Weak returns and high redemptions have caused another hedge fund to slash fees to stem the exit of investors.
Troubled New York-based Och-Ziff Capital Management will be shaving 25 basis points off its multistrategy fund management fees — a move that will instantly siphon nearly $65 million from the $42 billion firm, and the pockets of its partners.
That’s enough cash for Chief Executive Daniel Och to buy a nifty new Gulfstream G650 private jet.
Och-Ziff’s multistrategy fund management fees ranged between 1 percent and 2.5 percent.
Like most hedge funds, Och-Ziff also charges a percent performance fee, which is roughly 20 percent of profits.
As performance of the funds was negative through the second quarter, it is unlikely the firm will collect on that soon.
The company warned of fee pressure in its second-quarter filing with the Securities and Exchange Commission, noting $4.9 billion in net outflows and weak performance.
It added that other hedge funds face similar pressure, and that a fee reduction was “likely.”
Och-Ziff is not alone in lowering fees: Over the last two months, Dan Loeb’s Third Point, Paul Tudor Jones’ Tudor Investments and Mark Brodsky’s Aurelius Capital Management have all cut management fees by at least 25 basis points, or one-quarter of 1 percent.
While Och-Ziff faces problems common in the hedge fund industry, it also has its unique set of problems.
Och-Ziff has been subjected to a five-year federal investigation into whether it knowingly paid bribes to get investments from Libya.
Last month, Och-Ziff announced that it expects to reach a settlement with the Justice Department and SEC and it more than doubled its reserve for the anticipated settlement, to $414 million.
Earlier this month, reports circulated that the troubled fund may have shopped a portion of its business to private equity firms or pursued a joint venture with a asset management firm.
The money the hedgies are giving up would also be enough to pay for more than 1 million cases of Depends, which could come in handy should executives soil themselves if any more money is withdrawn from the funds.
Shares of Och-Ziff closed down 1.5 percent Tuesday, to $4.04.
Representatives for Och-Ziff declined to comment..
