Q4 2022 Bridge Investment Group Holdings Inc Earnings Call

Speaker 1: and welcome to the Bridge Investment Group 4th quarter, 2022 earnings and acquisition of new berry partners conference calls. At this time, all participants are in a listen-only mode.

Speaker 1: A question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Bonnie Rosen, head of shareholders' relation. Thank you.

Speaker 2: Good morning, everyone. Welcome to the Bridge Investment Group year-end and fourth-quarter conference call. We will also discuss our planned acquisition of Newberry partners. Our prepared remarks include comments from our Executive Chairman Robert Morse, Chief Executive Officer Jonathan Flager, Chief Financial Officer Katie Ellsnav, as well as Chris Yaro, partner of Newberry—

Speaker 2: I'd like to remind you that today's call may include Ford looking statements which are on certain and outside the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements.

Speaker 2: For a discussion of some of the risks that could affect results, please see the Risk Factor section of our Form 10K. During the call, we will also discuss certain non- GAAP financial metrics. The reconciliation of the non-GAP metrics are provided in the impedicts of our supplemental slides.

Speaker 2: The supplemental materials are accessible on our IR website at ir.bridgeig.com. These slides can be found under the presentations portion of the site along with the fourth quarter earnings call event link. They are also available live during the webcast.

Speaker 2: I will present our GAP metrics and Katie will present our non-GAP data. Re-reported GAP net income to the operating company for the fourth quarter of $18.2 million and $272.4 million for the full year 2022.

Speaker 2: Gap earnings per share was 92 cents for the full year 2022 with a Gap loss per share for the fourth quarter of four cents. It is now my pleasure to turn the call over to Katie.

Speaker 3: Thanks Bonnie and good morning everyone. It's an exciting day for bridge. I will review our financial highlights from the 2022 earnings announcement this morning, followed by Bob and Jonathan with macro commentary on our markets and operations.

Speaker 3: Bob, Jonathan and Chris will then introduce the Newberry partners and share details on how bridge and Newberry will work together going forward.

Speaker 3: From a macro perspective, 2022 was a challenging year. We experienced the highest levels of inflation in decades. As a result, central banks around the world shifted policy from low interest rates and quantitative easing to aggressive rate increases and concurrent monetary tightening.

Speaker 3: In addition, the world experienced increased geopolitical risks from the expanding conflict between Russia and Ukraine, an economic slowdown, and now subsequent reopening in China, and other developments weighing on global capital markets.

Speaker 3: Despite a challenging backdrop, Bridge delivered meaningful positive growth across our key metrics for 2022.

Speaker 3: FRE to the operating company increased to 158.3 million powered by 37% growth in recurring foreign fund management fees.

Speaker 3: which more than offset a decline in transaction fees.

Speaker 3: Operating expenses were at 37% year-over-year as our platform continued to scale. We added to our relatively new logistics, solar, and prop-tuttings.

Speaker 3: on men at our ESG and compliance efforts, and at the same time, we're cautious on employee compensation and other expenses.

Speaker 3: Notwithstanding investing for growth, which has already started to occur in these new verticals, our fund management fee revenue outpaces this growth by 5%, showcasing our operating leverage and cost discipline.

Speaker 3: Distributable earnings to the operating company increased your record 187.9 million with after tax DE per share of $1.10.

Speaker 3: a 24% increase from 2021.

Speaker 3: This increase was driven by our continued growth in the earning AUM and the related earnings.

Speaker 3: Distributable earnings for the fourth quarter worth 35.6 million with after-tax CE per share of 21 cents.

Speaker 3: We declared a dividend of $0.17 per share, which will be paid to shareholders of record as of March 10th.

Speaker 3: The rapid rise in interest rates led to repricing in the asset markets in which we participate and a significant decrease in lending activities during the second half of the year. A widening bid-ass spread in property transactions markets made it difficult to value assets and close investments.

Speaker 3: This has impacted deployment and to a lesser extent are capitalizing activities.

Speaker 3: With respect to deployment, we have been patient as markets corrected in the second half of 2022. As a result, our transaction volumes, along with the entire market, were down. And we took the view that our 3.5 billion of dry powder would be deployed at better values in the future.

Speaker 3: Although transaction fees and relies performance fee revenue may remain muted in the near term due to the short-term market conditions.

Speaker 3: The underlying fundamentals of our business remain healthy. For example, our multi-family and workforce assets, which represent 34% of our fearing AUM, are 94% occupied, and the same store effective rent growth for 2022 over 2021 averaged above 15%.

Speaker 3: Fundamentals in our latest single-family rental portfolio are similarly strong, with a 7.4% growth in NLI for 2022 and 96% occupancy.

Speaker 3: Logistics, which is a growing component of our AUM, continues to experience historically low vacancy rates.

Speaker 3: particularly in the coastal and gateway and bill markets in which we primarily invest.

Speaker 3: This in turn has continued to support double-digit rent growth, which we think will persist into 2023.

Speaker 3: Now turning to investment performance.

Speaker 3: Our equity real estate funds, which are mostly value-adstrategies, depreciated 4.8% in the quarter and 1.7% for the year, as we continue to increase cap rate assumptions in the rising great environment on unrealized investment.

Speaker 3: These cap rate increases have been largely offset in many cases by rent growth, and we continue to see strength in the underlying value add sectors in which we invest.

Speaker 3: In addition, we generally have the ability to hold assets through the market volatility, and we believe our funds are conservatively and appropriately capitalized.

Speaker 3: We are focused on the long-term value we provide to our limited partners and our confidence that we continue to add value to the assets in our funds.

Speaker 3: We achieved solid fundraising results in Q4 of 518.1 million, bringing in close to 4.5 billion for the year, and what was a more difficult backdrop for raising capital.

Speaker 3: During 2022, their January of 2023. We also completed final closings for the latest spentages of our debt strategies, multi-family, and work first and affordable funds at record levels.

Speaker 3: We expect that strategies for will be fully invested in the coming months as we continue to find attractive investment opportunities amidst the turbulence of the credit markets. In the fourth quarter, we bought $633 million of investment grade CRE, CLO, and CMBS bonds.

Speaker 3: with a weighted average spread of SOFR plus 436 basis points unlearned. These highly risk mitigated investment grade bonds were all floating great in our senior in the capital structure that exhibited outside jail to do the general illiquidity in the securitization markets during the quarter.

Speaker 3: We continue to have productive dialogue with our investors related to this strategy.

Speaker 3: We had momentum in Q4 from several of our strategies with 167 million committed to opportunities on Fun5, 44 million to netless income, and 42 million to AMBS.

Speaker 3: We ended the year with gross AUM of 43.3 billion and be paying AUM of 17.3 billion, an increase of 19 percent and 30 percent respectively from 2021.

Speaker 3: With 3.5 billion of dry powder, we are well positioned to thoughtfully deploy capital for funds that we believe is an attractive point in the cycle.

Speaker 3: Our value ad platform is built for such market environments.

Speaker 3: We also feel good about our fund capital base with 98% of our fee earning AUM in long-term closed-end funds which have no redemption features and awaited average duration of 7.7 years.

Speaker 3: This significantly inflates bridge from the regumptions currently seen by those who have more exposure to retail open and vehicles.

Speaker 3: Approximately 90% of our fee-earning AUM is invested in high-conviction themes, which include residential rental in the U.S. across multifamily, workforce, and affordable housing, single-family rental, senior housing, and in our private credit strategies, where the majority of the collateral is multifamily.

Speaker 3: and the potential for meaningful capital appreciation. With that, let me turn the call over to Bob.

Speaker 4: Thank you, Katie.

Speaker 5: We are pleased to discuss our strong year-end 2022 and fourth quarter results and the definitive agreement to acquire Newberry Partners.

Speaker 5: one of the largest and in our view highest quality and best performing independent secondary firms.

Speaker 5: The transaction is an exciting next step in our strategic plan to grow both organically and inorganically to thoughtfully expand our investment platform in an attractive and growing asset class.

Speaker 5: Before reviewing the strategic rationale for the Newberry Transaction and the macro environment in which we expect to operate in 2023, I wanted to highlight selected achievements in 2022.

Speaker 5: We achieved record closes in three established bridge verticals with debt strategies for at $2.9 billion.

Speaker 5: Multi-family 5 at $2.3 billion with a final closing that occurred in January .

Speaker 5: and Workforce Interportable Housing 2 at $1.7 billion. Highlighting the confidence investors place in our best in class investment teams.

Speaker 5: Both BOLPY Family 5 and Workforce Affordable 2 are the largest specialized funds of their kind.

Speaker 5: and positions to participate in the continued opportunities around housing in the U.S.

Speaker 5: The predecessor funds for each of these are ranked in the top quartile in performance by prequin for their sizes and Vintages, illustrating the value of specialized focus and forward integration, both of which in part define our approach to the real estate markets. We will launch.

Speaker 5: in 1st quarter, 2023, successors vehicles in our established logistics, office, and healthcare verticals, as well as our debt strategies vertical since debt fund 4 is expected to be over 85% deployed.

Speaker 5: We have assembled outstanding investment teams and launched new strategies in renewable energy and PropTech to further expand our scope and have enjoyed early success in those efforts.

Speaker 5: And finally, we completed one strategic acquisition in the complimentary single-family prevent sector.

Speaker 5: We're starting strong in 2023 with the Plan Newberry acquisition to expand into the attractive and growing secondary sector with an outstanding management team and an NBA Bull track record of success.

Speaker 5: 2022 was an unusual year from the perspective of commercial real estate.

Speaker 5: Counter to the typical pattern where volumes are greater in the second half than the first half of the year. 2022 started with a bang and ended with a whimper.

Speaker 5: At the beginning of 2022, transaction volumes were high. Price expectations from sellers were high and buyers were plentiful.

Speaker 5: In the first half of 2022, we sold $745 million of assets, contributing to $31.6 million of realized performance fees.

Speaker 5: In the second half of 2022, we were very selective on monetizations as well as deployment, yet we remained actively engaged with brokers, sponsors, and members seeking attractively priced opportunities. We expect to see more of these as 2023 progresses.

Speaker 5: Hopefully culminating with a much more steady and active market by the second half of the year as the capital market stabilized.

Speaker 5: As we look ahead, we see green shoots particularly in the U.S. with the resilient labor market and healthy consumer metrics.

Speaker 5: We've also started to see some evidence of inflation easing with the personal expenditures price index rising just 5% in December , the slowest annual gains in September 2021.

Speaker 5: We've already seen the pet slow the pace of rate increases from 75 basis points to 25 basis points and Treasury yields come down by almost 100 basis points from their highs.

Speaker 5: If these trends continue, this will bring much needed price discovery back to the market, which would increase the velocity at commercial real estate transactions as we progress further in 2023.

Speaker 5: In commercial real estate, our outlook focuses on sectors with long-term demand drivers and opportunistic plays that may come in the form of broken capital structures or root-positioning of assets. We expect to see some attractive near-term opportunities albeit in a slower deployment market.

Speaker 5: followed by a significant increase in activity later in the year as the capital markets stabilized.

Speaker 5: Our long-term strategic intentions are to continue to grow organically as we've done in our established verticals and combined organic growth with carefully curated acquisitions.

Speaker 5: The alternative asset management space is fragmented and consolidating, and we believe offers significant opportunities.

Speaker 5: Over the course of 2022, we evaluated numerous opportunities before focusing on new very partners.

Speaker 5: We have seen that the weakness in the capital markets in the third-infoer's quarters of 2022 Accelerated that this is our smaller managers to consolidate and we believe this trend is just beginning

Speaker 5: We selected the secondary sector as one of the most attractive and believed that the new-barried team, investment philosophy and process fit hand in love with how Bridge has navigated successfully since our founding.

Speaker 5: We and others see significant opportunity within the high growth secondary's market. The alternative asset sector has gone rapidly over the past decade with more than $13.3 trillion in assets under management by alternative managers and is expected to grow at double digit rates for the next five years.

Speaker 5: As liquidity needs evolve for investors, demand per secondary solution has accelerated. The second-daries market has grown dramatically in recent years, with $132 billion in volume in 2021, up 120% over 2020.

Speaker 5: with a healthy $108 billion of volume estimated for 2022. And the market is projected to grow at a 22% compound annual growth rate through 2026 per a Morgan Stanley research report.

Speaker 5: The current macroeconomic environment, along with the gap between public and private market pricing, has only increased the need for LPs and sponsors to seek secondary solutions to rebalance investment allocations.

Speaker 5: extend funderations to whether price volatility gain liquidity or streamline portfolios.

Speaker 5: In turn, LPs in secondary funds benefit from outsized current cash yields, instant exposure to PE asset classes with limited to no J curve, high diversification, and structural value protection from fine below NAB.

Speaker 5: With Newberry, we will diversify our product offering and add significant assets to the Bridge platform.

Speaker 5: The transaction also presents an opportunity to expand our investment offerings to both bridge and new-barry investors by developing real estate tech and various funds as we combine bridges, real estate underwriting expertise with new-barry sterling reputation as a leading secondary market investor.

Speaker 5: We are excited about this value enhancing transaction and see a number of opportunities to scale together in today's secondary market.

Speaker 5: We look forward to working closely with Newberry's highly experienced management team, and we are confident that our firms shared values, proven track records, complimentary areas of expertise will make for a seamless integration. This position's bridge to capitalize on the growing secondary's opportunities set.

Speaker 5: and create significant near and long-term value for our investors. I'll now turn the call over to Jonathan to both fully describe what Newberry does today and to walk through the financial terms of the Newberry Transaction.

Speaker 6: Thank you Bob and good morning.

Speaker 6: We are delighted to announce the signing of a definitive agreement to acquire substantially all of the business of Newberry partners and to enter into long-term employment contracts with the senior professionals who have managed the growth and success of Newberry since it's founding in 2006.

Speaker 6: Newberry is the leader in the secondaries market with a focus on acquiring limited partnership interest in established buy-out, growth equity, and venture capital funds.

Speaker 6: Consistent with the way Bridge operates and its real estate investment funds, Huvery's focus has been on small and middle-market transactions, whether it is less competition and more attractive pricing.

Speaker 6: Since its founding in 2006, Newbury has raised over 6.2 billion of committed investor capital across five dedicated funds.

Speaker 6: The firm has executed more than 200 transactions, investing in over 500 underlying interests on behalf of limited partners.

Speaker 6: Newberry's experience management team has decades long track record of strong performance and has returned over 4 billion of cash distributions to investors since inception.

Speaker 6: Newberry's investment performance has been strong and steady and has improved over time.

Speaker 6: Since the global financial crisis, new very funds that have started Mark to market reporting have had gross annualized returns of greater than 20% and net returns of approximately 15-21%.

Speaker 6: Newberry's Best in Class Management team, middle market investment strategy, and strong direct sourcing channel aligned with our strategy of investing in carefully targeted opportunities that allow us to drive better risk-adjusted returns.

Speaker 6: Newberry has more than 250 limited partners worldwide, spanning pension funds and endowment, family offices and investment managers among others.

Speaker 6: There is little overlap with new various limited partners and existing bridge investors with less than 3% overlap of institutional clients invested with both firms.

Speaker 6: This allowed significant cross-selling opportunities.

Speaker 6: We believe the new berry acquisition is highly strategic and financially creative to the bridge platform.

Speaker 6: Newberry has approximately $5.2 billion in assets under management, which will bring bridge to a total AUM of $48.5 billion.

Speaker 7: More importantly,

Speaker 6: Keep paying AUM, which represents most closely the true underlying growth of our business, will increase by 25% or 4.3 billion.

Speaker 6: bringing us to 21.6 billion as of December 31st, 2022, based on combined year-end numbers.

Speaker 6: For perspective, Bridges' V-Paying AUM at the time of our IPO was $10.3 billion. So post-closing of Newberry, this represents 110% growth in just 6 quarters.

Speaker 6: During 2022, the very generated 43 million of management fees and 28 million of fee-related earnings.

Speaker 6: with the duration of their fee earning AUM approximately eight years.

Speaker 6: As a result, on a combined basis, we estimate our fee-related earnings would have been $192 million for that same time period, enhancing our FRE profile in a powerful way.

Speaker 6: In addition, Newberry generated strong estimated FR-re margins of 65%, which will enhance the FR-re margins for the combined business going forward.

Speaker 6: Overall, on closing, we expect the transaction would have been accretive to 2022 FRE and FRE margins.

Speaker 6: On an after-tax DE per share basis, we estimate the transaction would have been mid-single digits accretive. In addition to being immediately accretive to earnings,

Speaker 6: We are excited about the growth prospects of new barriers we launch, success or funds, and expand our offerings in the secondary sector.

Speaker 6: As we discussed in the past, we have long focused our shareholders on recurring fund management fees as a benchmark of our underlying growth and stability.

Speaker 6: We recognize that transaction fees can be more inconsistent and seasonal and we clearly saw that in 2022.

Speaker 6: Our annualized recurring fund management fees were $121 million at the time of IPO. Now that the fourth quarter of 2022, we are now at $200 million, representing 65% growth.

Speaker 6: When combined with new berry, they are 243 million.

Speaker 6: which is more than twice our IPO level.

Speaker 6: We expect to continue to grow as we raise successors new very fund this year.

Speaker 6: Additionally, Newberry has a loyal investor base with nearly 80% of its Fund 5 capital coming from repeat investors.

Speaker 6: With respect to the funding of the transaction, the bridge will provide 320 million cash for substantially all of the business of Newberry, which includes the acquisition of existing management agreements and in-place workforce.

Speaker 6: We are not acquiring the carried interest associated with funds 1-5. However, we will earn carried interest on future funds and anticipate 40% of that carry attributable to our ownership in the platform will be allocated to the operating company.

Speaker 6: Origin tends to fund this acquisition using existing balance sheet resources, including the 150 million of proceeds from the recent private placement of debt.

Speaker 6: The private placement was priced in January and will include the issuance of 120 million of 7-year notes and 30 million of 10-year notes with a weighted average interest rate of approximately 6%.

Speaker 6: The note purchase agreement is contingent upon us closing the new very transaction and funding would occur at that time.

Speaker 6: We also expanded our revolving credit facilities to 225 million with full capacity currently available.

Speaker 6: We expect a transaction to close in the first half of 2023 to object to customary closing conditions, including investor consent and regulatory approvals.

Speaker 6: I want to end our prepared remarks by reiterating how excited we are to be partnering with Richard, Chris, Oren, Jerry, and the entire Newberry team.

Speaker 6: Their culture of teamwork, excellence, and specialization is aligned with our values, and we look forward to working together in the years to come.

Speaker 6: This transaction is highly strategic for bridge and provides another area of dynamic potential growth going forward. It is now my pleasure to turn the call over to Chris Yarrow of Newberry Partners.

Speaker 6: for Bridge and provides another area of dynamic potential growth going forward. It is now my pleasure to turn the call over to Chris Yarrow of Newberry Partners to say a few words.

Speaker 8: Thanks, Jonathan. As you know, we've spent a lot of time thinking about the future growth and development of our business.

Speaker 8: and we are excited about the common vision and cultural fit between Bridge and Newbury.

Speaker 8: We believe that this partnership will accelerate our growth both with inner existing investment strategy as well as into adjacent secondary opportunities.

Speaker 8: The team at Newbury is confident that this transactional position is for shared success, and we very much look forward to working closely with the entire Bridge team to realize the benefits of this complementary combination.

Speaker 5: Thank you, Chris. We are likewise thrilled about this new opportunity we have together.

Speaker 5: Operator, we will now open up the line for questions. Thank you.

Speaker 1: Thank you. We will now be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star one on your telephone keypad.

Speaker 1: A confirmation tone will indicate you're in the question Q.

Speaker 1: You may press star 2 if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker 1: One moment please, we'll be poll for your questions.

Speaker 1: Thank you. Our first questions come from the line of Michael Cypher's with Morgan Stanley . Please proceed with your questions. Great. Thank you. And good morning, congratulations on the transaction. It maybe just does start off on the new bridge transaction. I was hoping you might be able to.

Speaker 6: elaborate a bit more on the opportunities that you see to scale the new Barry business you mentioned cross-selling how do you think about that what does that take expanding into real estate secondaries in the another area I think you also alluded to maybe some other products that just curious how you think about doing that what are some of the actions that you guys might take this year and into 24 what is that require in terms of team bill

Speaker 5: I might start off a little bit and then ask Chris to elaborate as well. We have tried to be very...

Speaker 5: Both strategic and tactical as we look for opportunities to expand and we feel that the secondary, broadly speaking, the secondary's business is one that offers significant growth potential going forward and our interpretation of new various history and track record is such that it sets the...

Speaker 5: foundation for strong growth going forward. The newberry team has created an enviable track record. They have a philosophy, a middle market philosophy, if you will, that parallels. So, closely, Bridge has created its track record as well. So, we think that there's a...

Speaker 5: a significant fit between our two firms in how to do business. Newberry has just about completed the deployment of capital in their fund five, so we collectively anticipate the successful launch of a fund six to continue precisely what they've been doing.

Speaker 5: raising capital for the secondaries business as well as raising capital for for our fundamental real estate activities. But the secondary business like like the real estate business has a lot of different aspects to it, focusing on on on PE.

Speaker 5: venture capital and buy out opportunities has been the main focus of new very looking backwards. We think that there's meaningful opportunity in the more nascent but growing real estate secondary business. It's our view that the power of bridges real estate expertise and new berries.

Speaker 5: Secondaries expertise will create a strong entrant in that field and there are other areas to focus on as well, whether it be infrastructure or other opportunities in the secondaries business. It's a growing business. So we think that

Speaker 5: opportunities. Chris, anything that you'd like to add there?

Speaker 8: Well, Michael, first of all, I'd say we're delighted that the opening question is focused on our business and we're delighted with this combination. And as Bob said, the secondary market is really even in its middle innings of its tremendous I mean, when we started this business back in 2006, we're still in the same business. And we're still in the same business.

Speaker 8: just the regular way private equity secondary's market was probably 10 or 15 billion dollars in size, if that. Today we're looking at 100 plus billion dollar markets year over year, so there's been enormous growth in the business, but we think that the overall market still has another 2 to 3x in the next few years. So there's just tremendous underlying growth in the business.

Speaker 8: And so I think what we've been looking at going forward is one is Bob said, you know, raising this successor fund to our fund five, which was a $2 billion US fund, and we're looking forward to that imminent launch. And then two, as we talked to sellers in the universe looking for liquidity or other rebalancing solutions.

Speaker 8: We see in their portfolios a whole series of other types of fund interests, not just the buyout and venture and growth equity that we've been focused on through our career here in Newbury, but we see real estate funds in there. We see credit funds. We see other types of funds in these portfolios. So as we look to address the broader market as it's evolving, I think these incremental capabilities that we can develop together with the bridge folks.

Speaker 8: will give us one better solutions for the people that we're dealing with, but also create avenues for continued growth of the platform.

Speaker 6: Great, thanks. Just to maybe follow up on that, you mentioned Fund6 launching that here. Just given, you know, broadly we're hearing about a more challenging fundraising back-to-up today. It's just curious to what extent are you guys seeing that on the secondary sprung. And if you think that that Fund5 at 2 billion could scale in this market environment to raise a larger size.

Speaker 6: required terms of hiring, platform builds, what actions you guys might have to take in order to actually bring such a new product into the marketplace together.

Speaker 5: Perhaps Chris could address the first part of that question with respect to appetite in the secondary business and then I'll talk a little bit about team building. You might go all great questions. I think the general overlay around fundraising in the private equity space is that 2022 was definitely a slower year, but it was still the third-

Speaker 8: that's ever been. We've just seen the Black Stone Strategic Partners platform go out and raise a $25 billion fund. The largest fund has sort of raised in the past 12 months. So there's enormous interest in appetite for secondaries and the growth in that business. And in some ways,

Speaker 8: The issues that a lot of LPs are facing right now, which is causing some of the slowdown in the LP market. So for instance, they're overallocated. They need to rebalance in some way. Those are exactly the problems that Secretary Fund saw for Limited Partners. So we're very much the solution to sort of the meta problem that's going on with the fundraising market right now.

Speaker 8: And again, a lot of LPs understand that, and we would expect that we would have a very successful fundraising as a result. Not just because we have a very strong investor base that has supported us historically through multiple funds, but we see lots of inbound interest in secretaries right now because in some ways, this is exactly the exposure in the market that a lot of people are looking for. So we're very, very excited about that.

Speaker 8: As we look into other adjacencies, we would certainly need to add teams and fund vehicles to support those specific activities because they are different activities and they do have different investor levels of interest. So we would need to continue to build out the team to address these things. But I think that from a core activity perspective, as we face sellers as I was describing before, we're seeing so much of the stuff in the flow already.

Speaker 5: I think a lot of investors were looking forward to turning the calendar page at the end of the year. The amount of dialogue, the amount of activity that we see in early 2023 has been quite strong. Both internationally as well as domestically as investors, institutional investors, high net worth investors, family offices, etc.

Speaker 5: look to allocate capital in 2023. So we have probably a record amount of dialogue with investors' dialogue. It generally results in some strong fundraising capabilities to the point about building teams.

Speaker 5: That's how Bridge has grown to where we are today. Remember, we stood up a net lease team in late 2021. We stood up a logistics value ad team, which is doing a fantastic job in late 2021 as well. So...

Speaker 5: incrementalizing the new-barry organization to include whether it be a real estate secondaries capability or a continuation fund capability or other aspects of the secondaries business seems like a natural adjunct to what we've done on an ongoing basis.

Speaker 1: Great. Thanks Bob. Thank you Chris. Appreciate it.

Speaker 9: Great. Thanks Bob. Thank you Chris. Appreciate it. Thanks for the questions.

Speaker 6: Thank you. Our next question has come from the line of Ken Worthington with JP Morgan. Please proceed with your question. Good morning. Thanks for taking the questions. So, more on Newberry here. How are you thinking about introducing Newberry secondary products?

Speaker 5: to bridge wealth management distribution channels? What might new products for wealth management look like and then what are you thinking about in terms of timing of products and launch? Do you need to wait for Newberry 6? Can you do it sort of in advance? Would it be concurrent?

Speaker 5: is it going to take four years? How are you thinking about products and timing? Thanks, Ken, for the question. First of all, Newbery 6 is imminent, so not much of a weight there in terms of launching that fund.

Speaker 5: Bridge has a broad suite of relationships with wealth management platforms. I don't think there's a single major wealth management platform with whom we don't have good dialogue at this point. And over the course of 2022, we expanded the distribution of...

Speaker 5: of funds on that platform. Of course, we are at the very beginning stages of introducing a secondary concept in that dialogue. We couldn't really talk about that much before we announced the transaction, which took place earlier this morning. We think having said that.

Speaker 5: that there's a meaningful appetite in the wealth management channels with whom we do business for a variety of product. We think that as a company we've built a strong track record as a capable, high-performing, good partner.

Speaker 5: to the wealth management channels with whom we do business. So we expect that there'll be meaningful receptivity to expanding that product suite to include the secondary business as well, but certainly more on that to follow. The investor base that has

Speaker 5: traditionally supported Newberry's business has been both ultra high net worth, family office, as well as institutional. So it's a big, broad, global investor base. The addition of a wealth management distribution channel should be purely 100% augmenting to the distribution that they've successfully built in the past.

Speaker 9: provide portfolio secondary opportunities. So I think from that standpoint, the product itself will be very attractive for that and market. Maybe in terms of the quarter and the results, income from property operations and insurance income were a bit higher than trend.

Speaker 9: What drove the better results here? And I guess we're kind of looking for sustainability if they are sustainable.

Speaker 3: Just speak to the insurance results first. You know, that was really driven by claim history that occurred during 2022. And that will vary just based upon actual incidents that occur. You know, as we think about the property operations, you know, as our Fierning AUM continues to grow.

Speaker 3: That balance will continue to increase. And so those are really the largest drivers. We continue to deploy properties or deploy capital services, particularly in the multi-family sector. And multi-family workforce sectors will continue to scale. They kind of go hand in hand with that recurring fee income that we...

Speaker 5: like to focus on in terms of the core business. We mentioned this. Can we mention this? I believe in an earlier earnings call, the strategic decision to be forward integrated into property management. But we think is really an important.

Speaker 5: component of how we post performance. We think that we can generate alpha at the asset level. We think particularly in the changed interest rate environment where leverage has gone from being an unmitigated positive in terms of financing real estate acquisitions to something that's

Speaker 5: You know, more in the neutral range, probably in the whole scheme of things, in this new environment, property management gives us an element of alpha that that...

Speaker 5: investors who are not forward integrated just don't enjoy it. And so we've worked hard over the years and we continue to work hard to optimize that approach to property management. We think we've had a lot of learnings over the past 32 years or so as we've grown our property management and we think it's a huge asset for us and for our investors going forward.

Speaker 5: just don't enjoy. And so we've worked hard over the years and we continue to work hard to optimize that approach to property management. We think we've had a lot of learnings over the past 32 years or so as we've grown our property management and we think it's a huge asset for us and for our investors going forward. Thank you.

Speaker 1: Thank you. Our next questions come from the line of SUMETEMOTE with Piper SILAR. Please proceed with your questions. Thank you.

Speaker 10: Thanks. Good morning. I'm wondering if you guys could talk broadly about the deployment opportunity today versus three months ago. Any changes you might be seeing there. And then on the transaction fees in the quarter came in a little lower than we're expecting. Can you help us frame how to think about those fees?

Speaker 10: for this year, kind of given the backdrop that we see. Jonathan, how about over to you on that?

Speaker 6: Sure. Sure. On the transaction fees, I think we are seeing, you know, I think the very interesting opportunities that the debt markets have sort of presented, which, you know, on the negative side, you know, I think there's been this bid aspect that I think was alluded to in our call. Thank you.

Speaker 6: We've seen a much slower market. I think that the broad statistics are seeing the overall commercial real estate market is down 70% in terms of volume, which of course everyone's subject to. We're starting to see some green shoots of that coming back. We're also starting to see some of the opportunistic things that might be coming from the impact of...

Speaker 6: you know, higher rates, including the significant need for reserves to be put aside for rate cap purchases and other things that are connected to floating rate debt. So the markets are starting to open up a little bit again. I think what we really need is a little bit more stability in the debt market.

Speaker 6: And then, you know, our assumption is that, you know, there's really kind of a stability to kind of the steady growth in transaction volume and commercial real estate over time, especially in the segments, you know, like multifamily and industrial that we that we focus in. And so this kind of

Speaker 6: pause in the market will probably be followed by a very active period in the market, which we hope will happen. In the second half of the year, of course, we don't know for sure exactly when that research is, but what we do know is there's a lot of capital and a lot of focus in these.

Speaker 6: you know, call it long-term secular demand, you know, benefits that we see between supply and demand have not changed. So at this stage, we still have a very, you know, bullish outlook on the segments, the real estate segments that we operate in.

Speaker 5: I would only add, I think we feel quite comfortable and responsible having been patient in the fourth quarter. Asset prices continued to adjust in many markets and we were appropriately cautious. As we have.

Speaker 5: approximately $3.5 billion of dry powder across our various funds. We think that 2023 will be a very attractive vintage, if you will, in order to deploy some of that capital. And our specialized investment teams are in the markets.

Speaker 5: all day, every day, looking for opportunities. As Jonathan said, there are some green shoots and more that are beginning to surface, and we think that the combination of dry powder, the ability to accurately analyze and assess.

Speaker 5: assets in the markets that we prioritize is going to create some really good opportunity in 2023. Great, thanks for taking my question.

Speaker 1: Thank you. Our next. Thank you. Our next questions come from the line of Adam, baby with UBS. Please proceed with your questions.

Speaker 11: Thank you, good morning. Fair bit of discussion. Much appreciated around the idea of product extensions with So I just wanted to just a quick follow up on timing around that. You know, if we were to think about sort of mid, you know, assuming a transaction closed first half of this year, we were going to think about sort of mid 24.

Speaker 11: for some kind of product extension launch. Is that conservative? Is that aggressive? How are you thinking about timing on that?

Speaker 5: I think that without

Speaker 5: committing to a particular time zone.

Speaker 5: Job number one is closing the transaction. Job number two is a successful launch and capital raise for fund six, new very fund six. And so that will be the immediate focus. We're not going to take our eyes off the ball.

Speaker 5: as it relates to that. Having said that, the dialogue with investors, the dialogue with traditional bridge investors, the dialogue with traditional new-barry investors shows a strong demand in alternative secondary products.

Speaker 5: shows a strong interest in working with our combined firm to access that demand. So we're going to be commercial as it relates to launching new products as we think that the organization has evolved and is capable.

Speaker 5: and our first two jobs are completely done. Richard or Chris, anything you'd like to add there? Well, what I would say is, Newbury Fund 5 is at this point 95% committed. And so, as soon as this transaction closes,

Speaker 12: We'll launch Fund 6. We're very close to our investors, and that's why we've been getting 80% or more re-reups, and then new investors those we raise the size of the funds.

Speaker 12: And we would expect the same sort of thing now. Most of our investors have been with us multiple funds, and some have even invested before Newbury was even founded.

Speaker 12: the same sort of thing now. Most of our investors have been with us multiple funds and some have even invested before Newbury was even founded.

Speaker 12: So there's no surprise on timing of when we launch these funds. So that will be the first order of business once we close the transaction. You know as Chris said earlier, we when we do transactions we see other types of assets.

Speaker 12: because typically when a seller sells to us since we're operating in the inefficient part of the private equity space, they show us all of their assets or most of their assets and asking us what we want to buy. And then we naturally focus on the things we know like buyouts and growth equity. But we could easily pick out their real estate funds or other things.

Speaker 11: And I think that's one of the opportunities going forward. Thank you. That makes total sense. Appreciate all the detail around the number 8, 5 and 6.

Speaker 11: sounds good going forward. Just, you know, bigger picture I want to get maybe thoughts from each of the different legacy management teams, you know, in this new partnership as to, you know, what drew you together presumably both firms had and made, you know.

Speaker 11: still have alternatives in terms of partnership and what have you. So what was distinct about this partner, be it Bridger Newberry, that really was attractive and seemed like a good fit, even despite it's a bit of an extension for both sides. Thanks.

Speaker 5: That's a great question. Thanks for that. Go ahead, Richard.

Speaker 12: I can speak from the new very side. Secondary assets are in high demand now, secondary firms. There's been a number of transactions. We naturally saw a number of possible acquires contact us.

Speaker 12: I was particularly pleased to see bridge. I thought they're common vision to fit with us. I thought they're focused on the types of size investments that we do, made some sense. So to me, there were natural synergies. And then ultimately, at least the way I look at it, it all comes down to the people.

Speaker 12: So you can have a good business plan, but are those the people you want to work with? Are those the people you want to partner with? So we very much wanted to do this transaction with Bridge rather than someone else.

Speaker 12: And we're pretty excited about going forward to combine the firms. And I think it's a case of 1 plus 1 equals more than 2.

Speaker 5: I would certainly underscore all of those comments that Richard made about philosophy, about culture, about business practices, approach to the market, etc. From our perspective, we have a...

Speaker 5: We have a pretty well established strategic focus on different opportunities in the alternative asset investment management market broadly defined prior to engaging in meaningful discussions with Newberry. We have done a very comprehensive.

Speaker 5: analysis of the secondary space in general. It was a space that we were attracted to for a lot of different reasons that expanded into a near-term adjacency. What we were doing, we felt that the investor appetite.

Speaker 5: was strong and growing and it was a growth market. Newberry very quickly distinguishes itself. We met with, if not dozens, probably at least a dozen or so different secondary firms. And in those meetings, we learned a lot about the sector and the newberry team and the individuals who who who

Speaker 5: construct a win-win transaction for them and for us. That's great. Thank you for all your thoughts there, and congratulations on the deal.

Speaker 1: Thanks so much. Thank you. Our next questions come from the line of Michael Cypress with Morgan Stanley . Please proceed with your questions.

Speaker 9: Thanks for taking on the follow-up question here. Just wanted to circle back on the bridge results and expenses and margin. I was hoping you might be able to elaborate on the expense outlook on comp and non-comp expense here in 23 as well as the FRE margin outlook here in 23. Thank you.

Speaker 5: So I'll make some early comments and then ask Katie to comment as well if I miss anything. We said in our prepared remarks that we were disciplined on expenses in the fourth quarter in light of reduced transaction activity and we think we run Michael a pretty good job

Speaker 5: opportunities, whether it be in logistics or net lease or solar or prop tech, you know, all those newly launched initiatives are doing well, rolling well, attracting capital, delivering results, finding good assets to acquire, etc. And many of those, many of those investments, expenses.

Speaker 5: are completed at this point. We continue to have a need to manage our business well and to continue to grow headcount growth should be more modest in 2023, borrowing some other strategic initiative that we see. And we're of course conscious of delivering good margins and good bottom line profitability to our.

Speaker 13: Great. Thank you.

Speaker 1: Thank you. There are no further questions at this time. I'd now like to hand the call back over to management for any closing comments.

Speaker 5: Thank you, operator, and thank you to all who joined us today. We're delighted to complete the review of 2022, fourth quarter in 2022. We're delighted to...

Speaker 5: announced the new very transaction. We know we have a great deal of opportunity looking forward in 2023. We think we're well positioned to capture a meaningful amount of that opportunity and we look forward to future dialogue as we progress through the year. Thanks so much. Thank you. This does include today's teleconference. We appreciate you.