Are Och-Ziff Returns Almost Absolute?

Chidem Kurdas

Investors complain that hedge funds promise positive performance in all types of markets and then lose money. What happened to the supposed absolute returns, they ask.  For their part, hedge fund people point out how much smaller their losses are relative to, say, the S&P 500 Index.

Och-Ziff Capital offered an interesting comparison at this week’s earnings conference call.  Daniel Och suggested that his fund’s performance over 16 years demonstrates the ability to generate absolute returns and alpha.

Strictly speaking, the OZ Master Fund did not escape losses during bad years. But the losses were sufficiently limited to justify Mr. Och’s claim of preserving capital in down markets.

In the first half of this year, the S&P 500 had three negative months, during which the index lost 16.8%. OZ Master Fund gave up only 1.1% in those months. In 2008, the index lost 51.8% in eight negative months; OZ Master Fund lost 16.3%.

In the 16 years of the fund’s history, 2008 was the worst year. The next worst year was 2002, when the index went down 41.8% in eight negative months, while OZ went down 5%.

Mr. Och says how they do when the market goes down is a major indicator they watch. This ability to largely – though not fully – preserve capital in down markets appears to be the basis of his expectation that institutions will allocate more to alternative investments. Near-absolute returns, one might call it.

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One Response to “Are Och-Ziff Returns Almost Absolute?”

  1. Och-Ziff vs. the Index « HedgeFundSmarts Says:

    […] made near-absolute returns in the past three years, demonstrating ability to largely – though not fully – preserve capital […]

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