Q1 2024 StepStone Group Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to step stones fiscal first quarter 2024 earnings conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct.
A question and answer session Press Star one if you would like to queue up for a question and breast start to remove yourself from the queue.
I'd now like to turn the conference over to Seth Weiss steps those head of Investor Relations. Please go ahead.
Thank you.
Joining me on today's call are Scott Hall, our Chief Executive Officer, Jason Meggs, President and co Chief Operating Officer, Mike Mccabe head of strategy and Johnny Randall Chief Financial Officer.
During our prepared remarks, we will be referring to a presentation, which is available on our investor relations website at shareholders that SAP Semgroup Dot com.
Before we begin I'd like to remind everyone that this conference call as well as the presentation contains certain forward looking statements regarding the company's expected operating and financial performance for future periods, and our plans for future dividends.
Looking statements reflect management's current plans estimates and expectations and are inherently uncertain and are subject to various risks uncertainties and assumptions.
Actual results for future periods, and actual dividends declared may differ materially from those expressed or implied by these forward looking statements due to changes in circumstances, where a number of risks or other factors that are described in the risk factors section stepson's periodic filings.
These forward looking statements are made only as of today and except as required we undertake no obligation to update or revise any of that.
In addition, today's presentation contains references to non-GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, our presentation and our filings with the SEC.
Turning to our financial results for the first quarter of fiscal 2024.
Beginning with slide three we reported GAAP net income of $49 4 million.
GAAP net income attributable to step stone group incorporated was $21 $3 million.
Moving to slide four we generated fee related earnings of $44 $4 million up 21% from the prior year quarter.
We generated an FRE margin to 32%.
The quarter reflected retroactive fees, resulting from interim closings of RPE Secondaries fund, our multi strategy global venture capital fund and our infrastructure, calling best gardens, which in total contributed $2 $8 million to revenue.
Related earnings.
Is it 40 basis points to FRE margin and $2 7 million to pre tax adjusted net income.
This compares to retroactive fees in the first quarter of fiscal 2023 that contributed $2 4 million to revenue $2 2 million gallons to fee related earnings and pre tax adjusted net income and 130 basis points to FRE margin.
Excluding the impact of retroactive fees in both this quarter and the prior year's quarter, we would've grown fee related earnings by 21%.
Finally, we earned $29 $4 million and adjusted net income for the quarter were 26 per share.
This was down from $47 $1 million or <unk> 41 per share in the first fiscal quarter of last year, driven primarily by lower net realizations and partially offset by higher fee related earnings.
I'll now hand, the call over to step stone CEO Scott Hart.
You Seth and good afternoon, everyone.
Over the last year, we have generated a strong progression of fee related earnings driven by consistent growth in fee, earning assets under management, despite a challenging environment for the private markets and the broader asset management industry.
The strength and breadth of our platform enables steps down to offer a comprehensive set of solutions to our clients, allowing them to proactively invest across economic cycles.
Our client first approach has resulted in strong historic growth and we expect to continue along this path as we listen and adapt to our clients' needs across evolving market backdrops.
Looking at today's environment, our clients remain patient and making capital commitments. However, the broader market appears to be strengthening and the sentiment among our clients and partners at improving public.
Public equity indices are up 12% to 40% since the market trough with strength, particularly in technology.
Investment realizations remain modest, but we are seeing green shoots with some recent IPO activity and M&A.
Increased transactions will not only lead to stronger performance fees, but would help spur fundraising as realized capital that has returned is recycled back into new investments, particularly for those Lps with more mature private markets portfolios.
At our Investor Day in June we set out a path to at least double our fee related earnings over the next five years.
Since our founding more than 15 years ago, we have taken deliberate steps to build leading teams and capabilities across all the major private market asset classes and strategies.
<unk> solutions for institutional and individual investors.
<unk> ourselves in the fastest growing geographies and construct leading data and technology platforms that provide steps down with distinct competitive advantages and delivering private market solutions.
As such we believe the drivers of growth are already in place, namely managed account re ups continued success within our commingled funds across both institutional and private wealth clients deepened.
Deepening market penetration across geographies and operating leverage.
A major contributing factor in our confidence to achieving this long term growth centers around the diversity of our offerings.
Our wide scope of capabilities ensures that we have various solutions for different market environments, and we are not concentrated in any one area.
To focus on a few of the avenues about which we are particularly excited.
Beginning with secondaries business strategy that we've spoken about on recent calls and warrants continue discussion given how it is resonating with investors in today's environment.
Investors are attracted to the strong returns while appreciating the favorable risk and cash flow profile that comes from investing in a season portfolio or asset.
At the same time supply remains strong as GPS Lps are increasing their adoption of secondaries as a mechanism to harvest returns and generate liquidity.
As a trusted partner to GP and LP. The lag step stone is well positioned to capitalize on this market given the breadth of our relationships and our data advantage, which comes from managing or advising on over $600 billion of assets and monitoring data on over 15000 managers.
We are currently in market with our private equity Secondaries fund our special situations real estate Secondaries Fund and we are now in market with our venture capital Secondaries Fund, where we are working towards a first close.
We also offer secondaries and managed accounts across all the asset classes and see opportunities for further product expansion.
The secondary markets in private credit and infrastructure are still relatively new but are starting to accelerate meaningfully as the primary markets. In these asset classes have reached a critical mass.
In Lp's portfolios in those asset classes are seasoning.
As the largest solutions provider infrastructure and a meaningful player in private credit steps done is positioned to be a leader in developing these secondary markets.
Shifting to the geographic landscape, we continue to find opportunities worldwide. We have a strong global presence with offices in 16 countries, which gives us a footprint to grow internationally with deepening pool of emerging capital.
We are also growing in North America, which made up over half of our gross inflows this quarter.
The breadth of our offering has proven to be a competitive advantage as we closed on several managed account mandates there are multi strategy and multi asset class.
Finally, private wealth continues to be an extremely exciting avenue for growth.
We're averaging inflows of over $70 million a month for calendar 2023, which compares to a $45 million average for the first seven months of last year. In fact July was our best month of inflows ever with over $100 million in new subscriptions.
When we established our private wealth platform, we did it with the aim of increasing accessibility to the private markets.
As prime our core private markets Evergreen fund was designed specifically to help individual investors clear challenges associated with private market investing.
For example, as prime has relatively low investment minimums is suitable for credit investors allows for 10 99 tax reporting and doesn't require capital calls.
Last month, we took another significant step to reduce investor friction by publishing a daily net asset value for S. Prime making steps doing among the first platforms to introduce a daily NAV for a multi asset class private market spot.
Investors can now subscribe on a daily rather than just a monthly basis. Additionally, as prime is now eligible for the National Securities Clearing Corporation platform for mutual funds, enabling investment by a ticker without the need for subscription documents and simplify the onboarding process for the investor and financial adviser.
I'll now turn the call over to Mike Mccabe to speak about steps on fund raising and fee, earning asset growth in more detail.
Thanks, Scott I'll, turning to slide seven we generated $15 billion of gross AUM inflows during the last 12 months with $4 billion coming from our commingled funds at $11 billion coming from our managed accounts.
Slide eight shows our fee, earning AUM by structure and asset class.
For the quarter, we grew fee, earning assets by approximately $2 billion.
With $700 million coming from coming off bonds and the remainder from separately managed accounts.
This quarter's commingle fund inflows came primarily from our PE Secondaries fund, our multi strategy global venture fund.
Our infrastructure co investment fund at our private wealth platform, where we continue to generate strong growth with total assets under management of $1 7 billion.
Our investment performance at our private wealth products continues to be very strong with S. Prime our evergreen private markets fund for a credited investors generating a 28% annualized return since inception, and spring our evergreen venture and growth equity fund off to a strong 24% return since its launch in November .
<unk> 2022.
That's the private infrastructure fund or structure is our latest perpetually raised fund for private wealth investors, having been declared effective by the SEC in July .
Structure is an interval fund seeking current income and long term capital appreciation by offering a credit to the investors access to a global investment portfolio of private infrastructure assets.
We expect an initial closing later this year.
We also increased our unemployed fee, earning capital by more than $1 billion to a balance of approximately $17 billion.
Positioning us well to capitalize on attractive investment opportunities.
Slide nine shows the evolution of our management and advisory fees.
We generated a blended management fee rate of 55 basis points over the last 12 months.
Slightly higher than for fiscal 2023.
We produced over $4 50 per share and management advisory fees over the last 12 months, representing an annual growth rate of over 20% since fiscal year 2019.
Now before turning the call over to Johnny I am pleased to announce that we are raising our quarterly dividend from <unk> 20 per share to <unk> 21 per share.
As a reminder, last November we updated our dividend approach to bifurcate our shareholder distributions between our quarterly dividend that would be based primarily on fee related earnings and a recurring supplemental dividend that will be paid annually and based primarily on performance related earnings.
By matching our dividend approach to our business model, we can maximize fusions to our shareholders, while maintaining a capital efficient balance sheet.
As a reminder, we set last year's quarterly dividends of <unk> 20 per share prior to this shift in approach and therefore had base those dividends on total adjusted net income rather than fee related earnings.
We are pleased that we were able to pay out a healthy 25 supplemental dividend. This past June even with the midyear change in approach.
And this quarter is 21 distribution marks the first time, we are setting our quarterly dividend based primarily on fee related earnings.
This payout is funded by the vast majority of our fee related earnings after adjusting for taxes and Noncontrolling interest.
For comparison this dividend would have represented a high teens percentage increase in our quarterly dividend had we adopted a similar approach last year and base those quarterly dividends on FRE.
We expect that our future Years' quarterly dividends will increase as we grow FRE.
Now I'd like to pass the call over to our CFO Jonny Randall. Thank you, Mike I'd like to turn your attention to slide 11 to speak to our financial highlights for the quarter, We earned management and advisory fees of $138 million up 18% from the prior year quarter. The revenue increase was driven by growth in fee, earning AUM from commingled funds that reactivated over the last year.
Here as well as continued fundraising and deployment across commercial structures with.
We generated an FRE margin of 32% for the quarter retroactive fees in this quarter had a positive impact on the FRE margin of 140 basis points excluding.
Excluding the impact from retro fees, our margin was up 60 basis points year over year and up 250 basis points sequentially.
Cash compensation for the quarter reflected relatively limited hiring activity, we expect some pickup in compensation expense next quarter from incremental hiring.
G&A will vary quarter to quarter, largely driven by travel and events. We saw a decline in G&A from the previous quarter, which included expenses related to our annual VC Investor Conference.
Gross realized performance and incentive fees were $14 million for the quarter, which was down both year over year and sequentially, but generally consistent with a muted level of transactions we've seen in the market.
Scott mentioned, we are seeing some signs that the realization environment is improving.
It takes a few quarters for transactions to work through the pipeline. So we expect that realized performance fees will remain modest for the.
Next several quarters as a reminder, we generally do not control the timing of exit on our investments.
Moving to slide 12, adjusted revenue per share was down 20% relative to the prior fiscal year, which is the result of an 80% decrease in gross realized performance fees per share.
Offset by 19% growth in management and advisory fees per share.
Since fiscal 2019, we have grown adjusted revenue per share by 21% compounded annual rate.
15 to our profitability on slide 13, we grew fee related earnings per share by 22% year over year. The increase was primarily driven by growth in management and advisory fees.
Over the longer term, we have generated an annual growth rate in fee related earnings per share of <unk>, 31% since fiscal 2019.
Our eni per share is down relative to last year, driven by lower performance in incentive fees, but has increased at an annual rate of 26% over the long term period driven by growth in both fee related earnings and realized net performance fees.
Moving to the balance sheet on slide 14, net accrued carry finished the quarter at $609 million up 4% from the previous quarter driven by underlying valuation increases for the period ended March 31.
As a reminder, our accrued carry balance is reported on a one quarter lag our own investment portfolio ended the quarter at $154 million unfunded commitments to our investment programs were $95 million as of quarter end.
Our pool of performance fee eligible capital has grown to over 65 billion and this capital is widely diversified across multiple vintage years and approximately 190 programs.
78% of our unrealized carry is tied to programs with vintages of 2018 or earlier, which means that these programs are largely out of their investment periods and are in harvest mode 50.
59% of this unrealized carry sourced some vehicles, but deal by deal waterfalls and realized carry may be payable at the time of investment exit.
This concludes our prepared remarks, I'll now turn it back over to the operator to open the line for any questions.
Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.
You will hear at the rebound.
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If you would like to cancel your request please press star two.
Please enter your lift the handset that you are using a speaker phone before pressing any case here.
Your first question comes from the line of been bullish from Barclays. Your line is now open.
Hi, good evening and thanks for taking the question.
Scott I was wondering if you could talk a little bit more about secondaries.
Just kind of curious it sounds like Theres, a lot of opportunity there and I know you have a number of funds in the market right. Now can you kind of remind us how big is that for you right now and just kind of based on the momentum or the desire of GPS and Lps to transact, where do you think that can go how do you see it scaling over the next several years.
Sure. Thanks, Ben for the question and obviously this is a topic that we've been talking about really over the last number of quarters not only as it relates to the.
The second area of opportunity as it exists for us in private equity, but also the expansion of the secondaries opportunity across you venture as well as the real estate infrastructure and private credit asset classes, we haven't disclosed an exact total secondaries.
AUM number, but certainly within each of the assay classes is of increasing importance. When you look at our sort of flagship private equity Secondaries fund the previous vehicle was a with a $2 1 billion fund we continue to have the largest venture capital Secondaries fund.
With the prior fund being approximately $2 $6 billion.
And as you mentioned in market with our real estate.
Special situations Secondaries fund as well.
So again I think an increasingly important part of the business for us and as I mentioned during the prepared remarks, given our positioning in the market and our relationships with both GP and LP is one that we think that we are particularly well positioned to continue to capitalize on yes, clearly as you think about deal activity in the first half of the year here with <unk>.
<unk> slightly relative to last year, but it's probably still a bit of a disconnect between what's hitting the top of the funnel, which has been quite active versus what has closed. We've obviously talked for some period of time about the bid ask spread that exists between buyers and sellers I think that that's closing I think part of what we've seen is a stabilization in values.
<unk>, particularly across the private equity and even to some extent debenture space with valuation stabilizing and really Q4, and Q1 of this year, which will give secondary buyers like ourselves a bit more confidence to transact in this market.
Great. That's helpful. Maybe one follow up sort of a high level question.
It seems like the story, maybe six to nine months ago was really around like the denominator effect L. P. As you know, we're having trouble just based on kind of the math of what was happening in their portfolios. It sounds like maybe the story has shifted a little bit.
Somewhat similar but it's more about theyre waiting for capital to be returned but just kind of wondering from your seat since you sit in the middle of so many GPS and Lps to what extent with the sort of rise in public markets over the last many months.
The denominator effect still issue or our investors still sort of waiting for capital to be returned or does it take a little bit more time to get confidence what are your kind of thoughts there.
Yes, that's a good question, it's certainly the rise in the public markets. During the first half this year to take some of the pressure off but we've also talked in the past about the fact that it actually wasn't just the denominator, but also the numerator that was contributing to Lps being over allocated and the rapid investment pace over the last several years the fact that.
Private market valuations has held up reasonably well, particularly compared to the public markets and then a slowdown in realization activity and.
Really starting in the second half of 2022, and so those issues impacting the numerator I'll still exists I would say that the recovery in the public markets take some of the pressure off.
It doesn't mean that Lps are completely out of the woods I think the term that we use during our prepared remarks as we think they are being patient and part of the reason for that is in the same way that when the public markets declined we didn't see an immediate.
Setting of budgets or LP slamming on the brakes when that goes in reverse in the public markets recover again don't immediately see Lps resetting their budgets, but once again I would just say it takes a bit of the pressure off.
Got it very helpful. Thanks, so much for taking the question.
Your next question comes from the line of Ken Worthington from Jpmorgan. Your line is now open.
Hi, good afternoon, thanks for taking the questions.
First for Scott.
In the prepared remarks, you talked about S. Prime.
And I'm sure I screw this up so I'm going to pare, it back and tell me, where I'm wrong and the.
A question now.
<unk> has a daily MTV has registered I think you said NFC with a ticker it doesn't need subscription documents to be signed so one correct me, where I'm wrong, but what I'm really after is what are the end implications here for I guess, one and investors.
And then two what are the implications here for broadening.
Distribution.
As well as a build out of sort of regional and wire house distribution.
It seems like this could be a big deal maybe it's not but help help flesh this out for me.
Sure Thanks, Ken and while I commented on during the prepared remarks, I'm actually going to ask Jason to comment in a bit more detail on your specific question there sure. Thanks.
Dan and Scott.
So we think it's a big deal.
Is it a short answer from an ease of use perspective, and a credit investor.
Using an <unk> or IBD.
Using a custodian that's approved the ticker.
Okay.
Literally buys it on the screen just like any mutual fund.
Paperwork not required from our perspective, so the ease of use is profound.
And for that.
That have discretionary accounts with their clients and allows them to kind of buy down bind to the fund down their entire book.
In a matter of minutes instead of having subscription agreements does that by each individual client.
To go through at all so the ease of use.
Is it really a lot improved and when we start to think about what our goal was with S. Prime It was to provide that single ticket access for the accredited investor and to overcome the hurdles that investors had in accessing the private markets that could have been managing capital calls.
That could have been dealing with tax compliance and schedule K ones.
But importantly, it's not easy to fill out 40 or 50 paid subscription agreement either.
And now we've been able to eliminate that for a wide swath of U S based investors.
Okay, and then again I'm sorry, Mrs up before what is the timing I think you said.
Daily <unk> is already live or were you already like right now today to the point, where no subscription documents. So it's kind of off to the races or is this something that kind of works its way in over the next six months what is the timing element here.
Yes so.
It went live middle of last month.
And.
The way it works is.
Wherever you are close to being that custodian has too.
Approved the process for using the ticker so we're working our way through.
There are a lot of custodians out there working our way through the custodians to to get them on side. We've got a couple of onsite, so far and continuing that effort.
Then separate and apart from those who use a third party custodian those groups that self custody.
And we'll have to see what the take up is there. So we don't expect that the subscription agreement is going away anytime soon and there will be certain groups that will always want to use a subscription agreement for their clients.
In short belts and suspenders from suitability perspective, but for a large swath, we do expect.
The ticker to BBB.
Method of choice for accessing the fund.
And then one last one.
You talked about the <unk>.
<unk>.
Feels like that's where this may be more helpful. How does this impact sort of the regionals and the wire houses.
<unk>.
Your buildout there I assume it's sort of helpful for one hopes for all but maybe it's better on one side than the other or maybe the wire houses one subscription so any difference between sort of distribution.
Channels.
Yes, I think there is a difference between the distribution channels that <unk> will definitely.
Use this at a higher <unk>.
<unk>.
Then the IBD or the wires, we think some of the IBD as well.
B using this but probably not all some may also use an abbreviated documentation process. So there is some benefit but not.
<unk> benefit.
And for the wires, we expect that'll be.
The last holdout in terms of wanting to use is the ticker instead of sticking with the traditional sub dock process from a suitability perspective.
Okay. Okay, great. Thank you very much guys like equalizing, the playing field a bit in terms of the scale of capital.
Amongst the players a bit.
Great. Thank you very much.
Your next question comes from the line of Adam Beatty from UBS. Your line is now open.
Alright, Thank you and good afternoon.
Just wanted to ask about the level of.
Unemployed capital, which is.
Nicely ticking up there Greg.
Great to have that sort of backlog for deployment.
Looks like deployment may have.
Of that particular backlog may have edged down a little bit in the quarter. So just wondering what youre seeing in the deployment environment and whether theres something about the current unemployed capital in terms of fund mix and profile that would either shorten or lengthen the deployment period.
Yes.
Sure. Thanks, Adam So we've always talked about it as unemployed fee, earning capital likely to be deployed over a three to five year type of period I think thats still remains the case and I think that type of time range gives us enough flexibility given the deal flow that we have to.
Deploy responsibly invest responsibly throughout market cycles here I think you are right to pick up on the bag that deployment has slowed a bit not only in this quarter, but over the last few quarters here I don't think that will come as any major surprise given what has gone on in the marketplace more broadly.
And to some extent comes down to which of our accounts pay on invested capital I would say, while we haven't broken that down precisely it's a bit more heavily weighted towards some of our co investment strategies and much like the comment I made earlier about secondaries, where theres, probably a bit of a difference between what's hitting the <unk>.
The funnel versus what is actually <unk>.
Closing, we have seen a nice uptick in activity hitting the top of the funnel is certainly the second quarter of this year up pretty significantly year over year.
And.
And I think that's going to be a driver of deployment and investment pace starting to pick up so as we've talked about on the last few calls we continue to be patient.
But are cautiously optimistic given the pickup in deal flow that we've seen of late.
No that makes a lot of sense, thanks for the detail Scott.
And then just turning back to the wealth channel really interesting on the daily now for as Prime.
And many of the features that come along with that so I think thats really something of a breakthrough there.
One of the other components as you know of effective retail distribution is the education process.
Which breaks into kind of consensual understanding of the products, but also forms of real time data or monitoring availability and obviously daily Nab will fill it in one of those major gaps there, but just wondering given the wealth of information resources that steps down has how you might be deploying are considering.
Deploying that information advantage into the retail channel. Thanks.
Yes, I think thanks.
This is Jason.
In addition to the transparency that's available on the portfolio and the daily ticker just to be clear that's an S. Prime development not a spring development currently.
Yes.
But in addition to that you are right, we try to strategically partner with each of the wealth management firms that we do.
We work with and try to meet them, where they are they've got differing needs in terms of access to educational materials like.
The research papers, we put out but also may seek to have a more fulsome access to our data and technology solutions and we try to partner them partner with them in that way as well if it is helpful. So I think.
Unlike a like amount of line manager we do have.
Not only a lot of data and technology solutions available, but perspectives on the market that we can be helpful. In things that theyre doing away from us as well and I think that's resonated quite well.
I would add to that is I think this approach towards edge.
Education and knowledge transfer is not a far stretch for us given the relationships that we have with our clients even on the institutional side, where we've always had very close in partnerships not the types of relationships, where we're just checking in once a year at an annual meeting we are in very close communication with our clients.
Hosting training sessions, we actually launched earlier this year our first.
On the private equity side steps soon academy session for some of our institutional clients and so now looking for ways to roll that out more broadly to to the private wealth space as well.
Yes, so theres potential crossover there thats great. Thank you guys.
Yes.
Your next question comes from the line of Alex Bluestein from Goldman Sachs. Your line is now open.
Hey, guys good evening.
Building, maybe on a couple of more questions around the world.
Steve You mentioned that gross sales in July were running at about $100 million, which is a nice pick up from where you guys have been doing so you spend a minute on what the source of that sort of incremental upside has been recently is that addition of new platforms, new advisors or hired to same store sales from the kind of the existing books that youre seeing.
<unk>.
And as you think about the expansion plans into other platforms without obviously getting this new structure would that also entail the ability for direct distribution or with clients still need to buy through the financial buyers. So in other words with folks who would be able to buy it and schwab and fidelity or it still has to be.
Thanks.
Thanks, Alex.
So couple of things in terms of where we saw.
Period flows what drove the uptick I think we saw we saw the ticker come into play for sure on on his primary when we saw therefore deeper into the book at mostly the RIAA channel, but we also saw some increased flows from the wires in IBD is that we've been on the platform, but it's been.
In that ramp up phase and those things are starting to hit stride.
It was a pretty broad based.
Tick up both across that as prime and spring, so really happy to see that.
And then in terms of what could the ticker MIM and.
In terms of more direct access.
We agree we do think that this will allow folks to buy into the fund on a variety of different channels, including things like self directed iras.
<unk>.
In the.
Channels, you mentioned as well as.
Are there kind of a direct to consumer platforms.
Got it great and then just in terms of the structure of the wealth channel.
If I recall correctly, maybe a quarter or two you guys have restructured it where the team get some of the economics. So maybe just a quick reminder.
In terms of the incremental management fees that will be coming through this channel what ultimately drops down to the bottom line to the step selling shareholders.
So if you take the top line management fee. There is roughly a 50 50 split in those fees.
With 50% going to.
Step Stone group, and then 50% funding the expenses of the private wealth team.
Got it great. Okay. Thank you.
Yeah.
Your next question comes from the line of Michael <unk> from Morgan Stanley . Your line is now open.
Hey, good evening I wanted to ask about private credit, it's getting a lot of attention in the marketplace. Given some of the challenges in the banking sector is I was hoping you could talk about your private credit franchise, how that contributed in the quarter and hopefully you could talk about some of the initiatives you have in place to accelerate growth and what are some of the steps you might be able to take over the next 12.
<unk>.
Sure. Thanks, Thanks, Mike for the question I think private debt has been a meaningful contributor.
Not only in the quarter, but really over the last over the last 12 months and beyond one of the faster growing asset classes for us.
Look when you talk to our private debt team and platform one of the things you hear us talk quite a bit about is the fact that we view this as an all weather strategy, particularly when you think about the core allocation to direct lending and what happens from time to time as there are opportunities either too.
Diversify at you.
We're sourcing channels <unk> enhanced your returns I think one of the things that has happened on the back of the regional banking crisis is really an opportunity to do a couple of those things we wanted to diversify our sourcing whether by looking not only at corporate credits, but also real estate and infrastructure.
And also expect there will be an opportunity to enhance returns and looking at more opportunistic and potentially distressed opportunities down the road here, but where a lot of the attention is.
Really focus has also just been on this core direct lending allocation as well and just given the rise in base rates.
Seeing sort of low double digit gross asset asset yields.
And I think as the asset class itself has matured and has been proven a bit more battle tested and we've seen sort of the the strong downside protection and performance through whether it was COVID-19 GFS.
GSE or the more the more recent sort of tech driven downturn over the last.
12, 24 months here I think that is really garnered a lot of attention amongst the amongst Lps and so is it really opened up the eyes of our Lps and our clients as to the attractiveness and the attractive risk reward of this strategy in terms of additional steps that need to be taken out like I think we built out the platform. It is sizable.
<unk> team and sizable business today, but I think some of the real opportunities are going to be capitalizing on the growing co invest in secondaries opportunity.
That's been an area that even with.
The.
Klein in volumes that we've seen over the last 12 months driven by private equity deal activity. There has been meaningful co investment opportunity then secondaries either in the form of buying a portfolio of loans.
From from GPS or banks or more traditional LP secondaries, and so I think those are going to be some of the growth avenues going forward here.
Great and then just a follow up question on retail I think you mentioned $1 7 billion so far across.
Two or three funds can you just update us on where each of those funds are in their fees are getting on the distribution platforms have any or each sean how many wires are each of them on and where do you see that or expect that to be in 12 months.
Sure.
Sure. Thanks, Mike.
As primes on a bit over 150, <unk> platforms 10, plus IBD is and one wire spring is on.
50, plus <unk> at this point.
And a handful of Ibs.
The IBD is actually are adopting a bit earlier in spring than what we saw in prime which is what we would generally expect to see with a second fund family. After our first fund families. So that's been that's been positive.
<unk> is on.
Additional wires for S Prime and an initial wire for spring are continuing and trending very positive.
But.
Building out that syndicate for each fund family not just here in the U S by the way, but we.
We can't forget that fourth pillar, which is very important which is the non U S distribution.
<unk> is well underway and we've got a nice pipeline outside the U S as well with.
With a number of different platforms.
Great. Thanks for that if I could just sneak one final one here just on the daily NAV can you just talk a little bit about the hurdles that you had to tackle to bring that sort of innovation to the marketplace. How you thought about some of the pros and cons there just in terms of.
Perhaps more volatility or less of a smoother ride for the customer and sort of why now on that versus when you had brought some of these more products in the marketplace a couple of years ago.
Sure.
Let's see.
Scott mentioned, the tremendous amount of data flowing through the platform. We think that is one of the initial linchpins in order to be able to deliver on a solution like this.
Second.
As just a tremendous team that we've got in our.
Our data analytics team and data science team that we're able to come up with the modeling.
<unk> of this and then finally.
To implement the technology across our homegrown monitoring and reporting software.
Spy reporting and integrating that into.
Our system and on our process for investing is really.
The last the last piece of how to actually be able to implement all of this.
The hurdles are high I think for for groups to be able to deliver on something like this in a meaningful way. It took a lot of leg work with.
All of our vendors.
Auditors, the administrators et cetera to get everybody on.
On side with all of this and in terms of the.
The user experience so far the feedback has been fantastic.
Fantastic.
From the channels.
Great. Thanks, very much the why now like this it's just taken a long time to get to this point.
Not easy.
Super Thank you.
Your next question comes from the line of John Dunn from Evercore ISI. Your line is now open.
Hi, guys. Thank you.
You had talked about half of our gross inflows coming from the U S. Can you kind of remind us how that compares to past quarters was there any.
Kind of idiosyncratic stuff in there and then maybe the strongest geographies overseas.
Sure I mean, just as it relates to the comparison to prior quarters, we havent always broken out the exact the.
Exact geographic breakdown, but when you look at the overall business and the breakdown of our management and advisory fees.
It has typically been in the roughly 70% outside of the U S.
And the remainder in the U S and so you can get the sense that is an above average contribution coming from coming from North America and that was driven by a combination of things one being.
A number of separate accounts that we closed during the quarter and as you know the timing of closing of sizable separate accounts can vary from quarter to quarter. It happened to have a few that closed during the quarter as well as some of the contributions on our various different commingled funds that had closings during during the quarter I would say.
From a geographic standpoint beyond that fairly fairly balanced across other geographies I'm not sure there's a single.
Geography that we would highlight outside of the U S. Maybe more broad I mean, Europe would have been the most significant contributor but without getting more specific than that.
Yeah.
Probably leave it there.
Got you and maybe just to touch on real estate.
Talk about where you think we are as far as demand.
For your real estate strategy, where are you seeing the most in the least.
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Yes, well look I think the good news is we're seeing the most demand is for our flagship real estate special situations secondaries strategy jet fuel or our head of real estate has spent quite a bit of time talking about that strategy. During our investor day, just a couple of months ago that is a strategy that is in demand.
And that we think is very well positioned for the coming investment environment has not been activated.
Yet as deal volumes are still somewhat subdued today and as Jeff talked about during our Investor day think that it's the coming wave of refinancing activity that will ultimately catalyze the investment opportunity for us there today. So that's I'd say the area that we're seeing the most significant demand on the real estate side.
Thanks very much.
There are no further questions at this time I will now hand over to Scott Hartz. Please continue.
Great well, thanks, everyone for your time and attention today, we look forward to updating you in future quarters. Thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.