For a while there, it really looked as if Och-Ziff Capital Management might not survive. The largest publicly-traded hedge-fund firm in the U.S., as you might recall, found itself in a little bit of hot water after the fall of Libyan dictator Muammar Gaddafi, on account of maybe sorta bribing Gaddafi’s sovereign wealth fund. While probably not potentially fatal on its own, everywhere regulators then looked in Africa, they found more Och-Ziff bribes, eventually leading both to a $400 million down payment on its survival and also an exodus of investors that threatened it. Oh yea, and it was losing money hand over fist, which does not help.
And yet, survive it did. Whether through the sheer inertia of more than $30 billion in assets under management, or via soul-selling, Och-Ziff had pulled through. The experience may, however, have given firm founder Dan Och a taste for adrenaline and a feeling of immortality. Because having successfully piloted the firm through three years of turbulence back into calm waters, Och is steering the ship into a fresh squall.
“After extensive discussion with the board of directors, including the company’s independent directors, who support transitioning to Jimmy in the near future, it was the conclusion of Dan Och …that now is not the right time to transition to Jimmy.”
Jimmy is Och’s son’s former waterskiing instructor James Levin, who rose from that modest position to become Och’s heir apparent. And given all of the trouble Och’s man in Africa had gotten the firm into, Jimmy thought it was time to accelerate the transition, Bridgewater-style. So did most of the firm’s board. So Och gave him $300 million—including $100 million out of his own pocket—and promised to step down at the end of the year.
“The firm was on its knees, Jimmy had a lot of leverage,” says someone close to the matter.
Not content to use that leverage to gain control of the firm alone, Levin also came up with a fun proposal to force Och to give up his controlling stake in the company and forgo somewhere between $0 and $1 billion in future payouts, depending on who you ask. By this time, however, things were looking up, and Och was getting pissed, and the Levin didn’t have quite as much leverage as he thought.
Over time, Mr. Och became irritated, say some who know him. Each new version of the plan seemed to him to add additional rewards for Mr. Levin at the expense of Mr. Och and former partners he felt were contractually entitled to the payments….
In late December, the five independent directors of Och-Ziff’s seven-member board presented the plan to move forward with the succession this year and unanimously voted to approve it…. Mr. Och said he wouldn’t accept the plan….
Because Mr. Levin wasn’t fired, he would forgo the shares received last year and his lucrative pay package if he were to quit, according to terms of the deal. He also has a two-year noncompete clause in his contract precluding him from going to a new firm.
Which brings us to the Bridgewater-style denouement and fun current stalemate: Levin can’t leave even though he’ll probably never take over now, and Och can’t afford him to leave, so they’ll just go on hating each other for now.
Some clients say they may follow Mr. Levin out the door if he leaves.
“This was not well communicated or handled,” says Michael Rosen, chief investment officer at Angeles Investment Advisors LLC, which invests about $100 million in a fund overseen by Mr. Levin. He says Och-Ziff is dealing with “tension….”
In its letter to clients sent Saturday, Dec. 23, Och-Ziff dropped the bombshell, adding, “Dan and the board of directors hope that Jimmy will remain as Co-Chief Investment Officer.”