Q1 2022 GCM Grosvenor Inc Earnings Call
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Good day and welcome to the CN.
Grosvenor.
22 first quarter results call.
Later, we will conduct a question and answer session. If you're interested in asking a question. Please ensure you're dialing using the numbers. He had been provided for this call and press star one on your keypad to join the queue.
If anyone should require operator assistance. Please press Star then zero on your telephone.
As a reminder, this call will be recorded.
I would now like to hand, the call over to Stacey Sellinger head of Investor Relations.
You may begin.
Thank you.
And welcome to GCM Grosvenor, its first quarter 2022 earnings call today, I am joined by <unk>, Chairman and Chief Executive Officer, Michael Saks, President, John Levin, Chief Financial Officer, Pam badly.
Before we discuss this quarters results. A reminder, that all statements made on this call that do not relate to matters of historical facts should be considered forward looking statements. This includes statements regarding our current expectations for the business, our financial performance and projections.
These statements are neither promises nor guarantees.
All known and unknown risks uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward looking statements on this call. Please refer to the factors in the risk factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release.
All of which are on the public shareholders section of our website.
I'll also refer to non-GAAP measures that we view as important in assessing the performance of our business.
A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement both of which are available on the public shareholders section of our website.
Our goal is to continually improve how we communicate with and engage with our shareholders and in that spirit. We look forward to your feedback. Thank you again for joining us and with that I'll turn the call over to Michael.
Thank you Stacey from the perspective of business performance. The first quarter of 'twenty. Two was a good one with regard to fund raising revenue growth and profitability.
During the quarter, we grew fee related revenue by 10% fee related earnings by 26% adjusted EBITDA by 23% and adjusted net income by 26% all compared to the first quarter of 'twenty one.
Notably our board again increased our stock and more buyback program by an additional $20 million to $65 million in total.
Both John and I will spend more time on that topic.
The strength of our business performance in the first quarter was largely a result of our success in 2021 combined with current periods fundraising and good expense management, despite the inflationary environment.
We raised $1 3 billion of which approximately 80% was for private markets and 20% was for absolute return strategies funds.
Bond raising was again well diversified across vertical geography client channel and account structure with infrastructure again, representing the largest share at 55%.
Our first quarter fundraising included modest specialized fund closures that we did not anticipate at the time of our last call.
As with last year, we expect to see larger capital raising totals in the back half of the year.
You can see on slide nine from the first quarter of 2021, our firm's share of carry a net asset value grew by $234 million or 129%.
And our investments also grew increasing by $56 million or 61%.
We again captured a significant share of the increase in unrealized carry.
And we think will continue.
It is important to note that consistent with industry practice for solutions providers most of our private markets portfolios are marked on a one quarter lag.
Consequently carry at net asset value and investment values could face headwinds as we roll forward.
During the quarter, our private market verticals continued to show significant growth and management fees compared to one year ago.
Our fund raising pipeline remains robust and our re up rates remain high at around 90%.
The absolute return strategies investment performance was down around 5% to 6% through April against equity markets down 13% to 20% plus.
First quarter performance was disappointing, but April performance was particularly strong with portfolio is generally flat to down 1% against the down nine S&P 500.
The first four months of the year has exhibited strong capital preservation in tough markets.
Over reasonable time periods, our returns remain competitive with peers and consistent with client objectives.
Historically this type of environment has provided an opportunity to deploy capital and generate returns in periods. Like this can also see increased investor interest.
Despite our confidence Ari's investment performance directly impacts absolute return strategies management fees and results in the loss of performance fees with the extreme levels of volatility today, it's hard to project short term ari's business or investment results, but with flat returns and some modest.
Outflows from May through December 'twenty, two our IRS management fees. This year would end up roughly in line with <unk> in 2021.
With regard to private market strategies people have spoken up the crowded PE fund raising landscape.
We see that but we also think the denominator effect and a general caution related to the level of volatility and geopolitical and economic uncertainty are in play and can slow down the timing of new commitments. We agree with the view that investors remain committed to the alternative strategies and their pro.
<unk>.
Accounting for this dynamic we believe that our 'twenty two private markets management fees are likely to grow by 15% to 20% over 21.
The combination of these factors means we now anticipate 22, the related revenue growth of 7% to 10% over 21.
At that rate of growth, we continue to anticipate fee related earnings margin expansion from last year and believe 20 to fee related earnings will grow by 13% to 18% as compared to 21.
Importantly, we continue to anticipate double digit fee related earnings growth rates for 'twenty three.
We believe that geographic expansion investments in the insurance and non institutional channels as well as our ESG and impact capabilities give us the ability to similarly growth fee related revenue and fee related earnings beyond 2023.
It's pretty clear the economic and market environment have changed considerably since we last reported.
Equity markets have been hurt badly while volatility and interest rates are up significantly there is a brutal war in Europe , China is still grappling with Covid lockdowns in supply chain stress and high inflation persists.
Federal Reserve has moved it seems committed to continuing to doing so.
In light of those developments and the events of the first quarter I think the most important thing you can take from this call is that we are growing.
Generating cash and returning cash to shareholders through dividends and stock repurchases are broad diversified platform is well built to perform for shareholders and investors in turbulent markets and to capitalize on opportunities arising from such environments.
We believe repurchasing our shares here as an attractive use of our capital.
As of Friday's close after backing out period NAV.
From our total enterprise value we trade.
At 10, six times last 12 months FRE with a four 7% dividend yield.
With that I will turn it over to John .
Building on Michaels comments, notwithstanding the more difficult market backdrop, the big picture still represents a generally active capital formation and deployment environment.
As a reminder, much of our capital raising is a function of our role running some part of an institution's alternatives program.
The exact size and specific timing of those programs may ebb and flow with market conditions, but in general those programs are vibrant and growing.
One notable fundraising dynamic I'll highlight this quarter as the overall mix shift towards capital raise for our secondaries co.
Co investments and direct investments.
This quarter such activities represented 72% of our private markets fundraising.
And have been more than 60% over the past few years.
This compares to such strategies, representing less than half of our AUM.
Our platform delivers a strong value proposition to clients across these investment implementation types and importantly, these flows are accretive to revenues and fee rates over time.
As we expected specialized funds were less meaningful contributor to fundraising this quarter, although we did close on capital for our infrastructure and secondaries funds, which were not expected to occur.
We still anticipate that specialized fund raising activity and the associated run rate in catch up revenue to be heavily weighted towards the back half of the year.
Shifting to invest in investment activity, our central focus is delivering strong risk adjusted returns for our clients over cycles, both on an absolute and relative basis.
One of the benefits of our platform breadth and diversification.
This ability to pivot quickly and deploy capital towards the unique opportunities that emerge in a rapidly changing market.
All of our investment teams may be most notably our strategic investments group leverage our broad and deep platform of knowledge and relationships to deploy capital.
Especially in dislocated markets.
Because we see so much deal flow and origination we can be highly selective and thoughtfully carrier portfolios.
This strength of the Perm is particularly relevant for the more opportunistic strategy as I discussed earlier, when talking about our fund raising like secondaries and co investments and direct investments.
Our investment performance is a strong proof point.
Our net IRR for our secondary strong GSS to the credit assessor to GSS III is 30%.
Our net IRR for our co investment fund Tcf to the predecessor to <unk> III is 52%.
And our net IRR for opportunistic fund back to the predecessor to Max III is 31%.
We also have numerous separate accounts focused all or in part and secondaries co investments and direct investments, which benefit similarly from our strong sourcing and execution engine.
To close my comments I will address capital allocation.
One of the many attractive features of our business as it's consistent cash generation.
First and foremost we are a stable and growing stream of cash generation from our fee related earnings.
Our quarterly dividend, which we've increased by more than 50% since we went public.
Is that a very comfortable level relative to fee related earnings.
As we have discussed in the past has upside alongside our continued growth.
Today, our dividend represents approximately 70% of our last 12 months FRE less cost of debt and as Michael mentioned, we expect FRE to grow by approximately 13% to 18% in 2022.
Giving us room to grow the dividend in the future.
We also generated cash from incentive fees, which are the combination of ari's performance fees, which are typically annual and private markets carry which is typically longer dated.
While more variable in nature.
Our earnings power from incentive fees is strong and growing.
This incremental cash generation gives us flexibility to reinvest the business.
Pay debt or return capital to shareholders.
Anytime we have an opportunity to reinvest in the business at a high rate of return, we will pursue that path to add value to our clients and shareholders.
However, aside from such opportunities, we will return value to shareholders through repurchases.
We generated $105 million of net incentive fees across 2020, and 2021 and have approved $65 million of share repurchases.
We repurchased one 2 million shares and $1 2 million warrants to date and we believe that further repurchases at these levels represent good value.
We believe that this approach to capital allocation will result in largely offsetting dilution from employee stock awards and will create value and alignment with and for shareholders over time.
Now I will turn the call over to Tammy.
Thanks, John the first quarter of 2002 by the solid one for the firm.
Fee related revenue increased by 10% over the first quarter of 'twenty one.
Driven by the fundraising success that we've enjoyed over the past year are.
Our assets under management grew 10% and fee paying assets under management grew 8% from a year ago.
Private market continues to be the key driver of growth with private markets fee paying AUM growing 17% over the last year.
Private markets management fees were $46 $8 million in the quarter, an increase of 16% from the first quarter of 'twenty one.
<unk> of $1 million of catch up management fees.
Importantly, adjusting for the impact of catch up management fees in the fourth quarter private markets management fees grew by $1 million or 2% on a sequential quarter basis, reflecting the continued strength in that business.
One of the other notable aspects of our private market business is it stability.
Fee paying assets under management comprised 58% of our fee paying AUM.
And they are generally not impacted by valuation changes.
Additionally, the capital with long duration as of quarter end more than 65% of private markets.
Had a remaining program life of more than seven years.
Private markets fee rates have been stable over recent time period, and we also contingent continue to experience a mix shift towards higher fee activity, including co investments direct investments and secondary.
Absolute return strategies management team were $42 $7 million in the quarter, an increase of 7% from the first quarter of 'twenty one.
<unk> performance in the first quarter resulted in a sequential quarter decline in IRS fee paying AUM.
Given our quarterly asset management fees are generally charged on fee paying AUM as of the first day of each quarter the decline in <unk>.
<unk> will drive a sequential decrease in second quarter <unk> management team.
Incentive fees in the first quarter were $12 million, the majority of which was from realizations a carried interest.
Gross carried interest was $11 million in the quarter, which was lower than recent levels as the uncertain market backdrop needed realizations.
Given <unk> performance in the first quarter unless there is a rebound in the market over the balance of this year, we are unlikely to realize significant additional performance fees in 2002.
Despite market conditions and the potential for slower near term realizations, our long term earnings power from incentive fee revenue is strong.
Our run rate annual RF performance fee earnings power remains at $39 million.
And we have realized performance fees of more than $50 million in each of the past two years.
More significantly our future carried interest earnings power is steadily increasing with the firm shared unrealized carried interest up 129% from a year ago kept $415 million.
Turning to expenses fee.
Related earnings compensation in the quarter with $40 9 million.
Slightly higher than the fourth quarter, as we anticipated, but relatively flat compared to the first quarter of last year.
We expect fee related earnings compensation to be relatively stable in the coming quarters.
non-GAAP general and administrative and other expenses were $18 million in the quarter slightly higher than the fourth quarter as travel activity began to partially everything relating to higher end person client engagement.
We've spoken before about the operating leverage inherent in our business, which once again drove earnings growth and margin expansion this quarter.
Our fee related earnings increased 26% to $31 7 million and our fee related earnings margin expanded from 30% to.
35% compared to a year ago.
We still expect to see growth in our fee related earnings margin this year with room to expand our margin even further in 2023.
Finally, we continue to enjoy consistent cash generation as John discussed.
We are comfortable with our current debt level and enjoy a term and duration.
Inevitably the majority of our outstanding debt is hedged limiting our exposure to a rising interest rate environment.
Looking across the firm despite the broader market and geopolitical disruption. We are proud of the platform's ability to deliver a strong client value proposition and excited by the earning power of our business.
Thank you again for joining us and we're now happy to take your question.
Thank you.
If you would like to ask a question at this time. Please press star one on your telephone keypad. If you are using a speaker phone. Please ensure your mute function is turned off.
Again that function is star one.
And our first question will come from Ken Worthington with Jpmorgan.
Thank you Ken Worthington. Your line is open. Please go ahead.
Hi, sorry about that some technical difficulties here.
Okay first in terms of the absolute return business.
Performance this quarter Grosvenor underperformed.
Actually essentially almost wiping out a year's worth of return. So you mentioned that April was really good.
What happened in <unk> that didn't happen in April and I guess, how are you managing your portfolio of absolute return managers given this underperformance in <unk>.
Hey, Todd its Michael Thank you for the question.
As we said we were disappointed in the first quarter. The first quarter's results were driven by a small number of managers that were operating in the equity space those managers were.
Managers that have contributed to the outperformance over the last three years, where we've competed very well with peers and beat in the indices.
And a.
Had a tough first quarter and when I say outperformance apps through the first quarter.
Hedged fund managers as you know.
Move quickly and have the.
The degrees of freedom in terms of their exposure, how they manage their book and their risk they had moved.
<unk> significantly to reduce exposure and to change orientation by the end of Q1, you saw that in April with.
Modest negative result in a very broad down market.
Our feeling is that these are the types of markets that.
Yield good opportunity for hedge funds, it's a type of market where.
Hedge funds.
You can add a lot of value you can see investor interest increase and while we were disappointed by the first quarter sitting at the end of April .
Our portfolio set against markets down as significantly as they were having had the volatility commodity booked in April the way it did coming into the first period of time here in May.
Our confidence with regard to that strategy and its ability to add value going forward remains very high.
Okay.
And then maybe just on an expenses cash compensation.
I get this correct I think it was down year over year I thought previously you were guiding to up sort of high single digits, but it doesn't look like we're on pace for that right now.
How should we maybe.
Maybe what's contributing to the lack of growth and I think it was mentioned in the prepared remarks that this was a good run rate.
Maybe to build off for the end of the year should we expect cash comp to be rising to get to a high single digit growth or is flat actually a possibility here.
Pam you want to take that.
Sure. Thanks, Ken.
Yes, as I said in my remarks, we really expect the FRE comp line to be relatively stable in the coming quarters, which does imply a level. That's in line with our line or just slightly up to the prior year actuals that is lower than what we anticipated at the time of our fourth quarter earnings call.
A portion of our compensation is variable.
Certainly.
Planning to manage compensation and head count growth.
Through the balance of the year to achieve that flat results.
Okay. Okay, great. Thank you very much.
Yes.
And our next question will come from Jeff Schmitt with William Blair.
Hi, good morning, everyone.
The average fee rate for absolute return strategies actually ticked up a little bit I think it was six 9% quarter.
Quarter up from 67% last quarter.
After I just sliding really for several years could you speak to what is going on there.
Is six 9% a better run rate going forward.
Great. Thank you so our fees have been stable for quite a while now and as we've talked about and alluded to on the call in.
All of the verticals, including.
Including our absolute return vertical we've had a little bit of mix shift.
Towards direct activities co invest activities et cetera, and thats good for average fee rates and then.
In addition in the absolute return strategies.
Strategies Youll have some reduction for fee with size and so as you're adding new investors at lower size.
Youre doing well by your average fee rates, there and so those fees for the last several quarters have been stable and we.
Our view is they will remain stable going forward.
Okay that makes sense.
And then on the catch up management fees, how much were they in the quarter I didn't see that anywhere and then how much do you expect that to.
Way up up over the next few quarters I think you're supposed to have a much stronger second half.
Okay.
Hi, Michael.
Yes <unk> go.
Go ahead.
Great Yes.
I mentioned in my remarks, I catch up management fees in the quarter.
$1 million.
And relative to Q1 of 'twenty, one which was one five and Q4, which is at four three so if you want to normalize our revenue growth excluding that is that going to get the numbers to do that.
Our private markets fees are up about 2%.
This quarter over the fourth quarter, excluding the impact of catch up management fees.
Yes, we do expect catch up management fees to be higher in the back half of the year as Don mentioned in his remarks, we expect more specialized fund fundraising in the back half of the year very similar to last year. So last year is probably a good proxy for that.
Got it okay. Thank you.
And our next question will come from Adam Beatty with UBS.
Alright, Thank you and good morning, just wanted to ask about the potential fund raising opportunity for absolute return Michael I think you mentioned that.
In periods of volatility and market disruption like this often investors will gravitate towards capital preservation type strategy. So just wanted to get your sense number one of what.
What you've seen in the past in terms of first of all how long that takes to kind of roll on and maybe around the magnitude and then what youre seeing and hearing from clients right now as we speak.
So.
Thanks, Adam.
With the levels of volatility that I said this in my remarks, the levels of volatility that we're seeing day to day in the market it's hard to.
Pretend to have tremendous visibility what I can say is if you have.
Periods of time, where you have frankly, the type of outperformance you've seen year to date relative to equities, let alone what you saw in April .
That can attract than it has in the past attracted a significant amount of investor interest. We're we've been kind of committed to saying and we continue to say that our.
Palm our fee paying AUM in <unk> is going to be driven by performance not by flows.
We continue to have that as our as our base case.
But if you get a period of time, where the market's kind of keep grinding the way they have been and.
Yes.
Hedge funds.
Churn.
Rounded.
Change their performance profile Star term some money you could see.
Investor interest increase.
Still think the best thing to assume is that the actual rate of return will be what drives the AUR.
AUM and flows will be.
Modestly positive modestly negative.
Got it that's clear thanks, Michael.
And then turning to kind of the other part of expenses and margin.
You talked Pam I think about.
G&A beat.
<unk>, driven a little bit upward some room.
Zoomed, you've traveled type activity et cetera.
Assuming.
Kind of the Covid backdrop remains.
Modestly positively trending I guess.
What have you baked in in terms of increases in either travel related G&A or or other types of non comp expenses for the year and what might be the main sources of flex in that if any thank you.
Sure. Thanks for the question I think the balance of the year, we are planning to see.
<unk> built in assumptions around continued increases in travel obviously, that's manageable depending on the environment and we've of course learn test work well in a virtual world. So certainly a manageable expense, but our guidance that Michael spoke to in his remarks that 13 to 18.
Percent FRE growth for the year assume a modest increase in that G&A line through the balance of the year.
Super Thank you very much appreciate it.
And our next question will come from Kevin <unk> with Oppenheimer and company.
Hey, good morning, Thanks for taking the question this quarter and postpones. It seems that there was a decent contribution from realized investment income.
And I was just wondering is this predominantly from your speaks in the underlying funds or are there any additional contributing factors here.
And I guess on an ongoing basis.
Do you expect this to say be a bit lumpy in nature due to timing for the underlying investments.
Yeah.
Yes. So thanks for the question I think it's.
That line is always a bit lumpy.
In nature and due to the timing.
It is mostly driven by certainly last quarter, its mostly driven by Carrie.
As opposed to stakes like traditional.
Terry and it will continue to.
It'd be driven by carry for the remainder of this year.
And then we'll get to a place where performance fees will also be an important component of that line.
Okay, excellent and just to add to it.
To add to Michael's comments, that's right. It is mostly stakes in our underlying investment funds on that line item.
Okay.
<unk> mentioned that it's on the private market funds that they tend to be realizations a quarter in arrears, and so thats coming from really fourth quarter activity and a strong market backdrop.
Okay perfect. Thank you so much.
Uh-huh.
And next will be Michael Cyprus with Morgan Stanley .
Great. Thanks, so much for taking the question.
Michael I was hoping you could expand upon some of your earlier comments around the fundraising backdrop. It sounds like what Youre seeing is just more of an impact of the denominator. If I heard you right as opposed to more of a crowding itself. The denominator effect and is this more evident in the U S pension fund community or which part of the marketplace are you seeing this.
More of an impact and then could you also just expand upon how this is impacting your outlook understanding you adjusted your guidance, but if you could maybe just flush out kind of the key drivers. There is just more of a delay to later in the year and <unk> 23, and how much of this could ultimately impact the sizing of what's raised.
Right. So first Michael Thank you for that and nice to talk to you.
It is it is not impacting fundraising or it hasnt I guess I should say impacted fund raising yet our first quarter fund raising was actually in line with what we expected it to be and it.
We actually had a couple of co.
Commingled fund flows, which we werent anticipating.
Our pipeline is very strong it's actually up from a year ago in the most.
<unk>.
Yes categories of pipeline when we track it in different categories. So it hasnt impacted.
And racing yet yet.
Our pipeline is really strong we have a real belief people are committed to programs and committed to going ahead. There has been talk about.
About crowded fundraising environment, that's legit, and but thats been the case for a while sponsors have been coming back faster for a period of time, that's not something that's new over the course of the last quarter.
What is new over the course last quarter is the denominator effect and this impacts every institution globally.
Just.
Period right.
Denominator effect with down equity markets tough credit markets and with private market valuations that haven't moved much people are more heavily weighted towards private markets at the end of the quarter than they were a quarter ago, and then <unk> had a tremendous amount of just general change in environment.
Since the last time, we reported so our view is it is prudent to think that that can result in a slowdown. It can result in pushing the timing of commitments. Our belief is that that is a 'twenty two 'twenty three phenomenon, that's not a do do I.
Continue with the program do I invest or don't invest phenomenon into 'twenty, two 'twenty three phenomenon and it felt prudent.
To us too.
It makes some assumptions with regard to that.
But.
What actually happens in weather.
The growth rate of the private markets business.
Is kind of within the range that we talked about our it's closer to our original ranges, we'll see and it should be it should come through and you should hear loud and clear that it remains a very good fund raising environment with demand Theres just been a fair bit of shock over the last quarter.
Great and just maybe as a follow up if you could maybe help flush out which products you have in the market that you are raising here and expect to raise over the next couple of quarters any sort of amounts you're able to maybe help us remind us on with respect to hard capital.
Yes, sorry go ahead.
And then I was just going to ask just about any update on retail initiatives on the fundraising front. Thank you.
Sure. Okay. So with regard to the specialized funds. We've got some information. We now include in our deck in terms of target size, what we raised in the quarter that just closed what were.
And kind of where we have to go we've generally had good success marching towards our goal with regard to all of our specialized funds, we still have secondaries co invest infrastructure and multi asset class in the market.
And the.
Several of those multi asset class and co invest for example are relatively early in their fundraising cycles and we will continue on.
In the next.
In the next year and so we do anticipate incremental closes throughout the year, we anticipate some second quarter closes we are marching towards our goals. They are pleased with our progress towards our goals. There now and just wanted to note the denominator effect because it's.
It's out there note the sort of general.
Response to global events.
<unk> acknowledges that could push some fundraising into 'twenty three from 22.
And Michael maybe I can take your second part of the question around.
The retail and what we're doing generally and in the non institutional or retail space and I think a bit of history.
Is helpful. There. So when you look at what that capital capital from that channel represents as a percentage of our current assets under management, it's about 5%.
If you look at the flows activity over recent and even medium intermediate term period of times historically, it's about 10%. So obviously it's growing.
Segment within our business and really the way the form that that is taking.
Is really representative of our business proposition generally so we work with a number of platforms.
The large wire house type platforms as well as some of the regional players in terms of offering our customer account capabilities to certain parts.
Their advisory channels typically for some of the larger advisor teams or some of the larger clients individually and the other thing that we do with those platforms is obviously work with our.
Commingled funds special.
Specialized funds that Michael was just referring to so.
Each of our specialized funds that were in market with have been on at least one platform some of them have been on several.
That forms and when you look across the number of either wire house large weyerhaeuser regional players we work with.
Almost done.
<unk> platforms, so it's clearly an area where.
We continue to see activity and expect that to continue.
Great. Thanks, so much.
Thank you.
Again, if you would like to ask a question. Please press star and then one on your telephone keypad.
Again that is star one if you would like to ask questions.
And our next question will come from Ken Worthington with JP Morgan.
Okay.
Mr. Worthington again your line is open. Please proceed yes okay.
Time I muted okay.
Terms of buyback.
Buyback buyback was.
Stock was that a bunch this quarter went up buyback more and then maybe digging further into the cash compensation. I think you said in the prepared remarks somewhere that the incentive fees that youre expecting for IRS theyre going to be.
Zero are modest for the year, you've kind of restructured compensation I think to pay your employees, maybe more out of the performance fees. So they get the upside and the downside and shareholders get sort of a more stable FRE.
If.
Ari's incentive fees really are let's say low or zero for the year.
Our employees in you prepared to actually pay employees down are they going to take that downside risk or does that downside risk make its way back to shareholders in cash compensation comes up so just.
The commitment there too.
Protecting shareholders.
Right. So you are right Ken that we've moved to further align the interest of the team with not only shareholders, but importantly, with the with the limited partners with the investors.
And we like that alignment.
Clearly when you have.
Performance fees that move around significantly based on <unk> performance, you have a performance fee bonus pool that moves around as well what's important I think to understand is that the.
The people who have material compensation that is related to the performance fee bonus pool are our most senior people who in good years enjoy.
That.
In lean years feel that more than the rest of the firm everybody I think from the principal level down below.
It's really largely protected from that variability where they receive most of their comp through the <unk> line.
And then further what is important to remember is that.
In a kind of a base case year the performance fees as compared to the firm's share of carried interest inside that incentive fee line.
Are there is a split as well so performance. So performance fees are not all that's there in that bonus pool and I think that gives us a very nice ability for people to have.
Upside have downside protection have alignment with shareholders alignment with limited partners and <unk>.
For us too.
Managed and hold our FRE margins and Thats, what we have talked in the past about.
We believe is important to be able to do when talking about sustainable FRE margin.
Okay, great and just buyback.
Sure Yes.
Yes.
The point is that.
Ken we have periods of time, where we have.
A programmatic buyback in place and your window and you are wherever you had set that programmatic buyback Thats, where you are per your plan and then you have periods periods of time, where you have more flexibility and obviously coming for.
For the last period of time.
Here you are.
All companies.
Adding up the reporting like this we're in a.
A period, where it's our <unk> our programmatic buyback.
Without ability to move that based on stock price performance. So we've approved we've increased we've increased the amount of capital available for buyback will come off that program at some time, we will figure out what the right pace of buybacks are.
That I think is the answer to your question what you were actually asking.
Great. Thank you.
Yes.
Okay.
Thank you.
And I'm not showing any further questions at this time, Mr. <unk> I'll now turn the conference back over to you.
Thank you. Thank you again to everyone for joining us today and for the questions.
We appreciate the time and the continued engagement.
Very nice day, and we look forward to speaking with you again next quarter.
Thank you ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. We hope everyone has a great day.
May all disconnect.