Daniel Och accuses Sculptor CEO James Levin of extracting ‘ever-escalating pay’ for ‘lower than mediocre efficiency’
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The billionaire founding father of Sculptor Capital Administration has accused the hedge fund’s present CEO of manipulating the board to rake in $145.8 million in compensation final 12 months — making him greater paid than Goldman Sachs’ David Solomon and JPMorgan Chase’s Jamie Dimon.
Investor Daniel Och says his ex-protégé James Levin has extracted “ever-escalating pay” regardless of the asset supervisor’s subpar efficiency, in a complaint filed to Delaware Chancery Courtroom on Wednesday.
Sculptor’s annual income of $626 million “can not probably justify” Levin’s wage, the grievance stated, including, “the corporate can hardly stay financially viable when such stratospheric payouts are directed to a single govt.”
Levin was the 14th highest-paid CEO within the U.S. in 2021, according to Bloomberg, and his pay, collected in mixed money and inventory awards, was 17.7 occasions greater than the median of Sculptor’s friends, an unbiased analysis from proxy adviser Institutional Shareholder Companies concluded.
The plaintiffs questioned whether or not the board members who accredited Levin’s pay preparations have been actually unbiased—alleging that administrators might have breached their fiduciary responsibility by giving Levin such a hefty sum—requesting books and data associated to the board’s determination.
“A prudent and unbiased board couldn’t have concluded that Mr. Levin’s ability as an funding adviser warranted such compensation,” the grievance stated.
Sculptor’s declining efficiency
The hefty pay packet might not have come underneath such scrutiny if Sculptor was performing higher.
It shed virtually half its market worth this 12 months, from $1 billion to $560 million as its credit score and fairness funds tumbled with world fairness markets.
In February this 12 months, shares within the agency fell over 13% in at some point after it reported clients pulled $55 million from its flagship hedge fund within the fourth quarter.
Within the court docket submitting, Och argues Sculptor has lagged behind its business friends. Its most important fund returned simply 5% in 2021—an entire 10% behind its opponents—and trailed even additional behind in 2022.
That most important fund is presently down 12.3% for the primary half of this 12 months, 16.6% behind the common of its friends and over 30% behind market leaders.
Sculptor’s belongings underneath administration, which as soon as exceeded a price of greater than $50 billion, are actually simply $36.9 billion.
“Sculptor’s huge underperformance throughout each the market’s upswing in 2021, and the market’s decline in 2022, has created a efficiency chasm unprecedented within the firm’s historical past,” in accordance with the submitting.
The previous govt alleges that whereas Levin introduced “huge returns to his personal pockets,” he “delivered lower than mediocre efficiency to the restricted companions in Sculptor’s funding funds, and the corporate’s inventory value has collapsed.”
Levin and Och’s acrimonious relationship
Och wasn’t all the time shy of paying Levin above market worth.
Levin, who joined Sculptor in 2006 when it was then often called Och-Ziff, turned a star of Sculptor’s credit score enterprise and labored his means up the ranks underneath the mentoring of Och.
In 2017, Och appointed Levin, who was then simply 33 years previous, as co-CIO and famously awarded him a $280 million pay package.
However their relationship went chilly when Och stepped down in 2018 and appointed outsider Robert Shafir to take his place as CEO. The outgoing boss and Levin reportedly clashed over a variety of points, together with the well being of the agency’s steadiness sheet.
Levin rode out Shafir’s appointment and was lastly made CEO in June 2020, which result in a wave of board exits. The court docket submitting notes seven administrators have left the corporate’s board since January 2020, together with 5 who resigned in the midst of their phrases, with Levin’s pay on the coronary heart of many disputes.
“Levin has capitalized on these departures to nominate administrators who seem handpicked to serve his pursuits,” the plaintiffs write.
One board director, J Morgan Rutman, give up final 12 months claiming he was frozen out of the choice over Levin’s compensation after he opposed it. He wrote in his resignation letter that the board had “fallen into the lure of viewing Mr. Levin as irreplaceable.”
The remaining members of the board have a detailed relationship with Levin.
Wayne Cohen, Sculptor’s chief working officer whose vote was a deciding consider Levin’s pay bundle, experiences on to Levin and is “subsequently plainly not unbiased of Mr. Levin,” the court docket plaintiffs allege.
One other Chairperson Marcy Engel, who led the committee that negotiated Levin’s pay, noticed her personal compensation for serving on the board virtually double in 2021, the grievance stated.
Levin and Och are the 2 largest shareholders of Sculptors, holding 20.2% and 14.4% of its voting energy, respectively.
Sculptor didn’t reply to Fortune’s request for remark by the point of publication.
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