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Qualitative aspects include the focus on permanent loss of capital and the experience in managing risk.

In deciding which positions to take, risk-adjusted returns are key. "We focus on the risk component," says Och. "We avoid positions which have an explicit or implicit correlation to the market."

FOCUSED MANDATE

Och is very clear on what the investment mandate of the firm is: to provide consistent positive absolute returns in the mid-teens. These returns will be neither correlated with nor dependent on the stock market, and will have low volatility. Another goal is not to lose money. Och makes the distinction between quantitative low risk and qualitative low risk, and he feels his firm has both. This means that in addition to very low risk as measured statistically, such as low correlation, low volatility, and high Sharpe ratio, the firm must also have low risk of permanent loss of capital.

Och says Och-Ziff's edge is that the disciplines are designed to fit the mandate, and he believes they have the best team in the world. "The individual business units are among the best at what they do. The team is stronger than the components." Och discusses the interaction that occurs between the business units such as cross-border mergers or debt for equity swaps on distressed convertible bonds. The introduction of the London office has helped reinforce this strength.

Och notes that in six years the firm has lost only one professional person. People are key to the organization's success. "The story at this firm is not about me. We have a strong and deep team which has been together for many years. All of our professionals are integrated into the decision-making process. This is not a one-man show."

The firm is able to focus on more unusual and complex securities where its hedging and analytical capabilities create a competitive advantage. As the world becomes more integrated and more complex, the combination of Och-Ziff's diversified business units with its team approach becomes even more powerful.

NOT CORRELATED TO EQUITIES

Och says the firm has produced consistent returns in this area with little market correlation because non-event-related risks are hedged and the