Nov. 14 (Bloomberg) -- Och-Ziff Capital Management Group LLC, the largest U.S. hedge-fund manager to go public, fell in its first trading day, bucking examples set this year by Blackstone Group LP and Fortress Investment Group LLC.

Och-Ziff shares fell $1.35, or 4.2 percent, to $30.65 at 4:30 p.m. in New York Stock Exchange composite trading after opening at $32.75. The New York-based company, run by former Goldman Sachs Group Inc. trader Daniel Och, raised $1.15 billion yesterday by selling 36 million shares at $32 each, above the midpoint of its $30-to-$33 target. It was the year's fourth- worst first-day drop of 33 companies with a current market value of at least $1 billion, data compiled by Bloomberg show.

Blackstone, manager of the world's largest leveraged buyout fund, rose 13 percent when it went public in June. Fortress, a hedge-fund and LBO manager, more than doubled on its first trading day in February. Shares of both New York-based companies have since declined as investor appetite for LBO debt has been eroded.

``The initial reaction was underwhelming,'' said Benjamin Phillips, a managing director at the Putnam Lovell investment- banking unit of New York-based Jefferies Group Inc. ``The market wants to see stable earnings and long-term growth prospects, and either rightly or wrongly, they're not convinced that's what they're getting from these alternative-asset managers.''

The 16-member Standard & Poor's Supercomposite Asset Management & Custody Bank Index fell 0.5 percent today.

Market Sentiment

The largest first-day decline this year of companies with current market values of at least $1 billion was recorded by RSC Holdings Inc., the Scottsdale, Arizona-based equipment-rental company that tumbled almost 14 percent May 23 after it raised $458.3 million in an IPO. On July 19, MF Global, the brokerage unit of London-based hedge-fund manager Man Group Plc, fell 8 percent on its first day of trading. The third-worst decline was a 6 percent drop May 15 by Continental Resources Inc., an oil and natural-gas producer based in Enid, Oklahoma.

``First-day reception is somewhat a reflection of the sentiment in the market that day,'' said Keith Wirtz, who helps manage $22 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. He doesn't own the shares and didn't participate in the IPO. ``I still think that in the big picture, among high-net-worth investors, there remains an appetite for exposure in the hedge-fund category.''

Och-Ziff's offering was the second-biggest IPO globally by a firm whose primary business is managing money for third-party clients, behind Blackstone's $4.75 billion offering, according to data compiled by Putnam Lovell. Fortress, which raised $634 million, was third.

Fortress, Blackstone

Fortress and Blackstone both have declined more than 20 percent since July after the flow of LBO debt slowed. Their shares also have been pressured by uncertainty about the value of securities linked to subprime mortgages made to borrowers with poor credit.

Those declines contrast with GLG Partners LP, the hedge- fund firm partly owned by Lehman Brothers Holdings Inc. The London-based firm, Europe's third-largest hedge-fund manager, has gained more than 20 percent since early July.

Och-Ziff, which manages $30 billion, is also selling 38.1 million shares to Dubai International Capital LLC, the investment firm owned by the emirate's ruler. The IPO gave the company a market value of $12.3 billion. The firm's earnings last year more than doubled to $588 million on revenue of $1 billion, as assets surged more than 40 percent during the same period.

Share Classes

The firm, founded in 1996 with money from the Ziff family, will have two share classes after the offering. The public will own about 9 percent of the firm through Class A stock, and Dubai International will own an additional 9.9 percent.

Och, 46, will receive about $1.1 billion in proceeds and own a 48.5 percent stake.

David Windreich, an Och-Ziff executive managing director, will get $245.2 million in IPO proceeds, according to a Nov. 9 filing with the U.S. Securities and Exchange Commission. Executives' IPO payouts will be reinvested in funds managed by Och-Ziff, with a five-year lockup.

Deferred Payments

The firm's partners and the Ziffs are due to get more than $1.47 billion in deferred payments between 2008 and 2011, including $1 billion to Och. Deferred compensation paid to Och this year, which he receives in lieu of a salary, has been between $468 million and $573 million so far, according to the Nov. 9 filing.

The company, like Fortress and Blackstone, is taxed as a partnership instead of a corporation, meaning the investment managers are subject to tax rates as low as 15 percent instead of the corporate rate as high as 35 percent. Proposals to raise taxes applied to hedge-fund and private-equity firms are under debate in Washington.

The sale was managed by Goldman Sachs and Lehman Brothers Holdings Inc. with help from Merrill Lynch & Co., Morgan Stanley, Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co. Seven other banks helped sell the stock including Bank of China International.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Globally, managers oversee more than $1.8 trillion, according to Hedge Fund Research.

To contact the reporters on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net;

Last Updated: November 14, 2007 17:26 EST