Och-Ziff Capital Management Group reported a net loss of $80.0 million for the third quarter ending September 30, 2009.

Despite the loss assets under management (AUM) at November 1 totalled $22.6 billion, up by $500 million compared will $22.1 billion at October 1, 2009. Estimated AUM at November 1, 2009 reflected capital inflows (net of redemption requests received for October 31, 2009) of approximately $400 million and performance-related appreciation of approximately $100 million.

There was also good news for the group’s main funds. The OZ Master Fund recorded a year to date (October 31, 2009) net increase of 21.3%, the OZ Europe Master Fund was up 15.6%, the OZ Asia Master Fund rose 28.0% and the OZ Global Special Investments Master Fund recorded a rise of 7.2%

"We continued to generate very strong investment performance across all of our funds during the third quarter and in the month of October," said Daniel Och, chairman and CEO of Och-Ziff. 

"We have now surpassed the high water marks for the majority of our capital,” he continued. “Our diversified, multi-strategy approach, which adheres to disciplined investment and risk management processes and the limited use of leverage, has driven the consistency and low volatility of our investment returns since our founding in 1994 and this year has been no different,” noted Och.

Och also said he thought redemptions have now “normalised to historical levels” for the hedge fund industry as a whole as market conditions have improved and investor confidence has increased. 

“We remain confident that as investors re-deploy capital to alternative investments,” said Och.

In the first nine months of 2009, Och-Ziff reported a net loss of $250.2 million compared with a net loss of $398.4 million for the same period in 2008. The primary driver of the year-over-year decrease was an increase in the net loss allocated to partners' and others' interests in income of consolidated subsidiaries resulting from the adoption of a new GAAP accounting rule SFAS160, partially offset by a decline in management fees due to lower assets under management and higher compensation expenses, as discussed below.

The third quarter net loss in the 2009 resulted from non-cash expenses of $417.5 million while the first nine months’ loss of $1.3 billion was mainly associated with the company's reorganisation in connection with its initial public offering (IPO) in November 2007. These expenses are related to the amortization of Och-Ziff Operating Group A units which represent equity interests in the company's principal operating subsidiaries that were issued to the company's pre-IPO owners in exchange for their pre-IPO interests in those subsidiaries. 

The GAAP net loss of $33.5 million and in the 2009 third quarter and $86.1 million in the first nine months were driven by non-cash expenses for the amortization of equity-based compensation. 

Also contributing to the new loss in the 2009 third quarter and first nine months was compensation expense relating to the accrual of estimated discretionary cash bonuses. These cash bonuses are funded by total annual revenues, which were significantly influenced by incentive income earned by the company at the end of 2008.

In the second quarter of 2009, the company began to accrue for the estimated discretionary cash bonuses that it expected to pay its employees at year-end. In the third quarter of 2009, management revised its annual discretionary bonus compensation methodology for years in which high-water marks are in effect. 

Och-Ziff's AUM at September 30, 2009 were 2% higher than the $21.9 billion in assets under management at June 30, 2009 and 29% lower than the $31.2 billion in assets under management at September 30, 2008. 

The $8.9 billion year-over-year decrease was driven by net outflows of $9.3 billion, partially offset by performance-related appreciation of $424 million during the period. 

During the third quarter or 2009, the $358 million increase in AUM was driven by performance-related appreciation of approximately $1.5 billion, partially offset by net outflows of approximately $1.1 billion. 

The net outflows for the 2009 third quarter included redemption requests received for June 30, 2009, but excluded redemption requests received for September 30, 2009 as these redemptions were reflected in assets under management at October 1, 2009.

AUM at October 1, 2009 reflected redemption requests received for September 30, 2009 (net of October 1, 2009 capital inflows) of approximately $200 million. Virtually all redemptions for a quarter generally are paid on the first day of the month following the quarter in which the redemption notice was submitted, and capital inflows for that month are accepted on the same day. 

AUM at September 30. 2009 the OZ Master Fund totalled $14.8 billion, OZ Europe Master Fund  at $3.0 billion, OZ Asia Master Fund with $1.3 billion and OZ Global Special Investments Master Fund at $2 billion.