Q4 2021 Sculptor Capital Management Inc Earnings Call
Speaker 1: Good morning everyone and welcome to Sculptor Capital's 4th Quarter and full year 2021 earnings
Good morning, everyone and welcome to Scott, the Capital's fourth quarter and full year 2021 earnings call.
Speaker 1: At this time, all participants are in lesson 1.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
Speaker 1: Later we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference.
If anyone should be.
Require assistance during the conference.
These desktop and then G. It'll when you touched on the telephone.
Speaker 1: As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for todays conference Ellen.
Rather than quantity.
Head of corporate strategy and sculptor capital.
Thanks Peter.
Speaker 2: Thanks, Peter. Good morning, everyone, and welcome to our call. Joining me are Jimmy Levin, our Chief Investment Officer and Chief Executive Officer, Wayne Cohen, our President and Chief Operating Officer, and Deva Ritchie, our Chief Financial Officer.
Everyone and welcome to our call joining me are Jimmy Levin, Our Chief investment Officer, and Chief Executive Officer, Wayne Cohen, Our President and Chief operating Officer, and Dave are risky our Chief Financial Officer.
Today's call contains forward looking statements.
Speaker 2: Today's call contains forward-looking statements, many of which are inherently uncertain and outside of our control.
Many of which are inherently uncertain and outside of our control.
Speaker 2: Before we get started, I need to remind you that Sculptor Capital's actual results may differ, possibly materially, from those indicated in these forward-looking statements. Please refer to our most recent SEC filings for a description of the risk factors that could affect our financial results, our business, and other matters related to these statements.
Before we get started I need to remind you that the sculptor capital actual result may differ possibly materially from those indicated in these forward looking statements.
Please refer to our most recent SEC filings for a description of the risk factors that could affect our financial results our business and other matters related to these statements.
Speaker 2: The company does not undertake any obligation to publicly update any forward-looking statement.
The company does not undertake any obligation to publicly update any forward looking statements.
Speaker 2: During today's call, we will be referring to economic income, distributable earnings, and other financial measures that are not prepared in accordance with U.S. GAAP.
During today's call, we'll be referring to economic income distributable earnings and other financial measures that are not prepared in accordance with U S. GAAP.
Speaker 2: Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, which is posted on our website.
Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, which is posted on our website.
No statements made during this call should be construed as an offer to purchase shares of the company or an interest in any of our funds or any other entities.
Speaker 2: No statements made during this call should be construed as an offer to purchase shares of the company or an interest in any of our funds or any other entity.
Speaker 2: Yesterday, we reported a fourth quarter 2021 gap net loss of $5.8 million, or 23 cents per basic and 75 cents per diluted class A share.
Yesterday, we reported our fourth quarter 2021 GAAP net loss of $5 $8 million or 23 cents per basic and 75 cents per diluted class a share.
For full year, 2020 , one we reported a GAAP net loss of $8 $6 million or 34 cents per basic and 56 cents per diluted class a share.
Speaker 2: For full year 2021, we reported a gap net loss of $8.6 million for 34 cents per basic and 56 cents per diluted Class A share.
Speaker 2: Fourth quarter distributable earnings were a loss of $56 million or 94 cents per fully diluted share. For the full year 2021, distributable earnings were income of $83 million or $1.38 per fully diluted share. We did not declare a dip.
Fourth quarter distributable earnings were a loss of $56 million or <unk> 94 cents per fully diluted share.
For the full year 2021, distributable earnings were income of $83 million or dollar and 38 cents per fully diluted share.
We did not declare a dividend this quarter.
Speaker 2: All earning metrics discussed by both Jimmy and Deva will be on our non-GAAP economic income and distributable earnings metrics. I will now hand the call over to Jimmy.
All earning metrics discussed by both Jimmy and David <unk> will be on our non-GAAP economic income and distributable earnings metrics I will now hand, the call over to Jimmy for a few work.
Good morning, everyone. Thanks for joining the call.
Speaker 3: Good morning, everyone. Thanks for joining the call. I'm going to give some high level thoughts about 2021 and about where the business stands before handing it over to Dave to get into 2021 in more detail.
I'm going to give some high level thoughts about 2021, and about where the business stands before handing it over to Dave to get into 2021 in more detail.
So 2021 was an inflection point for the business.
Speaker 3: 2021 was an inflection point for the business. After years and years of hard work against what at times felt like some pretty tough odds, we're now in a place where we have actual tangible results across almost every metric we use to measure the health of the business.
After years and years of hard work against what at times felt like some pretty tough odds.
We're now in a place where we have actual tangible results across almost every metric we use to measure the health of the business.
Speaker 3: our investment performance, our client flows, our income statement, and our balance sheet. So starting with performance, 2021 was an exceptional year for opportunistic credit, an exceptional year for ICS, an exceptional year in our real estate business, and in our multi-strategy funds, we met investor objectives, albeit at the lower end of the range.
Our investment performance our client flows our income statement and our balance sheet. So starting with performance 2021 was an exceptional year for opportunistic credit an exceptional year for Ics, an exceptional year in our real estate business and in our multi strategy funds, we met investor objectives.
At the lower end of the range.
Speaker 3: If you blend that across our entire platform, we would describe 2021 as a good year overall in terms of performance.
If you blend that across our entire platform, we would describe 2021 as a good year overall in terms of performance.
On client flows and this is probably the area where there has obviously been the most focus in the most talk.
Speaker 3: on client flows, and this is probably the area where there's obviously been the most focus and the most talk in this forum, and it is a critical measure of our long-term success.
In this forum and it is a critical measure of our long term success.
Speaker 3: We turned that corner over the past several years in our real estate business, in our ICS business, in our opportunistic credit business.
We've turned that corner over the past several years and our real estate business and our Ics business in our opportunistic credit business.
Multi strategy funds, albeit less than 30% of AUM has been a focus internally and externally.
Speaker 3: Multi-strategy funds, albeit less than 30% of AUM, have been a focus internally and externally. It's certainly a focus for us and we understand it's obviously a focus for all of you.
Certainly a focus for us and we understand it's obviously a focus for all of you.
Speaker 3: In 2021, we had $1.2 billion of gross inflows into multi-strategy. And importantly, the first year of positive net flows for the first time since 2014.
In 2021, we had $1 $2 billion of gross inflows into multi strategy and importantly, the first year of positive net flows for the first time since 2014 those inflows in 2021 were 11, 3% of our beginning AUM and.
Speaker 3: those inflows in 2021 were 11.3% of our beginning AUM.
Speaker 3: And just to put that into historical context, because this is what gives us confidence about the future, if you go back to the era after the financial crisis, 2010 to 2014, that was a great era for hedge funds. It was a great era for multi-strategy funds, and it was before our firm had any of its challenges. And average annual gross inflows at that time were about 14% of beginning AUM.
And just to put that into historical context, because this is what gives us confidence about the future. If you go back to the air after the financial crisis 2010 to 2014 that was a great era for hedge funds. It was a great era for multi strategy funds and it was before our firm at any of its.
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And average annual gross inflows at that time, we're about 14% of beginning AUM.
Speaker 3: Then you move to 2015-2019. Obviously a tough time for the firm and gross inflows went to virtually zero.
Move to 2015 2019, obviously.
Tough time for the firm and gross inflows went to virtually zero.
About 2% annualized.
Speaker 3: go to where we are today, back to 11.3% in 2021, 2022, first couple of months, $450 million of gross inflows and a starting place of $11 billion. We feel really good about that chart.
Go to where we are today back to 11, 3% in 2021 2022 first couple of months.
$450 million of gross inflows on a starting place of $11 billion, we feel really good about that chart.
Speaker 3: and understand the questions are always where do we go from here. We don't, we can't forecast the exact flows. We've tried, it's just not an exercise that's particularly fruitful. But zooming out of that, it's a pretty powerful trend. We watched years and years of observance, observation points at low to mid-teens numbers, and we saw the number go to
And understand the questions are always where do we go from here, we don't we can't forecast the exact loves.
Tried it's just not an exercise thats, particularly fruitful, but zooming out of that.
Pretty powerful trend, we watched years and years of observance observation points at low to mid teens numbers and we saw the number go to zero and then we saw it go back to the low double digits and seemingly off to a great start in 2022 and the the context for that.
Speaker 3: And then we saw it go back to the low double digits and seemingly off to a great start in 2022.
Speaker 3: Top down, as just described, feels good. And bottoms up, feels great. We know what our touch points are. We know what our client engagement is. We know the number of relationships we have. We know that channels across we have across with.
Top down as just described feels good and bottoms up feels great. We know what our touch points are we know what our client engagement as we know the number of relationships. We have we know that channels across we have across with.
Speaker 3: which we have those relationships, and all of those charts are inflecting. Again, how to translate that into any month or quarter, really hard to do, but top-down and bottoms-up certainly feels like a pretty tremendous accomplishment.
Which we have those relationships and all of those charts are inflicting.
Again, how to translate that into any month or quarter really hard to do but top down and bottoms up certainly feels.
Like a pretty tremendous accomplishment.
Onto the income statement today, we have meaningful earnings power and we generally think about this in two buckets.
Speaker 3: Today we have meaningful earnings power, and we generally think about this in two buckets.
First bucket management fees less fixed expenses.
Speaker 3: First bucket, management fees less, fixed expenses. Or said differently, earnings without the impact of incentive income and the variable bonus expense against that incentive income. And the second is inclusive of that incentive income and that variable bonus expense against.
Said differently earnings without the impact of incentive income and the variable bonus expense against that incentive income and the second is inclusive of that incentive income in our variable bonus expense again. So in the first bucket, we look at it as management fees less fixed expense and this went from a meaningfully negative number.
Speaker 3: So in the first bucket, we look at it as management fees less fixed expense. And this went from a meaningfully negative number to what is now a meaningfully positive number. And that's the simple result of a couple things. Growing management fees while reducing or maintaining fixed expense.
To what is now a meaningfully positive number.
And that's the simple result of a couple of things thats growing management fees, while reducing or maintaining fixed expenses and the growth in the management fees comes from the flow dynamic we discussed and it comes from compounding capital within our evergreen evergreen funds and so where that leaves us today is just shy of a one dollar of earnings per.
Speaker 3: And the growth in the management fees comes from the flow dynamic we discussed, and it comes from compounding capital within our Evergreen Fund.
Speaker 3: And so where that leaves us today is just shy of a dollar of earnings per share from our management fees less fixed expense.
There from our management fees less less fixed expenses.
Now, let's do a deeper dive on the all in earnings are the earnings inclusive of earnings power I should say inclusive of incentive income in the variable expense against it and I think it's instructive here to look at the last two years because they are too.
Speaker 3: Now let's do a deeper dive on the all-in earnings, or the earnings inclusive of, earnings power I should say, inclusive of incentive income and the variable expense against it. And I think it's instructive here to look at the last two years, because they're two to
Speaker 3: two very different years, 2020 and 2021. What they have in common is good performance, good or great performance, I should say, for 2020 and 2021, but constructed in a very different way. So in 2021, we had good performance at the firm level.
Two very different years 2020 in 2021, what they have in common is good performance good or great performance I should say for 2020 in 2021, but constructed in a very different way. So in 2021, we had good performance at the firm level.
Sure.
Speaker 3: We had exceptional performance in credit, which results in significant a bury generation relative to incentive fees and thereby a higher compensation ratio from fund performance in that year.
We had exceptional performance in credit, which results in significant burry generation relative to incentive fees and thereby a higher compensation ratio from fund performance in that year.
Speaker 3: In 2020, we had a great performance here at the firm level. We had exceptional performance in multi-strategy. And then we had a large crystallization event for multiple years of a Bury generation, which led to a lower comp ratio since most of that compensation from the Bury crystallization would be PURPLE.
In 2020, we had a great performance here at the firm level, we had exceptional performance in multi strategy and then we had a large crystallization event for multiple years of a very generation, which led to a lower comp ratio since most of that compensation from the <unk> crystallization was.
Speaker 3: was expensed in prior periods. So in 2021, we generated DE of $1.38 for fully diluted share, but we created $98.6 million in net new ABAUI for the year. So when considering the ABAUI generation, we think of that economically as about $3 adjusted per share.
Was expense in prior periods. So in 2021, we generated <unk> of $1 38 per fully diluted share, but we created $98 6 million in net new <unk> for the year. So when considering the <unk> Barry generation, we think of that economically is about $3 adjusted per share.
In 2020, our adjusted <unk>, excluding legal settlements and provisions was $7 22 per share, but we net crystallized a $125 million of our brewery, which when we think of that excluding the Berry crystallization is about $5 of adjusted.
Speaker 3: In 2020, our adjusted DE, excluding legal settlements and provisions, was $7.22 per share.
Speaker 3: But we net crystallized $125 million of ABURI, which when we think of that, excluding the ABURI crystallization, is about $5 of adjusted all-in earnings.
All in earnings. So if you think about that in terms of today's earnings power and the franchise is growing not shrinking.
Speaker 3: So if you think about that in terms of today's earnings power, and the franchise is growing, not shrinking, in today's earnings, in today's structure, that's all in earnings power when considering a bury timing of $3 to $5 a share in years where we have good to great performance, with roughly a dollar of that coming from management fees less fixed expense.
In today's earnings.
Today's structure, that's all in earnings power, when considering a very timing of $3 to $5 a share in years, where we have good great performance with roughly a dollar of that coming from management fees less fixed expenses and we understand there is.
Speaker 3: And we understand it's a complicated issue to look through and Dave is going to spend more time bridging that, but when we think of the health of the business, the health of the income statement and our earnings power, that's the way we view it internally.
It's a complicated issue to look through and Dave is going to spend more time bridging that but when we think of the health of the business. The health of the income statement in our earnings power. That's the way we view it internally.
Speaker 3: In addition to annual earnings or annual earnings power, we built significant value in our balance
In addition to annual earnings our annual earnings power, we build significant value in our balance sheet. So historically, our balance sheet was a was a pretty significant net liability.
Speaker 3: So historically, our balance sheet was a pretty significant net liability. Even after years of
And after years of earnings power, which we were able to retain that earnings power.
Speaker 3: earnings power, which we were able to retain that earnings power, or I should say retain the results of that earnings power, we've now been able to create a significant net asset position.
Or I should say retain the results of that earnings power. We've now been able to create a significant net asset position. So our adjusted net assets were roughly $381 million at the end of the year plus or a very balance of roughly $227 million. So if we can buy and how do we think about recurring earnings outside.
Speaker 3: So, our adjusted net assets were roughly $381 million at the end of the year, plus our Burry balance of roughly $227 million.
Speaker 3: So, if we combine how we think about recurring earnings outside or before the impact of incentive fees, and we combine that with the potential incentive fees and the variable bonus expense against it, and we combine that with a materially net asset balance sheet, we really like the starting point that we can build on from here.
Before the impact of incentive fees, and we combine that with the potential incentive fees and the variable bonus expense against it and we combine that with a.
Really net asset balance sheet, we really like the starting point that we can build on from here so when.
When we talk about building on it from here there is pretty meaningful operating leverage in the core business.
Speaker 3: When we talk about building on it from here, there is pretty meaningful operating leverage in the core business.
Speaker 3: What that really means is, as we add additional AUM in existing products or closely related products, we generally do that with pretty minor incremental fixed expense.
And what that really means is as we add additional AUM in existing products or closely related products.
We generally do that with pretty pretty minor incremental fixed expense and so the flow through on that.
Speaker 3: And so the flow through on that.
It can be pretty powerful and so where do we get that incremental revenue that comes from again compounding capital and from net flows and I think the power of compounding capital in our evergreen funds shouldnt be discounted it's a real benefit in the model and probably one which is relatively underappreciated just.
Speaker 3: can be pretty powerful. And so where do we get that incremental revenue that comes from, again, compounding capital and from net flows? And I think the power of compounding capital in our evergreen funds shouldn't be discounted. It's a real benefit in the model and probably one which is relatively underappreciated.
Speaker 3: Compounding in a passage of time is a pretty good creator of fund capital for us, I should
Compounding and the passage of time.
<unk> is a pretty good creator of Av.
Fund capital for Us I should say.
So with the income statement health that we now have the balance sheet strength that we now have that allows us to plant seeds for growth outside of our core existing businesses.
Speaker 3: So with the income statement health that we now have, the balance strength that we now have, that allows us to plant seeds for growth outside of our core existing businesses.
And.
Speaker 3: we are constantly evaluating the best use of that capital, that balance sheet capital and that income statement capital. And we're being really thoughtful on that and we're going really slowly on that. The power of the core business and the earnings power associated with that in our minds is...
We are constantly evaluating the best use of that capital that balance sheet capital and that income statement capital.
We're being really thoughtful on that and we're going really slowly on that.
The power of the of the core business and the earnings power associated with that in our minds is so tremendous that while we have to keep an eye on the distant future right now we're trying to execute on the core and we will continue to to plant seeds and we will continue to.
Speaker 3: so tremendous that while we have to keep an eye on the distant future, right now we're trying to execute on the court.
Speaker 3: We will continue to plant seeds and we will continue to explore planting seeds. And there are a whole host of things we can do that relate to new distribution channels for our existing products and new products for our existing capabilities. But we're going to be really judicious about how we spend that balance sheet and how we spend that income statement and frankly how we spend that time. So, thank you very much.
Explore planting seeds and there are a whole host of things, we can do that relate to <unk>.
New distribution channels for our existing products and new products for our existing capabilities, but we're going to be really judicious about how we spend that balance sheet and how we spend that income statement and frankly, how we spend that time.
So <unk>.
Speaker 3: wrapping up, looking at the business internally, and looking at our underlying earnings drivers.
Wrapping up looking at the.
Business internally and looking at our underlying earnings drivers.
Speaker 3: strong performance, good flows, rigorous cost framework, and a growing balance sheet we can deploy, we are quite excited about the years to come. With that.
Strong performance good flows rigorous cost framework and a growing balance sheet. We can deploy we are quite excited about the years to come.
With that I will hand, it over to David.
Speaker 2: Thanks, Jimmy. I first want to highlight some of the key drivers behind 2021 full year results, and in particular, the fourth quarter. I will then finish up with some topics that have.
Thanks, Tony.
First want to highlight some of the key drivers behind 2021 full year result, and in particular in the fourth quarter.
I'll then finish up with some topics that have an impact on our overall financials.
Speaker 2: Both our full year and fourth quarter results highlight timing issues that can impact our earnings, and in some periods like this year, the impact of those timing issues can be pretty significant.
Both our full year and fourth quarter results highlight timing issues that can impact our earnings and in some periods like this year the impact of those timing issues can be pretty significant.
The main timing issue in our business comes from the differences in our revenue recognition of incentive income versus the recognition of related bonus expenses.
Speaker 2: The main timing issue in our business comes from the differences in our revenue recognition of incentive income versus the recognition of related bonus expenses.
First to the 2021 resolved.
Speaker 2: In analyzing these results, we think it's helpful to evaluate our 2020 results alongside. Both of these years were significantly impacted by the timing differences I described, albeit in opposite directions.
In analyzing our 2021 and analyzing these results. We think it's helpful to evaluate our 2020 results alongside both of these years were significantly impacted by the timing difference as I described.
In opposite direction.
Speaker 2: This makes comparison between the years on an absolute basis quite challenging.
Makes comparison between the year on an absolute basis quite challenging.
Our contact I don't know if <unk>.
Speaker 2: The 2021 results are best described as follows. Multi-strategy performance met investor expectations, but was lower than 2020, which resulted in lower overall incentive income.
'twenty one results are best described as smaller multi strategy performance net investor expectation, but was lower than 2020, which resulted in lower overall incentive income.
Speaker 2: We had exceptional fund performance and opportunistic credit, which was largely not crystallized into incentives in 2021, but increased our ABURI balance.
We had exceptional performance in opportunistic credit, which was largely not crystallized into incentive fees in 2021 and increased our very balanced.
Speaker 2: And we had a relatively higher compensation ratio as bonus expenses related to the opportunity credit performance were accrued in 2021 without all of the correspondence.
And we had a relatively higher compensation ratio as bonus expenses related to the opportunistic kind of performance were accrued in 2021 without all of the corresponding.
In 2020 on the other hand, we had it.
Speaker 2: In 2020, on the other hand, we had exceptional multi-strategy performance.
Multi strategy performance.
And outside crystallization of incentive fees from our opportunistic credit.
Speaker 2: outside crystallization of incentive fees from our opportunistic credit funds. As one of these vehicles crystallized incentives that was generated over a multi-year period.
As one of these vehicles crystallized in front of that which generated over a multiyear period.
Speaker 2: And we had a relatively lower compensation ratio as bonus expenses related to this crystallization event had been expensed in prior periods.
We had a relatively lower compensation ratio as bonus expenses related to this crystallizes into that had been expensed in prior periods.
Speaker 2: Putting numbers behind all of this, we had 83 million of distributed earnings in 2021 versus 406 million of adjusted distributable earnings in 2020.
Putting numbers behind all of this we had $83 million of distributable earnings and 2021 versus 406 million as adjusted distributable earnings from 2020.
Speaker 2: This equates to $1.38 per fully diluted share in 2021 versus $7.22 per fully diluted share in 2020, or a difference of $5.84 per fully diluted share.
This equates to $1 30 per fully diluted share in 2021 versus $7 22 per fully diluted share in 2020 or a difference of $5 84 per fully diluted share.
Period.
Speaker 2: The primary driver of this difference in earnings per share is the timing difference I...
The primary driver of this difference in earnings per share is the timing difference I discussed this represents $3 85.
Speaker 2: This represents $3.88 of that earnings delta, or about two-thirds of the overall difference.
Of that earnings got them or about two thirds of the overall guidance.
We calculate this as follows.
Speaker 2: In 2021, we created $98.6 million of net new ABRI from the strong performance in our opportunistic credit and real estate.
In 2021, we created $98 6 million of net new <unk> from the strong performance in our opportunistic credit and real estate.
In 2020, we reduced our berry on a net basis by.
Speaker 2: In 2020, we reduced the burden on a net basis by 125.4.
$125 400.
Speaker 2: largely due to the outsize realization from our opportunistic credit.
Largely due to the outsized realization from our opportunistic credit fund.
Speaker 2: The 98.6 million of net new ABURI in 2021, combined with 125.4 million reduction in ABURI for 2020, resulted in a swing of 224.1 million, or $3.88.
The $98 6 million of net new <unk> in 2021, combined with $125 4 million reduction in February for 2020 resulted in a swing of $224 1 million or $3.
Sure.
Speaker 2: The remaining delta between 2020 and 2021 is largely explained by it being a great performance year in 2020 versus a good performance year.
Remaining delta between 2020 in 2021 is largely explained by a great performance here in 2020.
Performance here in 2021.
Now, let's shift gears to the fourth quarter results and discuss how this timing of sale impact between the incentive income and related bonus expense impacted the quarter.
Speaker 2: Now, let's shift gears to the fourth quarter results and discuss how this timing issue, impact between the incentive income and related bonus expense, impacts.
Speaker 2: In 2021, we earned $312.4 million of incentives.
In 2021, we earned $312 4 million of incentive income.
Speaker 2: Of that incentive income, $119.6 million was recognized over the first three quarters of the year, with the remainder recognized in the first three quarters of the year.
That in front of income $119 6 million was recognized over the first three quarters of the year with the remainder recognized in the fourth player.
Speaker 2: The incentive income generated over the first three quarters was largely related to investors that have off cycle crystallization gates and therefore they...
The incentive income generated for the first three quarters with largely related to investors that have physical crystallization date, and therefore, they crystallized during that period.
Compensation expense related to the incentive income earned during the first three quarters of this year with either expense in the fourth quarter of 2020 for the fourth quarter of 2021.
Speaker 2: Compensation expense related to the incentive income earned during the first 3 quarters of this year was either expense in the 4th quarter of 2020 or the 4th quarter of 2021. This is because we accrue incentive related bonuses in the 4th quarter in the year that the fund.
This is because we accrue incentive related bonuses in the fourth quarter and the year that the fund performance.
It's generated.
Speaker 2: Due to those timing differences, the first three quarters earnings were elevated as there was a limited compensation expense related to the incentive income.
Due to this timing difference.
The first three quarters earnings were elevated as there was eliminate compensation expense related to the incentive income while the fourth quarter 2021 earnings were depressed at the container compensation expense related.
Speaker 2: while the fourth quarter 2021 earnings were depressed as it contained compensation expense related to...
Our revenues that were.
Speaker 2: Revenues that were that were received in prior.
That were received in prior quarters.
Speaker 2: It should be noted that 2021 experienced a relatively higher proportion of incentive income recognized during the first three quarters as a percentage of full-year incentive income than is normal.
It should be noted that 2021 experienced a relatively higher proportion of incentive income recognized during the first three quarters as a percentage of full year incentive income than is normal.
Speaker 2: This is because the performance period for the incentive fees generated over these three quarters was largely during the second half of 2020 and the first half of 2021 when our multi-strategy funds had
This is because the performance period for the incentive fees generated over these three acquired with largely during the second half of 2020 and the first half of 2021, when our multi strategy funds had exceptional performance. We do not expect the magnitude of this quarterly timing differences to be proportionately large again this year.
Speaker 2: We do not expect the magnitude of this quarterly timing difference to be as proportionately large.
Speaker 2: Given the timing differences we described on both our quarterly and annual results, it's best to evaluate our business with a very in mind and over.
Given the timing differences, we described on both our quarterly and annual results, it's best to evaluate our business with a very in mines and over a multiyear period.
I wanted to end the discussion on 2021 by highlighting some of the fundamental earnings drivers that Jimmy discussed earlier. These are all trending favorably year over year.
Speaker 2: I want to end the discussion on 2021 by highlighting some of the fundamental earnings drivers that Jimmy discussed earlier. These are all trending favorably year over year.
Management fees are up year over year $281 million for 2021 versus $250 million for 2020, or an increase of 12% year over year.
Speaker 2: $281 million for 2021 versus $250 million for 2020, or an increase of 12% year over year.
Fixed expenses are down year over year $225 million for 2021 record $238 million for 2020 or down 5% year over year.
Speaker 2: 225 million for 2021 versus 238 million for 2020.
Speaker 2: adjusted net assets are up year over year. We ended the year at $381.4 million versus $42.3 million at the end of 2020.
Adjusted net assets are up year over year, we ended the year at $381 4 million versus $42 3 million at the end of 2020. This.
This is driven both by the Paydown of our liabilities and the growth in our asset.
Speaker 2: This is driven both by the pay down of our liabilities and the growth in our assets.
Now, let's shift gears and focus on a few other topics that impact our financials.
Speaker 2: We had a new management compensation framework that was approved by the board in December .
We had a new management compensation framework average approved by the board in December .
Speaker 2: This framework creates further alignment for our management team with our clients and our public shareholders.
This framework creates further alignment of our management team with our clients and our public shareholders.
Speaker 2: The framework is performance-driven and compensation is tied directly to our fund performance and share price.
The framework is performance driven and compensation is tied directly to our fund performance and share price.
Speaker 2: performance-based equity grants are only granted if shareholders experience significant returns with tranches vesting up 50 to 149 percent from the stock price at the time of the war.
Performance based equity grants are only granted if shareholders experienced significant returns with tranches vesting up 50% to 149% from the stock price at the time of award.
Speaker 2: on a dividend-adjusted basis from today's stock price, it would have to almost double to hit that first.
On a dividend adjusted basis from today's stock price it would have to almost double to hit that first tranche.
Speaker 2: On annual compensation, our structures align with our fund performance and reduces our fixed minimum.
On annual compensation, our structure is aligned with our fund performance and reduces our fixed minimum.
Lastly, the framework provides additional structural protection pretty restrictive covenants vesting term clawback policy.
Speaker 2: Lastly, the framework provides additional structural protection through restrictive covenants, vesting terms, and clauses.
The impact of our financials of the performance based equity award as a follow up on.
Speaker 2: The impact of our financials of the Performance-Based Equity Award is as follows.
Speaker 2: On a gap basis, the equity award is expensed based on the grant state fair value recognized over the requisite service.
On a GAAP basis, the equity award expense based on the grant date fair value recognized over their requisite service period.
Speaker 2: There is no impact on an economic income basis as share-based compensation is excluded from economic.
There is no impact on an economic income data as share based compensation is excluded from economic income.
Speaker 2: However, the shares will be reflected in our fully diluted shares outstanding once the stock price is above the shareholder return target. Next topic I'd like to cover is our spec.
However, the shares will be reflected in our fully diluted shares outstanding once the stock price is about the shareholder return target.
Next topic I'd like to cover is our stock.
In the fourth quarter, we sponsored a fact as part of our real estate business.
Speaker 2: This FAC allows us to evaluate different types of opportunities than we currently evaluate in our funds and can generate a meaningful ROI for our shareholders in the event of a successful business combination.
<unk> allows us to evaluate different types of opportunities that we currently evaluate and are fun and can generate a meaningful ROI for our shareholders in the event of a successful business combination.
All surrounds founder shares and warrants and stock.
Speaker 2: SISPAC is included in AUM under our real estate business, but is not seeking
Risk factors included in AUM under our real estate business, but it is not keeping this.
Speaker 2: The SPAC is fully consolidated in our GAAP financial statement, but has no impact economically.
The stock is fully consolidated on our GAAP financial statements, but has no impact economic income.
Speaker 2: Once we find a target and complete an acquisition, or if the SPAC is liquidated, the SPAC AUM will be reduced to zero.
Once we find the target and complete an acquisition or if the stock is liquidated vysotki AUM will be ready to DRAM piece.
Speaker 2: future economics will be from our partial ownership of the go forward company and will largely be reflected through
Future economics will be from our partial ownership of the go forward company and will largely be reflected through investment income.
Speaker 2: Turning to guidance for 2022, as we stated previously, we do not plan to provide explicit expense guidance for.
Turning to guidance for 2022, as we stated previously we do not plan to provide explicit expense guidance for 2022. However.
Speaker 2: However, there's nothing in our core business that should result in material differences to our
However, there is nothing in our core business that should result in material differences to our fixed expenses.
Speaker 2: Lastly, an update on the distribution holiday and our dividend policy.
Lastly, an update on the distribution holiday and our dividend policy.
Speaker 2: As a reminder, we need to earn $600 million of Distributable Holiday Economic Income to end the distribution crisis.
As a reminder, we need to earn 600 million of distributable holiday economic income and the distribution holiday as of the end of the fourth quarter, we had $133 million remaining.
Speaker 2: As of the end of the fourth quarter, we have 130.3 million.
Speaker 2: As we near the end of the distribution holiday, we are asked from time to time on our go forward dividend policy and wanted to provide some additional clarity.
As we near the end of the distribution holiday. We are asked from time to time on our go forward dividend policy and we wanted to provide some additional clarity.
Speaker 2: As a reminder, during the distribution holiday, we paid 20 to 30 percent of distribution holiday economic income as dividends to Class A shareholders.
As a reminder, during the distribution holiday, we paid 20% to 30%.
Distribution holiday economic income as dividends to class a shareholders.
Holders do not receive any dividend.
Speaker 2: We are still evaluating, but expect to pay between 50% and 75% of distributor earnings as dividends post-addition.
We are still evaluating but expect to pay between 50 and 75% of distributable earnings as dividends post the distribution holiday <unk>.
Speaker 2: We anticipate that we will still be focused on building our balance sheet and we have lots of interesting ideas for which we'll want to deploy that capital. So it's unlikely that the dividend will be more than 75% of distributable earnings. We would potentially pay less than 50%.
We anticipate that we will still be focused on building our balance sheet and we have lots of interesting idea for which we want to deploy that capital. So it's unlikely that the dividend will be more than 75% of distributable earnings.
We would potentially pay less than 50% there was a great use of capital that could be attractive buyback M&A amongst other opportunities.
Speaker 2: As a reminder, our executive managing directors have a significant ownership.
As a reminder, our executive managing director of a significant ownership interest and so we are very aligned to utilize that capital to make investments that maximize long term returns to shareholder or to return capital to shareholders via buybacks or dividends when appropriate.
Speaker 2: And so we are very aligned to utilize that capital to make investments that maximize long-term returns to shareholders or to return capital to shareholders via buybacks or dividends when appropriate.
Speaker 2: We can now turn to Q&A. I will turn the call over to Peter to facilitate the Q&A.
We can now turn to Q&A I will turn the call over to Peter to facilitate the Q&A.
Okay.
Okay.
Okay.
Okay.
Peter is there anyone in the Q&A.
Speaker 1: Yes, thank you. If you have a question at this time, please press star followed by one on your touchtone telephone.
Yes. Thank you.
If you have a question at this time. Please press star followed by one on your Touchtone telephone.
If your question has been answered or you would like to automobile sales from the queue. Please press star two.
Speaker 1: If your question has been answered, or you would like to remove yourself from the queue, please press star 2 key. The first question is from.
The first question is from from.
Gerry O'hara with Jefferies. Please go ahead.
Great.
Speaker 4: Great. Thanks and good morning. Clearly some, I think, optimism in the tone as it relates to future fund flows, but perhaps you could elaborate a little bit as it relates to conversations or dialogue with the consultant community and gatekeepers and perhaps LPs that is driving some of that confidence.
Thanks.
And good morning.
Clearly some are I think optimism in the tone as it relates to.
Teacher fund flows, but perhaps you could.
To elaborate a little bit as it relates to conversations or dialogue with kind of the consultant community and gatekeepers and perhaps Lps that sort of is.
It's driving some of that confidence.
Sure.
So.
Speaker 3: I think the simplest way to say this, and we tried to highlight it with this kind of 12-
I think the simplest way to say this and we tried to highlight it with this kind of <unk>.
12 your view.
Speaker 3: We were in the business of raising capital into multi-strat funds and other funds prior to the firm issues, and we, I'll say, won our fair share of market share of those flow dollars. And for a long period of time, we were simply out of the market.
We were we were in the business of raising capital into multi strat funds and other funds prior to the firm issues and we I'll say won our fair share of market share of those flow dollars.
And for a long period of time, we were simply out of the market.
It was the firm had issues, where it was really challenging for new investors to allocate new dollars.
Speaker 3: the firm had issues where it was really challenging for new investors to allocate new dollars. And to go from that place of zero
And to go from that place of zero.
Speaker 3: effectively zero, I should say, to go to a place of activity is a significant difference that we can observe a bunch of different ways. We can observe the actual flows and we can observe the fact that we're in the dialogue now. When there is an RFP, we have a pretty good chance of being in it. When there is a new mandate out, we have a pretty good chance of being in it to win.
Effectively zero I should say to go to.
A place of activity is a significant difference that we can observe a bunch of different ways. We can observe the actual flows and we can observe the fact that we are in the dialogue now.
When there is an RFP, we have a pretty good chance of being in it when there is.
A new mandate out we have a pretty good chance of being in it to win when an institution.
Speaker 3: when an institution with a consultant advisory relationship is looking to meet managers.
With a consultant advisory relationship is looking to meet managers, we get an introduction to that institution.
Speaker 3: we get an introduction to that institution. Through the private wealth channel, the private wealth channel is now, I'll say largely open to us, the way we define that channel, and frankly it was not necessarily largely open to us during those years that were more dormant. So it's really, it's pretty stark when we look at it top down in terms of...
Through the private wealth channel the private wealth channel is now I'll say largely open to us the way, we define that channel and frankly was not necessarily largely open to us.
During those years that were more dormant so.
It's really a.
It's pretty stark when we look at it top down in terms of.
Speaker 3: being essentially out of the market versus now being in the market. Now we still need to do a great job. We still need to win business. We still need to earn trust. We need to execute. But we have a horse in the race today.
Being essentially out of the market versus now being in the market now we still need to do a great job, we still need to win business, we still need to earn trust, we need to execute but we have a horse in the race today.
Okay.
Speaker 4: Okay, that's helpful. And then I wanted to, I guess, expand a little bit on the, you know, operating leverage comments, both from, you know, your press release and prepared remarks. And if you could maybe just sort of help us frame that against...
That's helpful. And then I wanted to I guess expand a little bit on the operating leverage comments, both from your press release and prepared remarks.
If you could maybe just sort of help help us frame that against.
Yeah.
Speaker 4: quote unquote, no material change in expenses, should we think that that rate of expenses, or at least operating core expenses should remain sort of at a similar level? Or are there sort of some other kind of metrics that we should be focused on to kind of get a sense of how, you know, leverage in the business could develop going forward?
To quote no material change in expenses should we think that that rate of expenses or at least operating core expenses should remain sort of at a similar level.
Or are there sort of some other kind of.
Metrics that we should be focused on to kind of get a sense of.
How leverage in the business could.
Could develop going going forward.
Thanks, Jerry So I think when you're talking about core expenses again, we don't anticipate there being any real material change.
Speaker 2: Thanks, Gary. So I think when you're talking about core expenses, again, we don't anticipate there being any real material.
Speaker 2: from the guidance that we had given last year around core expenses.
From the guidance that we had given last year around core expenses and from our experience this year.
Speaker 2: In terms of starting to see that operating leverage, the first place you're going to see that is in management.
In terms of starting to see that operating leverage at first place you're going to see that as a management team and as we said this year, even with the growth that we had those were up 12% year over year maybe.
Speaker 2: And as we said, this year, even with with the growth that we had, those were up 12% year over year. Maybe I'll turn it over to Jimmy to talk.
Maybe I'll turn it over to Jamie and I talk a little bit more about some of them the future pizza bigger picture when we look at our at this point pretty significantly larger public peers and think about the focus areas there whether it's the insurance market the retail market <unk>.
Speaker 3: future pieces? Yeah, bigger picture, you know, when we look at our, you know, at this point, pretty significantly larger public peers and think about the focus areas there, whether it's
Speaker 3: the insurance market, the retail market, non-traded REITs, non-traded BDCs, and permanent capital vehicles, and the list goes on. Those are all.
Non traded REIT non traded Bdcs.
Permanent capital vehicles.
And the list goes on and those are all areas we understand deeply.
Speaker 3: areas we understand deeply, see the opportunity in, currently don't do. Should we be pursuing any of those in a significant way, obviously those are going to cost money. Right now, we're focused on the core and we're focused on capturing the operating leverage.
See the opportunity and currently don't do.
Should we be pursuing any of those in a significant way obviously those are going to cost money.
Right now we're focused on the core and we're focused on capturing capturing the operating leverage in the core but I think we'd be doing a disservice long term, if we werent thinking about those other things. So at some point, we're going to have to plant seeds for what the business looks like in a decade and it probably doesn't look exactly.
Speaker 3: in the core, but I think we'd be doing a disservice long term if we weren't thinking about those other things. So at some point, we're going to have to plant seeds for what the business looks like in a decade. And it probably doesn't look exactly the way it looks today in a decade.
Actually the way it looks today in a decade and.
Speaker 3: we're only gonna be in that position if at some point we start planting those seeds. And when we do, it'll cost operating expenses, but.
We're only going to be in that position if at some point, we start planting those seeds and when we do we'll it'll cost.
Operating expenses, but.
We're not at a point, where we need to focus on that right. This second.
Speaker 3: We're not at a point where we need to focus on that right this second.
Okay. That's that's helpful. And then just maybe one last one if I could.
Speaker 4: Okay, that's helpful. And then just maybe one last one, if I could. Clearly, the timing issue is complicated, and perhaps just sort of a function of the size and structure of your current business. But is there anything that you could sort of take away from the past two years in terms of philosophy and process as it relates to the comp accruals that might help sort of...
Clearly the timing issue is complicated.
And perhaps just sort of a function of the size of the structure of your current business, but is there anything that you could sort of take away from the past two years in terms of philosophy and process as it relates to the comp accruals that might help sort of streamline or or simplify that or is it just sort of something that we we kind of have to have.
Speaker 4: streamline or simplify that or is it just sort of you know something that we kind of have to have to deal with for the present time?
To deal with for the present time.
Speaker 3: I'll let David try to answer it differently if she wants, but I think you nailed it with the second part of your question there. At our current scale, it's just magnified.
David try to answer it differently, if she wants but I think you nailed it with the second part of your question there at our current scale is just magnified.
Speaker 3: The way we do it is the way we've always done it, and the way that I would say the
The way we do it is the way we've always done it and the way that I would say the.
Speaker 3: substantial number of our peers, albeit most of them at this scale are not public, also handle compensation.
Substantial number of our peers, albeit most of them at this scale are not public also handle compensation.
It's of course magnified in the context of our scale and our scale as a public company.
Speaker 3: of course magnified in the context of our scale and our scale as a public company.
But I think that's something we've learned to live with we obviously have tried to in this call and more recently leading into this call give a little more clarity on how we think of it and.
Speaker 3: But I think that's something we've learned to live with. We obviously have tried to, in this call, and more recently, leading into this call, give a little more clarity on how we think of it and what to expect. And we tried to foreshadow that on our third quarter call, because there's quarterly issues and there's annual issues.
What to expect and we tried to foreshadow that on our third quarter call. Because there is quarterly issues and there is annual issues.
Speaker 3: Those are inherent to our business and our accounting policy, which is more of a data question, follows.
Those are inherent to our business and our accounting policy, which is more of a Dave a question follows the.
Speaker 3: the inherent nature of the business. So.
Inherent nature of the business so.
Speaker 3: Should we be so fortunate to get to a totally different scale someday? And at some point in the past, many years ago, we were. Where these issues were there, they were just, frankly, less noticeable. So that will be, obviously, a high-class problem should we get to that scale again. But...
Should we be so fortunate to get to a totally different scale someday and at some point in the past many years ago. We work where these issues were there they were just frankly less noticeable.
So that will be up.
Obviously, a high class problem should we get to that scale again, but.
Speaker 3: We have a business that has certain inherent attributes, and the way we run it and our accounting for it is gonna have to follow the inherent fundamentals of the business.
We have a business that has certain inherent attributes and the way we run it in our accounting for it is going to have to follow the inherent fundamentals of the business.
Speaker 2: that's right, Jimmy. I would also say on the compensation side, the way that we pay provides greater flexibility to us in terms of running the business as opposed to doing it in a different fashion, which might make the accounting lineup a little bit easier, but we
Thanks, Jimmy.
I would also say on the compensation side, the way that we pay provide greater flexibility to us in terms of running the business as opposed to <unk>.
Doing it in a different fashion, which might make the accounting line up a little bit easier, but we think from a from an actual running of the business perspective.
Speaker 2: from an actual running a business perspective doesn't.
Doesn't give us the flexibility and so over the long term perspective, we think this is the right way to do it we will continue to provide as much guidance as we can and we will incur will continue to work with you in terms of looking at that a brewery balance and understanding where we are in different parts of the process.
Speaker 2: And so over the long-term perspective, we think this is the right way to do it. We'll continue to provide as much guidance as we can, and we'll continue to work with you in terms of looking at that ABURI balance and understanding where we are in different parts of the process. But as we've stated before, looking at compensation ratios with ABURI in mind and over multi-year periods is really the best way to be evaluating our business.
But as we've stated before looking at compensation ratios with a very mind and over multiyear.
Periods is really the best way to be evaluating.
Okay, great. Thanks for taking my questions. This morning.
Okay.
Speaker 1: Thank you. Ladies and gentlemen, again, if you would like to ask a question, please press star followed by one on your touchtone telephone.
Thank you, ladies and gentlemen, again, if you would like to ask a question. Please press star followed by one on your Touchtone telephone.
Yes.
Yes.
Okay.
Okay.
Again, if you would like to ask a question. Please.
Speaker 1: Again, if you would like to ask a question, please press star one on your telephone keypad.
Please press star one on your telephone keypad.
Yeah.
Okay.
I'm not showing any further questions.
I will now turn the call over to Ms <unk>.
Speaker 2: Thank you, Peter, and thanks, everyone, for joining us today and for your interest in Sculptor Capital. If you have any questions, please don't hesitate to contact me at 212-719-7381. Thank you.
Thank you Peter and thanks, everyone for joining us today and for your interest in sculptor capital do you have any questions. Please don't hesitate to contact me at Q1 to 700 97381. Thank you.
Speaker 1: This concludes today's conference. You may now disconnect your lines. Thank you for your participation.
This concludes today's conference you may now disconnect.
You for your participation.