Page 191

portfolio is diversified. Furthermore, the firm has expertise in legal, regulatory, and accounting analysis.

Och has learned that investing in noncorrelated strategies requires more than a statistical analysis. One example he gives is cash tender offers for companies. Historical statistics indicate noncorrelation. However, with the 1987 crash, a noncorrelation relationship to the stock market went to a multiple correlation when stocks fell 50 to 70 percent. As a result of that experience, Och limits the percentage of the portfolio that is in cash deals. He also limits the risk from any one position in the portfolio to 1 percent of the equity. Except in convertible arbitrage where leverage is 3:1, which is low relative to his peers, Och does not use leverage.

Och says the firm is also good at reducing allocations quickly if a situation becomes unattractive. This may occur when spreads get tight. In contrast, other firms may use such a situation to leverage. This is what caused the bloodbath in 1998, he says. Because Och wants the ability to change his mind if a situation changes, liquidity of positions is always taken into account.

Net exposure to the stock market is usually less than 10 percent.

LEADER OF THE BUSINESS UNITS

There are about 50 people in the firm, located in both London and New York. The New York City headquarters overlooks Central Park from the 39th floor of a building on 57th Street.

The firm has 17 analysts and seven traders. There are six people in information management whose job it is to monitor 85 news services, contact companies with which the firm is involved, as well as monitor the Internet.

Information technology—information flow and information management—is critical at Och-Ziff. Four in-house people focus on information technology on a full-time basis. On the front end, information technology is used for the traders, analysts, and portfolio managers. In the back office, technology is harnessed for position and portfolio monitoring, and tracking exposure on a real-time basis.

In addition to the four business units, there is a financial controls group business unit that develops systems; monitors positions and exposure; maintains relationships with prime brokers, banks, accountants,