Q4 2022 GCM Grosvenor Inc Earnings Call
Speaker 1: .
Speaker 1: I.
Speaker 2: Good day and welcome to the GCM Grovner fourth quarter and full year 2022 results call. Later we will conduct a question and answer session. If you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call.
Speaker 2: and press star one on your keypad to join the queue. If anyone should require operator assistance, please press star than zero on your telephone.
Speaker 2: As a reminder, this call will be recorded. I would now like to hand the call over to Stacy Selinger, Head of Investor Relations. You may begin.
Speaker 3: Thank you. Good morning and welcome to GCM Grove Nurse Fourth Quarter in full year 2022 earning call. Today I am joined by GCM Grove Nurse Chairman and Chief Executive Officer Michael Fax, President John Mavin and Chief Financial Officer Pam Betley.
Speaker 3: Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for our business, our financial performance and projections.
Speaker 3: These statements are neither promises nor guarantees. They involve 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 factor section of our 10K.
Speaker 3: our other filings with the Securities and Exchange Commission, and our earnings relief, all of which are available on the public shareholders section of our website.
Speaker 3: We'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.
Speaker 3: 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 Mike Bals.
Speaker 4: Thank you, Spacey. During the fourth quarter of 2022, our financial results were in line with or moderately exceeded the expectations that we communicated on our last earnings call.
Speaker 4: Despite a challenging backdrop, we performed well for clients while raising $1.5 billion of capital to achieve total funds raised of $7.8 billion for the year.
Speaker 4: Our private markets verticals continue to grow with Q4 private markets management fees, excluding catch-up fees, rising by 10% over the fourth quarter of 2021 and 14% for the full year 2022.
Speaker 4: Be related earnings for the full year increased by 7% while FRE margin improved by 100 basis points.
Speaker 4: As was the case for the entire category, adjusted EBITDA and net income were lower than the prior year due to the capital markets environment.
Speaker 4: On a bright note, during the quarter, we were pleased to launch a new and important specialized fund, Elevate, with a $500 million anchor investment.
Speaker 4: As with our investment in Grover Insurance Solutions, we believe that the Elevate Strategy
Speaker 4: Part of a broader sponsor solutions category provides the firm with a lot of promise.
Speaker 4: And John will take you through that in his remarks.
Speaker 4: Looking ahead, the continued growth of our private markets management piece.
Speaker 4: combined with our strong fundraising pipeline, including our five private markets specialized funds in market. Leave us confident that we can compound fee related earnings in 2023 and beyond at mid-teens rates.
Speaker 4: While forecasting incentive fees is always a challenge, the earnings power represented by our absolute strategies performance fees combined with our significant carry asset give us confidence that we have similar strong rates of growth in adjusted EBITDA and adjusted net income over time.
Speaker 4: For 2023, we can achieve these objectives with lower levels of total fund raising than we saw in 2022.
Speaker 4: That said, like last year, we believe total fundraising in 23 will be weighted towards the back of the year and will exceed or equal 2022 levels.
Speaker 4: Overall, we expect full year 2023 growth in private markets management fees in the mid to high teens over 2022.
Speaker 4: For Q1-23, we expect continued strong private markets management fee growth, excluding catch-up fees of 11 to 13% over Q1 of 22, with overall private markets management fee growth a couple of points below that due to minimal expected fund closings in the quarter.
Speaker 4: Due to the back end weighting of our fundraising, the limited Q1 catch-up fees, the full effect of the 22 absolute return strategies results, and the timing of certain compensation related expenses, we expect Q1 fee-related revenue and fee-related earnings that are both slightly lower than Q4 of 22.
Speaker 4: This month marks the two-year anniversary of our first earnings call as a public company, and it is worth reflecting on our performance over that period of time.
Speaker 4: Since coming public, we have raised $17 billion of new capital, of which $9 billion was in fee accretive strategies such as co-investments, secondaries, and direct investments.
Speaker 4: With more than $10 billion of dry powder across strategies as of year end, our fundraising success leaves us enthusiastic about our ability to capture investment opportunities and generate alpha for clients.
Speaker 4: During the last two years we have grown both private markets VPAN AUM and management fees by 32% with private market strategies now comprising 63% of our VPAN AUM, up from 54% just two years ago.
Speaker 4: We believe that this double mix shift...
Speaker 4: The movement towards more private markets AUM and more fee-accretive strategies will continue to be a driving force of value creation going forward.
Speaker 4: In addition to the growth we have achieved, we have made strategic investments in our business to capture white space and lay the groundwork for continued growth in the coming years.
Speaker 4: Our offices in Toronto and Frankfurt are new efforts in insurance solutions.
Speaker 4: where we've already seen results. And our new sponsors solution efforts all provide significant opportunity.
Speaker 4: Our fee-related earnings margin increased from 31% two years ago to 36% a year end, as we realized the scalability and operating leverage embedded in our business.
Speaker 4: We believe we have continued room to expand in that regard.
Speaker 4: Our existing clients are re-upping at higher rates and in greater amounts, and we are growing our specialized fund franchises with successor funds achieving larger size and scale than their predecessors.
Speaker 4: for all while bringing new funds to market.
Speaker 4: Finally, we have made good on our commitment to return significant excess cash to our shareholders.
Speaker 4: Since going public just two years ago, we have paid 74 cents in cumulative dividends per share, increasing our quarterly dividends four times from 6 cents to 11 cents per share. As of Friday, our annualized quarterly dividend was 4.7 percent. In addition, we've returned $44 million of capital to the United States.
Speaker 4: through share and warrant repurchases. We have managed our share count and as Pam will describe we intend to significantly mitigate any dilution associated with our LTIP and stock-based compensation going forward.
Speaker 4: In closing, despite last year's tough environment, we are proud of our results both last year and over our first two years as a public company.
Speaker 4: We delivered value for our clients despite a powerful paradigm shift.
Speaker 4: significant market losses in record-setting volatility.
Speaker 4: The value proposition for clients and the strength of our business model have shown well, while the opportunities for clients and shareholders in 23 and beyond are as compelling as they have ever been.
Speaker 4: Importantly, investor demand for alternatives remains strong.
Speaker 4: We continue to believe that our stock represents good value and we look forward to delivering for all of our stakeholders going forward. And with that, I will turn it over to John .
Speaker 5: Thank you, Michael. Our $7.8 billion of fundraising in 2022 was once again no worthy for a high level of diversification across strategy, client, and geography.
Speaker 5: Private markets, which now represent 69% of total AUM, represented 93% of fundraising in 2022 and was diversified across each of private equity, infrastructure, and real estate.
Speaker 5: This year, 56% of private market capital raised within fee-occurative strategies such as co-investments, secondaries, and direct investments.
Speaker 5: Notably, we reached the final close of our secondary's opportunities fund. G.S.F.3, which at $972 million was 38% larger than its predecessor fund.
Speaker 5: As with past years, our existing clients were a key driver of capital formation.
Speaker 5: contributing 85% of new commitments in 2022.
Speaker 5: Our clients validation number of value proposition.
Speaker 5: especially against the difficult market is not only rewarding, but a strategic advantage as investors currently have a high bar for where they commit their capital.
Speaker 5: Importantly, many of these new commitments were to new programs or new strategies as clients expanded the scope of their relationship with GCM Grosvenor into new areas.
Speaker 5: Our ability to evolve and expand with our clients has been and will continue to be one of the strongest drivers of our future growth.
Speaker 5: A perfect illustration of this phenomenon was the launch of our new sponsor solution strategy in the fourth quarter.
Speaker 5: The first initiative in this category is our Elevates Strategy.
Speaker 5: which will focus largely on seating small, emerging, and diverse private equity managers, and which was launched with a $500 million investment from the California Public Employees Retirement System.
Speaker 5: CalPERS has been a GCM Krovner client for over a decade and we're very excited to be expanding our long-standing relationship with their team with the new Elevate strategy.
Speaker 5: Response or solutions category is also a fantastic example of the extension possibilities of our platform and our ability to build on our existing strengths.
Speaker 5: Our expertise investing in small emerging and diverse managers is already a key differentiator for the firm.
Speaker 5: We have invested in small and emerging managers for 30 years, culminating in nearly $18 billion of assets under management as of year-end, and have had a dedicated effort investing in diverse managers for the past 20 years with more than $13 billion in assets under management.
Speaker 5: We have consistently believed that there is a significant, too frequently overlooked opportunity to generate exceptional risk-adjusted returns by investing in small, emerging and diverse managers. And as you'll see in our public disclosures, our track record and diverse managers, it feeds that in private equity investors more broadly.
Speaker 5: As a result of our long-standing leadership, we have built a fantastic network of relationships and a reputation as a preeminent source of capital for any new investor looking to launch a fund.
Speaker 5: The Elevates Strategy is a natural extension of these efforts. We are leveraging our existing expertise in partnering with successful form founders early in their life cycles to make catalytic seed investments structured as minority investment partnerships that enable managers to scale successfully while generating compelling returns for our investors.
Speaker 5: This product is also an example of extending into adjacencies that enable us to leverage the existing platform resources to a large degree.
Speaker 5: The sponsor solutions category will be led by a new senior partner and one of our existing senior partners who is moving roles.
Speaker 5: Last quarter, I discussed the significant value inherent in our customized separate account relationships.
Speaker 5: which were 74% of assets under management as a VR end.
Speaker 5: We are constantly in dialogue around new potential customized separate accounts, which represent 78% of capital raised in 2022 and will continue to be an essential growth driver going forward.
Speaker 5: While we do not anticipate meaningful specialized fund closings in the first quarter, we expect specialized funds to have a greater impact to our 2023 fundraising and results as the year moves on.
Speaker 5: With that, I'll turn the call over to Pam.
Speaker 6: Thanks, John . The strengths and scalability of the GCM Grobner platform were evident in our 22 results and remain the key factors driving our growth in 23 and beyond.
Speaker 6: In the fourth quarter, private markets was again our primary area of growth with private markets fee-paying AUM, up 11% from a year ago.
Speaker 6: excluding the impact of catch-up fees, which were $1.6 million in the quarter. Private market management fees increased 10% from the fourth quarter of 21.
Speaker 6: For the full year 22, private markets management sees increased 12 percent. And while we are satisfied with this growth given the challenging market backdrop, we expect to exceed that growth rate in 23. audi rus Alden Adapt Concentrate
Speaker 6: For Q123, we expect continued strong private markets management fee growth, excluding catch-up fees of 11 to 13 percent over Q122.
Speaker 6: As we foreshadowed on our last call, absolute return strategies, management fees declined a half a percent this quarter as compared to the third quarter of 22.
Speaker 6: Given the 22 starting point of ARS fee-paying AUM, we expect ARS management fees in Q-1-23 to be slightly down on a sequential quarter basis.
Speaker 6: We realize $7.2 million of incentives in the quarter, the majority from carried interest.
Speaker 6: While we cannot predict the timing of one a more active transactual environment will resume, our carried interest earnings power continues to improve.
Speaker 6: As of your end, we have $789 million in gross, unrealized, carried interest across a 131 program, the firm share of which is $368 million.
Speaker 6: Despite the market environment, this figure is 11% higher than a year ago, given the outperformance of our private market portfolio versus the public market.
Speaker 6: Our annual performance fees are tied to ARF's investment returns and typically crystallize in the fourth quarter each year.
Speaker 6: Given 22 public market impacts and the high water marks of our ARS funds, our 23 performance fee earnings potential, assuming an 8% growth rate of return for multi-strategy and a 10% growth rate of return for opportunistic investment, is approximately $17 million.
Speaker 6: which compares to $30 million if all portfolios were at high watermark.
Speaker 6: Turning to expenses, C related earnings compensation in the quarter was approximately $38 million down slightly compared to the third quarter as we finalized year end results and made our discretionary compensation decisions.
Speaker 6: Consequently, we expect to be related earnings compensation in the first quarter of 23 to generally be consistent with the first quarter of 22.
Speaker 6: Other than strategic investments in the business, we do not expect significant head count growth over the coming year.
Speaker 6: We continue to focus on alignment of our team's compensation with the performance of the business through the use of stock awards to both reward and retain our talent.
Speaker 6: As we have said before, this tool was one of the factors that made coming public attractive.
Speaker 6: We have two basic prongs to our approach to stock based awards. First, we want to continue to use our LTIF to align and incentivize our employees. And we grant restricted stock with varying testing periods to provide both current rewards and long-term retention.
Speaker 6: In 22, we granted 4.5 million restricted shares to employees.
Speaker 6: Second, we have and will continue to buy back shares to offset solutions from stock-based compensation. As of your end, we had more than $45 million remaining on our stock buy-back authorization.
Speaker 6: Non-GAP General and Administrative and other expenses were approximately $19 billion in the fourth quarter, up modestly from the third quarter.
Speaker 6: We expect a slight sequential increase in this figure in the first quarter of 23 and continue to tightly manage expenses despite inflationary pressures.
Speaker 6: Our fee-related earnings margin expanded to 36% in 22% from 35% in 21%.
Speaker 6: We anticipate continued long-term fee-related earnings margin expansion in 23 and beyond.
Speaker 6: To reiterate, we anticipate private market management fees will grow in the mid to high teens and 23 resulting in fee related earnings growth in the mid teens.
Speaker 6: While we are not immune to the impact of the current market environment, our track record is strong performance. The scale and diversification of our platform, combined with the strength of our team and culture, provide us with great confidence. We remain focused on delivering long-term value to our clients and shareholders. We are all there.
Speaker 6: Thank you again for joining us and we're now happy to take your questions.
Speaker 7: Thank you.
Speaker 2: If you would like to ask a question at this time, please press star 1 on your telephone If you are using a speaker phone, please ensure your mute function is turned off. Again, that function is star 1.
Speaker 2: And our first question will come from Chris Kutowski with Oppenheimer.
Speaker 8: Oh yeah, good morning and thanks for taking my question. I wanted to start on the
Speaker 8: the Elevate program. And first I was wondering, has there been any precedent in your experience where you, you know, obviously not on the scale, but where you had an anchor tenet of this nature coming with a big commitment? And is there any way to think about how the ultimate fund resulted that resulted?
Speaker 8: now compared to the initial commitment.
Speaker 8: to the initial commitment? Sure. So...
Speaker 4: The short answer is we have had large anchors that have helped to launch funds in the past and all of our specialized funds that we've launched have...
Speaker 4: Yeah, turn it into...
Speaker 4: I don't know the right word, franchises if you will Chris, and have then gone on to successor fund two and successor fund three, etc. So we are incredibly excited about Elevate and we are excited about it on a few different levels. You know to start with an anchor of that size and that quality and caliber.
Speaker 4: is a terrific thing and we think it will get attention in the marketplace and it will enable us to have this first fund be larger in terms of its size than simply the anchor investor. We're not putting a number on that. We don't do that but we do and John did mention this remarks. We will be raising money for this fund for the next 18 to 20.
Speaker 4: new small emerging and diverse managers to launch private equity firms. And we think that there are, you know, there's ample opportunity for us to deploy the capital there to generate very good returns on that capital and on behalf of our investors in elevate to own interest in
Speaker 4: new private equity sponsors that will grow and turn into terrific, valuable businesses. And as you know, we have been in the business of allocating capital to early stage, fund one private equity managers in the small emerging and diverse manager space for a long, long time, decades.
Speaker 4: down and tried to talk about in his comments is that it is a sponsor solution program where we are delivering value to sponsors. And we believe that there are other ways that we can deliver value to sponsors over time and other opportunities. And we are excited about.
Speaker 4: building out sponsor solutions broadly defined, you know, as we move forward into the future. So it was a terrific, you know, very bright spot in the fourth quarter and we're thrilled to have that fun in market this year.
Speaker 4: which is not something that we had communicated about prior, and we think it's a very positive development for the firm and for our future.
Speaker 8: Yeah, and you said you'd be fundraising for 18 months or so.
Speaker 4: Presumably it turns on before that time, but financially speaking it's probably not an event for 2023 numbers. Am I thinking about that? No, that, you know, the fees for that fund have turned on already on January 1st, so we will enjoy some revenue from that fund from the anchor investor.
Speaker 4: in 2023 and the structure of that fund is it's a fees on committed capital with a catch-up so you know as we raise money for that fund those fees will go back to January 1.
Speaker 8: Brilliant. Okay, that's it for me. Thank you.
Speaker 2: And our next question will come from Jeff Schmidt with William Blair.
Speaker 9: Good morning.
Speaker 2: The infrastructure fundraising was pretty strong in 22, I think it was around 27% of the total. And then you'll be in the market this year, you are right now with the diversified infrastructure fund. Labor infrastructure is supposed to start up at some point this year. So, I'm just thinking about the inflation protected.
Speaker 2: characteristics of those strategies, are you seeing competitors get more aggressive there and raise additional funds or do you think there could be potential upside to your fundraising for those funds this year given demand?
Speaker 4: We're enthusiastic about the lift fund, we're enthusiastic about the diversified fund, and importantly, we're enthusiastic. We remain enthusiastic about our separate account infrastructure vertical, where we've raised a lot of money over the last couple of years.
Speaker 4: And we don't see any change at all in demand for infrastructure. It remains very strong. And in fact, you know, we don't see any change at all in demand for all. I think it remains very strong. We see it's seen a slow down, a little bit fundraising just due to the macro environment.
Speaker 4: is much, you know, anything the, you know, decline in traditional assets and the decline in transaction levels and I think as transaction levels come back, the whole space kind of loosens up and, you know, you start to see fundraising pick up.
Speaker 4: I think we got so used to infrastructure dominating the fundraising for four quarters or six quarters or whatever it was that over the last couple quarters were private equity has kind of taken the lead. You know it's a question, well what about infrastructure but that should...
Speaker 4: not be a question there's a lot of demand out there and we have a great team and we have raised a bunch of money over the last couple of years and we're going to continue to do that this year.
Speaker 2: Okay, and then on the adjusted EBITDA margin, you know, it's fairly flat for the year, which is a pretty good result, I guess, given the drop in revenue. But how should we think about that margin in a more normalized environment, just in terms of its run rate, and how much of feature expansion is sort of dependent upon revenue growth?
Speaker 4: Well, so it's a great question. You know, we feel it's very hard as Pam noted to predict carry levels. They are very much correlated with transaction activity levels and transaction levels.
Speaker 4: were down significantly last year in light of just the general macro and capital markets environment. Our belief is that as rates stabilize and transaction levels resume, we feel like we're seeing some green shoots there.
Speaker 4: starting maybe to pick up a little bit. We're not making sharp timing predictions, but we believe, you know, there's a very real asset there for us and that asset has maintained its value and as transaction levels pick up, we'll start to see more carry come in and obviously the, you know, difference.
Speaker 4: between our FRE and our, you know, adjusted EBITDA is a result of our incentives, our carry-in, our performance fees at ARS. And we've got great earnings power there. So it's hard for us to predict when that will come, but it will come in the earnings power and the asset underlying.
Speaker 4: The carry is there and is intact and it grew slightly. And we know that that will return. It's just a question of when and when it does, you know, that is a good thing for our growth in EBITDA growth and net income.
Speaker 4: and for our margins and average. Okay, that makes sense. Thank you.
Speaker 2: And our next question will come from Ken Worvington with JP Morgan.
Speaker 10: Hi, good morning and thanks for taking the questions. So I wanted to dig into the fundraising environment for the private markets business, sort of as we transition from 4Q to 2023. So have you seen a change in the environment as we sort of...
Speaker 10: So, are you feeling a little less confident?
Speaker 10: And I guess the kicker here is on CS3 and MAC3, which have their final closes this year. I think fundraising needs to accelerate for you to reach your prior targets for those funds. Is that something you feel confident in?
Speaker 4: or if not, can fundraising be extended to sort of reach your prior targets? Yeah, so thanks to the question Ken. I think that specifically just first to just clarify what we said in the call was that
Speaker 4: Our FRE goal of mid teens, you know, FRE growth for 23, we can achieve.
Speaker 4: with even less fundraising than we had last year. That was really to provide context for all of you in terms of what we need to do to make that mid-teens number. That was not in any way intended to be an indication of what we think will happen. And in fact, we do think we'll...
Speaker 4: an effort to kind of give you an appreciation for what's needed for us to make our mid teams FRE growth. And our own view is that the man for all has remained strong. Nobody's moving away from the strategies. Nobody's changing kind of lowering where they want to see all's in their overall.
Speaker 4: balance sheet allocation, you had a slowdown last year and it was really related entirely to kind of the macro capital markets environment and importantly to both the dual factors of denominator on...
Speaker 4: significantly reduced long stock, long bond portfolios and it was related to the reduced transaction levels which mean that cash flows are coming back from the portfolio are down so people kind of slow down a little bit in terms of making new
Speaker 4: commitments. And our view is that as transaction levels increase, you'll see everything loosened up and you'll see commitments to new funds and to new programs increase as well. And that's our outlook. As far as Mac and diversified infrastructure, the
Speaker 4: documents that you'll see bigger closes towards the end of the period and we do have nice solid pipeline across the firm in all the verticals and for those specific efforts as well. And so we do expect to...
Speaker 10: have some productive fund closings for both of those funds this year. Okay, excellent. That was super helpful. Okay, catch up fees. How should we think about catch up fees this year versus last year if all goes according to plan? So.
Speaker 10: fundraising a bit back and loaded, it sort of suggests that these catch up fees will be more robust in the second half of the year to help us sort of level said, how should we think about 23 versus 22 just on catch up fees?
Speaker 4: We expect they'll be higher. You know, Mac has ketchup fees and as we just talked about, we expect some good closings for Mac this year. The Elevate Fund I mentioned earlier, you know, started on January 1 and so the extent you raised money.
Speaker 4: there in Q3, Q4, you've got to have catch-up fees there. And then, you know, lift will, the labor infrastructure will have a first closing at some point, and then get to have a little bit of catch-up fees as well. Those are the three of the five funds in market that have catch-up fees.
Speaker 4: and we think they will generate catch up fees this year that will equal or exceed the catch up fees last year.
Speaker 7: Okay, great. Thank you. Thank you. And we'll stick it.
Speaker 7: And once again, if you do have a question, please press star and then one on your telephone keypad. And our next question will come from Adam Bd with UBS.
Speaker 5: Thank you, and good morning. A couple of questions on Elevate and Sponsor Solutions more broadly. First just in terms of mechanics, wondering how either the fund or firm more broadly expects to balance the eventual need for return of.
Speaker 5: LP capital from the fund, you know, with the perhaps, you know, need for longer term, maybe even permanent financing on the part of the issuers in question, you know, seems salient given Grovener's own history. And then more broadly, just wondering about what you're seeing in the issuer market there are.
Speaker 5: you know in terms of capital formation are small firms being formed you know at the same rate it's before or little bit less given given some of the environment the challenges thank you
Speaker 11: Sure, Adam, Mrs. John have to take that one.
Speaker 11: I think you can think of these investments out of the elevate strategy as being kind of multifaceted partnerships.
Speaker 11: with the sponsor talent and the way that can look is
Speaker 11: They won't all be equal, but you could have investments in the fund themselves. You could have co-investment relationships with those managers. It's possible you could have a financing for the management company or the GP itself. And then in return, part of that economic package would also be minority interest.
Speaker 11: whether those are revenue shares or equity interest in the managers themselves. I think for the bulk of the capital, right, whether that's the investment in the fund, the co-investment or financing at the management company or GP level back capital would be coming back over the course of the duration of a private equity life in due course. And so the LPs of our fund would have their capital back.
Speaker 11: And the remaining interest would be a cash flowing interest, you know, in the form of revenue share or equity participation. That's your point could last for a long duration, but at that point it is cash flow and capital coming back.
Speaker 11: after having had all your invested capital back. So we think that the good profile for investors in this type of strategy. I think I'm the second part of your question.
Speaker 11: There is certainly some cyclicality that exists always in the form of new fund launches and that has some relation to general capital markets environment, general correlation to denominator effective things of that nature, but the reality is we have a...
Speaker 11: huge sourcing network, a huge investment funnel. And if we're thinking about doing eight to 10, eight to 12 deals over three to four years, that's plenty of time and a small enough number that we feel like we can be highly, highly selective and partner with the right firms and their launches. Thank you.
Speaker 5: Perfect. Thank you, John . Appreciate the detail. And then maybe just a quicker one on the fee AUM backlog, particularly the portion of that that's charged on Deployter Invested Capital. I think it's 4.7 billion.
Speaker 5: you know just either historically or in your budgeting or what have you you know how long do you think you know given the fun setup right now how long do you think it would take to deploy that is that like a one year to year kind of time frame or what do you think in there thank you
Speaker 11: We've generally said that it's ratable over a few year period of time. There could be some that's a little bit longer, but that's generally the guidance that we've given on that front.
Speaker 5: Okay sounds good. Thanks very much.
Speaker 7: And our next question comes from Michael Cypress with Morgan Stanley .
Speaker 2: Hey, good morning. Thanks for taking the question. I was hoping to dig into the absolute return business in terms of the fundraising outlook there. So I was just hoping you could comment on what you're seeing in the marketplace in terms of LP, appetite for absolute return strategies, particularly in light of the strong out performance for broad benchmarks last year in that strategy. What do you expect in terms of gross sales into 20?
Speaker 4: and the demand, you know, for specific strategies is mixed. So you'll see people that have an interest in credit-oriented strategies. Commodities had a great year last year. You're seeing people talk about, you know, whether they want to ship capital towards those strategies.
Speaker 4: There's sort of that space is so diversified in terms of the number of strategies that take place underneath and the ability to have funds and separate accounts that focus on different coins.
Speaker 4: strategy sets and have different makeups that you know there's there's always a level of demand we have said for a long time you know that we think it you know we're not we don't think you're in a you know stop a strong net inflow environment we think that the asset class is kind of
Speaker 4: growing through compounding, but not through incremental allocations to the asset class. And I think we believe that continues to be kind of the overarching theme there.
Speaker 4: and don't see any real change in that kind of macro picture for demand for headphones. I do think that when you have an environment like we have last year, you know, people will tend to use liquid strategies and liquid portfolios.
Speaker 4: for liquidity that maybe is obvious, that it's sort of saying that, but I do think you see people that can take a little money for ARS to fund some things elsewhere in their alt book that they wanna keep funding and wanna keep doing, but they're over allocated alt because of the...
Speaker 4: denominator effect and that's a place for some liquidity and we suspect that will abate somewhat this year. And in general we have, you know, we have in our ARS strategy, which we talk about as kind of one vertical, there are a number of different approaches inside of that.
Speaker 4: some of which had had very good results last year and we would expect some of those to experience some growth this year while others could see, you know, could see reductions and but on a net basis, you know, we're actually budgeting for some modest redemptions.
Speaker 4: This year, more modest than last year, and not seeing a major increase in the, you know, balance sheet allocation writ large to hedge funds.
Speaker 4: That said Mike, I do want to just mention, like, you know, we talk a lot about ARS and, you know, you know that we feel like RARS vertical doesn't necessarily get the respect that it deserves in a, in a, in a, in a, in a weird way.
Speaker 4: the performance of the portfolios last year, you know, certainly showed the value of the ARS strategies to clients as compared to traditional strategies. But equally important, I think, from a...
Speaker 4: firm value perspective. You look at kind of, you know, what did the assets of the ARS, you know, strategy, strategies do, and what did the revenues do when you think about that as compared to traditional.
Speaker 4: asset management, which is the comparison we've always tried to make that, you know, let's not be, you know, focused, so worried about hedge funds and let's think about it in comparison to traditional asset managers. And if you look at the revenues last year and what the revenues did last year compared to traditional asset management firms.
Speaker 4: It was a much better business to be in last year than to be a long-runly traditional manager and we believe that will continue to be the case over time.
Speaker 2: Great, thank you. And just to follow the question, circling back on Elevate. So with that, you're launching a fund strategy, a fund vehicle around a strategy and capability that you guys have had for some time now. So just curious as you kind of look at your separate account capabilities and investments, if there's other types of strategies that you guys already have today.
Speaker 4: capability and a lot of origination capability.
Speaker 4: that we believe we can grow.
Speaker 4: And we can grow both in in customer separate account and in specialized fund form. And we have that in the impact space. We have that in the sponsor solutions space. We there are.
You know, you know, we've been pushing in the insurance channel for a while. There are, you know, home-ingled fund products that can make a lot of sense for that channel. And so, and structured products that can make a lot of sense for that channel. So I think that we are...
sort of long origination and long manufacturing. And we have a lot of ability to add new funds and new strategies over the next several years. You've seen us do it over the last couple of years. And I think you'll continue to see us do it as we move forward.
Great, thank you. Thank you, and I'm not showing any further questions at this time. Thank you all very much. We appreciate your interest and we look forward to delivering for shareholders as we move forward.
Thank you. And ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. We hope everyone has a great day. You may all disconnect.