Institutional Investor's Alpha Magazine - May 2008 - (Page 30)

tional had agreed to buy 9.9 percent of the class-A share ﬂoat — reducing the total public offering to 36 million shares. “Forging this relationship with Och-Ziff will help provide us with great intellectual resources,” al-Ansari says. “They have widespread talent — brains all over the world who can help us come up with ideas, source transactions and perform due diligence on possible coinvestment opportunities.” But the dangers of arranging private investment deals in far-ﬂung markets are not to be underestimated. In mid-April, Och-Ziff acknowledged that it had been stung by one of the boldest corporate frauds in recent memory and had lost $77 million in a deal with employees of Tokyo-based trading giant Marubeni Corp.’s Life Care business in Japan. The announcement came on the heels of nearly identical news from Lehman, which disclosed on March 29 that it had been taken in by the fraud and had lost ¥32.1 billion ($322 million). According to the complaint Lehman ﬁled in a Tokyo court, two Marubeni employees convinced Lehman bankers to provide stopgap funding for the rehabilitation of Japanese hos— GREGORY FLEMING, PRESIDENT AND COO, MERRILL LYNCH pitals, assuring them that Marubeni would guarantee the loan. They invited the bankers to Marubeni’s headquarters for meetings, used Marubeni email addresses, signed loan-servicing agreements and even introduced them to a man they claimed was the general manager of Marubeni’s Life Care business. But on February 29 — the date the ﬁrst repayment was due — nothing happened. When Lehman demanded an explanation, Marubeni executives denied any knowledge of the deal, saying the agreements had been forged and the so-called general manager had been an impostor. Lehman’s loan was gone. Och-Ziff’s team in Asia had a virtually identical experience. Last November, Och-Ziff entered into a deal with Marubeni to provide similar bridge ﬁnancing to hospitals. Like Lehman, the ﬁ rm suddenly became aware that its investment had vanished. Although Och quickly asserted that the losses weren’t material to the ﬁrm’s funds or performance, getting caught up in a corporate fraud so soon after the IPO was undeniably embarrassing. “Incentive fees, coupled with management fees, make proﬁts much lumpier and less predictable.” HIGH ABOVE CENTRAL PARK, in a spartan ofﬁce where the only obvious luxury is the panoramic view, Och muses on the credit crisis and the skills required to navigate markets that have been roiled by massive banking losses in the U.S. and Europe and the near-collapse of Bear Stearns. “Risk management is crucial,” he says. “You’re either good at it or you’re annihilated.” Yet despite the uncertainty, Och-Ziff is forging ahead with 30 • INSTITUTIONAL INVESTOR’S ALPHA • MAY 2008 new projects, including the preparation of an emergingmarkets strategy and joint ventures in Africa and Turkey. “Luck,” Och says wryly, “is when preparedness meets opportunity.” These words have most often been attributed to Roman philosopher Seneca the Younger, but over the past 25 years, Och has made them his own. The son of a doctor father and a mother who worked as a business manager at a private school in northern New Jersey, Och grew up the middle child of three (he has an older brother and a younger sister) and from an early age was extremely focused on pursuing a career in ﬁnance. From the moment he arrived at Goldman in the summer of 1982 as a 21-year-old graduate of the Wharton School of the University of Pennsylvania with a BS in ﬁnance, Och worked diligently to prepare himself to take on ever-increasing responsibilities. Och asked for a job in the investment bank’s risk arbitrage department — then one of Goldman’s most challenging and proﬁtable businesses — which was run by future Treasury secretary Robert Rubin, who had mentored some of the bank’s best minds. The department included such future hedge fund luminaries as Richard Perry of Perry Capital, Edward Lampert of ESL Investments and Thomas Steyer of Farallon Capital Management. Och gave the idea of attending graduate school in business a pass to stay at Goldman because he was so captivated by having the power to invest. The decision transformed him. In many ways, Och is a pure product of the investment bank’s collegial yet highly competitive culture: During his 11 years at Goldman, he rose to become head of proprietary trading in the equity division (which gave him a solid grounding in global fundamental investing) and ultimately co-head of U.S. equity trading. He learned to focus on preserving capital, aiming for steady risk-adjusted returns with minimal volatility. Och’s strength, as a trader and manager, is rooted in his ability to recognize his comparative weaknesses and call upon his colleagues’ strengths. Delivering positive returns month after month requires prudence, patience, good risk management — skills he learned at Goldman — and a loyal team. Och ﬁnds ways to inspire colleagues and mentor younger employees. That leadership style — low-key and supportive, if always exacting — has earned him the respect of his partners and investors, including his ﬁrst investor, Dirk Ziff. The two men, who met at Goldman, could not be more different. Och, a few years older than Ziff, is deliberate in speech and action, while Ziff, a grandson of trade-publishing magnate William Ziff Sr., is more ﬂamboyant and loves music as much as ﬁ nance (he played guitar on Carly Simon’s 1994 album, Letters Never Sent). The two met when Ziff was doing an internship at the investment bank and kept in contact. In 1992, Dirk and his two brothers, Daniel and David, set up Ziff Brothers Investments to help manage the family’s publishing fortune. The following year Dirk Ziff

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - May 2008

Institutional Investor's Alpha Magazine - May 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Send in the Clones The Good Guys: Outside the Box Cover Story: Welcome to Oz Interview: The Tipping Point Regulation: When Sentinels Go Astray Strategies: Taking Credit Research Center: The Hedge Fund 100 Book Excerpt: Shoot the Messenger Alpha Bytes: VaR Enough? Unhedged: Commentary: Not Your Father's Activist

Institutional Investor's Alpha Magazine - May 2008

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