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partners. Och says about 80 percent of his net worth is in the firm and for the others it is also a substantial part.

The culture is one of teamwork where the whole is bigger than the component parts. While individuality exists—the people are excellent at what they do and may have strong personalities—they are part of the team culture. This culture carries through to the back office and control groups as well. The reward system is based on the profits of the overall firm, not on each of the four individual units. By giving people unlimited growth, it helps keep them and helps develop the next line of talent, says Och.

1994 AND 1998

The best environment for Och-Ziff is when there are many events such as mergers.

What is unusual about Och's track record is that in the seven years traded, there have been no down years and only four down months. The largest of those was a 3.2 percent decline in August 1998. Unlike most other hedge fund managers, Och generated positive returns in 1994 and 1998 of over 28 percent and 11 percent respectively. The firm has a negative correlation with declines in the S&P 500.

There is very little volatility in the track record. Downside risk is controlled by having a diversified portfolio, being truly hedged, and being noncorrelated to the stock market.

Using an arbitrage strategy has permitted consistent performance. Och believes that institutions want a clearly delineated investment strategy and business plan executed with consistency.

Despite this low volatility and consistent performance, Och says there have been many defining moments. For example, 1994 was a tough year. In the summer of 1996, there was a small-cap meltdown. In 1997, there was the blowup of the Office Depot–Staples and MCI British Telecommunications merger. "One of our most important goals is to preserve capital and not lose money during these difficult environments."

INVESTOR BASE

Investors in Och-Ziff make a two-year commitment. This has helped create a stable investor base and also ensures high-quality, committed investors.