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Financial report summary
?Risks
- Difficult global market, economic or geopolitical conditions may materially adversely affect our business and cause significant volatility in equity and debt prices, interest rates, exchange rates, commodity prices and credit spreads. These factors can materially adversely affect our business in many ways, including by reducing the value or performance of the investments made by our funds and by reducing the ability of our funds to raise or deploy capital, each of which could materially adversely affect our financial condition and results of operations.
- Fiscal challenges facing the U.S. government could negatively impact financial markets which, in turn, could have an adverse effect on our financial position or results of operations.
- We may be adversely affected by the effects of inflation.
- An investment in our Class A Shares is not an alternative to an investment in any of our funds, and the returns of our funds should not be considered as indicative of any returns expected on our Class A Shares, although poor investment performance of, or lack of capital flows into, the funds we manage could have a materially adverse impact on our revenues and, therefore, the returns on our Class A Shares.
- Investors in our funds have the right to redeem their investments in our funds on a regular basis and have in the past and could in the future redeem a significant amount of Assets Under Management during any given quarterly period. In addition, market or idiosyncratic factors may make it difficult to raise new capital from investors into our funds. Either or both of these circumstances could result in significantly decreased revenues and have a material adverse effect on our business, financial condition and results of operations.
- Our business, financial condition or results of operations may be materially adversely impacted by the highly variable nature of our revenues, results of operations and cash flows. In a typical year, a substantial portion of our incentive income and a large portion of our annual discretionary cash bonus expense is determined and recorded in the fourth quarter each year, which means that our interim results are not expected to be indicative of our results for a full year, which can cause increased volatility in the price of our Class A Shares.
- Competitive pressures in the asset management business could materially adversely affect our business, financial condition or results of operations.
- Damage to our reputation could harm our business.
- The founder and former Chief Executive Officer of Och-Ziff has taken certain actions that have had an adverse impact on our business.
- The uncertainty surrounding the ongoing COVID-19 pandemic, including the length and severity of its impact on global economic activity, caused a substantial disruption to many benchmark market indices and significantly increased volatility in equity and debt prices, interest and exchange rates, commodity prices and the ratings and cash flows of collateral in the CLOs that we manage. These factors may adversely impact our business in the future, which could adversely impact our business, financial condition, results of operations and liquidity. Additionally, we face various potential operational challenges due to the ongoing COVID-19 pandemic.
- The United Kingdom’s withdrawal from the European Union and the implications thereof on United Kingdom, European and global macroeconomics conditions could adversely affect our business.
- Our indebtedness may restrict our current and future operations, particularly our ability to respond to certain changes or to take future actions.
- The replacement of LIBOR with an alternative reference rate, may adversely affect our collateralized loan obligation transactions.
- Our business and financial condition may be materially adversely impacted by the loss of any of our key executive managing directors, particularly certain members of our Partner Management Committee, or other employees.
- Our ability to retain and attract executive managing directors, managing directors and other investment professionals is critical to the success and growth of our business.
- We have experienced and may again experience periods of rapid growth and significant declines in Assets Under Management, which place significant demands on our legal, compliance, accounting, risk management, administrative and operational resources.
- We are highly dependent on information systems and other technology, including those used or maintained by third parties with which we do business. Any failure or breach in any such systems or infrastructure (including from a cyberattack) could materially impair our business, financial condition or results of operations.
- Private litigation could result in significant legal and other liabilities and reputational harm, which could materially adversely affect our business, financial condition or results of operations.
- Extensive regulation of our business affects our activities and creates the potential for significant liabilities and penalties. Our reputation, business, financial condition or results of operations could be materially affected by regulatory issues.
- The FCPA settlements could have a material adverse effect on our ability to raise capital for our funds.
- Increased regulatory focus in the U.S. could result in additional burdens on our business.
- Risk retention regulations could adversely affect our business.
- A downturn in the global credit markets could adversely affect our CLO investments.
- Regulatory changes in jurisdictions outside the U.S. could adversely affect our business.
- National policies in jurisdictions outside the United States could negatively impact our business.
- If third-party investors in our funds exercise their right to remove us as investment manager or general partner of our funds, we would lose the Assets Under Management in such funds, which would eliminate our management fees and incentive income derived from such funds.
- Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, financial condition or results of operations.
- Our failure to deal appropriately with conflicts of interest could damage our reputation and materially adversely affect our business, financial condition or results of operations.
- Misconduct by our executive managing directors, employees or agents could harm us by impairing our ability to attract and retain investors and subjecting us to significant legal liability, regulatory scrutiny and reputational harm.
- We may enter into new businesses, make future strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties in our business.
- Risks Related to Our Funds
- Difficult market conditions can adversely affect our funds in many ways, including by negatively impacting their performance and reducing their ability to raise or deploy capital, which could materially reduce our revenues and adversely affect our business, financial condition or results of operations.
- The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or any future funds we may raise.
- We are subject to counterparty default risks.
- Poor performance of our funds would cause a decline in our revenues, results of operations and cash flows and could materially adversely affect our ability to retain capital or attract additional capital.
- Our funds may determine to use leverage in investments, which could materially adversely affect our ability to achieve positive rates of return on those investments.
- The due diligence process that we undertake in connection with investments by our funds may not reveal all facts that may be relevant in connection with making an investment.
- Our funds may invest in relatively high-risk, illiquid assets, including structured products, and may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal investments.
- Valuation methodologies for certain assets in our funds are subject to significant subjectivity and the values established pursuant to such methodologies may never be realized, which could result in significant losses for our funds.
- Our funds make investments in companies that we do not control, exposing us to the risk of decisions made by others with whom we may not agree.
- Our funds make investments in companies that are based outside of the U.S., exposing us to additional risks not typically associated with investing in companies that are based in the U.S.
- Tariffs, sanctions and other restrictions imposed by the U.S. government, and potential for further regulatory reform, may create regulatory uncertainty and adversely affect our investment strategies and the profitability of our funds.
- Risk management activities may materially adversely affect the return on our funds’ investments.
- If our risk management processes and systems are ineffective, we may be exposed to material unanticipated losses.
- Our funds’ investments are subject to numerous additional risks.
- Our and our funds’ investments in special purpose acquisition companies, or SPACs, may expose us and our funds to increased risks and liabilities.
- Risks Related to Our Organization and Structure
- Our current and former executive managing directors’ total combined voting power could influence major corporate decisions that could conflict with the interests of our Class A Shareholders and materially adversely affect the market price of the Class A Shares.
- Our Certificate of Incorporation and By-Laws contain provisions limiting the liability of our officers and directors to us, which also reduces remedies available to our Class A Shareholders for certain acts by such persons.
- We intend to pay regular quarterly distributions to Class A Shareholders but our ability to do so may be limited by our holding company structure, as we are dependent on distributions from the Sculptor Operating Group to make distributions and to pay taxes and other expenses, and may be limited by contractual restrictions and obligations.
- The declaration and payment of any future distributions will be at the sole discretion of our Board of Directors, which may change our distribution policy or reduce or eliminate our distributions at any time, in its discretion, and may be subject to contractual obligations and restrictions under Delaware law.
- We will be required to pay amounts under the tax receivable agreement we are party to for most of the actual tax benefits we realize as a result of the tax basis step-up we receive in connection with an exchange of common units in the Sculptor Operating Group for Class A Shares (or cash). In certain circumstances, payments under the tax receivable agreement may be accelerated and/or could exceed the actual tax benefits we realize.
- Our board of directors has publicly disclosed that it has formed a special committee to explore potential interest from third parties in a transaction that maximizes value for shareholders, and if we are unable to consummate a transaction at the conclusion of that process, there could be an adverse effect on our business, financial condition and results of operations.
- If we are deemed an investment company under the 1940 Act, the applicable restrictions could make it impracticable for us to continue our business as contemplated and would have a material adverse impact on the market price of our Class A Shares.
- Risks Related to Our Shares
- The market price and trading volume of our Class A Shares have been and may continue to be highly volatile, which could result in rapid and substantial losses for our shareholders.
- The price of our Class A Shares may decline due to the large number of shares eligible for future sale and for exchange into Class A Shares.
- Our current and former executive managing directors’ beneficial ownership of Class B Shares, the tax receivable agreement and anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control.
- Risks Related to Taxation
- Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.
- As a result of the Recapitalization and the Corporate Classification Change, we expect to pay more corporate income taxes and may be required to make accelerated payments under the tax receivable agreement compared to under our prior structure. In addition, we may fail to realize some or all of the benefits of the Corporate Classification Change, or those benefits could take longer to materialize than expected, which could have a material and adverse effect on the trading price of the Class A Shares.
- U.S. federal income tax reform could have uncertain effects.
- Our structure is subject to other potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
- Tax gain or loss on disposition of our Class A Shares could be more or less than expected.
- New rules regarding U.S. federal income tax liability arising from IRS audits of partnerships could adversely affect shareholders.
- Our ability to use net operating loss carryforwards to offset future taxable income may be subject to limitations.
Management Discussion
- Refer below for the discussion of the contributing factors to changes in net loss attributable to Class A Shareholders from the prior year.
- Total revenues for the quarter-to-date period were $85.7 million, increasing $6.8 million from prior year period, and total revenues for the year-to-date period were $274.2 million, decreasing $21.2 million when compared to the prior year period. These changes were primarily due to the following:
- Management fees decreased by $6.0 million for the quarter-to-date period and $25.1 million for the year-to-date period, driven primarily by lower average assets under management in our multi-strategy funds, as a result of net outflows as well as certain distributions in our credit and real estate funds. Please see “—Managing Business Performance—Multi-Strategy Funds” for additional information regarding the performance of the Sculptor Master Fund and “—Managing Business Performance—Weighted-Average FP AUM and Average Management Fee Rates” and “—Managing Business Performance—Summary of Changes in FP AUM” above for information regarding our average management fee rates and further detail on changes in FP AUM, respectively.