Hedge funds have long been the province of the super wealthy. If you have $5 million to invest, or if you can qualify as an accredited investor, you might be able to get a hedge fund manager to accept you as a client.
Yet there’s no reason why average investors can’t also put a hedge fund to work them.
Although they are few in number, there some quality publicly traded companies in the hedge fund business. One of my favorites is Och-Ziff Capital Management Group LLC (NYSE: OZM), a leading institutional alternative hedge fund manager. Founded in 1994, the firm didn’t go public until November 2007. It’s truly one of the few pure plays on the hedge fund businesses.
The firm currently manages $30 billion in assets, and in May reported that assets grew by $600 million (a figure that includes portfolio performance and capital flows). Those assets also have grown markedly in recent years. From 2009 to 2010, the company enjoyed a 21% increase in assets. Perhaps more importantly for income investors, Och-Ziff is structured as a partnership that pays out the lion’s share of its retained earnings to shareholders.
One key reason why I like Och-Ziff is their managers are all about taking on very low risk-adjusted return types of strategies. Here we are talking about pre-announced cash mega merger deals in which there is 2% to 3% arbitrage returned involving a three- or four-month holding period for buying shares now at a discount to the tender value and then cashing them in when due. The ability to make sense — and money — doing deals like this is one of the beauties of a hedge fund, and it’s something most individual investors just aren’t equipped to do.
Another reason to like Och-Ziff is due to the anticipation of more institutional money flowing into hedge funds from corporate and public pension funds seeking ways to address looming long-term liabilities. Undoubtedly, some of that money seeking high returns will flow to Och-Ziff, and according to CEO Dan Och, he is “very confident” that the company will be able to capture more than its share of the anticipated money flow into the industry.
Now, due to the recent selloff in the overall market, OZM shares have been beaten up. Over the past month, the stock is down 6.8%, and it now trades below its 200-day moving average. What this tells me is that individual investors can now pick up the shares at a very attractive price.
Once sellers are done feeding at the equity trough, this hedge fund company’s shares are likely to spring right back up through that 200-day average again. That means now is a great time to start nibbling around the edges of this hedge fund for the rest of us.
Disclosure: Bryan Perry recommends OZM in his Cash Machine advisory service.