Och-Ziff Capital Management Group LLC Reports 2015 Third Quarter Results

NEW YORK, NY--(Marketwired - November 03, 2015) - Och-Ziff Capital Management Group LLC (NYSE: OZM) (the "Company" or "Och-Ziff") today reported GAAP net income allocated to Class A Shareholders ("GAAP Net Income") of $17.4 million, or $0.10 per basic and $0.06 per diluted Class A Share, for the third quarter ended September 30, 2015.

Summary Highlights

• Reported Distributable Earnings of $66.1 million, or $0.13 per Adjusted Class A Share, for the 2015 third quarter, 43% lower than $116.7 million, or $0.23 per Adjusted Class A Share, for the 2014 third quarter.
• Declared a cash dividend of $0.04 per Class A Share for the 2015 third quarter.
• Repurchased approximately 4.6 million vested Och-Ziff Operating Group A Units from former executive managing directors of the Company, utilizing $22.8 million of 2015 third quarter Distributable Earnings.
• Assets under management totaled $44.6 billion as of September 30, 2015, decreasing 5% year-over-year.
  ◦ Longer-dated assets under management, which are those subject to initial commitment periods of three years or longer, were $16.4 billion, or 37% of the Company's total assets under management as of September 30, 2015, increasing 9% year-over-year.
  ◦ Assets under management in the Company's dedicated credit, real estate and other single-strategy funds were $15.1 billion, comprising 34% of assets under management as of September 30, 2015, increasing 17% year-over-year.
  ◦ Estimated assets under management totaled $44.4 billion as of November 1, 2015.

"While challenging market conditions adversely affected the performance of the OZ Master Fund during the third quarter, we are confident in our investment process and optimistic about the prospects of our current portfolio," said Dan Och, Chairman and Chief Executive Officer of Och-Ziff. "We believe the current environment plays to our strengths as fundamental, bottoms-up investors, and will enable us to generate positive, absolute returns for our LPs.

"Our multi-strategy, credit and real estate funds are important sources of our future asset and earnings growth. We have a leading presence in the markets for each, building on our 21-year track record of delivering value to the investors in our funds. We are also pursuing a number of new business initiatives that represent significant opportunities for us to grow longer-term, high-margin assets and expand our distribution. We are focused on substantial markets where we can leverage the competitive edge that comes from our ability to invest across multiple asset classes and geographies."

⁽¹⁾ Please see Exhibit 7 that accompanies this press release for additional information regarding the returns of the OZ Master Fund.

GAAP NET INCOME ALLOCATED TO CLASS A SHAREHOLDERS

For the 2015 third quarter, Och-Ziff reported GAAP Net Income of $17.4 million, or $0.10 per basic and $0.06 per diluted Class A Share, compared to $23.2 million, or $0.13 per basic and $0.09 per diluted Class A Share, for the 2014 third quarter. For the first nine months of 2015, Och-Ziff reported GAAP Net Income of $48.0 million, or $0.27 per basic and $0.26 per diluted Class A Share, compared to $57.8 million, or $0.33 per basic and $0.32 per diluted Class A Share, for the first nine months of 2014.

The year-over-year decrease in the Company's third quarter GAAP results was primarily driven by higher operating expenses and lower management fees, partially offset by lower income taxes (net of a corresponding increase in expense related to our tax receivable agreement liability) and higher incentive income. The year-over-year decrease in the Company's first nine months GAAP results was primarily driven by higher income taxes (net of a corresponding reduction in our tax receivable agreement liability) and higher operating expenses, partially offset by higher incentive income. Also contributing to the decrease was a gain on the sale of an investment held by a joint venture in the first quarter of 2014 that did not reoccur in 2015.

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)

The Company's Distributable Earnings for the 2015 third quarter were $66.1 million, or $0.13 per Adjusted Class A Share, 43% lower than $116.7 million, or $0.23 per Adjusted Class A Share, for the 2014 third quarter. Distributable Earnings for the first nine months of 2015 were $288.0 million, or $0.56 per Adjusted Class A Share, 14% lower than $334.9 million, or $0.66 per Adjusted Class A Share, for the first nine months of 2014.

The year-over-year decrease in Distributable Earnings for the 2015 third quarter were primarily due to lower incentive income and management fees, as well as higher Adjusted Income Taxes and operating expenses. The year-over-year decrease in Distributable Earnings for the first nine months of 2015 were primarily due to higher operating expenses and a gain on the sale of an investment held by a joint venture in 2014 that did not reoccur in 2015, partially offset by higher management fees. Please see the "Economic Income (Non-GAAP)" section of this press release for a discussion of the drivers affecting the Company's Economic Income.

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 Exhibits 2 and 3 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
Rounding differences may occur.

As of September 30, 2015, assets under management totaled $44.6 billion, a decrease of $2.2 billion, or 5%, from September 30, 2014, which was driven by capital net outflows of $1.7 billion and $1.1 billion of distributions to investors in the Company's closed-end opportunistic credit and real estate funds, and other reductions. These amounts were partially offset by performance-related appreciation of $540.4 million. During the month of September, the Company had approximately $181.2 million of intra-month capital net outflows, which are included in the $44.6 billion of assets under management as of September 30, 2015.

Assets under management decreased to an estimated $44.4 billion as of November 1, 2015. This decrease reflected estimated performance-related appreciation of approximately $537.6 million in October and capital net outflows of approximately $690.8 million, which was comprised of approximately $509.0 million of capital net outflows on October 1, 2015 and approximately $181.8 million of capital net outflows from October 2, 2015 to November 1, 2015.

Please see detailed assets under management and fund information on Exhibits 6 and 7 that accompany this press release.

Multi-strategy funds

Assets under management in the Company's multi-strategy funds totaled $29.5 billion as of September 30, 2015, decreasing 13%, or $4.4 billion, year-over-year. This change was driven by net capital outflows of $4.8 billion, partially offset by performance-related appreciation of $0.4 billion.

Credit

Assets under management in the Company's dedicated credit products totaled $11.9 billion as of September 30, 2015, increasing $2.1 billion, or 22%, year-over-year. This change was driven by capital net inflows of $2.9 billion, and performance-related appreciation of $62.7 million, partially offset by $839.0 million of distributions and other reductions in the Company's closed-end opportunistic credit funds.

Opportunistic credit

The Company'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 $4.9 billion as of September 30, 2015, decreasing 4% year-over-year. This decrease was primarily due to $839.0 million of distributions and other reductions related to the Company's closed-end opportunistic credit funds, offset by $572.7 million of capital net inflows, primarily into the OZ Credit Opportunities Master Fund, the Company's global opportunistic credit fund. Also offsetting the decrease was $49.8 million of performance-related appreciation, driven by positive investment performance across the Company's closed-end opportunistic credit funds.

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 $7.1 billion as of September 30, 2015, increasing $2.4 billion, or 50%, year-over-year. The increase was primarily driven by four CLOs that closed in the year-over-year period. ICS managed 12 CLOs as of September 30, 2015.

Real estate funds

Assets under management in the Company's real estate funds totaled $1.9 billion as of September 30, 2015, decreasing $127.9 million, or 6%, year-over-year. The decrease was driven by distributions and other reductions from Och-Ziff Real Estate Funds I and II, partially offset by additional commitments to Och-Ziff Real Estate Fund III. Since inception, the net IRR for Och-Ziff Real Estate Fund II (for which the investment period ended in 2014) was 22.7% through September 30, 2015. Since inception, the net IRR for Och-Ziff Real Estate Fund I (for which the investment period ended in 2010) was 15.4% through September 30, 2015.

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.

For reconciliations of Economic Income and its components to the respective GAAP measures, please see Exhibits 2 through 5 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 2015 third quarter were $202.2 million, a 12% decrease from $229.1 million for the 2014 third quarter. Management fees were $162.7 million, 3% lower than $168.3 million for the prior-year period. Incentive income was $39.0 million, 36% lower than the $60.5 million for the prior-year period.

Economic Income revenues for the first nine months of 2015 were $630.9 million, a 2% increase from $617.3 million for the first nine months of 2014. Management fees were $493.6 million, 2% higher than $482.6 million for the prior-year period. Incentive income was $135.8 million, 1% higher than the $133.9 million for the prior-year period.

The year-over-year decrease in management fees for the quarter-to-date period 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. The year-over-year decrease in incentive income was driven by lower incentive income from the Company's opportunistic credit and real estate funds, partially offset by higher incentive income from the Company's multi-strategy funds.

The year-over-year increase in management fees for the year-to-date period was driven by higher average assets under management in the Company's ICS products, partially offset by lower average assets under management in the Company's multi-strategy funds. Higher management fees related to the launch of Och-Ziff Real Estate Fund III during 2014 also contributed to the year-over-year increase. The year-over-year increase in incentive income for the year-to-date period was driven by higher incentive income from the Company's multi-strategy funds, partially offset by lower incentive income from the Company's opportunistic credit and real estate funds.

The average management fee rate was 1.38% for the 2015 third quarter and 1.41% for the 2015 first nine months. 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 2015 third quarter totaled $35.9 million, down 15% from $42.4 million for the 2014 third quarter. Salaries and benefits were $28.7 million, 10% higher than $26.1 million in the prior-year period due to an increase in the Company's headcount globally. Bonus expense for the 2015 third quarter totaled $7.2 million, compared to $16.3 million for the prior-year period. The reduction in bonus expense was driven by lower incentive income from the Company's first domestic real estate fund.

Compensation and benefits for the first nine months of 2015 totaled $102.3 million, a 1% increase from $101.3 million for the first nine months of 2014. Salaries and benefits were $84.3 million, 10% higher than $76.8 million in the prior-year period due to an increase in the Company's headcount globally. Bonus expense for the first nine months of 2015 totaled $18.0 million, compared to $24.5 million for the prior-year period mainly due to lower incentive income from the Company's first domestic real estate fund.

The ratio of salaries and benefits to management fees was 18% for the 2015 third quarter and 17% for the first nine months of 2015, compared to 15% for the 2014 third quarter and 16% for the first nine months of 2014.

Non-Compensation Expenses (Non-GAAP)

Non-compensation expenses for the 2015 third quarter totaled $54.8 million, up 76% from $31.1 million in the prior-year period. Non-compensation expenses for the first nine months of 2015 totaled $145.8 million, up 60% from $91.1 million in the prior-year period. The year-over-year increases were driven by higher professional fees due to increased legal expenses relating to certain regulatory and legal matters, as well as higher interest expense primarily due to the issuance of the Company's Senior Notes in the 2014 fourth quarter.

The ratio of non-compensation expenses to management fees was 34% for the 2015 third quarter and 30% for the first nine months of 2015, respectively, compared to 19% for 2014 third quarter and 19% for the first nine months of 2014.

Economic Income (Non-GAAP)

Economic Income for the 2015 third quarter was $111.5 million, lower than the $155.6 million for the 2014 third quarter. Economic Income for the first nine months of 2015 was $382.8 million, lower than the $429.8 million for the first nine months of 2014.

The year-over-year decrease in Economic Income for the quarter-to-date period was primarily due to lower incentive income and management fees, as well as higher operating expenses. The year-over-year decrease in Economic Income for the year-to-date period was due to higher operating expenses and a gain on the sale of an investment held by a joint venture in the 2014 first quarter that did not reoccur in 2015, partially offset by higher management fees.

CAPITAL

As of September 30, 2015, the number of Class A Shares outstanding was 177,310,768. For purposes of calculating Distributable Earnings per Share, the Company assumes that all the interests held by its executive managing directors and Ziff Investors Partnership, L.P. II and certain of its affiliates and control persons (the "Ziffs") (until the Ziffs exchanged their remaining interests during the 2014 second quarter) 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 third quarter and the first nine months ended September 30, 2015, the total weighted-average Adjusted Class A Shares outstanding were 516,825,427 and 516,104,997, respectively.

DIVIDEND

The Board of Directors of Och-Ziff declared a 2015 third-quarter dividend of $0.04 per Class A Share. The dividend is payable on November 20, 2015 to holders of record as of the close of business on November 13, 2015.

For U.S. federal income tax purposes, the dividend will be treated as a partnership distribution. Based on the best information currently available, the Company estimates that when calculating withholding taxes, the entire amount of the 2015 third-quarter dividend will be treated as return of capital.

Non-U.S. holders of Class A Shares are generally subject to U.S. federal withholding tax at a rate of 30% (subject to reduction by applicable treaty or other exception) on their share of U.S. source dividends and certain other types of U.S. source income realized by the Company. With respect to interest, however, no withholding is generally required if proper certification (on an IRS Form W-8) of a beneficial owner's foreign status has been filed with the withholding agent. Non-U.S. holders must generally provide the withholding agent with a properly completed IRS Form W-8 to obtain any reduction in withholding.

The Company will host a conference call today, November 3, 2015, at 8:30 a.m. Eastern Time to discuss its 2015 third quarter results. The call will be open to the public and can be accessed by dialing +1-888-713-4214 (callers inside the U.S.) or +1-617-213-4866 (callers outside the U.S.). The number should be dialed at least ten minutes prior to the start of the call and the passcode will be 31417786. A simultaneous webcast of the call will be available to the public on a listen-only basis through the Public Investors section of the Company's website (www.ozcap.com).

For those unable to listen to the live broadcast, a replay will be available by dialing +1-888-286-8010 (callers inside the U.S.) or +1-617-801-6888 (callers outside the U.S.), passcode 18407426, beginning approximately two hours after the event for two weeks. A webcast replay of the event 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.

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 and the Ziffs (until they exchanged their remaining interests during the 2014 second quarter) 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 and the Ziffs (until they exchanged their remaining interests during the 2014 second quarter), 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 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, 2014, dated February 23, 2015, and in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2015, dated May 5, 2015, 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 November 1, 2015, Och-Ziff had approximately $44.4 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 7 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

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Please see the last page of this Exhibit 7 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

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Please see the last page of this Exhibit 7 ("Fund Information-Footnotes") for important disclosures related to the footnotes referenced herein.

As of September 30, 2015, approximately 37% 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.