distribution (> 6%) with capital appreciation potential and relative protection to significant

This article was written by

Damon Judd profile picture
Visit www.Knowledge-Investing.com for more info about me. I became deeply interested in the stock market beginning in late 2007 (bad timing for me but worse for my uncle) when I received an unexpected inheritance. Since that time I have done considerable research and vowed to make smarter long-term investing decisions after suffering through the Great Recession with minimal losses to my inherited portfolio, after firing my financial advisor.I look for individual growth and income stocks, and some funds (CEFs, ETFs) that offer high yield income to increase my retirement income beyond my 401k and the pension that I will receive after I retire. I also enjoy reading investment/financial and business information and following trends in technology and markets. The human psychology of markets is as fascinating and inscrutable to me as the financial side. I work as an information systems manager, so data and information are valuable assets to me. I am not a financial advisor so please do your own due diligence before making any buy or sell decisions.“The race is not always to the swift, nor the battle to the strong, but that's the way to bet.” Damon Runyon

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SCU either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am in independent investor and not a financial advisor. I am interested in sharing ideas and looking for feedback on my investment decisions. This is not a recommendation to buy or sell but rather my personal opinion. Do your own due diligence before making any trading decision.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (77)

Xav Welsh profile picture
For anyone still following the train wreck…we are now at a key technical level. SCU needs to hold here at ~$10.95 (close to the depths of the pandemic lows of 2020). There is little support below (it briefly touched $10 in the depths of the pandemic sell off) so if it breaks…
Damon Judd profile picture
@Xav Welsh thanks for keeping us informed. I bailed on this stock back in Feb and have not been following since. Glad I got out when I did!
Xav Welsh profile picture
@EnigmaDude I should have followed you out! I reduced my position several times as it dropped but have kept a core position. Added today as a trade (risky given the market sentiment) and will sell tomorrow if the price doesn’t hold. If we do hit $10 in a broad market pull down I’ll buy a larger position again.
Xav Welsh profile picture
NEW YORK, February 16, 2022 - Sculptor Capital Management, Inc. (NYSE: SCU) today reported GAAP Net Loss Attributable to Class A Shareholders of $5.8 million, or $0.23 per basic and $0.75 per diluted Class A Share, for the fourth quarter of 2021, and GAAP Net Loss of $8.6 million, or $0.34 per basic and $0.56 per diluted Class A Share for the full year 2021.
Full Year 2021 and Fourth Quarter 2021 Highlights
▪ Distributable Earnings1,2 were $82.8 million, or $1.38 per Fully Diluted Share for the full year 2021;
there was a loss of $56.3 million, or $0.94 per Fully Diluted Share for the fourth quarter of 2021
▪ No cash dividend was declared for the fourth quarter of 2021 to Class A Shareholders
▪ Sculptor Master Fund was up 5.0% net for full year 2021 and down 2.3% net for the fourth quarter of 2021
▪ Sculptor Credit Opportunities Master Fund and Customized Credit Focused Platform were up 17.0% and 17.2% net, respectively, for the full year 2021, and up 2.3% and 2.6% net, respectively, for the fourth quarter of 2021
▪ Assets under management (“AUM”) were $38.1 billion as of December 31, 2021, up $1.3 billion 3 year-over-year, which includes longer-term AUM of $25.8 billion, up $1.1 billion year-over-year
▪ Gross inflows were $1.2 billion into our multi-strategy funds for 2021, the highest annual gross inflows since 2014 (as a percent of beginning AUM)
▪ Adjusted net assets1,4 were $381.4 million as of December 31, 2021
January 2022 Update
▪ Sculptor Master Fund was down 2.6% net month-to-date through January 31, 2022
▪ Sculptor Credit Opportunities Master Fund and Customized Credit Focused Platform were down
0.3% and 0.6% net, respectively, month-to date through January 31, 2022
▪ As of February 1, 2022, AUM was $37.9 billion
▪ Gross inflows were $452 million into our multi-strategy funds year to date through February 1.
Xav Welsh profile picture
@EnigmaDude Yup, stock already down almost 5% after hours. No dividend was just the icing….
Bossco profile picture
HUGE Fall from grace. I'm peeved. I pulled trigger on SCU after DD yielded strong buy signals. Now 20/20 hindsight: shoulda/coulda/woulda used my SCU holdings for '21 tax loss harvesting (-32.27%) vs BABA (-26.56).

8/23/21: Citigroup Adjusts Price Target to $54 From $52, Reiterates Buy Rating
2/4/22: Citigroup Adjusts Price Target to $33.5 From $37.5, Keeps Buy Rating

Ford Equity Research = Neutral
ISS-EVA = Outperform
McLean Capital Management = Neutral
Zacks Investment Research = Neutral
Refinitiv/Verus = Neutral

I/B/E/S Estimates from Refinitiv = Buy with...
Annual EPS Consensus Actual (Expectations)
@Bossco Hold on my friend, all tells us this resigment is rather some specific event which shall not affect the performance of SCU business, actually it's the other way around. Mr Levin has most of its reward linked to incentive fee, so if he's getting tons of $, so is SCU and its shareholders.
Xav Welsh profile picture
@Bossco Agreed, it’s a disappointing turn of events. Given the history of this firm, in which investors were crushed due to fall out from the bribery scandal at Och Ziff (note: CEO Levin was part of the OZM inner circle) and the years it’s taken to recover somewhat (including rename/rebranding as SCU), there should be extreme focus on avoiding even the appearance of impropriety. Levin was supposed to be CEO years earlier but Dan Och changed his mind at the eleventh hour and decided to remain at the helm because his top stock picker (Levin) was perceived to be too greedy and ungrateful - see: dealbreaker.com/... Now that Levin’s in charge, is he proving Dan right? Bottom line is that James Levin is seemingly a green and immature CEO who doesn’t appear to have investors at top of mind, though I hope he will grow/evolve and this will change. The opaque dividend policy has hurt the stock performance recently, and now the allegations of poor corporate governance are adding salt to the wound. The stock has broken its technical support at $18 and next stop could be $16….unless SCU announces great results on the upcoming earnings call. They started out strong early last year, so let’s hope it’s a repeat here and we get a bit richer along with Levin….
@Xav Welsh Why we would we ever expect Levin to have 'investors at top of mind'. I don't think Ochs was concerned about equity investors either. Just his personal stake, as he still is. From all I hear SCU is a well managed company with loyal and well bonused staff. The poor governance issue comes from one source where there is a lingering grievance. What else should we expect from SCU beyond a competitive but not over generous dividend ?
Damon Judd profile picture
This headline dated Feb 3, is driving down the share price even further today.
They report earnings next week on the 9th. I am holding for now but will be watching the earnings report closely.

Sculptor Director Resigns, Alleges Governance Failures at Hedge Fund -- WSJ

Mr. Rutman alleged the board didn't do adequate work to determine whether Mr. Levin's pay was merited or whether it would "reward mediocrity." He also said Mr. Levin's direct report, Wayne Cohen, also a board member, was allowed to vote on the compensation package over Mr. Rutman's objections, reaching the five votes needed to approve the agreement.
@EnigmaDude Seems that the income stream is being suitably scalpted by management incentives. I'm sure that Jimmy Levin was only to happy to see Mr. Rutman resign from the board . Placed there by Dan Ochs to safeguard his remaining minor stake and future dividends he was no doubt seen as uncongenial by the otherwise hand picked members. But if Jimmy Levin is guilty of trying to accumulate great wealth the news is good for us long term. Hopefully results next week will be on target. But the declared dividend could greatly disappoint us as well as Dan Ochs.
@northharrow I agree with your assessment. Mr Levin 2021 pay is closely related with performance. If his pay approaches 200 million, Q4 shouldn’t bad. The earning is on feb 17th
Dec 31,2021 AUM 38.2, way to go!
Damon Judd profile picture
@luqing Is that from their website? Can you provide a link?
Damon Judd profile picture
@luqing Thanks, I found the info on the 8-K filed on Jan 1.

"In addition, the Company is disclosing to investors in the investment funds that it manages that, as of January 1, 2022,
the estimated unaudited amount of assets under management was approximately $38.2 billion, which reflects a net increase of
approximately $0.8 billion since December 1, 2021."

Bossco profile picture
Falling knives like this really test one's resolve! 🙃😕
@Bossco Forward PE is 5.
Bossco profile picture
@TylerInVA - OK, and the price of tea in China is what? LOL ;-)

Shares are currently trading 15.9% below their 50-day moving average and 22.5% below their 200-day moving average. But why? perhaps because of this: "...earnings have declined to an estimated $3.48 from $7.07 over the past 5 quarters, they have shown strong deceleration in quarterly growth rates when adjusted for the volatility of earnings. This is an indication of
weakness that could lead to declining earnings."

I'm holding, but it ain't easy.
@Bossco But that's the essence of this business. They need AUM to grow, which is something they cannot control, regardless of how good they are at providing alpha. I'm also holding and specially now at this price I don't really see much downside ahead.
Xav Welsh profile picture
SCU’s Estimated Unaudited Amount Of Assets Under Management Was About $37.4 Bln as of Dec 1, 2021 versus $36.9 Bln on October 01, 2021…
@Xav Welsh Looking strong. I’ve continued to buy shares.
Xav Welsh profile picture
@TylerInVA Same, I added to my position after seeing the AUM numbers. Will be lumpy but hopefully we continue to see it rising over next few years. Will also help if current (young) CEO transitions from being the ‘smartest investor in the room’, to an executive leader who is focused on rewarding shareholders and comes into the earning calls with a clear, crisp and coherent strategy that can cement the investment thesis. Saying the future dividend will be between zero and 100% of available funds isn’t cutting it. Let’s face it, anyone who held on from the OZM days has seen their investment obliterated, so this management team needs to spend some extra time communicating the direction of travel and ensuring our interests are fully aligned. GLTA
Damon Judd profile picture
@Xav Welsh Good comments, thanks for sharing. Looks like the share price found a floor at about 18. Lower than I was expecting but hopefully long term this will look like a bargain.
Price-to-cash is 7.9.
It appears that Scalptor has no friends in the investment community if a hedge fund alone can send the stock down 25 % without a very quick bounce back. I wonder if this is because CEO Jimmy Levin, a survivor from the former OZ, is still identified with it's curse ? He's a bright guy but incoherent and mystifying when he discusses the many directions in which SCU is headed under him.
@northharrow No basic fundament has changed AFAIK, so it's amazing buying the same good stock now, only 25% cheaper. For a trader it must be quite a nightmare, for someone to be retired in 10 years it's a dream.
@Raul LT Dream on !
@northharrow Could you enlighten me exploring the reasoning why you deem it as being such a bad choice?
Damon Judd profile picture
Looks like a hedge fund sold a big chunk (about 40% of their holdings) of SCU:

Dubai Holding Llc, B/O Sold 10/14 1,309,628

I am surmising that could be the reason for the share price to drop in the past month.
Xav Welsh profile picture
@EnigmaDude Yes, there has been constant selling pressure and the stock fell through several technical support levels on the way down so far. I think the CEOs lack of clarity on dividend policy (won’t be zero and won’t be 100 present of available funds) didn’t help. I’m waiting for the bottom and stabilization before adding more. GLTA
@EnigmaDude It just keeps dropping on no news - any further thoughts?
@EnigmaDude Since hedge funds only own 6% of SCU the reason for the price collapse lay elsewhere. More likely it is because the CEO made it very clear that SCU was being run only for the benefit of its management. Unpredictable dividends but huge predictable incentive bonuses. Maybe they will learn that they have no friends.
Price/sales ratio is nearly under 1.
@TylerInVA Which makes it the bargain of the year :)
So far SCU has proven to be an excellent hedge against prosperity. Maybe I should buy some more around this price.
@poclerk Can you explore more the reasoning behind "hedge against prosperity" ? You mean it's that bad...?
08 Nov. 2021
can anyone explain why SCU is dropping 10% today?
Xav Welsh profile picture
@Dr8802 From SCU latest quarter press release: “There is another dynamic we expect in the fourth quarter which is a ‘high class problem’ resulting from strong fund performance in our opportunistic credit funds this year. We will accrue the majority of the 2021 discretionary bonus in the fourth quarter related to Accrued but Unrecognized Incentive Income (“ABURI”) that we anticipate recognizing in future periods from these funds. This will reduce our earnings for the fourth quarter of 2021 and full-year 2021. The phenomenon we describe here is the inverse of the fourth quarter of 2020 during which we recognized meaningful incentive income from long term credit fund performance (ABURI crystallization) for which we had already incurred the bulk of the discretionary bonus expense.”

This could be related to the pullback as the market is not alway patient or efficient or maybe some investors wanted to book some winnings and reinvest elsewhere (crypto miners had a pretty good day). However, the stock looks like it’s fallen to its technical support level of ~$22. I was buying the dip today…
08 Nov. 2021
@Xav Welsh Thank you
Damon Judd profile picture
@Xav Welsh thanks for your comments. As I mentioned in my article the hedge funds and PE firms that invest in SCU may decide to pull their funds to invest in some other opportunity with better short term returns. But long term investors may want to take advantage of drops like today as you did. I thought about adding too but already have enough for now. Everyone has to decide based on their own risk tolerance but I agree that there is not much more downside risk at the 22 price level.
DKnewb profile picture
SCU beats on Earnings and Revenue 3Q and of course it falls out of bed by over 9%....BTFD
abdulmoiz1254 profile picture
Where is the result
Damon Judd profile picture
@abdulmoiz1254 from their website:

NEW YORK, November 3, 2021 - Sculptor Capital Management, Inc. (NYSE: SCU) today reported a
GAAP Net Loss Attributable to Class A Shareholders of $4.3 million, or $0.17 per basic and diluted Class
A Share, for the third quarter of 2021.
Third Quarter 2021 Highlights
▪ Distributable Earnings1,2 for the third quarter of 2021 were $35.3 million, or $0.58 per Fully Diluted
▪ A cash dividend of $0.28 per Class A Share was declared for the third quarter of 2021, payable on
November 22, 2021, to Class A Shareholders of record as of November 15, 2021
▪ Sculptor Master Fund was up 1.4% net for the third quarter of 2021 and up 7.4% net year-to-date
through September 30, 2021
▪ Sculptor Credit Opportunities Master Fund and Sculptor Customized Credit Focused Platform
were both up 2.4% net, for the third quarter of 2021 and up 14.4% and 14.1% net, respectively,
year-to-date through September 30, 2021
▪ Assets under management were $37.5 billion as of September 30, 2021, up $1.5 billion year-overyear which includes longer-term assets under management of $24.9 billion, up $430.2 million
▪ Adjusted net assets1,3 grew by $90.7 million during the quarter to $392.6 million
October 2021 Update
▪ Sculptor Master Fund was up 1.8% net month-to-date in October, bringing year-to-date
performance to up 9.3% net through October 31, 2021
▪ Sculptor Credit Opportunities Master Fund and Sculptor Customized Credit Focused Platform
were up 0.5% and 0.8% net, respectively, month-to date in October, bringing year-to-date
performance for both to up 15.0% net through October 31, 2021
▪ As of November 1, 2021, assets under management were $37.2 billion
abdulmoiz1254 profile picture
So why is the newb (noob) saying it beat earnings estimates ?
I would value this stock as such:

Management fee earnings of $80 million at a 20x market multiple

Incentive fee earnings of $250 million yearly valuing it at a 10x multiple given the volatility of this income stream. This is based on $25.5 billion of eligible AUM (excluding CLO) and a 10% expected return with 20% Incentive fee rate for SCU.

Adding the components this give me a total market cap of about $4 billion. Divided by the number of outstanding shares I have a value of $70 per share.

Finally Munger is not giving the full context. Blacktone IPO was at $31 per share in 2007 same timing as Och Ziff and as recently as 2018 Blackstone was trading below the IPO price. Currently it is trading at $142 per share.

I cannot say where SCU is going to trade but 2007 was a peak and probably bubble territory for financials and just like the 2000 tech bubble some stocks have recovered and others have not.

Let’s see what SCU does in the future. Looks like deep value right now.
Charlie's Munger profile picture
Isnt stock at 1/10 of IPO level? IPO'd around 30$, stock dropped to $3 then 1-for-10 reverse split?
Damon Judd profile picture
@Charlie's Munger not sure what stock you are referring to. SCU came into existence in May 2019 at about $17. Traded as high as 28 before Covid hit.
@EnigmaDude Scultor.com shows it debuted around 11/30/2007 at $247. Dropped to $39 around 12/2/2008 and currently around $26. Schwab shows a 1:10 split on 1/4/2019. Is this the SCU you are referring too? Maybe it reorganized along the way but you may want to take a look at the funds web site.
Damon Judd profile picture
@Wizard19 if you had actually read my article you would see that the former company known as Och-Ziff Capital Management reorganized in 2019 and became SCU. The former company did have terrible performance and was not a good long term investment. The point of my article is that leadership changed along with company mission and vision, and the historical price performance is not relevant to future returns.
abdulmoiz1254 profile picture
How stupid was I to not load up MORE despite knowing it will easily make it to 25

Damon Judd profile picture
@abdulmoiz1254 hindsight is 2020 :)
abdulmoiz1254 profile picture
Foresight in this case
That is why I loaded it
Just didn't sell everything like a prudent human
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