SCU - Earnings call transcript Q4 2018 | Sculptor Capital Management, Inc.

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Operator

Good morning, everyone and welcome to OZ Management's Fourth Quarter and Full-year 2018 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Adam Willkomm, Head of Business Development and Shareholder Services at OZ Management.

Adam Willkomm

Sharon. Thanks and call. everyone to welcome morning our Good

inherently Joining and Officer. Tom Robert Shafir, which Today’s control. of Executive Officer; our Chief are of Sipp, many may Forward-Looking me and include outside our are call Statements, uncertain our Chief Financial

our Before these to you forward-looking recent refer undertake the financial our Management’s matters any of I a statements. to risk and statements. that materially, could affect from SEC need publicly differ, our most results Please factors other may possibly started, results, filings description related those The that business we Company any OZ update these to get remind statements. actual indicated for does in to forward-looking not obligation

economic measures U.S. these per other entity. are net an net earnings this During is fourth website. today's No or our purchase directly was income, shares of other in any be and GAAP reconciliations loss and share. statements we about the Class basic the should call, distributable morning, as on $X.XX $X.XX loss diluted GAAP most $XX earnings diluted that of of our our release, accordance GAAP basic with A offer $X not comparable quarter full-year share. or per any or XXXX an during we financial call reported prepared funds GAAP. million A The Company in this to interest Earlier million or Class Information measures to made of and measures to and non-GAAP will posted in are referring construed available which be

reported income of an million, or release, our on is always, $XX our adjusted A XXXX per website. of we you earnings which review economic our results Class GAAP in can fourth distributable earnings As a $X.XX find available share. On basis, quarter full

$XX distributable For earnings the per were Class A million, share. $X.XX XXXX, or full-year adjusted

distributable dividend the XXXX during million $X.XX the earnings share. $X.XX expense per or full-year quarter. current A the adjusted year for period, million incurred fourth settlement a Class were $XX Excluding $XX declared We

any you me our to to morning, questions in the provided me. that, Rob. let please call release have on information call If over or about this feel With free turn follow-up our the with press

Robert Shafir

good Thanks, and morning everyone. Adam

Before quarter I transformative and steps to I firm highlights set to want us discuss have our future. up restructure the fourth performance, taken for the and strategic we the

over First, of significant long-term we through to a have align taken and employment former clients our steps equity management and transfer senior further multiple agreements years. partners vesting from with Oz shareholders

material balance actions the to time. and facilitate of Second, taking strengthening we our accelerate are sheet over

was of Lastly, we our our provide certain serve and we The shareholders Master markets management. assets reaction to grow XXXX but global The our and transfer. capture markets. implemented from Fund the downside, under significant increased believe the position volatility. clients, quarter experiencing complete difficult governance with protect us that has been Oz fourth on resoundingly declines strong the capital during upside seems and Overall, employees clients generational actions and to positive firm's these changes

down down to a Oz sides of X% World quarter. return net X.X% XX% year fourth equation the the year-to-date and that far pleased the down net basis relative both for was X%. outperformed see approximately so last On the fourth we was full-year for a Index, Fund for quarter. action, with year which XXXX the down MSCI are XXXX X.X% protecting We upside and the the of for Master approximately in capturing was side in and

winding Structured driven year. quantitative the of and quarter While in for This events gains territory investments. in turbulence comparatively during Convertible also coming significant predominantly XXXX, price credit all and by oriented experienced Trade brought and a than for markets most struggled we as with and equity resilient multi-strategy XXXX, the fourth from geographies. time performance negative long War, finishing the on strong markets led easing for was more market was generated were outlook of both performance most in U.S. across economic the Europe derivative China the credit arbitrage growth. a down performer China

our The for hedge This lost was where the single volatility combination particularly global X.X% assets. drivers credit as the overlay come in from to returns of compared corporate of overall XX.X% When February XXXX. has process credit from the testament stands return and to equities Both loss we AOC the full-year name relative of program ultimately structured While our was Ozco of down hedge alpha, net and a performance positive with differentiated high highly capital money quarter was correlation annualized a markets all opportunistic which X.X% the indexes, spot direction pursue HFRI negative through a and fourth the name positive and XXXX since investment have opportunistic XXXX, October We on broader a generating drove of the outcomes net inception. the returns little overlay in after bright U.S. yield affected to higher program. in distressed single out mid-single-digit Ozco’s event core effective were came to in a a X% year. shorts for result X% and December. returned up shown year. for credit is range fund this XX% months net strong the approach believe broad of risk global credit that driven positive and our performance net opportunities

and look deploy to to return current grow our by net returns Our We offering in real and estate new business to annualized generates expanding our both this fund. strategies. product opportunistic continues continue with XX% capital and existing a franchise

European XX in three We new new the strong months. few pipeline business two European see franchise continues management. million have CLO price billion X.X deals Our under fourth currently to our closed billion. in in would new X.X billion. quarter a adding total CLO us closing expect to in CLOs XXX CLOs and leaves billion U.S. with a CLOs, refinancing in X.X and XXXX perform, assets over had in year in next these We the This AUM of the of we

Turning our quarter, offset the new million of were asset XXX XXX fourth million million XXX total outflows by into flows, multi-trade. by a inflows million net CLO in credit and XXX driven in to inflows opportunistic of of

XXX and one of in over our versus by We year that outflows Our to million of million there March billion. want Xst our XXX in result our you AUM we including to outflows offset XX.X actions, strong billion just $XXX year-to-date assets under this million occurring affiliate on related another strategic was remind The April three XXX in management with redemptions were year-end year-to-date of the reduction were outflows Xst. performance.

to minimal expect on profitability. this have We impact a

forward, In grow excluding believe the master quarterly multi-strategy, inflows. normalized a actions Looking working recently I the we affiliates, we intermediaries are outflows earlier have generate AUM. distribution continue experience to level approved strategic reopening firm we fund. mentioned Several the significant while to positions of the channel to actively to

a globally. team returns. capabilities resources believe to have our I We grow will the of adding in strong investor combination relations opportunistic we unique In credit, of clients the our covering function and strategy be

In million that including credit institutional investing vehicle and subsectors. to raised connection estate, to strategies end, working further alliance expect a with December $XXX through roughly our and equity aviation. we opportunistic expand our strategic to focusing in continue more in private CLOs our ability deployed we various aviation opportunities specific we in credit real about in see on in we including opportunities GCASH. platform with optimistic our be in We issue opportunistic we coming style is proactively third To are credit AUM. fund increases At anticipate management, XX%

over financials. turn me call go to let to the the Tom, Now, to

Thomas Sipp

and morning everyone. Rob Thanks good

action into Before results, quarterly a I our Rob like on go to move and mentioned. would into detail I strategic full-year

the main incentives accelerated to Specifically I cover sheet current C-CORP and without a for partners balance institutes Equity strengthening creates revised equity and structure three will long-term shareholders. conversions. realignment, The compensation realignment dilution components. of

a initiatives of have whom preferred until and units that we holiday public where A commitment and their long-term Former partners the to The of a improves XX%. pay of with former distributed balance sheet realignment instituted partners of distributions. shareholders our otherwise have shareholder of used consists The materially Class current strengthening been expense, to their for distribution that have all securities partners partners. compensation to reduces by clients reduce their earnings current debt, project would will series reallocated both to cash compensation agreed This firm. current Certain and will achieves alignment will We liabilities. their accelerate cumulative XXX units million. up on current highlight down of to and XX% of repayment distributions the be forgo Company

with we cash-on-hand Additionally, debt agreement debt paying reduced immediately our XX XX of closing. tax amended million XXX million by up the receivable million at along

preferred million strengthen XX by into overtime. of million these combined million. all actions believe restructured prior the principle Our XXX securities accelerated debt could on of Both We repayment combination materially for include of sheet instruments instruments XXX that incentives the preferred. and of will XXX our were reduce million balance

on from Oz eligible to structure Lastly, a and our will Corporation of classification We a believe will our broaden partnership April shareholders. change simplify tax a the Corporation being universe that announced tax Xst.

earnings. into moving Now

quarter period. by The institutional million, in XXXX, assets, million fees and the the reported earnings Incentive in million increased fourth XXXX, XX and and quarter distributable income we fund in the As for lower primarily the full-year, fourth XX million the Management in year-over-year fourth distributable decrease XX% Adam full-year, of full-year a call, management have at fees carry-forward expense Master million for partially offset driven XX% by was XX year million and driven XX for Funds’ full-year the lower the Revenues full-year down lower lower Please than than for XXX excluding settlement mentioned XXX by was million XXX multi-strategy we earnings million XXX given performance fourth were strategies. the assets in that were XXXX. in XXXX. XXXX, credit quarter the beginning will occurred loss note current in XX% of XXXX. quarter of performance. XXXX from

thus far on performance Our dependant full-year this in position, us into a performance. has remains but gain XXXX

was being unrecognized quarter. XXXX, performance but portfolio. million, quarter legacy and accrued decrease was primarily of XXX fourth the XX incentive to in the due million XX compared write-downs prior by million The recognized to XX% driven of our million on XXX in as our energy As negative down

reminder, has a associated estate remaining with the this paid the no associated balance of the in of As periods. earlier compensation with funds, was most balance exception our as expense real

million XX accrued, majority the four million were XXXX, and a to revenues realize to income the Other our XXXX. full-year of in XXXX, incentive but expect up XX CLOs on million end investments of this quarter equivalents. the and versus unrecognized We in by fourth due interest higher for cash

turning operating to expenses. our Now

For expenses the quarter million. fourth XXX of total were XXXX,

benefits quarter full-year and XX XXX Our and benefits down were XX In the quarter, million, from full-year million have XX% XX from total excluding lower XXX to XXXX. and discussed, and full-year for X% for expenses were lower in XXXX were XXX we million related XX strategic million settlement Salaries for expense were the million, down were fourth than actions the and to XXXX. million XXXX, million XXXX XX expenses due headcount. the million XX% full-year fourth compensation expenses the

for fourth We quarter XX to lower incentive million. due benefits was expense to be full-year between to and XX million salaries the lower million million and expect XX Bonus XXXX XXXX, income. XX% XXX compared XXXX and for the full-year

full-year and for and administrative general will Fourth XXXX expect XX million. XX be expenses million XX bonus were million. quarter accrual minimum We annual between

fourth of to actions million strategic related million. expenses Excluding was XX quarter our XX the G&A

related lower expenses XX% settlement XXX the XXXX mentioned were than was actions full-year expenses and previously the strategic XXXX million, For XXXX. full-year expense to excluding G&A the G&A XXX million

be of expect between expenses XX we approximately expenses, quarter. million XX to be the in in excludes the million note to million in expect recognized these which We additional majority XX XXXX. first this action Please and strategic

in million million XXXX. Our the XX was five expense than quarter slightly higher interest XXXX, for and

debt we to due interest overall primarily partially financing, our While offset small our from in was debt retention XXXX increase our reduced overall XXXX. the a by in reduction CLO higher risk in

the full-year pay continue most expect and our XX of to risk we have retention down U.S. expense the off borrowings. and CLO interest and be repaid loan related XX investments as We between XXXX to sold million term million

full-year is the payables and for guidance XX% corporation other Our receivable XX%. agreement XXXX the to tax of

vary As therefore a estimates could finalized are quarter reminder, to materially won't that variables and year, the estimates tax subject of the many the be from provided. fourth until

year-end outstanding At our created cash back to as strategic will million. our million loan actions pay existing sheet. balance shareholder our the over earnings me strengthen balance of used to that, to the in an term XXX cash down earlier. new on the sheet we down loan, pay cause total and Subsequent resulting a were followed to and update The of balance majority million. to an Now debt XX loan current term public cash by XXX of equivalents plan term part it discussed after we preferred turn the With of Rob. dividend let year-end,

Robert Shafir

Thanks with build we and on Tom. XXXX momentum. working our to I'm pleased start to that hard are

XXXX. on clients, throughout actions our that, strategic well line to positioned the us our for execute on forward the With open and We course forward performing leave progress of our driving our business. look to will going you by to efficiencies our Our questions. priorities over updating we growing assets

Operator

question with Citigroup, Instructions] line open. Katz [Operator you Bill is Thank from Your comes your first

William Katz

Thanks very questions morning. much this taking for the

Just a few to get started.

up use on cash versus pick debt. you then the balance reduction versus to about if the the could just the when and of the just of the - balance process down debt updated the think securities, year cash think break you the sheet waterfall of the liquidity and I you sheet, may as you the of how specifically cash investment through sort equivalent what on and is cash was about how the walk So again progresses minimum, offset earnings me thought wondering and sort sort and

Thomas Sipp

it's that, take will Tom. I Bill, thanks Yes

to the XX continue XXX balance at [Recap] term the million we before (Ph) is will current we our pay started we So down closed loan, million, transaction.

first will will our to dividend earnings After a be out that ratio sweep XX% total XX% distributable we pay then pay once the pay dividend term We securities. company public the total down earnings. payout do is out of term we we loan quarterly will distributable the paid, then and sweep down pay a then we new first will preferred and fully and will loan and sweep that

today, remaining XX So XXX XX XXX our and pro XXX year the of XXX the basis additional cash is the that we is million cash basis, and cash if term the XXX is we paying forma million today, total million pay forma when are million you and you about free free committed our pro million just of our ended a balance look million, a on out is loan - million. our once cash on as down at

there So XX and as continue less the earnings we we dividends security. loan have public down will then start term million company to will roll pay from that paying and we preferred down

William Katz

Okay.

follow-up I question. get my to next one that, to before Just

paid, is to at sweep How respectively reduction that the quarter think would year. the that? the of quarterly So guess end a the about of you more sort or then do rest XX million and of is today, we it expect get we you the I as ratable the

Thomas Sipp

on our all it think dependent be would earnings we will recognize incentives. I and of it not ratably, when

more associated so and weighted. would to million The it's not QX our - yep QX's it go it with associated with flow, - closing and with be associated be expect cash ahead. XX QX is also would year-end I is it ratable, So earnings not recognizing

William Katz

sorry to I'm you. interrupt

could and maybe that if I and those XXXX? a you quantify this Okay opportunity so mentioned rest resounding more Rob that asset for external, response your was around then the and little very new you might net yourself, be is for both bit into year internal the helpful by wondering and word that conversations shaping externally maybe how

Robert Shafir

employees our our Bill. as well I own engaged think shareholders. Look, and our Sure, as as have clients we

these thing. pleased I very think by has the results everybody of been

I I very look indications our firm, is things a what you received if to it, certainly think have long-term management in create program incentive do all longer-term firm. we alignment, asset really partners the think tried a have stability that those more I well are people is aligned which at of for managing of think very healthy firms something

gone and are securities. to down sacrificing partners awards, active to Tom we also equity and will of terms to preferred debt has partners but sacrificing the former achieve distributions only as through, matter payouts order we in in that not those be both pay Secondly, order in our

are healthy care in the back think all and we the liabilities that a really terms So giving to of sheet. is I very firm of our balance taking thing in

and in we that think stuff So you basis, have got forward. things approach very terms the feel clarified, a governance long-term you there the your much transfer better good aligned cleaned alignment all senior of sheet. management about all that on up And have and with a balance I all going the is generational got healthier to of

of over and were the year resoundingly I that I would the lot addressed that in positive think get here to course specific our way. questions meetings a client really the received So a in firm of

we optimistic about to are verticals have in us. real major the go of as said that certainly we performance, is So our consultants given think distribution We And is some good that I'm capture news firm know and a long-term you about have products, as which we as credit have open I I sensible core of partners call some some been value addition in in that which results. focused to had of our our say a the real money consultants you with and the know to estate long time and here track have we also our our know that the I assets. are we usual, that very for about estate, talked multi-strat said, the upside believe protecting how - closed fact starting believe multi-strat, long we performance, is grow I downside to in upgrade record giving to place down and you back outstanding should propositions business to is there. we channels credit of beginning what

caution kind in everyone think just I long the world so is back the the not just our as a one, one, short in this sales know you it’s cycle a anything Now back about where us think to will a puts I it’s management and time of that XXXX. asset performance firm. game institutional do I to take building the directionally hopefully more expect see positive. the in to and progress and some propositions pipeline would It not value half strong its related about and But specific really

William Katz

one if morning. and questions for for thanks you the I could maybe guidance, taking ask expense So more very all the and this Thank helpful. it’s

think - and the So on as you appreciate discussion minimum about I payout. variable the

As end of the think to you given the structures comp ownership of versus way around a the moving there variable about think about reorganization of to year, how the and ratio parts compensation the just have some at is revenue changed? the

Thomas Sipp

compensation pay it’s fairly because the when years. it compensation paid all incentive. And on mark-to-market, on No, we to model we recognize for for based we incentive I as versus but several some the don't of know the difficult described depends [indiscernible] we incentive recognize Bill, you recognize

a really comp So revenue to is not stable kind it of ratio.

William Katz

Okay, thanks for morning. taking my questions this

Operator

with Your next Gerry O'Hara comes question from Jefferies.

Your line open. is

Gerry O'Hara

deployment might provide maybe forward? Maybe how product segment could a and or but be the you thinking maybe mentioned on some up me of to those returns, of discuss Great, and pick are of also going that continue obviously what be bit the some strong side, to there around commentary estate if the around expand strategies. thanks. existing active new real or how are strategies to you some about Rob offering color little looking in just of you

Robert Shafir

portfolio or where a were one. as following, not last that mentioned, we one being Yes. that strategically the things were we core firm. sort offerings that I the of And thought as estate, sort have. our is verticals back of we really I know We pair believe say what you the that guess year major eliminated have places real was say offerings edge of smaller we did you of we products would the I three

about of forward. that done saying in we And think money performance we credit. had of in is had to what real side correct estate. I the have are are terms estate real the of have the of the fund raise strong over real beyond optimistic what course have assets our going And ability we we estate there last private is in year very raised You not traditional equity

it’s real our vertical a business. but sensible business also Now business, why adjacency real estate credit not a only of credit, estate our because

we not So do we our to have to logical an though expanding. where advantage things have see capabilities is not just really our that core would the we be are credit example expansion. of to businesses going can be we that that are will take sort do of Real mission. What estate going adjacencies to of we are creep style the core

equities not the are be shop are logical or of we to We tomorrow going going not within do what areas to quantitative that mainstream adjacencies. either a or

real real to estate your So answer in continue will be a credit to question, that we to think expand I example an look estate. will place as

Gerry O'Hara

around Great, expanding and of consultants. prior thanks. just partners comments I And the follow-up guess with reengaging then major distribution guess I on or one some

there Beyond is of progressing? have hear is sort that of of and the be can or to other sort of how performance, to some we are just that of internal monitor something to watch that metrics be and see that wait about? to sort Or going sort going might year are we throughout kind

Robert Shafir

Look performance the is core part our value proposition. of obviously

competitive manage basis is and behalf our way. mission a on risk assets Our in of adjusted positive a to clients on

are believe where we you which extent core verticals exceptional firm that we focused shrunk have performance. performance, asset management to So really actually very why we deliver to we down know on alpha we can and an are is the

mentioned getting they part been and that, seen us about previously of to to lot I are we upgrades mentioned, the now. have a we recap. the those we being And in Obviously openings them firm stimulate and And to performance have this reengaging going be key concern have begin of in So closed upgraded channels have what I you things seeing also some are couple be side it, know intermediary now I the going it. do addressed the that think scope last is beyond to that they the able the as to years. the of conversations on also beyond as consultants of the and that seen are been

that say, would picture and like would be the at itself actual I the closed, would on the of performance probably to see in higher terms I what happening leap you you been upgrades. assets probably long-term is and channels have previously is slow of being lead beyond So terms happening looking of side opened that know make things what consultant will I would that I in know overtime. faith

Gerry O'Hara

Thanks questions this morning. my Great. for taking

Operator

Autonomous We have with a Research. [Operator Davitt from question Instructions] Patrick

open. Your line is

Patrick Davitt

as Good morning quarter last a pools private there that in other board, I client imagine just from of comment, of I like aside assets of of that an you and intermediaries extension coming the is is see bank a to that coming you mentioned through this in other you guys, starting is pipeline expect Are kind sales are thank re-engaging particular you. line well last on of the that with. consultants.

Robert Shafir

long-term re-engaging but you know lighted is say the that of of forces with process. sort you distribution is just the the there it green bank, couple with private is, process re-familiarizing being actually would yourself of answer green The private a bank, a and lighted us, a is have those to banks within banks I

it I expectation things as of you year. as anything of call, know I that but seen so days, wouldn't the will that know of you significance have mentioned So call yet, to towards my the I say you in would half you back is see start early the

XXXX to sales consultants, will you and think I value we see or that asset of see in is propositions to you would is year. manifest of was I really needle start intermediaries hope overpromise itself wish into apply I of you to think really the like can to our towards think continue terms think importantly momentum what the it flows half is, we if here, about and second under sort the more see I to It's not move as half materially the beginning build, going to want process to but so process. that of you and and it's deliver deliver know and can as should just on a it XXXX. earlier, start I do elongated more the pipeline the you back your that takes know management the that conservatism I beyond really But said time. truth in you shorter, the how process and

Patrick Davitt

and that of Yes, morning on call up ramping your the business? know at they [FXD] of about quoted are any sure for world, prospects preliminary you then you. talking it side thank early thoughts And impact was of do CLO (Ph) this have but the I views looking what oversight it's to days, extent what or could the growth

Robert Shafir

comments, actually so without comment on looking them I the sorry. didn’t actually them see couldn’t I

Patrick Davitt

energy about write-down or permanent. is one related last recoverable [indiscernible] in and talked should as Fair, we the you look at the it that

Robert Shafir

value view It's fair of just on current our the positions.

they go know case up, sure is value. fair So to mark we but you in that

Patrick Davitt

you. Thank Cool.

Operator

any showing I questions, the Instructions] turn further over not to Mr. call I'm And Willkomm. [Operator will Okay.

Adam Willkomm

OZ much. today don't Thanks everyone XXX-XXX-XXXX. for directed Gasthalter if inquiries Media your Thanks joining Sharon, any Management, thanks us hesitate interest questions Jonathon be and me you very have at to for please at to in should contact XXX-XXX-XXXX.

Operator

call. conference today's concludes This

may disconnect. You now

Sculptor Capital Management (SCU) 7 Mar 192018 Q4 Earnings call transcript