Q2 2023 P10 Inc Earnings Call

August 10, 2023

Call today.

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one on your telephone keypad.

I will now hand, you over to your host Mark Hood EVP of operations and Investor Relations Mark. Please go ahead.

Good afternoon, and welcome to the <unk> second quarter 2023 Conference call. This is Mark Hood EVP of operations and Investor Relations today, we will be joined by Robert Alpert, Chairman and co CEO Clark Web co CEO , Fred Souder, Chief operating officer.

<unk> and Amanda cousins, Chief Financial Officer.

Before we begin I would like to remind everyone that this conference call as well as the presentation slides may constitute forward looking statements within the meaning of section 27 to eight of the Securities Act of $19 33.

Section 21 E of the Securities Exchange Act of $19 34 in the private Securities Litigation Reform Act of 1095.

Forward looking statements reflect management's current plans estimates and expectations and are inherently uncertain.

Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risk factors or other factors that are described in greater detail under risk factors in our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

On March 27, 2023, and in our subsequent reports filed from time to time with the SEC.

The forward looking statements included are made only as of the date hereof, we undertake no obligation to update or revise any forward looking statements as a result of new information or future events, except as otherwise required by law I will now turn the call over to Robert.

Good afternoon, and thank you for joining the call.

I am pleased to report strong fund raising and deployment during the quarter against what continues to be a challenging macroeconomic backdrop.

Despite current market headwinds the trends in our business are positive for the short and long term with secular tailwind driving private markets asset allocation by investors.

The second quarter marks our eight financial report as a public company and we believe the results we've consistently delivered make us a compelling business to own and a stand out among our peers in the alternative management asset industry.

Our financial results demonstrate we are a resilient and durable business. We believe that we have a desirable product mix that clients value and possess a core competency at allocating capital in a way that optimizes shareholder returns.

<unk> revenue is based on a long term contractually locked up capital that generates robust margins and predictable earnings we have unrivaled alignment with over 50% of our shares owned by insiders.

Being added to the Russell indexes recently should promote a wider shareholder base and as investors evaluate new index insurance, we think we screen well with that I will hand, it off to fix.

Thank you Robert.

Fundraising and investment teams delivered a terrific quarter across all of our strategies with almost a dozen funds in the market or private equity strategies continued their strong 2023 performances with over $863 million.

Added to fee paying AUM during the quarter.

After raising the hard cap to accept additional limited partners. Our CPE held a final close on secondary opportunities fund four at $797 million.

RCP Secondary fund strategy was recently recognized by pitch books as a top 10 fund family in the secondary strategies congratulations to the RCP team for the hard work.

Understand our contributors for the quarter were <unk>.

RCP multi strat fund too.

And two large sma's from RCP.

Also notable in the quarter was the body CT announcement that it entered into a strategic agreement with Asia Heritage, a Singapore based asset manager and in conjunction with the agreement appointed Chris Learner is operating partner to lead <unk> activities in Asia.

<unk> Asia Heritage partnership will provide support to <unk> and its portfolio companies and crafting and executing capital formation initiatives in Asia.

Critical growth market for private market allocations and PTA.

On the venture front <unk> continued to demonstrate market leadership by raising $288 million across several funds.

<unk> added over 100 billion to their flagship fund eight and closed on two large SMA that total about $160 million.

We continue to see a flight to quality from institutional investors and this plays to our strength as we provide access to elite access constrained funds.

And the same pitch book report I mentioned, a moment ago Trowbridge earn the covenant spot as the number one fund family in the funds of funds category.

Well done to the true bridge team and the recognition in a leadership role in a highly competitive business.

Our credit strategies added $71 million to fee paying assets under management, we continue to see strong deployment demand across NAV lending that our venture debt business.

As it relates to <unk>, we are still on track to launch fund 11 by Q1 2024.

Our impact business continues its steady growth, having raised and deployed $49 million in the quarter as.

As the marketplace Seix investment vehicles with a track record of measurable impact we believe enhanced capital is well positioned for continued growth.

While we are pleased account over 3400 Lps as clients. We also recognize the vast opportunity we have to introduce our premier strategies to a large and growing global institutional and retail investment community.

Our goal is to increase awareness among the global LP community regarding the attractiveness of our platform as evidenced by a multi decade track record and award winning strategies with.

With steady secular industry growth, we believe there is opportunity to take market share.

Finally, thanks to our dedicated team for a job well done.

I will now hand, it over to Clark.

Thank you Fritz as shareholders evaluate our prospects for long term growth. It is important to consider the structural advantages that help explain our consistent performance and uphold the confidence we have as we look to the future.

Robert mentioned, the first advantage, which is our business model with stable construction of our model provides considerable visibility and predictability in our results.

The second advantage is our specialized that unique knowledge of the middle and lower middle market gained while operating in this space for over two decades, we have built recognizable and powerful brands with both GPS and Lps.

Another output of our strategic focus on the middle and lower Middle markets is a data advantage that we believe is unmatched in the market.

And what many considered to be one of the least efficient parts of the private equity in that ecosystem. We have thousands of proprietary fund portfolio company and transaction data points that guide our investment decisions and it's the data that gives us conviction to make an investment.

This very same data shows that our portfolio companies are generally better positioned than larger companies to endure interest rate increases because they carry a lot less leverage.

Many of our holdings that pricing power with the ability to pass on higher input prices and they trade at reasonable multiples, making them attractive to larger sponsors looking for add ons and tuck ins.

By staying focused on the middle and lower middle market, we can focus on the themes of growth rather than the entire economy.

We are not a levered play on the S&P 500.

And finally, we give lps and opportunity to invest in access constrained elite investment strategies and funds.

If you look at our website or earnings slides youll see the rendering of a bridge.

The bridge is included because we consider <unk> to be the bridge to our specific private market verticals.

We do not compete in the large part of the market, where most of our peers reside.

In fact, we rarely see any publicly traded competitor in our markets nor do we have a private competitor that covers the verticals we do.

In sum, we believe we are unique.

Turning now to the $5 billion fundraising target. We provided last year, we are thrilled to hit that milestone six months ahead of schedule, which we believe is all the more impressive given the macro headwinds that have persisted since we set our target.

Despite a record rise in interest rates steep falls in equity markets and global instability, we managed to far exceed targets, we laid out when the skies were blue.

As noted last quarter, we still expect to lay out a new multiyear target alongside our Q4 2023 earnings call.

In the interim we would note that we still have a few larger strategies in the market, namely our second flagship GP Stakes fund an eighth flagship venture equity fund.

As a result, it is certainly possible. We continued strong fundraising momentum this year, though perhaps not to the same degree we saw in our record second quarter.

For the full year 2023, we continue to expect to deliver double digit growth for revenue adjusted EBITDA and Eni, although interest rates and the resulting interest expense will make hitting the double digit eni growth target more of a challenge.

As we look out to 2024, we continue to expect our 11th flagship venture debt funds alongside continuous fundraising from over a dozen funds across our platform.

One last thing I want to touch on is an update on our M&A and partnership opportunities.

Our perspective is that we don't have to do a deal to grow the business we.

We have market, leading investment strategies in both debt and equity across middle and lower middle market private equity venture and impact rounded out by our leading middle market GP stake strategy that fits perfectly alongside the other verticals.

That said, we still see a lot of opportunities and are in constant dialogue.

Our bar remains quite high.

I will now turn the call over to Amanda.

Thank you Clark fee paying assets under management were $22 2 billion, a 20% increase on a year over year basis in the second quarter $1 3 billion of fundraising and capital deployment with offset by $708 million and step downs in exploration well at <unk>.

<unk> 2023, we expect $320 million in additional step downs in exploration. This is about $170 million more for the remainder of the year that may pretty thank you back.

The variance is primarily attributable to the timing of certain impact deals that are concluding their key pain period.

Revenue in the second quarter was $62 $5 million.

34% increase over the second quarter of 2022.

Average fee rate in the quarter with 113 basis points driven by continued expansion of our direct strategy, such as WCS <unk> spinal cord and hike.

In the quarter approximately $300 million of fundraising with closed a quarter earlier than expected. Another contributor to record second quarter performance was $4 $8 million of catch up fees, most of which is attributable to RSVP final close on secondary opportunities fund.

The fee rate for the quarter, excluding catch up fees.

With 104 basis points.

Operating expenses in the second quarter were $52 1 million.

68% increase over the same period a year ago. The increase is primarily attributable to additional compensation benefits and noncash stock based compensation expenses related to the acquisitions of Debbie Hei, an accord and heart.

GAAP net income in the quarter with $2 1 million and 81% decrease year over year.

Adjusted EBITDA in the second quarter was $34 8 million.

At 35% increase over what we reported in the second quarter of 2022.

Adjusted EBITDA margin was 56% with strength attributable to catch up fees in the quarter for.

For the full year, we continue to expect margin to be in the range of 51% to 52%.

For the second quarter adjusted net income our Eni was $26 7 million.

15% empty over the $23 2 million recorded in the second quarter of 2022.

As Clark noted rising interest rates have created a headwind on eni growth.

So at 15% year over year, we are still pleased with the result it.

The good news is what is currently a headwind should become a tailwind as we generate cash and delever cash taxes for the full year should be between three and $4 million and we continue to benefit from our tax asset as.

As a reminder, they are composed of two distinct asset the $162 million net operating loss and $383 million in tax amortization.

Cash and cash equivalents at the end of the second quarter were $23 million as of today, we had an outstanding debt balance of $271 2 million and $98 5 million available on the revolver.

No shares were repurchased in the quarter, and we have $18 $9 million available on the buyback program.

We also continue to pay our quarterly dividend, we declared a dividend of three and a quarter cents per share on August 10, 2023 to stockholders of record as of the close of business on August 31, 2023, and payable on September 28 2023.

Finally at June 32023 class a shares outstanding were $43 million 823473, and class B shares outstanding were 72 million 381726 shares.

Thank you now, let's turn it over to the operator for your questions.

Thank you we will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one we will pause here briefly ask questions are registered.

Our first question is from Ken Worthington with J P. M. Your line is now open.

Hi, good afternoon, thanks for taking the questions.

Maybe firstly given the enthusiasm we're seeing for your investment capabilities.

[music].

The operator for your questions.

The greater breadth of products that you have today.

The operator for a few questions.

Versus a couple years ago, we've been thinking about <unk> being able to attract bigger Lps bigger checks and ultimately some bigger funds.

Okay.

Thank you. Thank you we will now we will now begin Q&A Q&A session, if you'd like you'd like to ask question. A question. Please press star followed by why one on your telephone keypad.

How are you seeing the aggregation of.

Were any Rooney remind you remove that quick question. Please press star two again against a question Star One we will pause briefly ask questions are registered.

Your various investment capabilities leading to.

That thesis, maybe even being correct or are we sort of outside the realm of reasonableness.

Yeah.

Reasonable in this thinking that that sort of the direction that your business is going to head to.

Our first question is from Ken Worthington with J P. M. Your line is now open.

Yes, Ken this is Clarke, that's a great question.

Hi, good afternoon, thanks for taking the questions.

I'll touch on part of it and then I'm sure the team can jump in as well I think that.

Maybe firstly you've.

Given the.

I would say a couple of things the first is.

Good morning, and for your investment capabilities and the greater breadth of products that you have today.

We are thrilled by the fact that we have on our $5 billion of guidance that we set out in the fourth quarter of 2021, when the skies were blue and the markets were strong.

Versus a couple years ago, we've been thinking about <unk> being able to attract.

Bigger Lps bigger checks and ultimately some bigger funds.

Little did we know that we would have six quarters of record rises in interest rates and record drops in stock prices and here. We are six quarters in still two quarters ahead of time and we've not just crossed the 5 billion. We've done it quite handily. So congratulations to the team I think it is a testament to the power of the platform and not being.

How are you seeing the aggregation of.

Your various investment capabilities leading to that.

That thesis, maybe even being correct or are we sort of outside the realm of reasonableness thinking that that sort of the direction that your business is going to head to.

Reliant on any one vertical or any one strategy.

I would say that's 0.1 0.2.

Yes, Ken this is Clarke, that's a great question.

It's a great point, we should.

Touch on part of it and then I'm sure. The team can jump in as well I think that I would say a couple of things.

Given our breadth of manufacturing and the fact that we are very unique there is not another engine that looks like us and investment manufacturing, we should be able to attract larger lps with larger check sizes over time.

First is.

We are thrilled by the fact that we hit our $5 billion of guidance that we set out in the fourth quarter of 2021, when the skies were blue and the markets were strong.

That is a long sales cycle and it has certainly not been the easiest six quarters to be having the dialogue, but we are absolutely in dialogue.

Little did we know that we would have six quarters of record rises in interest rates and record drops in stock prices and here, we are six quarters and still two quarters ahead of time and we've not just crossed the 5 billion. We've done it quite handily. So congratulations to the team I think it is a testament to the power of the platform and not.

I still think we're in the bottom of the first inning with respect to what we think we can do over the next many years.

But it is a it's a long baseball game.

The good news is we are firing on all cylinders as we progress.

Being reliant on any one vertical or any one strategy I would say that's 0.1 0.2, it's a great point we should.

Through that game. So the fact that we had to rate we were able to raise the hard cap twice for the Secondaries fund.

And we still had oversubscription at that point.

And if you look at the fund size between secondary fund four and secondary fund III was Mira doubling.

That's very encouraging when you look at our GP stake strategy the target of $1. Two five is nearly <unk> what fund one was very encouraging we obviously have some some well known funds that'll be in the market next year and we fully expect to have success. There. So I think we are doing the things that we need to do to grow at a <unk>.

That is a long sales cycle and it has certainly not been the easiest six quarters to be having the dialogue, but we are absolutely in dialogue.

I still think we're in the bottom of the first inning with respect to what we think we can do over the next many years.

<unk> double digit rate the thing that gives me excitement is when you asked the question I am not yet ready to say, Ken. We're there we're landing the $1 billion estimate I would like for us to get there I think we can it's still going to take time, but while we're planting seeds, we've got great things humming at the underlying verticals.

It is a.

It's a long baseball game.

The good news is we are firing on all cylinders as we progress.

Through that game. So the fact that we had to rate we were able to raise the hard cap twice for the Secondaries fund.

Brilliant thank you.

And we still had oversubscription at that point.

One follow up on step downs.

And if you look at the fund size between secondary fund four and secondary fund III was near a doubling.

Would you consider 2023 to be unusual from a fee step down perspective, maybe remind us.

That's very encouraging when you look at our GP stake strategy. The target of 1 billion to five is nearly two X. What fund one was very encouraging we obviously have some some well known funds that'll be in the market next year and we fully expect to have success. There. So I think we are doing the things that we need to do to grow at a <unk>.

Where are you where you see step down to where you don't and what what assuming 2023 is not.

Typical what should normal look like each year from sort of the step down perspective.

Hi, Ken.

Therefore shutdowns for 2023 it is a.

A bit unusual and that we had the WTO step down this year.

And that step down is expected to occur only every three years.

Brilliant thank you.

Is that where youre seeing a bit higher stepped down in exploration for 2023.

One follow up on step downs.

Would you consider 2023 to be unusual.

And then as we think about it on a normalized basis.

We're managing north of $20 billion, we say our average duration is around nine years at inception of the fund.

M a fee step down perspective, maybe remind us.

Where are you where you see stepped down to where where you don't.

And we are growing at a good clip and so the idea of having step downs and explorations of around $1 $5 billion. A year is not outrageous some years it will be closer to one.

What what.

Assuming 2023 is not.

Typical what should normal look like each year from sort of the step down perspective.

It is possible you can get north of one five.

As well as we get bigger those step downs will grow but thats a good problem to have.

Hi, Ken.

Therefore shutdowns for 2023.

And then the other thing is we do talent the vast majority of our fee paying AUM. We are receiving management fees on the committed dollars, which gives us a tremendous amount of visibility into our fees over time, there are some strategies, where it's on deployed dollars and then when you sell investments you Lou.

A bit unusual and that we had the WTS step down this year and that step down is expected to occur only every three years.

That's where you're seeing a bit higher stepped down in exploration for 2023.

Yeah, and then Canada is.

We think about it on a normalized basis.

Lose that fee paying AUM in the quarter, we had some nice.

Managing north of $20 billion, we say our average duration is around nine years at inception of the fund.

Realizations in the impact business and so we actually had more expirations than we expected, but that's always a good thing when you can realize the good investment so it will.

And we are growing at a good clip and so the idea of having step downs and explorations of around $1 $5 billion. A year is not outrageous some years it'll be closer to one it is possible you can get north of one and a half as.

<unk> between that low single digit billion, all the way up to two but again as we grow over time or we lengthened as we grow overtime. It should grow if we can lengthen the average duration that will help provide some balanced against it.

As well as we get bigger those step downs will grow but that's a good problem to have.

Great. Thank you very much.

And then the other thing is we do the vast majority of our fee paying AUM. We are receiving management fees on the committed dollars, which gives us a tremendous amount of visibility.

Thank you Ken our next question is from Michael Cyprus with MFS. Your line is now open.

Yes.

Into our fees over time, there are some strategies, where it's on deployed dollars and then when you sell investments you lose that fee paying AUM in the quarter, we had some nice.

Hey, good afternoon. Thanks for taking the question I wanted to come back to some of the commentary we're hearing from others across the industry just on banks retrenching, creating opportunity for private lenders to step in maybe you could just give us a little bit of a flavor for the different parts of your platform, where you guys could participate where do you see the biggest opportunity across.

Realizations and the impact business and so we actually had more expirations than we expected, but that's always a good thing when you can realize the good investment so it will.

Your platform.

If you could talk about some of the steps that you are it might take over the next 12 months to further capitalize on this opportunity set and any thoughts on how meaningful this could be if you're able to quantify that for Peter Thank you.

<unk> between that low single digit billion, all the way up to two but again as we grow over time or we lengthened as we grow over time and should grow if we can lengthen the average duration that will help provide some balanced against it.

Yes, it's a great question.

Great. Thank you very much.

We are fortunate to be in the sweet spot in a couple of our markets.

Yeah.

Thank you Ken our next question is from Michael Cyprus with MFS. Your line is now open.

Where the opportunity set is better than it's ever been.

Verticals, primarily or in our venture debt business, obviously with the news of the largest venture debt bank in the spring having issues that has created a very unique competitive environment NAV lending, we really do dominate the lower middle market and when you have high interest rates.

Hey, good afternoon. Thanks for taking the question I wanted to come back to some of the commentary we're hearing from others across the industry just on banks retrenching, creating opportunity for private lenders to step in and maybe you could just give us a little bit of a flavor for the different parts of your platform, where you guys could participate where do you see the biggest.

And a tougher realization market drawing additional capital through our NAV loan allows private equity GPS to continue to deploy capital into their portfolio to try to accelerate value growth over time. So we have an extraordinary pipeline there and then even in our impact business our impact businesses in three different.

Opportunity across your platform.

Maybe you could talk about some of the steps that you are it might take over the next 12 months to further capitalize on this opportunity set and any thoughts on how meaningful this could be if you're able to quantify that for the time. Thank you.

Yes, it's a great question.

We are fortunate to be in the sweet spot in a couple of our markets.

Articles two of the verticals. We think we are extremely unique from the inflation reduction act. The idea that there is a tremendous amount of capital going into renewable energy and then also impact real estate brownfield and Greenfield real estate projects to clean up the environment, but then the third is actually small business.

Where the opportunity set is better than it's ever been.

Those verticals, primarily or in our venture debt business, obviously with the news of the largest venture debt bank in the spring having issues that has created a very unique competitive environment NAV lending.

<unk>. So we have a 20 year track record of originating small business loans to minority owned businesses veteran owned businesses women owned businesses. I think we have a 20 year loss rate that you measure in the almost double digit basis points cumulative I think it is just over triple digits, but don't hold me to that and so we are seeing.

We really do dominate the lower middle market and when you have high interest rates and a tougher realization market drawing additional capital through our NAV loan allows private equity GPS to continue to deploy capital into their portfolio to try to accelerate value growth over time. So we have an extraordinary pipeline there.

Extraordinary demand there as well I think the real challenge for us over the next 12 months is going to be raising capital to fit the demand.

And then even in our impact business our impact businesses in three different verticals two of the verticals. We think we are extremely unique from the inflation reduction act. The idea that there is a tremendous amount of capital going into renewable energy and then also impact real estate brownfield and Greenfield real estate projects.

And venture credit, we see a great opportunity in that lending, we see a great opportunity in impact credit we see a great opportunity, we still continue to see a great opportunity in our Spic's credit vintage, which really does take the place of a bank and so we might see an acceleration in the raise of fund five their fund forest currently deploying quite nice.

Two to clean up the environment, but then the third is actually small business lending. So we have a 20 year track record of originating small business loans to minority owned businesses veteran owned businesses women owned businesses. I think we have a 20 year loss rate that you measure in the almost double digit basis points cumulative I think it's just over.

The key for us in 2024 is going to be raising capital behind those strategies. These are niche strategies, we love that because we think they are protected most that generate great returns, but it also means there's more of an education on the MLP front and.

So we do believe the more conversations we have we're convinced that we've got a great manufacturing and we hope to be landing wins over the next 12 months.

Triple digits, but don't hold me to that and so we are seeing extraordinary demand there as well I think the real challenge for us over the next 12 months is going to be raising capital to fit the demand.

And which of those strategies would you say is more scalable just given your focus on the lower and middle market space question often comes up just around how do you sort of navigate any sort of potential constraints on growth given youre not looking at the larger part of the marketplace are there parts of your business, where you are.

And venture credit, we see a great opportunity in that lending, we see a great opportunity and impact credit we see a great opportunity. We still continue to see a great opportunity in our Spic's credit vintage, which really does take the place of a bank.

Looking at the larger part of the marketplace and how do you sort of navigate around such as this doesn't constrain your growth.

So we might see an acceleration in the raise of fund five their fund forest currently deploying quite nicely now the key for US in 2024 is going to be raising capital behind those strategies. These are niche strategies, we love that because we think they're protected moats that generate great returns, but it also means there's more of an education on the LP front.

We don't need to be in the larger part of the marketplace, because we really dominate these three verticals.

And they are very large verticals. If you just look at SBB.

In venture debt tens of billions of dollars in terms of size.

And so we do believe the more conversations we have we're convinced that we've got a great manufacturing and we hope to be landing wins over the next 12 months.

So there is a very large hold in that market NAV lending is growing leaps and bounds and then look at the trillions that are coming through the inflation reduction act. So of all the things we're worried about scalability and those three verticals is the least of our concerns it really is raising the capital to fund these strategies.

And which of those strategies would you say is more scalable just given your focus on the lower middle market space question often comes up just around you know how do you sort of navigate any sort of potential constraints on growth given you're not looking at the larger part of the marketplace are there parts of your business where you.

These are such a unique risk adjusted returns.

Our NAV lending business really acts like an investment grade bond despite having a return that's literally two X what you're getting to an investment grade bonds are venture debt strategy has a loss rate that looks like a high yield bond. Despite a return profile that is two to three X what a high yield bond returns and then our impact credit in many cases, where.

Looking at the larger part of the marketplace and how do you sort of navigate around such as this doesn't constrain your growth.

We don't need to be in the larger part of the marketplace, because we really dominate these three verticals.

And they are very large verticals. If you just look at SBB.

Lending against tax equity, which is basically government guaranteed and generating an 11% 12% return. So again, a 104 two X increase on the risk adjusted return relative to an underlying treasury. We feel like we have the product there is plenty of room for us to grow the key is going to be finding those large.

In venture debt they were tens of billions of dollars in terms of size.

So there is a very large hold in that market Nab lending is growing leaps and bounds and then look at the trillions that are coming through the inflation reduction act. So of all the things we're worried about scalability and those three verticals is the least of our concerns it really is raising the capital to fund these strategies.

SMA is finding those Lps that want to put real money to work and Thats what were focused on.

Great and just a follow up if I could on the fee rate I think it was like a 104 basis points in the quarter. I mean is that the right run rate to kind of think about on a go forward basis here just any help on the fee rate ex the catch ups.

These are such unique risk adjusted returns.

Our NAV lending business really acts like an investment grade bond despite having a return that's literally two X what you're getting to an investment grade bond our venture debt strategy has a loss rate that looks like a high yield bond. Despite a return profile that is two to three X what our high yield bond returns and then our impact credit in many cases, where.

Yes, generally about 105, I believe what we've guided to.

Great. Thank you.

Thank you Michael our next question is from Ben <unk> with Barclays. Your line is now open.

Hi, there thanks for taking my question.

I was wondering if you could kind of revisit the original $5 billion.

Kind of maybe explain a little bit like where did you just price so much to the upside and then kind of alongside that I think the last quarter. The guidance was a strong second half of the year. I think you indicated that maybe you wouldn't be quite as high as the second quarter, but is that still sort of your expectation. If we look at maybe the average over the last couple of quarters should the second half of this year still be relatively strong.

SMA is finding those Lps that want to put real money to work and Thats what were focused on.

Great and just a follow up if I could on the fee rate I think it was like 104 basis points in the quarter. I mean is that the right run rate to kind of think about on a go forward basis here just any help on the fee rate ex the catch ups.

<unk>.

Yes.

When you think about the original $5 billion target, we rarely I don't know if we ever in our projection models have fund sizes the double <unk>.

Yes, generally about 105 I believe what we've got it.

<unk>.

Great. Thank you.

So when we talk about a secondary fund going from $400 million to $800 million. When we talk about a GP Stakes fund going from.

Thank you Michael our next question is from Ben <unk> with Barclays. Your line is now open.

$650 million to 1 billion $2 five.

Those are wins for the home team.

Hi, there thanks for taking my question.

We had a net we're just having a number of those happen across the board and then we're also we are winning SMA business and especially in our private equity vertical and that's something we don't really factor in when we think about cadence for fund raises.

I was wondering if you could kind of revisit the original $5 billion.

Kind of maybe explain a little bit like where did you just price so much to the upside and then kind of alongside that I think the last quarter. The guidance was a strong second half of the year I think you indicated that maybe it wouldn't be quite as high as the second quarter, but is that still sort of your expectation. If we look at maybe the average over the last couple of quarters should the second half of this year still be relatively strong.

That is the that's the first question can you remind me of the second.

It was the outlook for the back half of the year.

The original guidance was.

Yes.

Stronger back half than the first happened and obviously the second quarter surprised to the upside so perhaps the second in the back half is not going to be quite as strong but to what extent was the second quarter. As a result of maybe some funds from the third quarter being pulled in early or do you still expect the second half to be relatively strong, but perhaps not quite as strong as the second quarter.

And when you think about the original $5 billion target, we rarely I don't know if we ever in our projection models have fund sizes the double <unk>.

<unk>.

So when we talk about a secondary fund going from $400 million to $800 million. When we talk about a GP Stakes fund going from.

Yes, well, we definitely wanted to call out the second quarter was a record quarter, which I don't know many folks who are able to produce that in the second quarter a record fund raising quarter. So we're certainly proud of that we would not anticipate continuing to eclipse our record quarters in the third and fourth quarter. We did call out in the script, we have two decent sized strategies in.

$650 million to $1 billion to five.

Those are wins for the home team.

The market, one being GP Stakes and the other being our true bridge funding.

That is the that's the first question can you remind me of the second.

<unk> eight we are very excited about those strategies, whether that capital comes in in the third quarter or the fourth quarter or the first quarter or even the second quarter. We are less focused on will obviously recoup all of those management fees with with catch up so we certainly have the potential to keep showing.

What's the outlook for the back half of the year the original guidance was.

A stronger back half than the first half, but then obviously the second quarter surprised to the upside so perhaps the back half is not going to be quite a strong but to what extent was the second quarter result, as a result of maybe some funds from the third quarter being pulled in early or do you still expect the second half to be relatively strong, but perhaps not quite as strong as the second quarter.

Growth in Q3 and Q4.

That is just fine.

But a lot of it is going to come down to those two strategies.

Yes, the set while we definitely wanted to call out the second quarter was a record quarter, which I don't know many folks who are able to produce that in the second quarter a record fund raising quarter. So we're certainly proud of that we would not anticipate continuing to eclipse our record quarters in the third and fourth quarter. We did call out in the script, we have two decent sized strategies in the.

We are we see very strong demand in those strategies. So we feel good about them whether they are in Q3 or Q4, maybe Q1, we're less focused on.

Got it that's helpful. Maybe one follow up on the secondary strategy.

Is there any so with RCP, obviously with the fund of funds, we see coming to market every year any any thought on the secondary funds piece of that speeding up or as what we've been seeing the last couple of funds sort of the right cadence and then along the same lines, maybe RCP secondaries in general I think Youre right. Now you are only in private equity.

A market one being GP stakes and the other being our true bridge funding.

And we're starting to see some of your kind of larger publicly traded peers launched secondary funds, an incremental sort of asset classes, so and any thoughts in terms of expanding the secondaries to real estate infrastructure credit anywhere else like that.

Growth in Q3 and Q4.

That is just fine.

Yes. This is frits I'll give a call back some working with the teams directly on this.

But a lot of it is going to come down to those two strategies.

We are we see very strong demand in those strategies. So we feel good about them whether they are in Q3 or Q4, maybe Q1, we're less focused on.

Proud to say that we actually just started doing secondaries in the venture.

<unk>.

It's a first time fund, which is always a little bit harder to do but.

Got it that's helpful. Maybe one follow up on the secondary strategy.

Early indications are that we should be able to reach our target on that fund. So we're starting to launch that.

Is there any so with <unk>, obviously with the fund of funds, we see coming to market every year.

Certainly in that area.

Any thought on the secondary funds piece of that speeding up or as what we've been seeing the last couple of fund sort of the right cadence and then along the same lines, maybe RCP and secondaries in general I think Youre right now you're only in private equity.

We continue to see a lot of interest in secondaries.

And so both from the fund raising side, we just need and the deployment side.

Whether that will come up quicker I think the average pace on secondary I think through the year. The history's been about every three ish years.

That's probably where we would see this from when we started deploying capital which was about a year ago. So I <unk>.

Yes. This is Fritz I can take all back some working with the teams directly on this project.

Proud to say that we actually just started doing secondaries in the venture.

Could.

Don't hold me to this.

Amanda and Mark maybe you can correct me, but I could see that strategy coming back to market here.

World.

It's a first time bond, which is always a little bit harder to do but.

In 2025, most likely.

Early indications are that we should be able to reach our target on that fund. So we're starting to launch that.

Got it very helpful. Thanks, a lot.

Certainly in that area.

Continue to see a lot of interest in secondaries.

Our next question is from Michael Brown with <unk>. Your line is now open.

And so both from the fund raising side, we just sheet and the deployment side.

Okay, great. Thank you very much.

Whether that will come up quicker I think the average pace on secondary I think through the history in Japan about every three years.

So I appreciate the <unk>.

Certainly have a very compelling strategic mix today. So M&A is certainly not necessary for your strategy going forward here, but just like to hear a little bit about what youre seeing in the M&A environment.

Ah.

Probably where we would see this from when we started deploying capital which was about a year ago. So I could.

How you think about your strategy now that you do have a diversified scale of the business.

Don't hold me to this.

And then if something does come across.

Amanda and Mark maybe you can correct me, but I could see that strategy coming back to market here.

Transformational how how would you approach that from a leverage perspective, what's kind of your constraints there.

In 2025, most likely.

Yes, if you talk about this all the time, if you think about where we are today, we really are in three verticals lower middle market private equity.

Got it very helpful. Thanks, a lot.

Our next question is from Mike Brown with K BW. Your line is now open.

Venture capital and lower middle market impact.

Within those verticals, we cover the capital stack all the way from the junior most equity to the senior most debt and we like to think we dominate those verticals.

Okay, great. Thank you very much.

So I appreciate the that you certainly have a very compelling strategic mix today. So M&A is certainly not necessary for your strategy going forward here, but just like to hear a little bit about what youre seeing in the M&A environment.

With track records that are measured in decades, not years of quarters, and then beyond that we have our GP Stakes business that we think is very synergistic because as we live in the lower middle market verticals and see GPS that we believe are going to be the next.

How you think about your strategy now that you do have a <unk>.

Diversified scale of the business.

And then if something does come across.

Three letter name on the New York Stock Exchange, we love the opportunity to take a stake in those so the ecosystem today is very unique and we think works really really well and produces investment returns that are truly differentiated.

Transformational how how would you approach that from a leverage perspective, what's kind of your constraints there.

Yes, if you we talk about this all the time, if you think about where we are today, we really are in three verticals.

We also believe having now been in these verticals now for a while that we don't need to do another acquisition to be a much larger business than we are today. The markets are big enough. Our manufacturing. We think is good enough. We are constantly trying to innovate launching new strategies within the same vertical Fritz mentioned going into secondary.

Lower middle market private equity.

Venture capital and lower middle market impact.

Within those verticals, we cover the capital stack all the way from the junior most equity to the senior most debt and we like to think we dominate those verticals with.

With track records that are measured in decades, not years of quarters, and then beyond that we have our GP Stakes business that we think is very synergistic because as we live in these lower middle market verticals and see GPS that we believe are going to be the next.

On the venture side, obviously some of our peers have had a lot of success. There. So we're constantly trying to innovate and do more in the things we do well.

All that being said it is a very high bar for us at this point to bring on a new strategy or a new vertical but we are constantly in discussion.

Three letter name on the New York Stock Exchange.

<unk> the opportunity to take a stake in those so the ecosystem today is very unique and we think works really really well and produces investment returns that are truly differentiated.

We are not the type of firm that is jumping at every banker led process frankly, if a GP is looking to sell we're probably not the right partner most of our deals. The vast majority are unbanked and they're really based on relationships and marriages.

And Thats the way, we think about it.

And so we have dialogue right now seeds that we planted years ago that we still reach out to and talk to folks that we just met in the last handful of months. Those conversations are always ongoing we have no idea when one will strike we would be surprised if nothing strikes over the next couple of years.

The venture side, obviously some of our peers have had a lot of success. There. So we're constantly trying to innovate and do more in the things we do well.

And we would not be surprised if multiple things strike.

But it really is a it's a relationship building these are not bank deals.

All that being said it is a very high bar for us at this point to bring on a new strategy or a new vertical but we are constantly in discussion we.

And given our track record at this point and the asset classes that we're in.

Just reiterate it's a high bar, we would love for it to be a vote.

We are not the type of firm that is jumping at every banker led process frankly, if a GP is looking to sell we're probably not the right partner most of our deals the vast majority of Unbanked and they're really based on relationships and marriages.

Confirmation and excellence win when GPS actually elected joined our platform because they are in there and a good crowd.

Okay.

Okay, and then does the spreads.

And that's the way we think about it.

Yes.

And so we have dialogue right now seeds that we planted years ago that we still reach out to and talk to folks that we just met in the last handful of months. Those conversations are always ongoing we have no idea when one will strike we'd be surprised if nothing strikes over the next couple of years.

One thing to that target.

Which we're seeing.

Our marriages right in most of the deals we're looking at are not bad.

At all so we take our time getting to know the teams and our strategies.

And one of the things we're seeing in the private equity a little bit as people not the other firms not being successful in the fundraising that we've seen inside our own vertical. So it's one of the reasons, we're very proud of our groups that they're out.

And we would not be surprised if multiple things strike.

But it really is a it's a relationship building these are not bank deals.

And given our track record at this point and the asset classes that we're in I would just reiterate it's a high bar, we would love for it to be a vote of.

Outperforming.

Now in raising a lot of capital, where we <unk> seen others that have not maybe hit some of their numbers. So we just continue to hang around and continue to to court them in date them in.

Confirmation and excellence win when GPS actually elected joined our platform because they are in they are in a good crowd.

We're move when the time is right.

Okay and then just.

This is Fred.

Add one thing to that what card gets that.

And thank you all.

Asked about funding acquisition, so I just wanted to you.

Which we're seeing.

These are marriages right in most of the deals we're looking at are not bad at all so we take our time getting to know the teams strategies.

At that.

The acquisition would be funded with a mix of cash stock and earn out that we have in the past and we have about $95 million available on our credit facility currently.

And one of the things we're seeing in the private equity a little bit as people not the other firms not being as successful in the fundraising that we've seen inside our own vertical. So it's one of the region. We're very proud of our groups that they're outperforming.

Okay, great well, thank you for all that color I'll leave it there.

Our last question is from John Campbell with Stephens, Inc. Your line is now open.

Outperforming.

Now in raising a lot of capital, where we have seen others that.

Hey, guys. This is Ajay hey, stepping on for John Congrats on the quarter and thanks for taking our questions.

We have not maybe hit some of their numbers. So we just continue to hang around and continue to to court them in date them in.

For <unk>. The goal is obviously to raise the next fund in 2024, and I think generally it has been expected by us and maybe some investors to cede that fund size jump on maybe 40 million to $50 million like we've seen over the last couple of the fund raises just incremental step ups there. So.

We're move when the time is right.

And.

You also asked about funding acquisition I just wanted to you.

The acquisition will be funded with cash.

So a question on that given the macro obviously WTO now being part of <unk> and maybe some other factors such as.

Cash docket, our analysis, we have in the past and we have that about $98 5 million available on our credit facility currently.

Specific to the failure.

Okay, great well, thank you for all that color I'll leave it there.

The question is roughly like a $550 million fundraising goal for fund 11, now somewhat on the conservative side of things. Additionally, can you maybe size up the potential impact of this wty fundraise and overall pizza in average fee rates and EBITDA margins, maybe next year.

Okay.

Our last question is from John Campbell with Stephens, Inc. Your line is now open.

Hey, guys. This is ajay here stepping on for John Congrats on the quarter and thanks for taking our questions.

Yes, so I would say it's too early to tell on the fund size.

We certainly would prefer not to go backwards in terms of fund size.

And the good news in terms of how <unk> deployed capital they will turn on their next fund and still be deploying from their predecessor fund and so in some ways if.

If we raised a little more maybe we turn on the fund after that fund 12, a little later, if we raised a little less.

So question on that given the macro obviously WTO now being part of <unk> and maybe some other factors such as.

Then.

Then a much bigger number than we just turn on fund 12 earlier. So if there's a cadence in terms of deployment. Our fundraising is really driven by deployment as we noted we feel like the deployment environment today is better than it's ever been and so that would lead us to certainly hope that the fund size can grow.

Specific <unk> failure.

The question is roughly like a $550 million fundraising goal for fund 11, now somewhat on the conservative side of things.

Additionally, and can you maybe size up the potential impact of this WTO fundraise young overall P 10 average fee rates and EBITDA margins may be next year.

<unk> tend to fund 11.

We are having dialogue at this point and we have talked about that Q1 is.

Yeah. So I would say, it's too early to tell on the fund size.

As a first close so I would say, it's a little too soon to tell.

We certainly would prefer not to go backwards in terms of fund size.

And the good news in terms of how <unk> deployed capital they will turn on their next fund and still be deploying from their predecessor fund.

So in some ways.

We raised a little more maybe we turn on the fund after that fund 12, a little later, if we raise a little less.

<unk> has been able to do and we think <unk> will do as well, but venture allocations have gone down a lot. This year in terms of net new commitments, but we are aligning <unk> to be as successful as they can be certainly feel like we can deploy more money in this next fund than we had in the prior fund.

Ben.

Then a much bigger number than we just turn on fund 12 earlier. So there is a cadence in terms of deployment our fundraising is really driven by deployment.

As we noted we feel like the deployment environment today is better than it's ever been and so that would lead us to certainly hope that the fund size can grow.

Great. Thanks for the color there and then obviously there is no M&A in the quarter or buybacks you did pay down a bit of the revolver and I know you guys just kind of talk through M&A a bit there, but can you talk perhaps to your preferred capital allocation Avenue here, how you're thinking about balancing all three of those options.

<unk> tend to fund 11.

We are having dialogue at this point and we have talked about that Q1 is.

As a first close so I would say, it's a little too soon to tell.

We do not believe there is another venture debt player out there that looks like US. We are excited about introducing <unk> to a number of new Lps. It is not an easy time to raise money and venture. It really is extraordinary what true bridge has been able to do and we think <unk> will do as well, but venture allocations have gone down a lot. This year in terms of net new.

Sure Great question.

When we look at are with interest rates going up so much of our cost of debt is up nearly seven 7%. When we think about capital allocation when we don't have.

We don't have any imminent M&A.

M&A.

We obviously have all this free cash flow in a dividend thats easily covered so our choice is to buy back stock or pay down debt. When we think about valuations that return on incremental capital.

Commitments, but we are aligning <unk> to be as successful as they can be certainly feel like we can deploy more money in this next fund than we had in the prior fund.

It even.

Great. Thanks for the color there and then obviously there is no M&A in the quarter or buybacks, you did pay down a bit on the revolver.

Even a day it is.

Accretive to buy back stock, but the optionality given that rates or interest rates are so high.

And I know you guys just kind of talk through M&A a bit there, but can you talk perhaps to your preferred capital allocation Avenue here, how you're thinking about balancing all three of those options.

Relative to where they were.

That incremental return on capital by buying back stock, one diminishes, our liquidity, which we hear loud and clear from investors that we need more liquidity in the marketplace and secondly.

Sure Great question.

When we look at are with interest rates going up so much our cost of debt is up nearly seven 7% when we think about capital allocation when we don't have.

By being able to pay down debt.

It continues to give us optionality as we see opportunities on the M&A front to re lever re lever excuse me re lever.

We don't have any imminent.

In a.

We obviously have all this free cash flow in a dividend that's easily covered so our choice is to buy back stock or pay down debt. When we think about valuations and return on incremental capital.

And take that back up to make an accretive acquisition. So that's how we think about it.

It even.

There are no additional questions waiting so I'll pass the conference back to the management team for any closing remarks.

Even a day it is.

Probably accretive to buy back stock, but the optionality given that rates or interest rates are so high.

Thank you everyone for joining us we look forward to seeing you at the.

Relative to where they were.

At any of the conferences, obviously, we're around to take questions. As you can tell we're very excited about the opportunities ahead of us and we look forward to.

That incremental return on capital by buying back stock, one diminishes, our liquidity, which we hear loud and clear from investors that we need more liquidity in the marketplace and secondly.

Speaking with you all Youre seeing you next quarter. Thanks.

By being able to pay down debt.

That concludes today's conference call. Thank you for your participation you may now disconnect your line.

That continues to give us optionality as we see opportunities on the M&A front to re lever re lever excuse me re lever.

And take that back up to make an accretive acquisition. So that's how we think about it.

There are no additional questions waiting so I'll pass the conference back to the management team for any closing remarks.

Thank you everyone for joining us we look forward to seeing you at the.

At any of the conferences, obviously, we're around to take questions and as you can tell we're very excited about the opportunities ahead of us and we look forward to.

Speaking with you all at senior next quarter. Thanks.

That concludes today's conference call. Thank you for your participation you may now disconnect your lines.

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