UPDATE 2-Hedge fund Och-Ziff reduces planned IPO
(New throughout, adds analyst comments, adds byline)
BOSTON Oct 12 (Reuters) - Hedge fund Och-Ziff on Friday said it plans to raise about $1 billion in an initial public offering of stock, slashing the amount it planned to raise by half amid concerns that recent market turbulence might dampen demand.
"We estimate that the proceeds from the sale of our Class A shares in this offering, after deducting the underwriting discounts and commissions, will be approximately $1.1 billion," the New York-based company said in a regulatory filing.
In July, when the fund first announced plans to sell stock, it said it planned to raise $2 billion.
The IPO is still expected to be one of the largest ever in the $1.9 trillion hedge fund industry, but the fact Och-Ziff Capital Management Group scaled back shows how even one of the world's biggest and most successful hedge funds is affected by credit market woes.
"It is probably wise to limit the scope of the public offering now, given all of the recent volatility in the marketplace," said Adam Sussman, senior analyst at the Tabb Group, which conducts financial markets research.
The $30 billion hedge fund, founded in 1994 by former Goldman Sachs trader Daniel Och and the Ziff family, said it will sell 36 million class A shares at an estimated price of $30 to $33 per share.
Underwriters, led by Goldman Sachs & Co and Lehman Brothers, have the option to buy an additional 5.4 million class A shares to cover over-allotments, Och-Ziff said.
For the year ended Dec. 31, 2006, the company posted net income of $588.0 million, on total revenue of $1.01 billion.
Many hedge funds have recently toyed with plans to go public in order to raise more money to invest or let a senior partner cash out, but this summer's credit market woes have dampened some plans, lawyers and analysts said.
In August, Man Group Plc, slated to become the first firm to list an individual hedge fund on the New York Stock Exchange, delayed its plans due to deteriorated market conditions.
Also, the largely lackluster performance of private equity group Blackstone Group (BX.N) since its highly anticipated public offering this summer might also have served as a warning, analysts said.
Shares in Fortress Investment Group (FIG.N) LLC, the $36 billion hedge fund firm that went public in February, have climbed to $22 since going public at $18.50, but that is still below the $35 level reached on the day of its debut.
Och-Ziff's reputation and returns are strong -- the fund has returned an average annual 16.7 percent to investors over the last 13 years -- which probably makes it possible for the fund to be confident enough to go ahead at all, analysts said.
However, even this hedge fund has to be wary that investors such as large mutual funds might have less of a taste now to add hedge funds into their portfolios.
"The appetite for investing in alternative asset managers has quieted down quite a bit," Tabb Group's Sussman said.
Many may wonder whether hedge funds, accustomed to secrecy for years, will fare well in the glare of more public scrutiny. Teams responsible for the funds' strong returns may not stay on, lawyers said.
Also, with Congress currently considering raising the tax rate that hedge fund partners pay, moving it closer to 35 percent from 15 percent, partners might leave and jeopardize returns.
Och-Ziff is part of a group of asset managers, chaired by hedge fund manager Eric Mindich, who are working to supply the U.S. Treasury Department with information about what kind of information hedge fund should give their investors to help strengthen U.S. capital markets.
This summer, the AFL-CIO, America's largest union, asked U.S. financial regulators to require Och-Ziff and Kohlberg Kravis Roberts & Co, a giant private equity firm that has also been weighing an IPO, to comply as public companies with the investment company act, requiring greater disclosure.
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