A compensation scheme masquerading as an asset class

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The spat between Sculptor Capital Management and its founder and erstwhile head Daniel Och is simply delightful, and, as Marc Rubinstein has noted, offers a fascinating look under the hood of the hedge fund industry.

The latest twist is a great example. After Och started trying to sabotage the hedge fund’s deal to sell itself, Sculptor has released several savage letters criticising its former supremo.

One included this absolute pearl of a chart (zoomable version here).

For context, one of Och’s most potent attack lines against Sculptor (née Och-Ziff Capital Management) is that it has grossly overpaid Jimmy Levin, his former protégé and current CEO and CIO, even as performance has been woefully poor.

That’s . . . not entirely wrong. Sculptor’s investment performance has been dismal for a while, and its share price has bombed. It IPO’d at $32 back in 2007, and now wants to sell itself for $11.15 per share. Over 2021-22 it has paid employees led by Levin $732.8mn in salaries, bonuses and benefits, even as it reported losses of $27mn.

But as Sculptor archly noted in its letter to Och, no one has done better than Och himself, despite presiding over much of the hedge fund’s period as a public company and the debilitating effects of an African bribery scandal (detailed in the second letter).

There’s much to say here — and there will almost certainly be more twists in this saga — but it really does hammer home the adage that hedge funds are a compensation scheme masquerading as an asset class.