UPDATE 3-Och-Ziff reports loss; share price falls

*Och-Ziff distributable earnings miss expectations

*Och-Ziff puts aside $25.4 mln for bonuses

*Assets under management inch up as funds perform well (Adds details on stock price, dividend, comment from CEO)

By Svea Herbst-Bayliss

BOSTON, Aug 4 (Reuters) - Hedge fund firm Och-Ziff Capital Management Group (OZM.N) reported lower-than-expected quarterly distributable earnings, but said its funds posted strong gains which should help attract new assets in the months ahead.

New York-based Och-Ziff, one of only a small number of publicly traded hedge-fund firms, said its flagship hedge fund posted its best-ever seven-month returns from January through July and outperformed its rivals.

"We remain confident that, as investors begin to re-allocate capital to alternative investments, we are well positioned to attract that flow and grow assets under management," said CEO Dan Och, a former Goldman Sachs trader who founded Och-Ziff with the Ziff publishing family in 1994.

Despite the strong outlook, Och-Ziff's earnings were bleak and investors sent the company's share price down as much as 4 percent, more than other money managers.

In the second quarter, the net loss expanded to $88.3 million, or $1.15 per diluted Class A share, largely because the company earned less in management fees as assets shrunk about 38 percent from a year ago.

A year ago, Och-Ziff posted a net loss of $60.8 million, or 82 cents per share.

Excluding costs related to the company's November 2007 initial public offering and to the amortization of stock compensation, Och-Ziff had "distributable earnings" of $12.6 million, or 3 cents a share, down from 13 cents.

Wall Street analysts, who look most closely at this number, had forecast earnings of 6 cents.

Earnings were reduced because Och-Ziff set aside $25 million for bonuses, a first-time ever accounting for this kind of expense and something analysts had not expected.

Economic income revenue declined 42 percent to $85 million as management fees tumbled 42 percent to $84.5 million.

But the company is confident that investors like pension funds and endowments will return, attracted by the firm's long record of strong returns and investor friendly conditions. Last year, Och-Ziff let its clients exit even though many other hedge funds prohibited investors from getting their money out to preserve assets.

Strong returns prompted clients to add $100 million in new money in July and should help the funds, known for their conservative touch where managers use very little borrowed money to boost performance and build up depleted assets.

Och-Ziff, like many rivals, was hurt when investors pulled out billions of dollars in assets at the height of the financial crisis. The pace of redemptions has slowed in recent weeks however, suggesting the $1.4 trillion hedge fund industry is on the mend after suffering its worst-ever losses in 2008.

July's inflows marked the first time this year that investors added money. However it was not enough to offset outflows during the quarter when $1.3 billion left the firm. In the first quarter investors pulled out $2.1 billion.

In the last weeks alone, firm-wide assets climbed 4 percent to $21.5 billion on August 1, up from $20.7 billion managed on July 1.

From January through the end of July, the OZ Master Fund gained 15.91 percent while the OZ Asia Master Fund rose 23.30 percent.

Och-Ziff's stock price dropped 4.03 percent to trade at $10.49, having gained 112 percent since January. (Reporting by Svea Herbst-Bayliss, Editing by Maureen Bavdek and Gunna Dickson)