UPDATE 2-Hedge fund Och-Ziff reduces planned IPO

(New throughout, adds analyst comments, adds byline)

By Svea Herbst-Bayliss

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.