Saturday, January 4, 2014

Commentary on prospectus summery.

• 0zm

Hedge Funds went public to go closed-end, to give themselves a pool of “permanent capital.” The money investors paid the partners for the shares was used by the Partners to invest in Oz’s Hedge funds, to monetize equity interest. This they could take out later like any Investor in the Funds.

You understand now how the partners are compensated with restrictions. They might give you a $hundred million, but it is spread out across four years, and you can’t go anywhere. That new guy probably had to sell half, just to pay his taxes on the distribution.

The stock originally crashed because the Summer of 2007 was not the best time to go public. The collapse of the Bear Stearns hedge funds and worries about higher taxes depressed valuations in the whole alternative investment sector. 

July 2007: New-York based Och-Ziff Capital Management Group announced it was planning an IPO on NYSE that could raise around $2 billion, saying it planned to use the IPO proceeds to expand abroad in search of new strategies and investors. As the group planned to sell shares to the public as a partnership, it would not be subject to federal income tax, and also will not have to provide the same level of disclosure as most other publicly traded companies.

The media reflected that the IPO would allow investors to profit from its investment advisory fees and incentive compensation rather than its funds. Moreover, these public offerings can also benefit investors by offering them yet a different way of getting a piece of the “hedge fund action.” Investors who wish to share in some of the gains (as well as losses) of publicly offered hedge fund managers would be able to do so without the high minimums, fees, and long lock-up periods that would typically be required to invest in the manager’s hedge funds.

The hedge fund industry has continued to see increased asset flows in recent years, capital inflows have been concentrated largely into funds with more than $1 billion under management. As a benchmark a lot of them were being valued at 30% of AUM when they went public.

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