Hedge funds: Och will not be the last to challenge pay in tough sector

Carl Icahn softened his image as a ruthless corporate raider to challenge McDonald’s on animal welfare. Following his lead, hedge fund magnate Daniel Och has also been trying activism for size. Last month he accused the chief executive of the fund manager he founded, Sculptor Capital, of extracting “ever-escalating pay packages” despite what he called “less than mediocre performance”.

Dabbling in shareholder activism is all the rage. Investment bank Lazard recorded 126 new activist campaigns in the first half of 2022, a 34 per cent increase from the same period last year. A deteriorating macroeconomic backdrop has drawn out a historic number of first-time activists.

Och, who holds a 14.4 per cent stake in Sculptor, has requested access to records relating to the board’s decision to award Sculptor CEO James Levin $145.8mn in 2021, in a lawsuit filed at Delaware Chancery Court. Sculptor called the filing “misleading and full of falsehoods that present a grossly distorted view of board governance at the company”.

It is ironic that Och is claiming Levin’s pay has become excessive. Och used money out of his own pocket to award Levin a $280mn pay package in 2017, setting a precedent for years of lofty remuneration to follow.

Sculptor’s share price has tumbled 25 per cent since Levin took the helm, shedding more than half their value this year. Assets, which once exceeded $50bn, have dwindled to $36.9bn. Levin blamed underperformance on a laundry list of inflation, rising interest rates, supply chain disruptions and the War in Ukraine in a call with investors earlier this month.

Levin’s bloated pay is a symptom of a broader malaise. He does not stand out among hedge fund managers for taking home about four times as much as the bosses of Goldman Sachs and JPMorgan Chase last year.

Och is an unlikely advocate for pay restraint. He may not be a lone voice for long. The hedge fund industry is headed for one of its worst years in recent history.