Today, Och-Ziff Management (OZM), a hedge fund company, began trading on The New York Stock Exchange.
The company sold 36 million shares, about 10% of the company, to the public at $32 a share.
Shares are currently down about 5% to $30.39, valuing the entire business at about $10.75 billion.
Och-Ziff has about $30 billion under management: $19 billion in the OZ Master Fund, $6 billion in the OZ Europe Master Fund and $3.4 billion in the OZ Asia Master Fund.
They make money by charging management fees on assets under management, between 1.5% and 2.5% according to their prospectus, and performance fees of 20% on all profits, realized and unrealized.
In 2006, they had “Economic Income”, which is a better measure than GAAP Net Income in this case, of about $500 million (assuming a 31% tax rate).
That came from $303 million in management fees – about 1.5% of average quarter ending assets under management ($20 billion) – and $651.5 million in performance fees – 20% of the 14.8% and 22.3% returns they achieved on their Master and Europe Master funds (they don’t include performance for the Asian fund).
With assets under management now having grown to $30 billion through the 3rd quarter, management fees should increase 50% this year to $450 million.
The real question will be performance fees: How has performance held up during the recent market turmoil? With performance fees making up more than 2/3 of 2006 revenue, this is where they really make their money.
And, going forward, if performance doesn’t hold up will investors pull assets?
At about a 22 trailing P/E the stock is attractively valued if you think Och Ziff can continue to perform and increase assets under management as they have in the recent past.
If, on the other hand, you think we might be near a market top, that 22 P/E might be on peak earnings and the forward P/E’s for 2008 and beyond might be much higher.