Adam Kahn Highlights Pitfalls for Managers Och-Ziff Succession U-Turn
January 3, 2018
January 3, 2018
Och-Ziff Capital Management is the latest hedge fund to face a bump in the road when it comes to succession planning, with CEO Dan Och telling investors late last month that co-CIO James Levin will not succeed him as CEO. The decision comes after a challenging year for hedge funds that were plotting out their next generation of leadership, with Bridgewater Associates, Millennium Management, and Renaissance Technologies all facing questions over succession planning.
Och-Ziff named Levin and David Windreich as co-CIOs last year, and Levin’s elevation raised expectations of a future CEO role and considerable industry buzz, particularly over his 10-year deal with a contract value estimated at over $250 million, as previously reported. Och-Ziff said at the time that the contract was meant to “incentivize Mr. Levin for the services, contributions and leadership he provides and to ensure the future continuity of the company.”
Och-Ziff – which reported having $31.9 billion in assets under management as of Jan. 1 – will now look to find an outside successor, according to a Bloomberg report. Levin, 34, often called Jimmy, joined Och-Ziff in 2006 and remains a co-CIO and head of global credit. A spokesperson for Och-Ziff declined to comment about the firm’s announcement.
The hedge fund industry is still largely run by first-generation founders and transitioning beyond them remains a big challenge, says Michael Rosen, principal and CIO at Angeles Investment Advisors, a consultant and advisor that invests with Och-Ziff.
“There’s a lot we evaluate when we look at an organization, including stability and succession planning… But in evaluation of the team actually investing our money – and in this case the person leading that team, Jimmy – [the leadership is] an important aspect of that evaluation. As long as he remains leading the credit fund and continues to deliver strong results, we remain pretty happy,” he says.
Levin’s 10-year-deal remains a unique one in the hedge fund world, says Adam Kahn, managing partner at Odyssey Search Partners. “I think that was an anomaly. In the way it was structured, it was pretty unique in the sense of trying to incentivize him in helping to grow the business,” he says. “Most firms can’t do something like this.” Instead, more and more hedge funds are increasingly relying on non-compete agreements as well as deferred compensation deals to help retain talent amid high industry turnover, Kahn says.
Other well-known industry names also faced complicated succession planning decisions last year. Bridgewater’s founder Ray Dalio took to LinkedIn to post a letter sent to investors outlining that former Apple executive Jon Rubinstein, who joined the firm as co-CEO, would be leaving and that Dalio would remain as co-CIO along with other firm executives, as reported.
Renaissance Technologies announced that its co-CEO Robert Mercer was stepping down effective Jan. 1 following media attention over his political viewpoints and his backing of Breitbart News, as reported. And Millennium saw its global head of fixed income Michael Gelband depart the firm after founder Israel Englander refused Gelband’s bid for a stake in the firm, as reported.
Gelband now is planning to start up his own firm with former Millennium colleagues. His ExodusPoint Capital Management hedge fund will launch later this year, with Hyung Soon Lee, Millennium’s former head of equities, as a co-founder. The hedge fund industry will likely continue to struggle with succession planning, but that is also a sign of the industry maturing, says Ole Rollag, managing principal at Murano Systems, a marketing and sales consultancy
“Managing a fund management business and managing money are two completely different things and two completely different skill sets,” he says. “And trying to find someone who knows how to manage a group of [portfolio] managers is very challenging.”
The Securities and Exchange Commission withdrew a proposal late last month that would have added additional requirements around adopting and implementing written business continuity and transition plans. But that doesn’t mean the industry can pull back on business continuity plans, says John Baker, counsel at Stradley Ronon Stevens & Young. “Succession can work out in various ways. But the important issue from a regulatory perspective is that investors can’t be left in the lurch with no advisory services to react to market events,” he says.
Article by: By Lydia Tomkiw