Och-Ziff Capital Management (OZM), one of the few publicly traded hedge funds on the market, crushed December with their Master Fund gaining 1.0% month-over-month, ending 2012 up 11.18%. Their European Master Fund and Asia Master Fund were up 8.62% and 7.07% for 2012, respectively. Compared with the benchmark HFRX Global Hedge Fund Index 2012 return of 3.17%, OZM had a killer year.
Though fund flows (money going into the fund) were negative for December by ~$450 million, they were positive for the year at $300 million. We expect more inflows into Och-Ziff in 2013 based on last year’s strong performance numbers.
The stock is one of our top long ideas in financials for 2013. We believe that the market has yet to recognize the value of OZM’s incentive fee business and now that the fiscal cliff is behind us, we see that there is no damaging regulation that will affect asset management firms save for the small bump in long-term capital gains rates. It’s also worth noting that alternative asset managers like hedge funds do well in times of quantitative easing and we are well into our third round of QE.