Och-Ziff pulls in new money, transparency pays off

BOSTON (Reuters) - For months Daniel Och has said that his firm stands to benefit when pension funds and endowments finally began sending new money to hedge funds after being spooked by the years-long financial crisis.

Now he has some numbers to prove it.

Since January 1, Och-Ziff Capital Management Group (OZM.N), one of the world's biggest hedge funds with roughly $24 billion in assets, has pulled in roughly $650 million in new money. That is more than twice the $305 million it received during the final quarter of 2009.

"We believe that the capital inflow cycle for the hedge fund industry has begun and that our assets under management will grow," Och, a former Goldman Sachs trader who founded the company with Ziff Brothers Investments 16 years ago, told investors on a conference call on Thursday.

One reason the New York-based firm, which has counted pension fund Calpers and fund of funds powerhouse Blackstone Alternative Asset Management among its clients, is attracting new interest is a long record of openness and transparency.

Unlike many rivals, including Fortress Investment Group (FIG.N) and Citadel Investment Group, Och-Ziff did not impose limits on the amount of withdrawals clients could make during the financial crisis.

Although Och-Ziff paid a hefty price for letting investors leave -- clients withdrew $8.1 billion in 2009, helping shrink the firm's assets from roughly $30 billion before the crisis -- Och said the move would pay off in the end.

Investors who needed to get their hands on cash in a hurry bailed out of funds that were performing well as well as those that were struggling.

The $2 trillion hedge fund industry saw redemptions of $152 billion during the fourth quarter of 2008 and $103 billion in the first quarter of 2009, according to Chicago-based Hedge Fund Research.

Now investors are demanding easier access to their money and new insight into exactly how the hedge fund managers make money.

"Even for the known quantities there is now a higher bar to clear," said Patrick Conaway, a partner at Hampton Hedge Fund Marketing. "Competition for the available dollar is a lot fiercer and there is a lot more appetite for detail and transparency."

Och-Ziff on Thursday also said it was adopting a so-called perpetual high water mark that ensures any negative performance is recouped before another performance fee can be charged. Until now Och-Ziff's high water mark would be reset once a year.

Och said the decision was made "to enhance our position as a manager of choice."

"As institutions go down their lists toward the end of a process and check boxes, we wanted to make sure that there was nothing to stand in the way procedurally of their decisions," he added.

Och-Ziff's funds all cleared their individual high water marks late in 2009, which helped boost the firm's incentive fees and distributable earnings for the fourth quarter.

In another nod to transparency and to stand out from the competition, the company is having an independent, third-party administrator check its financial records to further distinguish itself amid fierce competition.

Och-Ziff shares gained 3 percent or 40 cents to $13.72 in afternoon trading on the New York Stock Exchange.

(Reporting by Svea Herbst-Bayliss, editing by Leslie Gevirtz)