UPDATE 1-Och-Ziff reports lower profit but beats expectations

Fri May 2, 2014 8:22am EDT

(Adds details on earnings)

By Svea Herbst-Bayliss

BOSTON May 2 (Reuters) - Och-Ziff Capital Management Group reported a lower quarterly profit, but the hedge fund still beat analysts' expectations as billions of dollars in new money flowed into its portfolios and helped offset lower earnings by its funds.

First-quarter distributable earnings, excluding costs related to its November 2007 initial public offering, totaled $127.8 million, down from $136.9 million a year ago, Och-Ziff reported on Friday. The company earned 25 cents a share, less than last year's 29 cents a share, but far more than the 16 cents Wall Street analysts had expected, according to Thomson Reuters I/B/E/S.

Och-Ziff also reported net income of $23.9 million, or 14 cents per share, compared to $30.0 million, 20 cents a share a year ago.

Lower incentive income and higher compensation and benefit costs pushed down earnings as some of the company's hedge fund portfolios did not fare as well during the first quarter when markets gyrated. Incentive income, the fees that hedge funds earn on top of management fees, stood at $59 million, compared with $101.3 million a year ago.

But fresh demand from clients, including pension funds and sovereign wealth funds around the world, who added $3.6 billion in new money this year boosted assets under management to $43.5 billion on May 1. This marked a 24 percent increase from the end of the first quarter in 2013.

Over the long term the company will be able to earn both management fees and incentive fees off this larger pool of assets.

During the first four months of the year, Och-Ziff's flagship Master fund lost 0.93 percent while the OZ Europe Master Fund dipped 1.33 percent and the OZ Asia Master Fund lost 9.18. Performance was driven mainly by credit-related strategies in the first quarter. Bets on stocks underperformed as markets moved more erratically amid worries about economic growth and how central banks would react. Many hedge funds are nursing losses for the year after a difficult first few months.

Och-Ziff will pay a dividend of 23 cents per share on May 19 to holders of record on May 12.

Its share price has fallen 17.23 percent this year. (Reporting by Svea Herbst-Bayliss, Editing by Franklin Paul and Chizu Nomiyama)