Q1 2021 Sculptor Capital Management Inc Earnings Call

Forward looking statements.

During today's call will be referring to economic income to shrivel earnings and other financial measures that are not prepared in accordance with U S. GAAP information about and reconciliation of these non-GAAP measures to the most directly comparable GAAP measure are available and our earnings release, which is posted on our website.

No statements made during this call it should be construed as an offer to purchase shares of the company or and interest in any of our funds or any other entities.

Our earnings press release from yesterday also include it and earnings presentation. We may refer to this report during the call and you can find the presentation on Investor Relations page of sculptor Dot com at the first quarter earnings release link and.

Have you joined and through the webcast you can navigate through the presentation on the webcast screen.

Earlier. This morning, we reported first quarter 20, and 21 GAAP net loss of $20 million for 85 cents per basic and 99 cents per diluted cost a sure distributable earnings for $37 million or 62 cents per fully diluted sure. We declared a dividend of 30 cents per class Asia.

I'll now pass the call over to Jimmy.

Good morning, everybody and thanks for joining I'm excited to be here today with favorite Richie and <unk> doing our first earnings call together, and we put up a pretty detailed letter that and.

I'm sorry to address a lot of what's happened recently as well as more importantly, some of the bigger picture concepts that were driving towards over the next several years and we also and our earnings release added some additional detail that helps to interpret the quarter, we just reported and so with that the ideas to jump right into.

Q&A uhm and that'll be a format that will probably stick to in the future as well and and try to make the call and more robust back and forth. So thank you again and I'll take it back to the operator to open the line.

Thank you if you have a question and at this time. Please press star followed by one on your Touchtone telephone.

And your question has been answered or you would like to remove yourself from the queue. Please press star too.

Your first question comes from the line and Bill Cats with Citigroup. Please proceed with your questions.

Okay. Thank you very much for cutting right to the chase with a Q&A certainly appreciate that and congratulations everybody on the new respective roles and I. Appreciate all the extended disclosure and and shows all day that you put out and and cause it would be earning statement, maybe it's sort of jump off and that I was wondering if you could maybe Jimmy O'donnell, and just sort of talk.

To maybe the true and Triangulating between the non linear earnings growth statement and the show the letter.

Break it into two timeframes for thinking about it.

And the immediate term and I think this is math bill that reasonably well and the immediate term and incremental dollar of capital into our existing funds tends to have a very high.

Incremental margin on the fee based earnings side. Obviously, there is variable revenue that comes with that and variable expense that comes with that but and the very near term that incremental dollars tends to be quite accretive.

And so that's one version of non linear growth I think the longer term big picture version of that.

Similar to what I. Just described is were relatively small company today with a relatively vast investment capability and major asset classes around the world and as we exploit that over time, we see non linear potential for the business. So.

Again, you could think of it and those two ways the short term and the long term and our opinion and each of them represent a non linear opportunity.

And earnings power.

Okay. Thank you.

Thank you our next questions come from the line of Gerry O'hara with Jeffries. Please proceed with your questions.

Great, Thanks, and and and good morning, Jimmy I was hoping you might be able to provide a little bit of color or or context around the capacity.

Comments that were and your letter I think it was.

More and more than 8 billion, but perhaps less than 34 billion.

And it was just kind of hoping you might be able to shed.

She had a little bit of light on where you think the kind of optimal.

Sizing and the business might be.

So.

Good question, and we don't have a specific number and mind and our capacity generally grows with the market as everyone. Else's does right just think of the size of the SMP 510 years ago versus the size of the S&P 500 today or the size of the high yield market or the loan market or the CLO Mark and all these are markets and which we operate generally expand over time.

Him and so capacity kind of grows with markets or GDP.

That said, what we're trying to highlight and the letter is and a way of philosophical point, which is the number one priority is making sure that we feel we are optimum optimally positioned to meet our investment objectives and so as a practical matter if we're at $11 billion a multi strat today.

12 is a pretty similar number to 11 and 13 is a pretty similar number to 12 and 14. So similar number to 13 and I don't I don't mean to embed some some secret guidance and that but it moves incrementally and we know that we can do more than we're doing today and we know our capacity will expand over time, but.

We will be absolutely laser focused on making sure that the money, we manage matches our ability to meet our investment objectives.

Great that's helpful and then.

I guess.

For a follow up.

Was kind of hoping you might be able to flush out the.

The comments around the longer dated private credit business.

Is this.

As part of this and extension of something you're already kind of working on and house or is this purely kind of inorganic and and any other kind of comments you might be able to make around just the strategy of longer dated.

Permanent capital vehicle structures and.

Sure well.

Longer dated and permanent capital R. Two different but we'll address that but I want to make sure I am clear on that because the last bit of your question blended them into one.

Wide world of private credit and that includes parts of that market that we do not currently do.

And we observed the success others have had and some of those markets. We observed the scale of that we observe what appears to be the permanence of those asset classes within a typical institutional allocation and so it's something we will keep our eye on again nothing immediate to report.

Great. Thanks for taking my questions this morning and.

And I look forward to continuing this dialogue.

Great.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next questions come from the line of Craig Siegenthaler with Credit Suisse. Please proceed with your question.

Good morning, and anthem flat on for Craig Siegenthaler.

Given that you've deployed most of your first credit real estate fund when could we see and has come back to market and do you.

That could be meaningfully larger given the strong performance.

Yes, so we don't give exact details on when we're going to launch.

New fund, but we are happy with that platform and we do plan to.

Try and expanded over time.

Great and then one more question on real estate can you talk a little bit about the realization and trajectory for the third real estate opportunistic fund.

Yes and.

Well ill give some more information there as well because it was highlighted.

And our earnings release that some of the.

And unexpected incentive income and the quarter were from realizations from fund to fund two is getting down to a very small number.

So I wouldn't expect anything material.

Out of fund two going forward fund three SRT.

Three is the primary source of what you see described as real estate a brewery in.

And the financial statements and.

And.

As you know, we're now investing fund for fund III and harvest mode based on the way waterfalls work and priority of payments work.

The bulk of the realizations tend to be backend loaded during the harvest period, and we've largely just started that process.

Thank you.

Thank you. Our next question comes from the line of Bill Katz with Citigroup. Please proceed with your question.

Okay. Thanks, So let me come back on <unk>. So just maybe a couple of follow ups.

I was wondering if you could spend a little bit on the hedge fund sales acceleration and so it's a year to date is now.

Double where you were last year. So if you could maybe talk about the different distribution channels, where you're seeing that uptake and then I'll ask my questions out there.

And I was wondering if you could maybe address capital deployment and more broadly the dividend was a much larger and I would've anticipated based on your sort of prior payout guide and I think about that and then maybe any sort of advancement of other strategic relationship with Delaware life, and and then sort of new product opportunity or new distribution opportunities. Thank you.

Okay.

And the hedge fund gross inflows side as you mentioned, we we provided and amount of detail that we have not done in the past and we thought it was an important.

Time to do that so first we're not changing our overall.

Disclosure plan on the.

Gross flow side, but we did think it was important to highlight what was going on because it and frankly represents a fairly material change of what's been a certainly hot.

And the last number of years as far as the texture of those inflows and when I mentioned this and the letter it's pretty broad based.

It's from all types of allocators, all around the world consultant advised non consultant and advisor institutional non institutional so it's really.

And it's been a bit of everything and Thats why we described it is feeling healthy and theirs.

And Theres really no.

There is no greater insight to it and that which is we obviously had.

An overhang over the last number of years that made it very difficult to see material new gross inflows and we knew we had to take a series of steps to address that we took all those steps during that period of time, we continue to.

And do the job our fund investors wanted us to do and so we're beginning to see it and you see that the shape of the chart, we put in the letter.

Of course, that's not a promise of that exact shape will continue but it's nice to see the shape be upward sloping it's nice to see it come from a variety of places around the world and that's generally a good sign that.

Things ought to be returning to a normal growth and gross out looking picture.

On the capital side and again, we shared more detail here around.

This adjusted net asset concept.

And maybe similar to the flow side, we know that the place that we were in years ago was not the place we want it to be.

And we knew we wanted to be in April adjusted net asset position.

And we know we want to keep going in that regard. So we do not have a preset number we're trying to achieve or a preset ratio we're trying to achieve.

And here again, I'll unpack it into the shorter and longer term and a shorter term we have.

And we will have reasonably.

Sufficient returning places to deploy the capital and will be satisfied with those returns as we see.

<unk> expand that adjusted net asset position and that's about long term offense and long term creativity and so we look at what some of our peers have been able to do with the benefit of a strong balance sheet and it's frankly been brilliant and the value creation has been tremendous and that was an avenue that was just simply not available to.

Us.

We just didn't have a balance sheet to even attempt that type of creativity or that type of value creation. So we got to start by getting that balance sheet, which we we have the beginnings of but we want to keep going and.

And then we'll see where that takes us.

Okay.

I think your last question.

And bill was on the.

Delaware life side, we're really pleased with how the relationship is going.

There is a variety of things that debt. We have worked on and are working on together, both I'll call them at the fund level and at the company level and we expect that to continue.

Thank you I'm not showing any further questions I will now turn the call back over to Ms. Kim.

Thank you Darren and thanks, everyone for joining us today and for your interest and sculptor capital. If you have any questions. Please don't hesitate to contact me at two and Q seven and 197 and eight one thank you and have a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.

Have a great day.

Okay.