Och-Ziff Capital Management Group LLC Reports 2016 First Quarter Results

NEW YORK, NY--(Marketwired - May 03, 2016) - Och-Ziff Capital Management Group LLC (NYSE: OZM) (the "Company" or "Och-Ziff") today reported GAAP net loss allocated to Class A Shareholders ("GAAP Net Loss") of $69.4 million, or $0.38 per basic and diluted Class A Share, for the 2016 first quarter.

Summary

• Distributable Earnings loss of $142.5 million, or $0.27 per Adjusted Class A Share, for the 2016 first quarter, which includes a reserve taken for the FCPA investigation in the amount of $200.0 million, or $0.39 per Adjusted Class A Share.
• Assets under management totaled $43.2 billion as of March 31, 2016.
  • Longer-dated assets under management, which are those subject to initial commitment periods of three years or longer, were $16.4 billion, or 38% of the Company's total assets under management as of March 31, 2016, increasing 2% year-over-year.
  • Assets under management in the Company's dedicated credit, real estate and other single-strategy funds were $15.7 billion, comprising 36% of assets under management as of March 31, 2016, increasing 9% year-over-year.
  • Estimated assets under management totaled $42.0 billion as of May 1, 2016.

"The global markets have been challenging to date, but this is not the first time we have navigated an environment like this," said Dan Och, Chairman and Chief Executive Officer of Och-Ziff. "Over time, we believe a proven investment process, a diversified platform of products spanning geographies and asset classes and the flexibility to adapt to changing markets will deliver attractive results for investors in our funds and our firm."

GAAP NET INCOME (LOSS) ALLOCATED TO CLASS A SHAREHOLDERS

On January 1, 2016, the Company adopted new consolidation accounting guidance that resulted in the deconsolidation of the majority of previously consolidated funds, including all CLOs. The deconsolidation resulted in a significant decrease in the amount of income of consolidated Och-Ziff funds, expenses of consolidated Och-Ziff funds, and net gains of consolidated Och-Ziff funds in our GAAP consolidated statement of comprehensive income (loss). Management fees and incentive income from the previously consolidated funds are also no longer eliminated in consolidation.

For the 2016 first quarter, Och-Ziff reported GAAP Net Loss of $69.4 million, or $0.38 per basic and diluted Class A Share, compared to GAAP net income allocated to Class A Shareholders of $25.9 million, or $0.15 per basic and $0.14 per diluted Class A Share, for the 2015 first quarter. The year-over-year decrease was primarily driven by the $200.0 million FCPA investigation reserve accrual taken in the first quarter of 2016. In addition, lower incentive income and management fees and higher non-compensation expenses, partially offset by lower income taxes and lower compensation and benefits also contributed to the year-over-year decrease.

Throughout this press release, the Company presents financial measures that are not prepared in accordance with GAAP. For a discussion of these non-GAAP measures, please see the section titled "Non-GAAP Financial Measures" at the end of this press release.

DISTRIBUTABLE EARNINGS (NON-GAAP)

For the 2016 first quarter, Och-Ziff reported a Distributable Earnings loss of $142.5 million, or $0.27 per Adjusted Class A Share. Excluding the $200.0 million FCPA investigation reserve accrual taken in the first quarter of 2016, Distributable Earnings were $57.5 million, or $0.11 per Adjusted Class A Shares, compared to Distributable Earnings of $126.7 million, or $0.25 per Adjusted Class A Share, for the 2015 first quarter. The year-over-year decrease excluding the reserve was due to lower incentive income and management fees, as well as higher operating expenses. Please see the "Economic Income (Non-GAAP)" section of this press release for a discussion of the drivers affecting the Company's Economic Income. The adoption of the new consolidation guidance referenced above had no impact on Economic Income or Distributable Earnings.

Distributable Earnings is a non-GAAP measure. For reconciliations of Distributable Earnings to the respective GAAP Net Income for the periods discussed above, please see Exhibit 2 that accompanies this press release. Additionally, please see the section titled "Non-GAAP Financial Measures" at the end of this press release, including the definitions of Distributable Earnings, Adjusted Income Taxes and Adjusted Class A Shares.

ASSETS UNDER MANAGEMENT

Totals may not sum due to rounding. Please see Exhibit 4 for detailed information.

As of March 31, 2016, assets under management totaled $43.2 billion, a decrease of $5.1 billion, or 11%, from March 31, 2015, which was driven by capital net outflows of $2.0 billion and $725.9 million of distributions to investors and other reductions in the Company's closed-end opportunistic credit and real estate funds. Also contributing to the decline was performance-related depreciation of $2.3 billion. During the month of March, the Company had approximately $65.7 million of intra-month capital net outflows, which are included in the $43.2 billion of assets under management as of March 31, 2016.

Assets under management decreased to an estimated $42.0 billion as of May 1, 2016. This decrease reflected estimated performance-related appreciation of approximately $258.8 million in April and capital net outflows of approximately $1.5 billion, which was comprised of approximately $1.2 billion of capital net outflows on April 1, 2016 and approximately $287.1 million of capital net outflows from April 2, 2016 to May 1, 2016.

Please see detailed assets under management and fund information on Exhibits 4 through 6 that accompany this press release.

Multi-strategy funds

Assets under management in Och-Ziff's multi-strategy funds totaled $27.5 billion as of March 31, 2016, decreasing 19%, or $6.4 billion, year-over-year. This change was driven by net capital outflows of $4.3 billion, primarily in the OZ Master Fund, the Company's largest multi-strategy fund, as well as performance-related depreciation of $2.0 billion.

For the first quarter of 2016, the OZ Master Fund, the Company's largest multi-strategy fund, generated a gross return of -3.0% and a net return of -3.4%. On a gross basis, U.S. long/short equity special situations was the largest contributor to the performance-related depreciation, partially offset by positive performance in merger arbitrage, credit-related strategies and convertible and derivative arbitrage.

Credit

Assets under management in Och-Ziff's dedicated credit products totaled $12.4 billion as of March 31, 2016, increasing $1.4 billion, or 12%, year-over-year. This change was driven by capital net inflows of $2.1 billion, partially offset by $505.3 million of distributions and other reductions in the Company's closed-end opportunistic credit funds and $180.1 million of performance-related depreciation.

Opportunistic credit

Och-Ziff's opportunistic credit funds seek to generate risk-adjusted returns by capturing value in mispriced investments across disrupted, dislocated and distressed corporate, structured and private credit markets globally.

Assets under management in the Company's opportunistic credit funds totaled $5.2 billion as of March 31, 2016, essentially unchanged year-over-year. This was due to $662.5 million of capital net inflows, primarily into the Customized Credit Focused Platform, partially offset by $505.3 million of distributions and other reductions related to the Company's closed-end opportunistic credit funds. Also contributing to the decrease was $170.7 million of performance-related depreciation.

For the first quarter of 2016, the OZ Credit Opportunities Master Fund, the Company's global opportunistic credit fund, generated a gross return of 1.3% and a net return of 1.0%. On a gross basis, performance was driven by the fund's U.S. portfolio.

Institutional Credit Strategies

Institutional Credit Strategies ("ICS") is the Company's asset management platform that invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing and investment grade credit via CLOs and other customized solutions for clients.

Assets under management in ICS totaled $7.2 billion as of March 31, 2016, increasing $1.4 billion, or 24%, year-over-year. The increase was primarily driven by three CLOs that closed in the year-over-year period. ICS managed 13 CLOs as of March 31, 2016.

Real estate funds

Assets under management in Och-Ziff's real estate funds totaled $2.1 billion as of March 31, 2016, increasing $9.5 million year-over-year. The increase was driven by Och-Ziff Real Estate Credit Fund I, partially offset by distributions and other reductions from Och-Ziff Real Estate Fund II. Since inception, the net IRR for Och-Ziff Real Estate Fund II (for which the investment period ended in 2014) was 22.6% through March 31, 2016. Since inception, the net IRR for Och-Ziff Real Estate Fund I (for which the investment period ended in 2010) was 15.6% through March 31, 2016.

ECONOMIC INCOME (NON-GAAP)

In addition to analyzing the Company's results on a GAAP basis, management also reviews the Company's results on an "Economic Income" basis. Economic Income excludes certain adjustments that are required for presentation of the Company's results on a GAAP basis, but that management does not consider when evaluating operating performance in any given period. The adoption of the new consolidation guidance referenced above had no impact on Economic Income.

For reconciliations of Economic Income and its components to the respective GAAP measures, please see Exhibits 2 and 3 that accompany this press release. Additionally, please see the discussion of "Non-GAAP Financial Measures" at the end of this press release.

Economic Income Revenues (Non-GAAP)

Economic Income revenues for the 2016 first quarter were $175.5 million, a 24% decrease from $229.6 million for the 2015 first quarter. Management fees were $144.4 million, a 12% decrease from $163.8 million for the prior-year period. Incentive income was $30.6 million, 53% lower than the $65.3 million for the prior-year period.

The year-over-year decrease in management fees was driven primarily by lower assets under management in the Company's multi-strategy funds, partially offset by higher assets under management in the Company's ICS products. This change in mix also resulted in a lower year-over-year average management fee rate. The year-over-year decrease in incentive income was driven primarily by lower tax distributions taken to cover tax liabilities on incentive income that has been accrued on certain longer-term assets under management, but that will not be realized until the end of the relevant commitment period.

The average management fee rate was 1.31% for the 2016 first quarter. The Company's average management fee will vary from quarter to quarter based on the mix of products that comprise its assets under management.

Compensation and Benefits (Non-GAAP)

Compensation and benefits for the 2016 first quarter totaled $33.8 million, a slight increase from $33.3 million for the 2015 first quarter. Salaries and benefits were $30.0 million, 8% higher than $27.8 million in the prior-year period. Bonus expense for the 2016 first quarter totaled $3.8 million, 31% lower than $5.5 million for the prior-year period.

The ratio of salaries and benefits to management fees was 21% for the 2016 first quarter, compared to 17% for the 2015 first quarter. These increases were the result of lower year-over-year management fees, as well as higher expense levels.

Non-Compensation Expenses (Non-GAAP)

Non-compensation expenses for the 2016 first quarter totaled $257.1 million, or $57.1 million excluding the $200.0 million FCPA investigation reserve accrual taken in the 2016 first quarter, compared to $40.3 million in the prior-year period. The $16.8 million year-over-year increase excluding the reserve accrual was primarily due to increased legal expenses relating to the investigation.

The ratio of non-compensation expenses excluding the reserve accrual to management fees was 40% for the 2016 first quarter, compared to 25% for the 2015 first quarter.

Economic Income (Non-GAAP)

Economic Income for the first quarter of 2016 was a net loss of $115.3 million, or net income of $84.7 million excluding the $200.0 million FCPA investigation reserve accrual, compared to net income of $155.9 million for the first quarter of 2015. The $71.3 million year-over-year decrease excluding the reserve was driven by lower incentive income and management fees, as well as higher operating expenses.

CAPITAL

As of March 31, 2016, the number of Class A Shares outstanding was 181,352,699. For purposes of calculating Distributable Earnings per Share, the Company assumes that all the interests held by its executive managing directors in the Company's principal operating subsidiaries (the "Och-Ziff Operating Group") (collectively, "Partner Units"), as well as Class A Restricted Share Units ("RSUs") outstanding during the applicable period, have been converted on a one-to-one basis into Class A Shares ("Adjusted Class A Shares"). For the first quarter ended March 31, 2016, the total weighted-average Adjusted Class A Shares outstanding was 518,318,632.

DIVIDEND

The Board of Directors of Och-Ziff did not declare a 2016 first-quarter dividend.

Dan Och, Chairman and Chief Executive Officer of Och-Ziff, and Joel Frank, Chief Financial Officer, will host a conference call today, May 3, 2016, at 8:30 a.m. Eastern Time to discuss the Company's 2016 first quarter results. The call can be accessed by dialing +1-888-713-4215 (in the U.S.) or +1-617-213-4867 (international), passcode 13283107. A simultaneous webcast of the call will be available on the Public Investors page of the Company's website (www.ozcap.com).

For those unable to listen to the live broadcast, a replay will be available shortly after the call by dialing +1-888-286-8010 (in the U.S.) or +1-617-801-6888 (international), passcode 75452259. A webcast replay will also be available on the Company's website as noted above.

Non-GAAP Financial Measures

Management evaluates Economic Income for the Och-Ziff Funds segment, the Company's only reportable operating segment under GAAP, and for the Company's Other Operations. Economic Income for the Company equals the sum of Economic Income for the Och-Ziff Funds segment and the Company's Other Operations.

Additionally, throughout this press release management has presented certain non-GAAP measures that exclude the effect of the FCPA investigation reserve accrual taken during the first quarter of 2016. These measures are presented to provide a more comparable view of the Company's core operating results year-over-year.

The Company conducts substantially all of its business through the Och-Ziff Funds segment, which provides asset management services to its multi-strategy, opportunistic credit and equity funds, Institutional Credit Strategies and other alternative investment vehicles. The Company's Other Operations are primarily comprised of its real estate business, which provides asset management services to its real estate funds.

The Company's non-GAAP measures should not be considered as alternatives to the Company's GAAP Net Income or cash flow from operations, or as indicative of liquidity or the cash available to fund operations. The Company's non-GAAP measures may not be comparable to similarly titled measures used by other companies.

For reconciliations of the Company's non-GAAP measures to the most directly comparable GAAP measures, please see Exhibits 2 and 3 that accompany this press release.

Economic Income

In addition to analyzing the Company's results on a GAAP basis, management also reviews the Company's results on an "Economic Income" basis. Economic Income excludes the adjustments described below that are required for presentation of the Company's results on a GAAP basis, but that management does not consider when evaluating the operating performance of the Company in any given period. Management uses Economic Income as the basis on which it evaluates the financial performance of the Company and makes resource allocation and other operating decisions. Management considers it important that investors review the same operating information that it uses.

Economic Income is a measure of pre-tax operating performance that excludes the following from the Company's results on a GAAP basis:

• Income allocations to the Company's executive managing directors on their direct interests in the Och-Ziff Operating Group. Management reviews operating performance at the Och-Ziff Operating Group level, where substantially all of the Company's operations are performed, prior to making any income allocations.
• Reorganization expenses related to the Company's IPO, equity-based compensation expenses and depreciation and amortization expenses, as management does not consider these non-cash expenses to be reflective of operating performance. However, the fair value of RSUs that are settled in cash to employees or executive managing directors is included as an expense at the time of settlement.
• Changes in the tax receivable agreement liability and net gains (losses) on investments in Och-Ziff funds, as management does not consider these items to be reflective of operating performance.
• Amounts related to the consolidated Och-Ziff funds, including the related eliminations of management fees and incentive income, as management reviews the total amount of management fees and incentive income earned in relation to total assets under management and fund performance. The Company also defers the recognition of incentive income allocations from the consolidated Och-Ziff funds until all clawback contingencies are resolved, consistent with the revenue recognition policy for the funds the Company does not consolidate.

In addition, expenses related to compensation and profit-sharing arrangements based on fund investment performance are recognized at the end of the relevant commitment period, as management reviews the total compensation expense related to these arrangements in relation to any incentive income earned by the relevant fund.

As a result of the adjustments described above, as well as an adjustment to present management fees net of recurring placement and related service fees (rather than considering these fees an expense), management fees, incentive income, compensation and benefits, non-compensation expenses and net income allocated to noncontrolling interests as presented on an Economic Income basis are also non-GAAP measures.

Distributable Earnings

Distributable Earnings is a non-GAAP measure of after-tax operating performance and equals Economic Income less Adjusted Income Taxes. Adjusted Income Taxes are estimated assuming the conversion of all outstanding Partner Units into Class A Shares, on a one-to-one basis, and include the impact of payments under the tax receivable agreement. Therefore, all income (loss) of the Och-Ziff Operating Group allocated to the Partner Units is treated as if it were allocated to Och-Ziff Capital Management Group LLC. Partner Units represent interests in the Och-Ziff Operating Group held by the Company's executive managing directors, including the Och-Ziff Operating Group A Units and Och-Ziff Operating Group D Units. Distributable Earnings per Share is equal to Distributable Earnings divided by the weighted-average number of Adjusted Class A Shares.

Management believes Distributable Earnings provides useful information to investors because it uses Distributable Earnings, among other financial information, to determine the earnings available to distribute as dividends to holders of the Company's Class A Shares and to the Company's executive managing directors with respect to their Partner Units.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect the Company's current views with respect to, among other things, future events and financial performance. The Company generally identifies forward-looking statements by terminology such as "outlook," "believe," "expect," "potential," "continue," "may," "will," "should," "could," "seek," "approximately," "predict," "intend," "plan," "estimate," "anticipate," "opportunity," "comfortable," "assume," "remain," "maintain," "sustain," "achieve," "see," "think," "position" or the negative version of those words or other comparable words.

Any forward-looking statements contained in this press release are based upon historical information and on the Company's current plans, estimates and expectations. The inclusion of this or other forward-looking information should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated by the Company will be achieved. We caution that forward-looking statements are subject to numerous assumptions, estimates, risks and uncertainties, including but not limited to the following: global economic, business, market and geopolitical conditions; U.S. and foreign regulatory developments relating to, among other things, financial institutions and markets, government oversight, fiscal and tax policy; conditions impacting the alternative asset management industry; the Company's ability to successfully compete for fund investors, assets, professional talent and investment opportunities; the Company's ability to retain its active executive managing directors, managing directors and other investment professionals; the Company's successful formulation and execution of its business and growth strategies; the Company's ability to appropriately manage conflicts of interest and tax and other regulatory factors relevant to its business; and assumptions relating to the Company's operations, investment performance, financial results, financial condition, business prospects, growth strategy and liquidity.

If one or more of these or other risks or uncertainties materialize, or if the Company's assumptions or estimates prove to be incorrect, its actual results may vary materially from those indicated in these statements. These factors are not and should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in the Company's filings with the U.S. Securities and Exchange Commission ("SEC"), including but not limited to the Company's annual report on Form 10-K for the year ended December 31, 2015, dated February 11, 2016, as well as may be updated from time to time in the Company's other SEC filings. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not known. The forward-looking statements contained in this press release are made only as of the date of this press release. The Company does not undertake to update any forward-looking statement because of new information, future developments or otherwise.

This press release does not constitute an offer of any Och-Ziff fund.

About Och-Ziff Capital Management Group LLC

Och-Ziff Capital Management Group LLC is one of the largest institutional alternative asset managers in the world, with offices in New York, London, Hong Kong, Mumbai, Beijing, Dubai, Shanghai and Houston. Och-Ziff provides asset management services to investors globally through its multi-strategy funds, dedicated credit funds, including opportunistic credit funds and Institutional Credit Strategies products, real estate funds and other alternative investment vehicles. Och-Ziff seeks to generate consistent, positive, absolute returns across market cycles, with low volatility compared to the broader markets, and with an emphasis on preservation of capital. Och-Ziff's funds invest across multiple strategies and geographies, consistent with the investment objectives for each fund. The global investment strategies Och-Ziff employs include convertible and derivative arbitrage, corporate credit, long/short equity special situations, merger arbitrage, private investments, real estate and structured credit. As of May 1, 2016, Och-Ziff had approximately $42.0 billion in assets under management. For more information, please visit Och-Ziff's website (www.ozcap.com).

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Please see the last page of this Exhibit 5 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

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Please see the last page of this Exhibit 5 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

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Please see the last page of this Exhibit 5 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

As of March 31, 2016, approximately 38% of the Company's assets under management were subject to initial commitment periods of three years or longer. The Company earns incentive income on these assets based on the cumulative investment performance generated over this commitment period. The table below presents the amount of these assets under management, as well as the amount of incentive income accrued at the fund level but for which the commitment period has not concluded. These amounts have not yet been recognized in our revenues, as the Company recognizes incentive income at the end of the commitment period when amounts are no longer subject to clawback. Further, these amounts may ultimately not be recognized as revenue by the Company in the event of future losses in the respective funds.

The Company recognizes incentive income on its longer-term assets under management in multi-strategy funds and open-end opportunistic credit funds at the end of their respective commitment periods, which are generally three to five years. The Company expects the commitment period with respect to approximately 5% and 17% of the longer-term assets under management in the multi-strategy funds to mature during the second quarter of 2016 and the remainder of 2016, respectively. The Company does not expect the commitment period for a significant amount of longer-term assets under management in its open-end opportunistic credit funds to expire during the second quarter of 2016; however, the Company does expect the commitment period with respect to approximately 10% of the longer-term assets under management to mature during the remainder of 2016. Incentive income related to assets under management in the Company's closed-end opportunistic credit funds and its real estate funds is generally recognized at or near the end of the life of each fund. These funds generally begin to make distributions after the conclusion of their respective investment period, as presented in the tables in Exhibit 5. However, these investment periods may generally be extended for an additional one to two years.