Och-Ziff - a no brainer

Buying Och-Ziff is really making a highly levered bet on partial recovery in asset prices, except with little downside, due to the management fees the company generates. From those fees alone company makes 30 cents a share, or is otherwise trading at 17x EPS. Now, assume a 10% return in 2010 (09 is written-off due to high watermarks, however they reset in 2010), far below funds performance in 04-07, and OZM suddently makes 1.30 a share, or is trading at 3.5x FWD P/E. A good asset managers used to trade at 2x P/E premium to the market (17x vs 15x for S&P 500). Now you can argue that tough times demand tougher multiples, and that OZM is too reliant on its captain, Daniel Ziff. I am prepared to concede both points, apply a 10x multiple to projected 2010 earnings and still get to $13 a share target price. That's still 150% return from current stock levels. Not bad.

The risks to the investment: 1) industry outflows naturally impacting a large player like Och-Ziff 2) fund underperfomance 3) departure of Daniel Ziff. The first one is likely in the short-term, as HF assets have sky-rocketed to 2TR in Q2 08, declined 15% due to combination of performance and redemptions and now sit at ~1.7TR. Likely hf will decline further. Fund has outperformed however -15% YTD vs -40% for S&P and redemptions have been fairly mild. Over the last 5 years fund generated 7% annualized returns vs flat S&P. And given that Daniel Ziff is only buying more shares, his abrupt departure would be suprising. Summary? Still a no brainer.