by Bryan Perry | April 20, 2011 5:00 am
I am a big believer in the leverage of certain financial organizations — more specifically, private pools of leveraged money in the right places. That led me to Och-Ziff Capital Management Group (NYSE: OZM), a leading institutional alternative hedge fund manager with more than $28 billion under management.
Founded in 1994, Och-Ziff is one of the few publicly traded hedge funds in the United States. The firm went public in November 2007, making it one of the only pure plays in the hedge fund business.
The firm, which is set up as a partnership to pay out the lion’s share of its retained earnings to shareholders, enjoyed a 21% increase in assets from 2009 to 2010.
These guys are all about taking on very low risk-adjusted return type strategies, like pre-announced cash mega-merger deals where there is 2% to 3% arbitrage return involving a three- or four-month holding period (buying shares now, at a discount to the tender value, and then cashing them in when due).
Talk about undiscovered assets. If last quarter is any indication, you could make some serious money with these guys while the iron is hot as far as deal flow is concerned.
In its latest quarterly report, the company saw distributable income rise 8% to 74 cents per share, which resulted in the payment of a dividend of 71 cents per share in February. On an annualized basis, that’s $2.84 per share — an 18% annual yield at its recent price of $15.76.
Logic would have it that there is clearly a disconnect between the rebound in demand for alternative assets — especially for the largest players — and the value of those underlying assets. I’m a buyer, but only for aggressive accounts.
Why the disclaimer? It’s a hedge fund, for crying out loud.
The stock’s chart has all the signs of a major move up in the making. A “golden cross” was established in late December, when the 20-day and 50-day moving averages sliced up through the 200-day moving average, as evidenced in the chart below.
Shares are consolidating in a sideways pattern, but I expect the next move to be higher based on positive forward guidance and the prospect of further big distribution payments like the most recent.
Now, there is no way of telling how much Och-Ziff is going to pay going forward. Understand that going into this trade. I’m in because I think they intend to keep the big payouts coming, and I think the stock is telling us that also.
The money flow back into hedge funds is for real, and firms like Och-Ziff Capital stand to benefit from a strong wave of rising management and performance fees. A rising tide floats all boats, and those firms that employ an extra measure of risk management tend to capture the larger capital commitments when big money rotates to the “risk-on” trade.
High-yield investors are fortunate enough to have a vehicle with which to share in the spoils of this lucrative environment for companies like Och-Ziff. I have a feeling it will surprise to the upside in the next couple of quarters.
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