This Hedge Fund Is Betting $280 Million on a 34-Year-Old Guy

  • ‘You pay people for what you think they’re going to do’
  • Firm lost a third of its assets to Africa bribery scandal

Och-Ziff's $280 Million Bet on Co-CIO Jimmy Levin

Dan Och still runs the show at Och-Ziff Capital Management Group. He’s the chief executive officer, the chairman of the board and very much the face of the hedge-fund powerhouse he founded more than two decades ago.

But in the wake of a bribery scandal that spooked clients and blew away a third of its assets, the fund’s fate is in many ways now in the hands of a little-known 34-year-old named Jimmy Levin.

Jimmy Levin

Source: Och-Ziff Capital Management Group

Back in February, Och shocked many on Wall Street by elevating Levin, the star of the firm’s credit business, to co-chief investment officer and handing him an incentive package of $280 million. It’s the kind of crazy pay you don’t hear about in the industry much these days, and Och wagered a small personal fortune to make it happen, relinquishing 30 million of his own shares.

Inside the firm, some seethed. Outside, they sneered; the move smelled a bit of desperation. Five months later, that remains the burning question: Is this a Hail-Mary stab by Och to win back his seat of dominance in the hedge-fund universe or a stroke of genius?

“It’s a bet he’s making, just as he was making on any of his investments,” said Adam Kahn, a managing partner at the executive-search firm Odyssey Search Partners. “Dan probably likes the risk-reward in the package he’s giving to Jimmy,” who has become “for all intents and purposes the succession plan” at Och-Ziff. Dan Och declined to comment on the matter.

The challenge Levin faces is sizable: to reverse the merciless bleeding of assets -- and defections of personnel -- triggered by Och-Ziff’s misconduct in the Democratic Republic of Congo, Libya and other African countries. If Levin makes it happen, it’ll be because he’s successful in his push to remake Och-Ziff, a firm long dominated by equity trades, into something of a fixed-income shop. The firm now has half of its $32 billion in assets tied to credit, including dedicated funds that have cropped up in just the past few years.

“We certainly weren’t known as a credit shop when I first met with clients,” Levin said recently from an Och-Ziff conference room overlooking Central Park, recalling when he was a twenty-something on the road trying to convince investors to part with their money. “Those early meetings weren’t the easiest in the world.”

Outsize Profits

Levin, who began working at Och-Ziff in 2006, is a largely unknown quantity beyond the firm’s immediate universe. But he has a reputation there for something of a golden touch. His rise started in the aftermath of the financial crisis, as he persuaded the man who’s now his co-CIO, David Windreich, to gamble on the rubbles of structured credit assets tied to the U.S. housing market and, later, on similarly roughed up securities in Europe, including Spanish regional debt that paid off.

The firm’s main credit fund has turned in average gains of 13 percent since its 2011 inception, including an 18 percent return last year that made it one of the top performing funds in the industry. Back in 2012, credit trades guided by Levin notched $2 billion, accounting for more than half of the firm’s total gains that year. The credit unit was pulling in such outsize returns that Levin was named global head of credit in 2013.

That growth, in fairness, came in the middle of a bull market -- junk-rated corporate bonds, for example, have returned more than 185 percent since the end of 2008 -- that lifted all credit assets for an extraordinary run, so much so that it can be argued it would’ve been hard not to make a lot of money.

“Was it luck? I don’t know, maybe, I’m not sure it really matters,” said Mike Rosen, chief investment officer at Angeles Investment Advisors, who has put money into Och-Ziff’s credit-opportunities fund. “I do want to invest in lucky people -- that’s better than investing with unlucky people.”

The $280 million pay package is, of course, a vote of confidence. “You pay people for what they’ve done, but you also pay people for what you think they’re going to do,” Rosen said. It’s also an important sign to investors that Dan Och is willing to do what it takes to keep Levin on board, according to Odyssey’s Kahn.

The deal: Levin was granted 39 million shares tied to performance; he has to stay for three years and the stock has to return 125 percent, including dividends, for him to score the full payout. If the shares rise the minimum of 20 percent, he’ll make $50 million. Och-Ziff shares, now at around $3, have fallen about 80 percent since it became public in 2014 that the U.S. government was investigating the hedge fund in connection with a bribe-paying scheme in Africa.

Camp Counselor

There have been some ruffled feathers at the firm. The optics of the move were tricky. Och was showering a young man with an eye-popping package as some veterans were marching out the door and investors were yanking assets.

It’s also been tough to convince some outsiders that Levin is the real deal, according to people familiar with the matter. One investment consultant decided not to guide big checks toward Och-Ziff after meeting Levin, put off by his youth and seeming lack of depth and experience, the consultant said, asking not to be identified.

Levin is not blind to these types of concerns. “The firm has always been willing to promote young people,” he said, and he’s been handling it all with “a never-ending stream of coaching from Dan and David.”

Dan Och

Photographer: Adrian Moser/Bloomberg

Och and Levin met when Levin was a counselor and water-skiing coach at a camp in Wisconsin where Och’s children spent part of their summer. At first, Och sidestepped the younger man’s pleas for a job at the hedge fund. After graduating from Harvard University with a degree in computer science, Levin worked for Sagamore Hill Capital Management and then Dune Capital, the now defunct hedge fund founded by Treasury Secretary Steve Mnuchin. Och finally hired Levin as a distressed analyst.

By then, Och-Ziff was a powerhouse. Dan Och, 56, created a hedge-fund giant in a dizzying two-decade streak that catapulted him to the high table of finance. The former Goldman Sachs trader started out with $100 million handed to him by the Ziff brothers, the publishing scions, and built the firm into one with assets of almost $50 billion at its 2015 peak.

All that changed with its dirty dealings in Africa. An Och-Ziff unit pleaded guilty last year to a conspiracy charge as part of a settlement of the government’s long-running probe into bribes paid to gain lucrative business in the region. The settlement included the Securities and Exchange Commission personally sanctioning Och. He paid a fine of nearly $2.2 million; the firm’s deal with the SEC and the Justice Department included a $412 million criminal penalty.

While Och-Ziff’s flagship multi-strategy fund, now led by Levin, is up a decent 7.5 percent this year, the hangover from the bribery scandal has hindered the firm’s ability to find new investors. Levin didn’t want to talk about his current strategy, but he sounded confident about shifting the narrative.

“It’s not worth spending time wallowing,” he said. “It’s definitely been a challenging time, but to move forward we’re just focused on what we can influence, and that’s our investing.”

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