OZ Management Slashes Fees, Looks for Big Things from ‘Warcraft’ Developer Activision Blizzard (ATVI)

Founded by Daniel S. Och in 1994, OZ Management had developed into one of the largest hedge funds around, boasting more than $39 billion in assets under management. The fund’s parent company, Och-Ziff Capital Management Group LLC (NYSE:OZM), is currently under pressure to cut management fees, as more and more investors are scaling down on their investments in hedge funds. According to a report by Barron’s, sources close to the firm’s management say the company is considering lowering its management fees for OZ Master, Asia and Europe multi-strategy funds by 25 basis points, but only for existing clients. The fund currently charges between 1.5% and 2% of assets per year plus 20% of profits.

There were also rumors that the fund management company was for sale, but Och-Ziff promptly denied them. At the end of the second quarter, the fund’s equity portfolio carried a market value of $17.3 billion, with 27% being invested in tech stocks, while 26% of the portfolio was accounted by consumer discretionary stocks. OZ Management’s top five equity positions suffered major changes and in this article we’ll take a look at the new hierarchy.

We determine hedge fund sentiment by analyzing the equity portfolios of some of the best-performing hedge funds and institutional investors. Through extensive research, we have determined that the due diligence that these investors employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also showed that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).

Still Optimistic About FleetCor Technologies

We’ll start with FleetCor Technologies, Inc. (NYSE:FLT), a stock OZ Management has been holding since the end of 2012. During the most recent quarter, the fund’s management increased the position by 5% to 2.42 million shares worth $347 million. At the end of June, roughly 31% of FleetCor Technologies, Inc. (NYSE:FLT) outstanding stock was held by 52 of the funds followed by Insider Monkey, up from 48 registered three months earlier. Eric W. Mandelblatt boosted Soroban Capital Partners’ stake in the company by 48% to 1.46 million shares valued at $209 million. A provider of payment and data solutions, FleetCor Technologies, Inc. (NYSE:FLT) is currently up by 18% so far this year, having ended Wednesday’s trading session at $166.02 per share. At the beginning of August, the company issued its second-quarter report, managing to surpass Wall Street’s expectations. Revenues came in at $417.9 million, easily beating analysts’ projections of $414.1 million. FleetCor also posted adjusted earnings of $1.56 per share, just above the consensus of $1.55 per share. As a result, analysts at Jefferies Group reiterated their ‘Buy’ rating and increased the price target to $186 per share, from the previous target of $175 per share.

Merger Bet

Daniel Och and  his team are still betting on E I Du Pont De Nemours And Co (NYSE:DD), a position established during the first quarter of this year. According to its latest 13F filing, OZ Management’s stake ballooned 207% to 6.29 million shares worth $408 million at the end of June. Overall, 36 of the funds we track had E I Du Pont De Nemours And Co (NYSE:DD) in their equity portfolios at the end of the quarter, up from 32 three months earlier. Billionaire Mason Hawkins chose to trim his fund’s exposure, reducing its holding by 8% to 6.16 million shares worth $399 million. At the end of 2015, E I Du Pont De Nemours And Co (NYSE:DD) made public a merger agreement with Dow Chemical Co (NYSE:DOW). The deal is currently under review by the European authorities and the US Justice Department. The U.S. Senate Judiciary Committee has decided to scrutinize the deal as well, amid complaints that the deal would result in higher production costs for farmers.

Turn the page to find out what were the fund’s three largest equity positions at the end of the quarter.

Trouble In Healthcare Insurance Business

Humana Inc (NYSE:HUM) was one of the stocks OZ Management reduced exposure to during the second quarter. At the end of June, the fund held approximately 2.32 million shares valued at $417 million. The hedge fund sentiment towards Humana Inc (NYSE:HUM) was unchanged during the second quarter, as 64 of the funds tracked by Insider Monkey reported a stake in the company in their latest 13F filings, together holding roughly 22% of the company’s common stock. Tiger Cub Andreas Halvorsen also decided to cut his fund’s exposure to this stock. According to its latest 13F filing, Viking Global held 811,824 shares of Humana, down by 34% on the quarter. Humana Inc (NYSE:HUM)’s merger deal with Aetna Inc (NYSE:AET) is still on hold, as US regulators are fighting tooth and nail to stop the deal from happening. The U.S. Department of Justice filed an anti-trust suit on July 21, arguing the merger would lead to reduced competition and an increase in prices. Aetna retaliated by threatening to reduce its participation in Affordable Care Act (ACA) public exchanges by 70%. The trial is scheduled to start on December 5.

Bullish on Microsoft

During the second quarter, Och and his team have more than doubled their fund’s investment in Microsoft Corporation (NASDAQ:MSFT), taking it to 8.73 million shares worth $446 million according to its latest 13F filing. At the end of the second quarter, Microsoft was the sixth most popular stock among the hedge funds in our database, although the number of funds holding the stock fell to 131 from 144 registered at the end of March. A long-term investor in Microsoft Corporation (NASDAQ:MSFT), Ken Fisher increased his fund’s stake even more during the quarter. At the end of June, Fisher Asset Management held 18.3 million shares, reportedly worth $962 million. After new CEO Satya Nadella managed to breath new life into the company, Microsoft Corporation (NASDAQ:MSFT) has continued on its growth path, becoming one of the main players in the cloud business and maintaining a solid footing in the software business. Revenue from its cloud service Azure grew by 7% on the year, while the productivity and business software segment was up 5% year over year, boosted by a 54% growth in revenue from Office 365 products.

Warcraft Maker Is Red Hot

OZ Management’s new top dog is Activision Blizzard, Inc. (NASDAQ:ATVI), the developer of ‘Warcraft’ and ‘Call of Duty’ series. According to its quarterly regulatory filing, the fund had its stake increased by 194% to 14.2 million shares valued at $562 million. In general, Activision Blizzard, Inc. (NASDAQ:ATVI) has registered a major boost in popularity among the hedge funds we follow, with the number of long bets having increased to 68 at the end of June, from 52 a quarter earlier. Billionaire Ken Griffin made a bold bet on the stock, boosting his fund’s position by 627% to 5.62 million shares valued at $223 million. Activision Blizzard, Inc. (NASDAQ:ATVI) has been on a roll lately, managing to surpass guidance estimates in the last two quarters. For the most recent quarter, the company posted $1.61 billion in revenue and adjusted earnings of $0.54 per share, ahead of analysts’ estimates of $1.46 billion in revenue and $0.42 in earnings per share. The results were driven by the addition of King Digital Entertainment, the creator of ‘Candy Crush Saga’, and the immense popularity of newly-released ‘Overwatch’ video game.

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