M&A
July 25, 2023
5 minutes read

Embattled Hedge Fund Sculptor To Sell For $639M

Sculptor Capital Management (NYSE: SCU), one of America’s largest hedge funds, has sealed a deal to be acquired by Rithm…

Sculptor Capital Management (NYSE: SCU), one of America’s largest hedge funds, has sealed a deal to be acquired by Rithm Capital (NYSE: RITM), an asset manager focused on the real estate and financial services sectors. Rithm will pay $11.15 in cash for each Sculptor share, totalling $639mn.

This acquisition seals the fate of Sculptor, an embattled hedge fund once valued at over $10 billion on the public markets. Sculptor was previously known as Och-Ziff Capital, combining the name of its founder Daniel Och and the wealthy Ziff family that provided seed capital for the fund.

In the 2010s, Och-Ziff was investigated by U.S. authorities for paying bribes to government officials in several African nations to obtain mining rights. It was also investigated for paying bribes to Libyan government officials for assistance in obtaining a $300mn investment from a government-owned wealth fund.

In 2016, Och-Ziff paid $413mn in fines to settle the charges, including a $213mn criminal penalty to the U.S. Justice Department and $200mn in disgorgement of profits and interest to the Securities and Exchange Commission (SEC). Founder Daniel Och separately paid $2.2mn to the SEC to settle violations stemming from the case. Och stepped down from his active role at the hedge fund in 2018 and departed from the board a year later.

Och-Ziff changed its name to Sculptor in 2019 as its shares suffered on the public markets. For reference, Och-Ziff listed its shares in 2007 at a valuation of $12bn. It raised $1.15bn from the public listing, virtually all of which went to Och for selling his shares. In that same year, Och also received $573mn in distributions from the hedge fund. His hedge fund is finally selling for less than he made from the public listing, signalling a poor ride on the stock markets.

Drama didn’t stop at Sculptor after Och stepped down from the firm. In 2022, he accused Sculptor’s chief executive, James Levin, of abusing his position to extract “ever-escalating pay packages.” “Yet, while bringing massive returns to his own pocket, Mr. Levin has delivered less than mediocre performance to the limited partners in Sculptor’s investment funds, and the company’s stock price has collapsed,” Och said in a complaint filed in a Delaware court.

Levin was an Och protege before bad blood emerged between them. Och was Levin’s mentor and appointed him as Sculptor’s co-chief investment officer in 2017 at 33 years old. Levin assumed the chief executive position in 2020 after Och’s initial pick, Robert Shafir, stepped down.

Levin stands to make over $40mn from Sculptor’s sale to Rithm Capital.

Rithm Capital is an asset manager founded in 2013. It manages over $30bn in assets, mostly residential mortgages. Acquiring Sculptor would add $34bn in assets under management for a bargain price.