The Hindu Business Line : Investment Nuggets

Hedge funds are not all bad. Ask Daniel Och and he will vouch for it. This Wharton graduate took up a job at Goldman Sachs 1982 as a risk arbitrage trader where he came across future hedge fund luminaries, Eddie Lampert and Richard Perry. Eleven years later, he left the job to make his own mark by founding Och-Ziff hedge fund in 1994 with an initial investment from $100 million from Ziff brothers. Thus was born Och-Ziff Capital Management Group LLC. Daniel now plans to raise as much as $1.19 billion in an initial public offering of his company, which he proposes to list at the NYSE. A few quotes that give us an idea of how the secretive world of hedge funds operates.

“There are three levels of knowledge on Wall Street. The first is the very small area in which one is an expert; the second is a broad area where one can sound good at cocktail parties but should not invest anyone’s capital; and the third area, where one should simply say I don’t know. And “I don’t know” is the most under utilised statement on Wall Street,” Och says on the need to develop knowledge-based investing advantages.

“The next phase of evolution in the hedge fund industry appears to be the move toward multi-strategy firms. Foremost are the negotiated private transactions that fall in the intersection between the private equity and hedge fund realms. We do a lot of these deals and they are some of the best deals that we do,” Daniel on what is next for the industry.

“In negotiated private transactions, the flexibility of a hedge fund can make them the preferred provider of capital. Some private equity firms need a board seat. All Och-Ziff (hedge funds) needed was a one-page legal document declaring that it had the same rights as all the other large capital providers. So the speed with which hedge funds can move capital becomes an enormous advantage when there is so much money chasing so few quality deals,” pointing out why hedge funds are more successful.

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