Hedge fund survivor sees signs of gathering confidence

Date: Monday, May 4, 2009
Author: Anuj Gangahar, FT.com

The role of hedge funds in the rebuilding of Wall Street is still being written.

The direction and extent of regulation is uncertain, the financing streams that most hedge funds once relied on are flowing less freely and the deleveraging of the global financial system continues, driving down industry performance.

In spite of the problems faced by the business as a whole, Daniel Och, publicity-shy head of Och-Ziff Capital Management, a $20bn New York fund, says in a rare interview with the Financial Times that he hopes to play a leading role in the rebuilding.

Anecdotal evidence suggests that hedge fund companies such as Mr Och’s – with long records, billions of dollars under management and experienced hands at the helm – are now at the fore.

Mr Och is chief executive of one of the few publicly traded US hedge fund companies although its shares are trading below $10, having been priced at $32 in late 2007.

He says one byproduct of the financial crisis is that the use of leverage disguised as investment returns, which became the norm, is no longer possible. “Och-Ziff has always been focused on risk management, including the minimal use of leverage.”

He says that, unlike several peers, the company resisted the temptation to impose so-called gates or lock-ups preventing investors from pulling money out. “It was a big deal for investors that we didn’t suspend redemptions or put up gates. That is a very significant differentiation.”

Although returns are likely to be squeezed, he sees opportunities. “The investing landscape is attractive and there is now a material difference in the level of competition we face.”

Mr Och is less sure that credit markets offer a once-in-a-generation opportunity, urging caution. But in recent weeks, he says, Och-Ziff has established positions in the corporate credit area. “In the MBS [mortgage-backed securities] market, we have recently become more aggressive.”

Another feature of the crisis of the past two years was that investment banks, rather than hedge funds, have grabbed the lion’s share of negative headlines. Fears that a large hedge fund would blow up and pose a systemic risk have not been realised.