Q3 2023 P10 Inc Earnings Call
Hello, and welcome to the Putamen third quarter 2023 Conference call. My name is Lucy and I will be coordinating your call today.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone to remove yourself from the queue Press Star one one again.
As a reminder, today's conference call is being recorded 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 P 10 third quarter 2023 conference call. This is Mark Hood EVP of operations and Investor Relations today, we will be joined by Luxe Harvest field, Chief Executive Officer, Robert Alpert Executive Chairman Park Web.
Actually the Vice Chairman Fritz Souder, Chief operating officer, and Amanda Cousins, Chief Financial Officer.
Before we begin I'd 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, a of the Securities Act of 1933 section 21 E of the Securities Exchange Act of $19 34, and 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 risks 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, with 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 in the third quarter Pecan continued to demonstrate the power of our differentiated financial model as we delivered another quarter of strong financial performance before we talk about the quarterly results I want to welcome Luke Sarsfield <unk>, new CEO to his first Earle.
Earnings call as.
As many of you listening to this call know two weeks ago, Clark and Ipass look the CEO baton and we could not be more excited about the transition.
The decision to transition leadership at this time reflects the strength of our business our commitment to driving shareholder value and the confidence we have in <unk> ability to take P tend to new heights.
All the pieces are in place to continue strong organic growth leverage inorganic opportunities and elevate the P 10 brand globally.
We've built a best in class investment platform tailored to the needs of our global clients and Clarke and I have exceeded every goal. We set for ourselves. We are confident look is the right choice for pecan and he has our full support.
Over 23 years look was a key contributor at Goldman Sachs. He held important leadership roles across the organization, including serving as co head of Goldman Sachs asset management, which managed over $2 five trillion in assets.
Luke brings proven leadership skills that he honed over decades.
At its core <unk> is a people business and it was important that we find a leader with a character to lead people effectively while making the interest of clients Paramount.
He also wanted an individual that had distinct experience building asset management businesses as well as thoughtfully identifying and executing value additive transactions, we're confident that Luc will effectively lead pecan and capitalize on a myriad of opportunity for value creation.
Clarke and I remain large shareholders and look forward to remaining involved in key parts of the business I remain chairman of the board and as part of the transition I was elected executive Chairman, where I will focus on corporate matters. Clark will also remain on the board and he was elected executive Vice Chairman and will direct his attention.
Towards strategic opportunities and assess to Luke and potential corporate transactions.
Welcome Luke we're excited here at P 10 in a few moments you will hear from Luke, but before that I want to hand, it off to Clark for a few comments.
Thank you Robert.
I agree that Luke joined <unk> at the perfect time, and inherits a strong foundation for continued growth.
This earnings call represents our two year anniversary as a public company. Shortly after we went public we laid out ambitious fundraising and financial targets.
I'm pleased to report that we not only exceeded our two year $5 billion organic fund raising goal, but we have now exceeded $6 billion of fund raising more than $1 billion in excess of our original plan with one quarter still to go.
Moreover, our accomplishments have not been confined to AUM growth.
Going public in October 2021, P. 10 has delivered impressive financial results compounding intrinsic value for our stakeholders at attractive rates from the third quarter of 2021 to the third quarter of 2023, we have grown revenue adjusted EBITDA and Eni by 55%.
36% and 50% respectively.
We believe that performance puts us in a unique position relative to our peer group and our growth has been achieved despite a macroeconomic backdrop that has proven the most difficult and a generation with rising interest rates market volatility.
Mobile Pestilence and war.
When we went public we positioned <unk> as a long term compounding bond I believe the last two years has proven the merits of our financial model.
As we pass the Baton of leadership to look we believe <unk> has never been stronger and we believe our best days are ahead with that it's a privilege to introduce look to the investor community.
Over to you.
Robert and Clark, Thank you for the kind words.
I am truly energized to be here today speaking with all of you and I look forward to our interactions moving forward.
As the new CEO of <unk> and as a shareholder I am grateful for your support and we will work hard to earn it every day.
First I'd like to start by recognizing Robert Clark and acknowledging their vision for creating a truly differentiated private market solutions provider.
Platform of leading investing franchises that they have assembled is extraordinary and it provides a superb foundation for future organic and inorganic growth.
I also appreciate their leadership and support to date and look forward to working closely with them to create exceptional value for <unk> stakeholders.
I was fortunate to spend over 23 years with Goldman Sachs, where I held numerous senior leadership roles in hone the skills necessary to create value for clients and shareholders. My experiences gained as a leader of the firm's financial institution investment banking team running the asset management client and distribution team then ultimately heading the AUM.
<unk> asset management business will be directed to broadening <unk> global footprint and elevating its brand.
When I reflect on why I chose to join <unk> I really think about the outstanding people and the compelling platform.
From a human capital perspective, each of P. 10 strategies are made up of a world class long tenured investment teams with durable track records.
Each strategy is a leader in its respective market with a demonstrated ability to produce consistent alpha on behalf of clients.
Our ongoing success in raising precious capital from our Lps and then deploying that capital to generate very strong returns is a testament to the strength of the platform.
And the operating infrastructure is robust thanks to the foundational work done by the <unk> management team.
Personally I see rich opportunities to drive organic growth in multiple ways.
First given the strength of our individual franchises the ongoing organic capital raising opportunity is extremely meaningful as is evidenced by our exceeding of our initial two year $5 billion gross fund raising goal two quarters early.
There are attractive opportunities to expand and deepen our fundraising capabilities across the whole of the <unk> platform as we introduced existing Lps of one of our strategies to a broader offering set.
Furthermore, there are vast numbers of prospective Lps, who are not yet aware of <unk>, where we can introduce the platform and its robust capabilities.
Next there is the prospect of distribution arrangements with a wide range of potential partners from retail platforms to insurance companies, which can accelerate our capital raising plans.
Finally, I see a real opportunity for P tend to create broader brand awareness. When I was initially approached about the CEO job I had never even heard of <unk>, but as I got to know the company better I was incredibly impressed and I believe we have an opportunity to increase the profile of <unk> with global pools of capital.
I also see tremendous potential inorganic growth opportunities, our disciplined focus in the middle and lower middle market results in us being a true partner of choice for numerous firms and there are many potential areas for expansion that fit strategically and synergistically with our existing franchises of course, we will be thoughtful and disciplined.
How we prosecute these opportunities, but the universe is broad.
One thing that I believe is critical for any new leader is to gain a deep understanding of how their organization works to that end I'm spending my first several months on an in person listening tour with the broadest range of voices, including my Pizza and colleagues across our strategies, our clients and prospective clients are current.
Prospective investors research analysts and potential partners and others.
Importantly, we want to ensure that we are clearly articulating. The P. 10 story to investors to that end, we plan to hold our first investor day sometime in 2024, where we will share greater insights around our leading franchises and our growth framework.
I will close by again, saying, how excited and humbled I am to.
To have the incredible opportunity to lead <unk> and how much opportunity I believe there to be here.
With that I will turn it over to Fritz.
Thank you Luke.
We continue to see steady contributions of fund raising and deployment across the platform in the third quarter.
We are frequently asked about what we're seeing in the market and what we are hearing from Lps.
From our vantage point in the middle and lower Middle market, we don't see much change over the last couple of quarters.
As we've said on previous calls in times of uncertainty investors may take longer to make decisions and that is certainly understandable when an LP is evaluating a fund commitment that could last a decade or more.
We're confident that we will continue to benefit from strong relationships of delivering durable alpha over long periods of time in all sorts of markets.
At other times, we see Lp's makeup fund commitments sooner than expected.
As they did in the second quarter, where we pulled forward about $300 million of fee paying AUM.
In Q3, we had a dozen funds in the market or private equity strategies raised and deployed $309 million with our primary fund of funds driving most of the fundraising.
Later next year, we expect to launch RCP direct Fi and RCP secondary five.
We think the current macro environment, we find ourselves it will bolster demand.
The same can be said for GP stake strategy, which benefits in conditions, where gp's buying fundraising more challenging than normal.
Our adventure equity strategy true bridge had another impressive quarter and raised $180 million and continued to demonstrate institutional demand for Ya Li investment opportunities.
The majority of the LP commitments through two bridge, where to the flagship fund of funds and our inaugural Secondaries Fund.
The credit size of the house raised and deployed $56 million with our NAV lending strategy Hart contributing to fee paying AUM.
<unk> continues to work on fund 11, and we expect it to launch in mid 2024.
With 42 years invested in venture lending, we're seeing strong deal flow and attractive deployment opportunities here.
Historically <unk> has produced excellent returns and we think the exit of certain market participants expands our opportunity set.
In the third quarter, our impact strategy enhanced capital drove a $154 million of fee paying AUM.
The enhanced capital continues to deploy capital into impact investments to achieve achieved both investment and impacted objectives of a wide range of investors.
Enhanced has a long history of customizing funds to effectuate, a particular investors goal such as helping a bank achieve their community Reinvestment act requirements in the third quarter and existing bank clients increase their commitment by additional $91 million.
To invest in that bank footprint.
Additionally, enhanced capital deployed $28 million on behalf of a third party, whose balance sheet enhanced manages among other funds deployed.
In conclusion, our diversified all weather strategies continue to demonstrate the power and potential of our platform.
I will now hand, the call over to Amanda.
Thank you Brad Steve hang assets under management were $22 7 billion.
8% increase on a year over year basis.
In the third quarter $699 million of fundraising and capital deployment was offset by a $168 million and step downs in exploration for the remainder of 2023, we expect $120 million in.
I'll step downs in exploration.
Revenue in the third quarter with $58 9 million, an 18% increase even in third quarter of 2022.
Average fee rate in the quarter with 104 basis points driven by continued expansion of our direct strategies such as W. Ti Bon accord and Hawk catch up fees in the quarter were $2 million.
Operating expenses in the third quarter were $58 6, million% to 47% increase over the same period a year ago the increase.
<unk> is primarily attributable to additional compensation benefits and noncash stock based compensation expenses related to the acquisition of WTS Bon Accord and Hawk.
GAAP net loss in the quarter was $8 8 million compared to $5 $6 million of net income in the third quarter of 2022.
The GAAP loss is primarily attributable to higher compensation expense related to the executive transition acquisition related noncash stock based compensation and earn out expenses related to the <unk> acquisition.
Adjusted EBITDA in the third quarter was $29 6, million% to 7% increase over what we reported in the third quarter of 2022, adjusted EBITDA margin was 38% for the full year, we continue to expect margins to be in the range of 51% to 52%.
For the third quarter adjusted net income our Eni was $24 3, million% to 3% decrease over the third quarter of 2022 I.
I would note that while adjusted EBITDA grew 7% to historic increase in interest rates added approximately $2 million to our interest cost this quarter, reducing ini.
Fortunately with our cash generative business model, we would expect the labor line headwind to turn into tailwind in 2024 and beyond as all three potential uses of our free cash flow acquisition share buyback and debt Paydown are currently all accretive to our bottom line.
Cash taxes for the full year should be approximately $3 million as we.
<unk> to benefit from our tax assets as a reminder, they are composed of two distinct asset.
$158 million net operating loss and $368 million and tax amortization.
Cash and cash equivalents at the end of the third quarter were $20 million.
As of today, we have an outstanding debt balance of $274 million and $69 $5 million drawn on the revolver.
There is $93 million available on our credit facility no shares were repurchased in the quarter and we have $18 $9 million available on the share buyback program.
We also continue to pay our quarterly dividend.
Declared a dividend of three and a quarter cents per share on November nine 2023 to stockholders of record as of the close of business on November 32023, and payable on December 22023.
Finally on September 30 of 2023.
Our class a shares outstanding were $44 million 932190 shares and class B shares outstanding were 71 million 343739 shares.
Thank you now, let's turn it over to the operator for a few questions.
As a reminder to ask a question you will need to press star one on your telephone again Thats star one on your telephone to remove yourself from the queue. You May Press Star one again, please standby, while we compile the Q&A roster.
Yes.
Our first question comes from the line of Kenneth Worthington of JP Morgan.
Great Hi, good afternoon, everybody thanks for taking the questions.
Maybe first 2023 was a big year for pizza in fundraising as you guys highlighted I think the year alone had like more than $3 5 billion of capital raised and deployed.
As we look forward to 2024, what are the key funds that you expect will come to market and I think fits mentioned too I guess are there others outside of WTO, which we should kind of consider and then if things go. According to plan, how does next year compared to 2023 and terms.
Net new assets raise is it going to be a bigger year or is it expected to be a smaller year somewhere around the same help us help us frame what what next year should look like if everything comes together right.
Hey, Ken it's lukes our scale first of all thanks for the question and great to be with you taking the question.
Obviously, thanks for your observation, we continue to believe as you've noted that.
The fundraising attributes that we drive here and the platform that obviously results in these great fundraising results are really a testament to the faith and confidence that lp's have put continue to put into us.
And as we've noted we've had multiple strategies in the market I think as we go into 2024, we're going to continue to have a dozen to the plus of our strategies in the market. We've mentioned a few on the call I will tell you. We think 2024 has the opportunity to have.
New strategies, including many of our flagship strategies raised and so I think we continue to be really excited and optimistic about the opportunity as we've said in the past.
And we will do the first quarter call, we're going to talk about the fundraising outlook for the fourth quarter call. We're going to talk about the fund raising outlook and we'll give you more guidance then but I would say generally we're really optimistic and enthusiastic about the fundraising backdrop.
Okay, Great and look while we have you.
I believe before <unk>, Sam you're Fig banker, so how do you see M&A fitting into the strategy to kind of build shareholder value of P 10, and sort of along those lines as you look at product and distribution capabilities of pizza and where do you see the most meaningful opportunities.
It seems that resonate most with you when thinking about inorganic growth.
First of all thanks for your question and you're exactly right I ran the Fig group at Goldman in the investment banking team and so had the opportunity to work in and around the alternative asset management space, including with many of our peer institutions around their around their M&A plans around their capital plans and alike, and so I would say.
Two things one is as I think I've mentioned in the past and I know the team has mentioned and we will continue to talk about we see robust opportunities for both organic and inorganic growth and organic growth has been and will continue to be an important component of the <unk> growth story and I think we really really look forward to driving <unk>.
Shareholder value through using all the levers at our disposal, but certainly inorganic growth will be a part of that we're always going to be thoughtful we're always going to be disciplined we're always going to do things that are on strategy and really play to our strengths and leverage the power of our platform our brand while sticking true to our areas of focus the middle and lower <unk>.
Market, where we think we have a differentiated competitive advantage.
I think there are a number of opportunities that we've already seen emerge I got to tell you I've only been here three weeks and have already had inbounds and interactions with a number a number of potential opportunities and folks who would be interested in obviously partnering with us. We think the power of the platform is incredibly attractive and clearly we're seeing that.
In the inbounds that we're getting as I said, we're going to be thoughtful we're going to be disciplined about this but M&A is going to be a piece of it. There's a lot of opportunities. We see while we have a great stable of strategies Theres still a lot of white space in North America, and Theres still unbelievable white space internationally, and we're going to look.
In a very thoughtful and comprehensive way of things that will create shareholder value.
Great. Thank you very much.
Thank you.
Our next question.
Comes from the line.
Mike Brown <unk> W.
Great. Thanks for taking my questions.
Maybe if I just start on the on the margin side. So it sounds like no change to the expectations for the year here, but.
Any thoughts on how we should think about that margin heading into 2024, and just look you talked about a number of interesting initiatives that are coming across your desk and it's only two weeks in but.
Some of those do sound like they could yes, it could require some investment spend to two to get started so.
How do you kind of balance those.
Those initiatives relative to where the margin is today.
Well look I'll say a few things first of all as was noted by Amanda on the call. We're continuing to underscore that we think will be in the 51% to 52% range for full year 2023, and we stand by that.
As I think as Youre aware were not yet in the pose where we're giving 2024 guidance. We will get there we'll get there on the next call and I know folks will eagerly await that we're excited to talk to you about it when we get there.
Would say this.
Anything there is a balance and there is a balance between investing for growth and maintaining margin. Both have been historically an important part of the <unk> story, we think the robust margin profile of the business is one of the things that's incredibly valuable.
Really valuable from an analyst and Investor perspective, and it's something that we're really focused on on the other hand, we also think about investing.
But we're going to be very as I said disciplined and thoughtful about how we do it and we're going to do it in the context of the broader value proposition that we've elucidated to investors and the broader economic model that we know that people have thought about when they think about P. Ted and so I don't can't speak to any particular deal and what the impact of any.
<unk> deal may or may not be that will remain to be seen but in the aggregate. We're really focused on maintaining the investment characteristics that you've come to know and understand about Peter.
Okay great.
I wanted to ask about the <unk> business there was a recent headline that.
Blue Apple will be may.
Maybe moving kind of down market and launching a $2 billion.
Market GP Stakes fund.
So could you just talk about the <unk>.
CT business and touch on the boat around that particular franchise and are you seeing any increase in competitive pressures in that market and.
The potential for maybe others too.
Could you kind of come down market.
Well look I would say the following first of all we think our <unk> business is an extraordinary platform. There are the first to market mover in the middle market GP Stakes business and they have built and are continuing to build everyday an extraordinary track record track record and network of relationships and.
Folks in the portfolio, we see nothing changing that in fact, I would say from our perspective, we actually view this as a very positive development. We think it's actually quite validating of the size and scope of the opportunity in the middle market and we will tell you by our count we see over 900 firms just in the North American Middle Mark.
And so the reality is when you look at the scale of that opportunity.
We welcome another entrant and obviously, we welcome dial being part of this market, but we think our investing strategy on our track record can move forward Undeterred.
Okay, great. Thank you for the thoughts there Luke.
Okay.
Thank you.
Our next question comes from the line of Ben.
Ben <unk> of Barclays.
Hi, good evening and thanks for taking the question Luke you mentioned in your prepared remarks, some organic opportunities around both cross selling and sort of approaching.
Approaching the vast numbers of prospective Lps that are sort of unaware of <unk>. So I wonder if you could maybe speak to that latter point a bit it feels like we've sort of heard a little bit about the cross sell opportunity and it's obviously there with the sort of the various platforms, but how do you think about <unk>.
That opportunity of the Lps that sort of haven't engaged with <unk> in the past as a matter of just kind of coming through the rolodex and make more phone calls or what would that entail would it entail more sales force investment or how do you think about that part of the opportunity.
Look I think there's a lot of ways to prosecute that opportunity I think it's a huge huge opportunity.
And I think even if we only get to it in a cursory way, we will meaningfully address kind of the Tam of the prospective.
Perspective LP base, but I would say the following right which is that.
We think that.
When you look at our strategies were in the room, when we have a chance to present our capabilities. When we have a chance to talk about our track record we win.
Win way more than we lose but thats kind of a testament to the strength of our platform. The problem is historically I think in some instances we haven't been in the room and so really the art for US I think unlike some others who are in the room and then may or may not get selected for whatever reason the real work for us is getting in more rooms, and the more rooms, we get into the more shots on goal.
We think the more successful we're going to be given the strength of our track records and so I do think that is no doubt using the rolodex I think I have had because of my background. The privilege to have some relationships in places that maybe previously P. 10 did not I also think there's a real brand a component to it I will be Frank with you I.
I think I've mentioned this in different forms in the past when I was called about the <unk> opportunity I didn't actually know what <unk> was and my guess is many prospective Lps out there probably would have a similar reaction. If you asked them about <unk> and so we've got to find ways.
A cost effective way to continue to build our brand to continue to work through channels, whether it's media channels, whether it's social media channels, whether it's using some of our intellectual capital. Our content are convening power to really continue to highlight the power of the <unk> platform and I think if we do that.
We are going to get more shots on goal and given our track record that's going to translate into more assets under management.
Great. That's all very helpful. And then as a follow up maybe one for Amanda you mentioned next year, some kind of below the line headwinds turning to tailwind.
All things equal absent M&A I think I guess, we've seen you sort of the levels at which you bought back shares in the past, but I guess here how are you thinking about or how should we think about sort of your expected pace of debt Paydown and how youre thinking about prioritizing again absent M&A, the sort of buyback versus pay down and kind of pace going through the year.
Yeah I think.
I think you may see a little bit more on stock buyback.
And the future near future than than what we have been doing and just sort of the recent past.
We still have $18 9 million available on the yen on the buyback program.
And then otherwise if not for M&A.
Of course have our dividend, but not for M&A, we would use our capital for debt Paydown.
Got it very helpful. Thank you.
Thank you.
Our next question.
It comes from the line of Michael Cyprus Sub Morgan Stanley.
Great. Thank you. Good evening, just a question on private credit with New Bank capital rules that have been proposed.
The banking sector challenges just curious how you see the opportunity set unfolding on the private credit side, what areas would you view as the most attractive for <unk> 10 versus less attractive maybe you could talk about some of the steps you guys are taking or may need to take in order to best capture the opportunity set in any particular gaps that you see it.
This point as you look across the platform on the private credit side.
Thanks, Michael Let's look I'll jump in and then others can jump in as well as they see fit so point.
One we think you are right and we agree with the thesis of your question right or the premise of your question around the fact that.
There has clearly been promulgated a set of rules that are going to make it more challenging for many of the banks and the regional banks in particular to participate in that we think that that has real benefit by imposing barriers to entry around many of our businesses certainly notably.
For our WT I venture debt business, where we think that that will really help even further expand the moat around that business and certainly to your point, though when you look more broadly in private credit.
It's increasingly becoming a place thats moving out of the traditional banks and moving it to non bank institutions and for US we think that that potentially creates an opportunity. We think we already have a great collection of private credit assets, many focused and very defensible very protected niches, where we are the <unk>.
Market leader or among the market leaders, but to your point, we do think there is white space and the broader private credit opportunity.
It's something that over the coming period of time, we're going to continue to look at we've already as you can imagine started to look at it and we're going to continue to dig deep and to the extent that we find something that we think is additive value enhancing accretive and synergistic with our portfolio.
Private credit could be one of those spaces, where we very well engaged in some inorganic activity.
Great. Thank you and then just maybe.
Follow up question, if I could come back to some of your commentary on M&A, maybe you could help elaborate on what opportunities you think could make the most sense at this point for <unk>, maybe talk about how you think about prioritizing that at this point. Thank.
Thank you.
Well, it's a really good question.
One of the things that I'm doing in concert with Clark and our team here is a really kind of deep I would say market mapping exercise to really think about where does our current portfolio set where are the opportunities in the outside world. How does those things potentially come together and so that market mapping exercise will be an important.
Component to it the next component to M&A as a former practitioner I would tell you.
As a willingness to transact right and so it doesn't matter if you've identified the perfect asset if they are unwilling to transact nothing's going to happen and so clearly you need to find places where there is a willingness and a desire to transact I would say the good news is given our footprint in the middle and lower middle market and the lack of other options for many independent firms.
Prospect have partnered with <unk> is a really really attractive one and so we think we see a lot of flows.
Certainly the other place that I would identify as we are have been historically exclusively at least from an investing perspective in our physical footprint perspective in North America, though obviously, we do have a number of Lps around the world, but are investing footprint is exclusively North America. There are a number of firms that we.
We're aware of in many different geographies that has a very similar strategic approach in their market and some of those markets have really interesting and compelling dynamics that are not unlike the dynamics, we see in the U S middle and lower middle market and so there would probably be natural opportunities there to expand our footprint, we're obviously going to be really thoughtful about this.
I said, we're going to be incredibly disciplined about it.
But we think that there is a robust opportunity set and we're really going to build on the work that's already been done here to really refine and optimize our M&A engine. So that we're really world class in this in this endeavor.
Great. Thank you.
Thank you.
Our next question comes from the line of John Campbell of Stephens, Inc.
Yeah.
Hey, guys good afternoon.
This is kind of a bigger picture question, but im hoping you guys can maybe talk to the main differences that you've been seeing I guess maybe of late versus over the past couple of years just in the lower middle market. So your core markets versus just the kind of higher end I don't know how you want to talk to that maybe just the broader flow of capital or just investor appetite for various strategies, but are you seeing.
He kind of deviations that you havent seen maybe in the past.
Hey, John look here, so I'll start and then again others can chime in.
I wouldn't say, we've seen anything that I would call a deviation from anything else look I think you've got to start with the macro economy and the broader environment and clearly the broader environment has created pressure in all segments of the market upper market middle market lower middle market everywhere. What I think is interesting and was actually come to the fore though is the relative resilience.
I will call out of the middle and lower middle market and so what's interesting is and I think theres a lot of reasons for this but we actually think the middle and lower middle market has held up better in many ways in the upper market. Now this may sound like a contrarian view because I know that there is kind of the conventional wisdom might suggest that actually the upper parts of the market are more robust but.
We've seen the opposite dynamics.
I think a number of reasons for this probably one is the fact that in the upper part of the market. There is a lot more capital against a smaller opportunity set of actionable assets and companies, whereas in the middle market lower middle market. There is less capital against a much larger opportunity set and so that obviously has an.
Packed on the competitive dynamics I would say we've done a lot of longitudinal studies and looks of some of our strategies do deep data and analytics around this and we can tell you conclusively a couple of things are true generally multiples paid in the middle and lower middle market or lower than multiples paid in the upper market and generally leverage let.
<unk> in the lower and middle market are less than in the upper market and so I think many of the dynamics availability of credit impact of public market valuations that probably have real read through in the upper part of the market just have not had the same quantum of effect in the middle and lower middle market we have.
Sort of data that we've looked at longitudinally that supports this.
You see that dynamic in transaction volumes, which while down from the levels. They were in 2021 in all parts of the market are by no means down as much in the middle and lower middle market and so we actually think on a relative basis. This is a great place debate, it's a testament to the strength of the platform.
And we're happy to be in this part of the market.
Okay. That's very helpful. You've been in the seat for three weeks its a pretty good answer.
I wanted to touch maybe on the catch up fees. If my notes are right here I think I think <unk> seen about $10 million year to date, I think last year and at this point it was about two and a half million dollars. So maybe if you could talk to whether that's been playing out as you expected and then for next year any kind of indication.
Any kind of visibility you guys have into that.
And yes, I would say that generally speaking.
Sure.
Catch up fees are playing out as we expected and last quarter we had.
Higher than average I would say catch up fees due to one of the RCP fundraisers that we spoke about but in.
In General I believe that is the case and we still believe that our average fee rate will be 105 basis points.
Okay. Thank you.
Okay.
Yeah.
Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question.
Comes from the line of Adam Beatty of UBS.
Alright, Thank you and good afternoon wanted to ask about venture capital where P tenant trowbridge.
We deal with a lot of the key players on the GP side you.
You mentioned in prepared how the banks have pulled back that that's certainly persists, but just on kind of the demand and capital formation side markets are kind of giving mixed signals. There have been some headlines about some other key players out there some of them negative, but just wondering how you're seeing P 10, and some of it's some of it is.
Key venture capital partners kind of leaning in or leaning back right now and and I guess this is our first opportunity to hear weak starts about venture capital and growth equity so that'd be great also.
Well, thanks, Adam and I will give you my my first thoughts here and I'm sure we'll have ample opportunities to talk about this on the forward, but look again as I said, we live in a world right in the World has changed from where it was in 2021 and so all of our strategies have seen impacts based on the macroeconomic environment and to your point I would.
Say the broader kind of venture community is no different.
<unk> have taken longer valuations have gotten reset and so there have been certainly macro impacts, but I would say this.
One of the real powers of the Trowbridge platform of which there are many is the fact that they are literally investing the elite of the elite of the venture capital Universe right. These are the greatest firms. These are the market leaders. These are the folks that others follow and so they have access to the absolute best company as the absolute.
Deal flow that's out there and I would say they are also by the way very thoughtful very prudent dare I say quite conservative in how they market their portfolios and so we think that anything that has changed in the market is amply reflected in the marks of which they're carrying it and so while no doubt there have been dynamics.
In the venture environment. My guess is given where we sit today those dynamics are likely to persist for some period of time, we feel incredibly good about where we sit we feel incredibly good about the <unk> portfolio and the underlying managers that <unk> has access to.
Thanks I appreciate it that's all for me today, Thanks a lot.
Thank you.
Thank you as there are no questions in queue. This does conclude today's conference call. Thank you for participating you may now disconnect.
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