- Will lower fees by 25 basis points, following other top firms
- Och-Ziff has seen $5.5 billion in net outflows this year
Och-Ziff Capital Management Group LLC, the hedge fund that’s under investigation by U.S. authorities over whether it broke anti-bribery laws, plans to cut management fees for its main funds, people with knowledge of the matter said.
The firm will trim the fees by 25 basis points for its OZ Master, Asia and Europe multi-strategy funds, said the people, who asked not to be identified because the information is private. It charges management fees ranging from 1.5 percent to 2.5 percent of assets annually for those funds and takes 20 percent of profits, according to a regulatory filing.
The hedge fund industry is facing a growing backlash this year from its biggest investors, who are pulling money from top firms. That’s prompting some, including Tudor Investment Corp., to lower fees after years of lackluster performance.
Och-Ziff, one of the world’s largest hedge funds with $39.1 billion in assets, has been in the crosshairs of investigators for at least five years over whether it knowingly paid bribes to government officials in Africa. It has also suffered $5.5 billion in net outflows this year.
“We have long held the belief that management fees need to be scaled back so that the fee in and of itself isn’t a tremendous profit center,” said Neil Sheth, director of alternative assets research at NEPC, a consulting firm in Boston that advises pension funds and other institutional investors. “I’ve been surprised that more investors haven’t articulated that to the hedge fund community. I think some of the managers are surprised too.”
Och-Ziff’s fee cuts will be for existing investors only and begin in October, one of the people said. Clients are charged based on the size and duration of investments, the person said. Joe Snodgrass, a spokesman for the New York-based firm, declined to comment.
Och-Ziff said in its last earnings report that it was subject to the industry pressure on management fees. Hedge funds traditionally charged clients 2 percent of assets and 20 percent of profits. New York City’s pension fund for civil employees and the New Jersey Investment Council are among investors scaling back their hedge fund investments citing costs.
Tudor, run by Paul Tudor Jones, in July trimmed fees for a share class that contains most of its biggest hedge fund’s money to 2.25 percent of assets and 25 percent of profits. The fees were 2.75 percent and 27 percent. The previous month, Aurelius Capital Management told clients that it would reduce management fees for its main fund to 1.25 percent from 1.5 percent, effective next year.
Och-Ziff’s OZ Master fund managed about $21 billion as of June 30, according to the latest earnings report.
Prosecutors are discussing an arrangement with the money manager that would have an overseas unit plead guilty, while still requiring the holding company to enter a deferred-prosecution agreement, people with knowledge of the matter said last week. The firm has earmarked $414.3 million in the first half for a settlement.