Q4 2023 GMC Grosvenor Inc Earnings Call

Operator: and Christopher Walsh. Thank you. Thank you. Good day, and welcome to the GCM Grosvenor 2023 fourth quarter and full year results call. Later, we will conduct a question and answer session if you are interested in asking a question. Please ensure you dial in using the numbers you have been provided for this call and press star 1 on your keypad to join the team. If anyone requires operator assistance, please press star zero on your telephone keypad.

Okay.

Good day.

Come to the G. C M Grosvenor 2023 fourth quarter and full year results call.

Later, we will conduct a question and answer session. If you are interested in asking a question. Please ensure your dalian using the numbers you had been provided for this call and press star one on your keypad to join the queue.

If anyone requires operator assistance. Please press star zero on your telephone keypad.

Stacey Selinger: As a reminder, this call will be recorded. I would now like to hand the call over to Stacey Selinger, Head of Investor Relations, if you please. Thank you.

As a reminder, this call will be recorded.

I would now like to hand, the call over to Stacy Selinger.

Head of Investor Relations you may begin.

Thank you.

Stacey Selinger: Good morning, and welcome to GCM Grosvenor's fourth quarter and full year 2023 earnings call. Today I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sachs, President John Levin, and Chief Financial Officer, Pam Bentley. Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance, and projections. These statements are neither promises nor guarantees.

And welcome to GCM Grosvenor, its fourth quarter and full year 2023 earnings call.

Today I am joined space GCM, Grosvenor is chairman and Chief Executive Officer, Michael Saks, President, John Mccain, and Chief Financial Officer, Pam badly.

Before we discuss the quarter's results reminder, that all statements made on this call that do not relate to matters of historical facts should be considered forward looking statements.

All statements regarding our current expectations for the business, our financial performance and projections.

These statements are neither promises nor guarantee they involve known and unknown risks uncertainties and other important factors may cause our actual results to differ materially from those indicated by the forward looking statements on this call. Please refer to the factors in the risk factors section of our 10-K, our other filings with the securities and exchange.

Stacey Selinger: They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements in this call. Please refer to the factors in the risk factor section of our 10-K for other filings with the Securities and Exchange Commission, and our earnings release, all of which are available on the public shareholder section of our website, will also refer to non-gap measures that we view as important in assessing the performance of our business. Reconciliation of non-gap metrics to the nearest gap metric can be found in our earnings presentation and earnings supplement, both of which are available on our website.

Commission and our earnings release, all of which are available on the public shareholder section of our website.

I'll also refer to non-GAAP measures that we view as important in assessing the performance of our business Bracken.

Reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement both of which are available on our website.

Michael: Our goal is to continually improve how we communicate with and engage with our shareholders. And in that spirit, we look forward to your feedback. Thank you again for joining us. And with that, I'll turn the call over to Michael. Thank you, Stacey, and thank you all for joining us.

Our goal is to continually improve how we communicate with and engage with our shareholders and in that spirit, we look forward to your feedback.

Thank you again for joining us and with that I'll turn the call over to Michael.

Thank you Stacy and thank you all for joining us.

Michael: We are pleased to report solid results for the fourth quarter and full year 2023. Despite the challenging environment for our industry, 2023 was another year in which we delivered value to client portfolios, strengthened and expanded our platform, and grew our earnings power and our intrinsic value for shareholders. Our board increased our stock buyback authorization by $25 million, which we intend to use throughout the year, and maintained our dividend rate at $0.11 per share per quarter, which represents a dividend yield of 5% as of Friday's close. Our dividend payments are comfortably serviced by our trailing fee-related earnings.

We are pleased to report solid results for the fourth quarter and full year 2023, despite the challenging environment for our industry.

Importantly, 2023 was another year in which we delivered value to client portfolios strengthened and expanded our platform and grew our earnings power and our intrinsic value for shareholders.

Our board increased our stock buyback authorization by $25 million, which we intend to use throughout the year and maintained our dividend rate at 11 cents per share per quarter, which represents a dividend yield of 5% as of Friday's close our dividend payments are comfortably service by our trailing fee.

Related earnings.

Michael: From a financial standpoint, 2023 was a solid year, and we finished the year strong. Fee-related earnings grew 23% over Q4-22 and 9% year-over-year. We've grown fee-related earnings at a 14% compound annual growth rate. Our fee-related earnings margin grew to 38% for the year, compared to 36% in 2022. The high FRE margin in Q4 was the result of tightly managed headcount and final compensation decisions that were reflective of the environment.

From a financial standpoint, 2023 was a solid year and we finished the year strong.

The related earnings grew 23% over Q4, 'twenty, two and 9% year over year.

Since 2020, we've grown fee related earnings at a 14% compound annual growth rate our fee related earnings margin grew to 38% for the year compared to 36% in 2022. The high FRE margin. In Q4 was the result of tightly managed head count and final compensation.

<unk> that were reflective of the environment.

Michael: Our FRE margin has grown by 700 basis points over the last three years as our business has continued to enjoy considerable operating leverage and scalability. We continue to forecast margin expansion going forward. One of the key drivers of our business over the past three years has been the shift towards private market strategies, which as of year-end comprise 71% of our assets under management and 65% of our fee-paying AUF. In 2023, private markets again experienced consistent growth, with management fees excluding catch-up fees increasing by double digits year over year in each quarter. As we discussed throughout the year, 2023 was a tough market environment for fundraising, which was primarily the result of low levels of transaction activity in private market strategies.

Our FRE margin has grown by 700 basis points over the last three years as our business has continued to enjoy considerable operating leverage and scalability we.

We continue to forecast margin expansion going forward.

One of the key drivers of our business over the past three years, it's been the shift towards private market strategies, which as of year end comprised 71% of our assets under management and 65% of our fee paying AUM.

In 2023 private markets again experienced consistent growth with management fees, excluding catch up fees, increasing by double digits year over year in each quarter.

As we discussed throughout the year 2023 was a tough market environment for fund raising which was primarily the result of low levels of transaction activity in private market strategies.

Michael: As we expected, our fundraising momentum did pick up throughout the year, with more capital raised in the second half of 2023. The fundraising environment is continuing to loosen up, which bodes well for 2024. Real assets continued to perform well. Infrastructure and real estate were the top two contributors to fundraising during 2023, with $3.6 billion raised in aggregate.

We expected our fundraising momentum did pick up throughout the year with more capital raised in the second half of 2023.

The fundraising environment is continuing to loosen up which bodes well for 2024.

Real assets has continued to perform well.

Infrastructure and real estate, where the top two contributors to fund raising dirty 2023 with $3 6 billion raised an aggregate.

Michael: Taken together, real assets AUM has more than doubled over the past three years to just over $20 billion, and these strategies now represent over 25% of our total AUM. Capital raising from sources outside of the U.S. was strong, comprising 51% of 2023 fundraising, compared to 40% of our AUF. As you know, we've invested in business development and geographies outside of the U.S. over the last few years, opening offices in Germany, Canada, and Australia. While it takes time, it's nice to see some early signs of our business development investments working.

Taken together real assets.

He has more than doubled over the past three years to just over 20 billion and these strategies now represent over 25% of our total AUM.

Capital raising from sources outside of the U S with strong comprising 51% of 2023 fund raising compared to 40% of our AUM.

As you know we've invested in business development in geographies outside of the U S. Over the last few years opening offices in Germany, Canada and Australia.

While expanding in new channels takes time, it's nice to see some early signs of our business development investments working.

Michael: In 2024, we expect continued strong client re-ups and solid specialized fund fundraising inside of our traditional institutional channels. We are also focused on expanding our efforts in the individual investor channels generally. You see a strong pipeline everywhere and are particularly optimistic with regard to the infrastructure and credit vertical.

In 2024, we expect continued strong client re ups and solid specialized funds fund raising inside of our traditional institutional channels.

We are also focused on expanding our efforts in the individual investor channels generally.

We see a strong pipeline everywhere and are particularly optimistic with regard to the infrastructure and credit verticals.

Michael: John will talk a bit more about credit in a moment, but I mentioned investment performance earlier. We were pleased with performance across our strategies this past year. In particular, we were pleased that our absolute return strategies' investment performance exceeded our base case assumptions, beating benchmarks and peers.

John will talk a bit more about credit in a moment.

You mentioned investment performance earlier, and we were pleased with performance across our strategies. This past year. In particular, we were pleased that our absolute return strategies investment performance exceeded our base case assumptions, beating benchmarks and peers as a result, a significant portion of <unk> portfolio.

Michael: As a result, a significant portion of ARS portfolios are now in a position to earn full performance fees in 2024, delivering more revenue in 2024 than we received in 2023 for the same level of performance. While it's too soon to predict the material shift in ARS flows, we're seeing increased demand from current and prospective clients with fewer currently scheduled future redemptions than we have seen at this time in recent years. Our private market strategy's performance was also constructive, and our significant dry powder, which exceeds $9 billion at year end, continues to put us in a good position to deploy capital into an increasingly attractive environment. Importantly, we enter 2024 with strong private market incentive earnings power, which is positioned to deliver significant revenue growth over the coming years as transaction activity returns. This is clearly presented on slide 12.

<unk> are now in a position to earn full performance fees in 2020 for delivering more revenue in 2024, and we received in 2023 for the same level of performance.

While it's too soon to predict the material shift in RIS flows, we're seeing increased demand from current and prospective clients with fewer currently scheduled future redemptions than we have seen at this time in recent years.

Our private market strategies performance was also constructive and our significant dry powder, which exceeds $9 billion at year end continues to put us in a good position to deploy capital into an increasingly attractive environment.

Importantly, we entered 2024 with strong private markets incentive fee earnings power, which is positioned to deliver significant revenue growth over the coming years as transaction activity returns. This is clearly presented on slide 12.

Michael: As you can see, in both 2020 and 2021, we realized revenue from Cary of more than 15% of our beginning year unrealized carried interest balance, with $59 million and $122 million of gross Cary revenue respectively. Since then, while realizations and, therefore, gross carry revenue have been muted, our carry earnings power has grown substantially. You'll see that our unrealized carried interest has approximately doubled during the last three years. In addition, we've raised $11.6 billion of capital for direct-oriented private market strategies over the last three years. Nearly all of that capital is either recently deployed or dry powder yet to be deployed, meaning it is not yet in our unrealized carry.

As you can see in both 2020 in 2021 we realized revenue from Terry of more than 15% of our beginning year unrealized carried interest balance with $59 million and $122 million of gross carry revenue respectively.

Since then while realizations and therefore gross carry revenue have been muted our carry earnings power has grown substantially.

Youll see our unrealized carried interest is approximately doubled during the last three years. In addition, we've raised $11 6 billion of capital for direct oriented private market strategies over the last three years.

Nearly all of that capital is either recently deployed or dry powder, yet to be deployed meaning it is not yet in our unrealized carry balance.

Michael: We believe the inflection of this revenue line is a when, not an if, and we look forward to that revenue line returning to more normal levels in the future. With the capital markets and M&A environment slowly improving, sponsors seem to be committed to driving higher degree of realizations this year. This should lead to more carry revenue and to positive developments with regard to fundraising. Current and prospective client activity has already picked up, and based on our current pipeline, we expect 2024 fundraising to exceed 2023. We continue to believe that we are well set up for continued growth into the future. With regard to management fees and fee-related earnings, our platform breadth provides us with a lot of ways to win. It's as strong as it's ever been, and it's getting stronger.

We believe the inflection of this revenue line is a win not and yes, and we look forward to that revenue line returning to more normal levels in the future.

With the capital markets and M&A environment slowly improving sponsors seem to be committed to driving to a higher degree of realizations. This year. This should lead to more carry revenue and to positive developments with regard to fund raising.

Current and prospective client activity has already picked up and based on our current pipeline. We expect 2020 for fund raising to exceed 2023.

We continue to believe that we are well set up for continued growth into the future with regard to management fees and fee related earnings our platform breadth provides us with a lot of ways to win it's as strong as it's ever been and it's getting stronger.

John: We have continued operating leverage and a solid compound growth rate in our FRE for the next several years. And based on our trajectory, we're confident in our ability to double our fee-related earnings over the next five years. And combined with the built-in growth in our incentive fee line that I discussed, we feel good about our adjusted EBITDA and adjusted net income growth as well. And with that, I'll turn the call over to John.

We have continued operating leverage and a solid compound growth rate in our FRE over the next several years and based on our trajectory we're confident in our ability to double our fee related earnings over the next five years.

Combined with the built in growth in our incentive fee line that I discussed we feel good about our adjusted EBITDA and adjusted net income growth as well and with that I'll turn the call over to John.

Thank you Michael.

John: Thank you, Michael. As Michael noted, our confidence in our long-term trajectory is rooted in the strength of our platform, the significant opportunity from new but adjacent initiatives, and embedded operating leverage in the business. The programmatic nature of our private markets client relationships, which experience re-ups every 3-4 years at approximately 90% re-up rates, often at larger sizes than predecessor programs, sets a foundation for growth and stability in the business. Beyond re-ups, we have a proven track record of expanding our client relationships into new areas. As of year end, 50% of our top 50 clients work with us in multiple verticals, and 60% of our top clients work with us in both separate account and specialized fund forms. We believe key macro trends and our associated positioning will drive business growth over the next three to five years. Those trends include the high demand for infrastructure.

As Michael noted our confidence in our long term trajectory is rooted in the strength of our platform the significant opportunity from new but adjacent initiatives and embedded operating leverage in the business.

The programmatic nature of our private markets client relationships, which experienced re ups every three to four years at approximately 90% re up rates often at larger sizes than predecessor programs sets the foundation for growth and stability in the business.

Beyond re ups, we have a proven track record of expanding our client relationships into new areas.

As of year end, 50% of our top 50 clients work with us in multiple verticals.

60% of our top clients work with us in both separate accounts and specialized funds for me.

We believe key macro trends in our associated positioning will drive business growth over the next three to five years.

Those trends include the high demand for infrastructure.

The persistent proliferation of sustainable and impact investing.

John: The persistent proliferation of sustainable and impact investing, the continued growth of the alternative credit category, and the democratization of alternatives through the emergence of the individual investor. We have addressed infrastructure and impact investing on recent earnings calls and believe both of these areas have the potential to grow substantially in size and revenue over the coming years. Today I will dive a bit deeper into the private credit category. Private credit has already grown tremendously as an asset class, more than doubling in the past five years from approximately $720 billion to an estimated $1.6 trillion at the end of 2025. Non-bank lenders now account for three quarters of the market, and there have been over 500 funds dedicated to private credit that have raised capital in the past two years.

<unk> growth of the alternative credit category.

And the democratization of alternatives through the emergence of the individual investor.

We've addressed infrastructure and impact investing on recent earnings calls and believe both of these areas have potential to grow substantially in size in revenue over the coming years.

Today, I will dive a bit deeper into the private credit category.

Private credit has already grown tremendously as an asset class more than doubling in the past five years from approximately $720 billion to an estimated one six trillion at the end of 2023.

Non bank lenders now account for three quarters of the market and there have been over 500 funds dedicated to private credit that have raised capital in the past two years.

<unk> in the banking sector last year that some of which continue today create an even more urgent need for more sources of capital further accelerating the sector's momentum.

Against this backdrop limited partners are rapidly evolving their approach to investing in private credit.

Historically Lps are invested in private credit as part of our fixed income or a private equity or a broader private markets allocation increased.

John: Disruptions in the banking sector last year, some of which continue today, create an even more urgent need for more sources of capital, further accelerating the sector's momentum. Against this backdrop, limited partners are rapidly evolving their approach to investing in private credit. While historically LPs have invested in private credit as part of a fixed income or private equity or a broader private markets allocation, increasingly, investors of all sizes are creating a discrete private credit allocation. Accordingly, we believe the future of credit will be similar to how we've seen the evolution in private equity and, more recently, in infrastructure.

Increasingly investors of all sizes are creating a discrete private credit allocation.

Accordingly, we believe the future of credit will be similar to how we've seen the evolution in private equity and more recently in infrastructure.

As investors grow and evolve their allocation to the asset class solutions providers like GCM Grosvenor are well suited partners.

We were able to build a single point of access that is diversified across implementation type funds co investments secondaries and direct investments as well as across areas of focus type of credit market cap size sector and region.

Even for investors that started their allocation by investing directly in some of the large well known funds solutions provider service or diversify or through a broader network of primary funds and execution of co investments and secondary investments.

John: As investors grow and evolve their allocation to the asset class, solutions providers like GCM Grosvenor are well-suited partners. We are able to build a single point of access that is diversified across implementation type, funds, co-investments, secondaries, and direct investments, as well as across areas of focus, type of credit, market cap size, sector, and region, even for investors that started their allocation by investing directly in some of the large, well-known funds to our broader network of primary funds and execution of co-investments in secondary funds. Our open architecture sourcing engine is a key differentiator when it comes to private equity, and we see more than 500 credit investment opportunities present in liquid and illiquid alternatives, offering a massive funnel for the origination of credit investment. And we benefit from being able to offer these capabilities through both custom accounts and commingled accounts.

Our open architecture sourcing engine is a key differentiator when it comes to private credit and we see more than 500 credit investment opportunities annually or.

Our presence in liquid and illiquid alternatives.

Offer a massive funnel for the origination of credit investment opportunities.

And we benefit from being able to offer these capabilities through both customer counts as well as commingled funds.

Our opportunistic credit fund the Scf too had its first closing during the fourth quarter.

As of year end, we have $13 billion of credit assets under management, and we look forward to providing you with further updates on our success in this area as we move forward.

With that I'll turn the call over to pay them.

Thanks, John our results for the quarter and year were consistent with our expectations and once again demonstrated our earnings quality and scalability of the platform.

Assets under management were $77 billion as of year end, a 4% increase from a year ago and fee paying AUM increased 5% year over year.

That market continues to be a key growth driver with private markets and.

<unk> growing by 7% and 9% year over year, respectively.

Pam Bentley: Our opportunistic credit fund, SCF2, had its first closing on the 4th. As of year-end, we have $13 billion of credit assets under management, and we look forward to providing you with further updates on our success in this area as we move forward. And with that, I'll turn the call over to you.

As of yearend, our private markets business represents 71% of total AUM and 65% of our fee paying AUM.

Private markets management team, excluding catch up fees in the quarter grew by 11% year over year, achieving a double digit growth rate once again in line with our expectations.

Pam Bentley: Thanks, John. Our results for the quarter and year were consistent with our expectations and once again demonstrated our earnings quality and scalability of the platform. Assets under management were $77 billion as of year-end, a 4% increase from a year ago, and fee-paying AUM increased 5% year-over-year. Private markets continue to be a key growth driver, with private markets AUM and fee-paying AUM growing by 7% and 9% year-over-year, respectively. As of your end, our private markets business represents 71% of total AUM and 65% of our fee-paying AUM. Private markets management fees, excluding catch-up fees in the quarter, grew by 11% year-over-year, achieving a double-digit growth rate once again, in line with our expectations.

<unk> enjoyed a 13% compound annual growth rate in private markets management team since 2020.

Turning to 24 in the first quarter, we anticipate private markets management fees, excluding catch up fees will grow in the mid to high single digits over the prior year for.

For the full year 'twenty four we once again expect double digit private markets management fee growth, excluding catch up fees.

Absolute return strategies management fees were relatively stable in Q4 as compared to last quarter, and we expect first quarter AOS management teams to again be stable on a sequential basis.

Most importantly, we are pleased with our <unk> investment performance for the year, which is expected to have positive ramifications in 'twenty four and beyond.

We realized $20 million of incentive fees in the quarter and $65 million in the year.

Michael spoke earlier about our significant earnings potential from carried interest.

Well, it's difficult to predict timing of carry realizations.

Diversification of our carry makes it especially valuable given its limited single asset exposure.

As of yearend, we had $776 million and gross unrealized carried interest across 137 program.

Pam Bentley: We have enjoyed a 13% compound annual growth rate in private markets management fees since 2020. Turning to 24, in the first quarter, we anticipate private markets management fees, excluding catch-up fees, will grow in the mid to high single digits over the prior year. For the full year 24, we once again expect double-digit private markets management fee growth, excluding catch-up fees. Absolute return strategies management fees were relatively stable in Q4 as compared to last quarter, and we expect first quarter ARS management fees to again be stable on a sequential basis. Most importantly, we are pleased with our ARS investment performance for the year, which is expected to have positive ramifications in 24 and beyond. We realized $20 million of incentive fees in the quarter and $65 million in the year.

<unk> share of which is $373 million.

Sure Kerry has nearly tripled in the last three years.

Our annual performance fees are tied to Ari's investment returns and typically crystallize in the fourth quarter each year.

<unk> 24 hour run rate annual performance fees are $28 million, assuming normalized returns of 8% for multi strategy and 10% for opportunistic investments.

Turning to our expenses our compensation strategy is rooted in fostering alignment between our employees clients and shareholders.

FRE compensation with $33 million in the quarter and $149 million in the year.

Importantly, we look at fri compensation on a full year basis, and consequently, the amount of compensation on a quarter to quarter basis can fluctuate.

Pam Bentley: Michael spoke earlier about our significant earnings potential from carried interest. While it's difficult to predict the timing of carry realizations, the high diversification of our carry makes it especially valuable given its limited single asset exposure. As of year-end, we have $776 million in gross unrealized carried interest across 137 programs, the firm's share of which is $373 million.

As a result, it is most appropriate to look at the 23 average quarterly FRE compensation as a baseline for the first quarter of 'twenty four.

non-GAAP general and administrative and other expenses were $19 $5 million in the quarter.

We continue to be disciplined around expenses and expect this figure to remain stable in the first quarter.

Pulling together these factors on a year over year basis fee related earnings grew a healthy 23% in the quarter and 9% for the year.

Pam Bentley: Our share of carry has nearly tripled in the last three years. Our annual performance fees are tied to ARS investment returns and typically crystallize in the fourth quarter each year. Entering 24, our run rate annual performance fees are $28 million, assuming normalized returns of 8% for multi-strategy and 10% for opportunistic investments. Turning to our expenses, our compensation strategy is rooted in fostering alignment between our employees, clients, and shareholders. FRE Compensation with $33 million in the quarter and $149 million in the year.

Net income grew 48% and 9% in the quarter and year respectively.

Oh, sorry margin grew from 36% in 2022% to 38% in 'twenty three and we expect further FRE margin expansion in 'twenty four as we continue to harness the scalability of our business.

We are maintaining a healthy quarterly dividend of <unk> 11 per share or a yield of 5% as of last Friday and there is room for future dividend growth.

In the case of share buybacks, we repurchased nearly 4 million shares in 'twenty three and we ended the year with 187 million shares outstanding.

Pam Bentley: Importantly, we look at FRE compensation on a full-year basis, and consequently, the amount of compensation on a quarter-to-quarter basis can fluctuate. As a result, it is most appropriate to look at the 23 average quarterly FRE compensation as a baseline for the first quarter of 24. Non-GAAP General and Administrative and other expenses were $19.5 million in the quarter.

We continue to believe that our current stock price is at an attractive level relative to market value and our board has recently authorized an additional $25 million per share buybacks.

Leading us with $65 million remaining in our share buyback authorization as of today.

Reiterating our view on 'twenty four we feel confident in our plans to achieve continued double digit growth in private markets management fees stabilization of ARAS management sees it.

Pam Bentley: We continue to be disciplined around expenses and expect this figure to remain stable in the first quarter. Pulling together these factors, on a year-over-year basis, fee-related earnings grew a healthy 23% in the quarter and 9% for the year. Adjusted net income grew 48% and 9% in the quarter and year, respectively.

Expanding FRE margin and significant growth potential in our incentive fee revenue.

Looking further into the future we are focused on doubling our fee related earnings in the next five years with continued fee related earnings margin expansion.

Pam Bentley: Our FRE margin grew from 36% in 2022 to 38% in 2023, and we expect further FRE margin expansion in 2024 as we continue to harness the scalability of our business. We are maintaining a healthy quarterly dividend of $0.11 per share, or a yield of 5% as of last Friday, and there is room for future dividend growth. In the case of share buybacks, we repurchased nearly 4 million shares in 2023, and we ended the year with 187 million shares outstanding.

We look forward to the opportunities ahead.

Liver value to our clients and shareholders. Thank you again for joining us and we're now happy to take your questions.

Yeah.

Okay. Thank you if you would like to ask a question at this time. Please press star one on your telephone keypad.

If you are using a speaker phone. Please ensure that your mute function is turned off.

Again that is star one to ask a question.

Our first question is coming from Crispin Love with Piper Sandler.

Thanks, Good morning, everyone. I. Appreciate you taking my questions. Just first on fund raising you saw stronger second half of the year than the first as you expect.

Pam Bentley: We continue to believe that our current stock price is at an attractive level relative to market value, and our board has recently authorized an additional $25 million for share buybacks, leaving us with $65 million remaining in our share buyback authorization as of today. Reiterating our view on 24, we feel confident in our plans to achieve continued double-digit growth in private markets management fees, stabilization of ARS management fees, and the ability to meet the needs of our customers, expanded FRE margin, and significant growth potential in our incentive fee revenues. Looking further into the future, we are focused on doubling our fee-related earnings in the next five years with continued fee-related earnings margin expansion. We look forward to the opportunities ahead to deliver value to our clients and shareholders. Thank you again for joining us, and we're now happy to take your questions. Thank you. If you would like to ask a question at this time, please press star 1 on your telephone keypad. If you are using a speakerphone, please ensure that your mute function is turned off.

Can you just drill a little bit deeper into your expectations for 'twenty four do you expect the momentum from the fourth quarter, but to continue.

And what are the areas that you're most excited about for fund raising.

Is there anything to call out as it relates to the cadence for the year based on what you know today.

Sure. Thanks for the question, Chris Ben its Michael.

Yeah.

So we are we're actually feeling good about fund raising our pipeline is.

Is very full its full.

And re up its full on separate account. It is a full on specialized fund actually stronger than it's been in a while on a R. S.

And so we are encouraged that some of the progress that we saw throughout the year last year from the first quarter of 'twenty three through the end of the year will continue.

As I mentioned in my remarks, we think infrastructure and credit will see healthy fund flows.

During the year.

And we're enthusiastic about that we're focused on.

Two and a bit more in the individual investor space. This year, which we're encouraged by and that's frankly, a longer term opportunity for us.

Crispin Love: Again, that is Star 1 to ask a question. Our first question is coming from Crispin Love with Piper. Thanks, good morning everyone.

And just.

Just generally I think the environment.

Has improved on an flows pipeline has built.

And is larger and we hope to see that momentum continue and I think we said in our comments, we think fundraising in 'twenty four will exceed 23 levels.

Michael: I appreciate you taking my questions. Just first on fundraising, you saw a stronger second half of the year than the first, as you expected, but can you just drill a little bit deeper into your expectations for 24? Do you expect the momentum from the fourth quarter to continue, and what are the areas that you're most excited about for fundraising, and is there anything to call out as it relates to cadence for the year based on what you know today? Sure. Thanks for the question, Crispin. It's Michael.

For the full year like always we will build a little bit as we go through the year and we will expect the.

Back half to have it in a constructive environment more fundraising in front of me.

Thank you Michael appreciate the color there and then just on the FRE margin you had a really nice acceleration in the quarter I think it was a record level for you, but just.

Just looking at 2024 for margins and if there was anything one time in the fourth quarter that drove the cash base employee comp gap comp costs will be lower than your initial guide for the quarter. Just curious what changed between your last call and kind of through the quarter you did mention the tightening head count.

Michael: So we are actually feeling good about fundraising. Our pipeline is, is very full. It's full on REUP, it's full on separate accounts, it is full on specialized funds, actually stronger than it's been in a while on ARF. And so we are encouraged that some of the progress that we saw throughout the year last year from the first quarter of 23 through the end of the year will continue. As mentioned in my remarks, we think infrastructure and credit will see healthy fund flows during the year. And we're enthusiastic about that. We're focused on doing a bit more in the individual investor space this year, which we're encouraged by. And that's, frankly, a longer-term opportunity for us. And, just, you know, generally, I think the environment has improved for flows, and the pipeline has built and is larger.

Curious what that means for for 2024 as you move through the year for FRE margins.

Yeah, we mentioned tightly manage head count and also just final comp decisions reflective of the environment and I think Pam mentioned in her comments that looking at kind of the average up.

Average F. R E quarterly up already for 'twenty, three is sort of the right way to think about FRE comp expense. The average FRE comp expense for 'twenty. Three is the right way to think about the FRE comp expense for the first quarter of 'twenty four I think the important point.

On our F. R E comp in our FRE in general is that we believe.

We've been consistent.

Turning this for a while that we continue to have operating leverage in our FRE line with growth and that we can continue to drive our FRE margins up with.

Michael: And we hope to see that momentum continue. And as we said in the comments, you know, we think fundraising in 24 will exceed 23 levels for the full year. Like always, we'll build a little bit as we go through the year. And we'll expect the, you know, back half to have, in a constructive environment, more fundraising in front. Thank you, Michael. I appreciate the color there.

With growth.

<unk>.

Putting aside doing anything like we've seen some of the.

Peers do with their their carry and so we think we've got operating leverage still remaining in our FRE line. We believe we're going to be able to drive FRE margins in 'twenty four and I think we gave pretty good.

A pretty good picture of how you should be thinking about first quarter FRE comp.

Michael: And then just on FRE margins, you had a really nice acceleration in the quarter. I think it was a record level for you, but just looking at 2024 for margins, and if there was anything specific in the fourth quarter that drove the cash-based employee comp cost to be lower than your initial guide for the quarter, just curious what changed between your last call and kind of through the quarter. You did mention the tightening headcount, but I'm curious what that means for 2024 as you move through the year for FRE margins. Yeah, we mentioned tightly managed headcount and also just final comp decisions reflective of the environment. And I think Pam mentioned in her comments that looking at kind of the average, average FRE, quarterly FRE for 23 is sort of the right way to think about FRE comp expense. The average FRE comp expense for 23 is the right way to think about the FRE comp expense for the first quarter of 24.

For your models.

This is Michael that's it for me I appreciate you taking my questions.

Thank you.

Again, if you have a question press star one on your telephone keypad.

Our next question is coming from Bill Katz with TD Cowen.

Okay. Thank you very much for the commentary and the guidance maybe a couple of big picture questions for today, John. Thank you so much for the update on the credit platform.

What product specifically do you see the opportunity said into 2024, and then maybe even a bigger picture discussion you mentioned that saw the emergence of the allocation where is that coming from does it come from private equity and real estate does it come from sort of public market equity fixed income and just sort of says what are your clients, telling you in terms of where the reallocating from.

Sure Bill happy to take that I would probably start I'll start with the second part of the question first.

I think it totally depends on the client I think.

For a lot of folks.

The kind of origin of the private credit allocation comes out of the fixed income bucket for a lot of them are it might come out of a more liquid alternatives bucket for some of them might come out of AR.

Michael: I think the important point about our FRE comp and our FRE in general is that we believe, and we've been consistent in mentioning this for a while, that we continue to have operating leverage in our FRE line with growth and that we can continue to drive our FRE margins up with growth, putting aside, you know, doing anything like we've seen some of the peers do with their carry. And so we think we've got operating leverage still remaining in our FRE line. We believe we're going to be able to drive FRE margins in 24, and I think we gave a pretty good picture of how you should be thinking about first quarter FRE comps for your model. Thanks, Michael. That's it for me.

Kind of a private equity bucket or in some cases all of the above.

I think just generally speaking the idea that private credit is a distinct allocation and therefore needs to kind of be a program that is built.

For for persistence for continuity over time is kind of the real theme.

I think for US I would probably focus last bill on like a specific product I think the way I would think about it is similar to how we built the other alternative verticals with affirm is that its a kind of a holistic solution.

That can be offered either through co mingled fund form or through separate account forms and inside that holistic solution is the ability to help clients.

Operator: I appreciate you taking my question. Thank you. Again, if you have a question, press star 1 on your telephone keypad.

Access certain fundings as a primary fund investor that they might not otherwise be doing on their own.

William Raymond Katz: Our next question is coming from Bill Katz with TD County. Okay, thank you very much for the commentary and the guidance. Maybe a couple of big-picture questions for today. John, thank you so much for the update on the credit platform. What product specifically do you see the opportunity to send into 2024, and then maybe even a bigger-picture discussion? You mentioned that sort of the emergence of the allocation. Where is that coming from?

A lot of folks have built you know reasonably developed kind of sponsor backed direct lending businesses in the middle market and the large end of the market, but there may be other types of credit on.

On the smaller end or other types of credit like asset backed credit or or.

The securitized credit or different types of things that they might need help with in terms of finding funds, but I think one of the most exciting opportunities, though is as the market and credit develops and evolves similar to what you've seen in private equity and infrastructure and other asset classes. The ability to also help build out co investment programs.

John: Do it come from private equity and real estate? Do it come from sort of the public market, equity, fixed income, just sort of sense? What are your clients telling you in terms of where they're reallocating from? Sure. Bill, happy to take that. Yeah, I would probably start, I'll start with the second part of the question first.

Secondary allocations and so really thinking of it as kind of that same open architecture approach with flexible implementation flexible delivery models for their clients that youll see evolve in private credit similar to what you've seen in some of the other asset classes.

Alright, Thank you for that and just as a follow up but I'm going to cheat and ask a two part unrelated question. So I apologize in advance, but when you mentioned that you think you can have better asset.

John: I think it totally depends on the client. I think for a lot of folks, the kind of origin of the private credit allocation comes out of the fixed income bucket. For a lot of them, it might come out of a more liquid alternative bucket.

Asset gathering in 24 versus 23, I, just sort of wondering looking at page nine of your slide deck.

Does the year look like 2022, do you get back to something somewhat elevated like 2021 and then unrelated but just in terms of capital allocation you mentioned that you've got the board authorization, which I think was about 4% of your market cap now in new number how do you think about that pacing the buyback and sort of trying to balance the load.

John: For some of them, it might come out of a kind of a private equity bucket, or in some cases, all of the above. I think, just generally speaking, the idea that private credit is a distinct allocation and therefore needs to kind of be a program that is built for persistence and for continuity over time is kind of the real theme. I think for us, I would probably focus less, Bill, on a specific product. I think that the way I would think about it is similar to how we've built the other alternative verticals at the firm, that it's a kind of holistic solution that can be offered either through a commingled fund form or through a separate account form. And inside that holistic solution is the ability to help clients access certain funds as a primary fund investor that they might not otherwise be doing on their own.

You see as the value of the stock versus the liquidity dynamic. Thank you.

Oh, it's Michael.

The first question.

You know I think where are our internal no items up sold are working with our BD team and looking at our pipeline it.

Has the year you know for us that's a.

Significantly better than 'twenty three on fundraising.

You know not 'twenty one it's in maybe in line with the other chart.

John: A lot of folks have built, you know, reasonably developed kind of sponsor-backed direct lending businesses in the middle market and the large end of the market, but there may be other types of credit, on the smaller end, or other types of credit like asset-backed credit or Securitize credit or different types of things that they might need help with in terms of finding funds, but I think one of the most, The exciting opportunities, though, is as the market in credit develops and evolves similar to what you've seen in private equity and infrastructure and other asset classes, the ability to also help build out co-investment programs, secondary allocations, and so really thinking of it as kind of that same open architecture approach with flexible implementation, flexible delivery models for the clients that you'll see evolve in private credit similar to what you've seen in some of the other asset classes. Alright, thank you for that.

Our bar charts, you cite on page nine.

Important is the composition of fund raising inside those lines.

And.

And what what it is that you're raising funds for what those fee levels are and.

When those fees turn on and we do think with.

With with reasonable amounts of fund raising certainly consistent with our budget with pipeline.

For a couple of the funds where the fees turn on.

Right away and we have some catch up fees.

As.

We have a lot of a lot of leverage.

Leverage if you will in a a frankly a.

Similar level or.

You know a fundraising to that which we've seen in the past. So that all you know is we've got a long way to go but that momentum that we saw in the back half and in the fourth quarter. We think that will continue and we're we're pretty enthused.

Enthusiastic with with regard to that in terms of capital allocation.

We are aware that our limited float is not one of our great assets and so we are conscious of that at the same time, we like the value of our stock and so the approach that we've taken is to just try to minimize the impact of dilution from stock.

Michael: And just as a follow-up, I'm going to cheat and ask a two-part, unrelated question, so I apologize in advance, but when you mentioned that you think you can have better asset gathering in 24 versus 23, I was just sort of wondering, looking at page 90 of your slide deck, Does the year look like 2022? Or do you get back to something that's a little more elevated, like 2021? And then, unrelated, but just in terms of capital allocation, you mentioned that you got the board authorization, which I think is about 4% of your market cap now and a new number. How do you think about that pacing of the buyback and sort of trying to balance what you see as the value of the stock versus the liquidity dynamic? Thank you. Oh, it's Michael. On the first question, you know, I think we're, our internal, you know, bottoms up build, working with our BD team and looking at our, you know, pipeline, it has a year, you know, for us, that's, frankly, significantly better than 23 on fundraising. It's, you know, not 21.

Based compensation.

And kind of have that as a goal.

And the and.

And the pacing of that is driven as much by sort of the vesting.

Dates.

Stock based compensation as.

Anything else, obviously opportunistically when we.

You now see periods of time that we think represent particularly strong value, we can add up but.

In general we do.

Not want to shrink the float too much we think that's part of what holds us back and so we've sort of settled on this idea of we're going to manage it.

Such that we're not.

Diluting ourselves too much.

We're.

Putting that money to work in buying back shares.

Thanks, so much.

Yeah.

Our next question is coming from Chris Kolakowski with Oppenheimer <unk> company.

Yes. Good morning, Thank you.

You've touched on this already and I heard.

<unk> guidance about looking at the.

Free comp in the.

And the carry comp or incentive comp is on the on a full year basis, but.

Just.

Wanted to make sure I understand just because it does come on the heels of.

Michael: It's probably in line with the other chart, you know, the bar charts you cite on page 9. But important is the composition of fundraising inside those lines, and what it is that you're raising funds for, what those fee levels are, and when those fees kick in. And we do think with reasonable amounts of fundraising, certainly consistent with our budget for pipeline. For a couple of the funds where the fees turn on right away, and we have some catch-up fees, we have a lot of leverage, if you will, at a similar level of fundraising to that which we've seen in the past. We've got a long way to go, but that momentum that we saw in the back half and in the fourth quarter, we think that will continue, and we're pretty enthusiastic with regard to that. In terms of capital allocation, we are aware that our limited float is not one of our great assets.

So it's by Carlyle and KKR that they are changing their compensation model to be.

Just to throw more of the comp burden against carry and incentive rather than base management fees.

And did I hear you say that that's not what's going on besides just the normal or should we kind of expect that rent.

That direction.

Correct <unk>.

Heard that correctly and we were careful to try to say that we think we have.

Expanding FRE margin.

From growth without doing that.

And then.

We are cognizant of the opportunity associated with that.

What we've talked about it does not rely on us seizing.

Seizing that opportunity at all.

And at this time, we are not Oh, we have no.

<unk> planned to do that we think we can drive our FRE margins without that I think if I can shamelessly flat are you.

Michael: And so we are conscious of that. But at the same time, we like the value of our stock. And so the approach that we've taken is to just try to minimize the impact of dilution from stock-based compensation and kind of have that as a goal.

I think the way you wrote that up was was you.

Similar to the way that we.

Sort of view, it which is.

You know not tie.

Tirelessly clearer how it pencils out on a on a on a.

Michael: And the... and the pacing of that is driven much by sort of the vesting dates on stock-based compensation as anything else, obviously, opportunistically, when we see periods of time that we think represent particularly strong value, we amp that up. But in general, we do, you know, not want to shrink the float too much. We think that's part of what holds us back. And so we've sort of settled on this idea that we're going to manage such that we're not diluting ourselves too much. And we're putting that money to work by buying back shares. Thanks so much.

Trade, but when you factor in the sort of multiple differential between the two different revenue lines. It works out well for the shareholders and I think we sort of view it the same way and we probably own.

A larger percentage of the company.

Then than.

And then most so we're going to we're going to obviously look at all of those alternatives and options over time, but our views on FRE margin and the guidance Pam gave on FRE comp expense does not assume that we do something major like that.

Okay, Great just wanted to clarify that that's it for me. Thank you.

Okay.

Our next question is coming from Ken Worthington with JP Morgan.

Christoph M. Kotowski: Our next question is coming from Chris Kolakowski with Oppenheimer & Company. Yeah, good morning. Thank you. You've touched on this already, and I heard, you know, Pam's guidance about looking at the free comp and the carry comp or, you know, the incentive comp on a full-year basis. But I just want to make sure I understand, just because it does come on the heels of announcements by Carlyle and KKR that they are changing their compensation models to be, you know, to throw more of the comp burden against carry and incentives rather than base management fees. And did I hear you to say that that's not what's going on, this is just the norm, or should we kind of expect to move in that direction? Correct.

Hi, good morning, Thanks for taking the question. So I may be crazy here I hate to do this on a public call, but I thought the guidance was for private market fund raising be greater in the second half than the first.

That <unk> was sort of lighter than we were expecting sort of a bigger pop for.

Our Q.

Looks to me and maybe my numbers are wrong, but that to get there you needed about $1 2 billion of.

Additional fundraising than you've got in <unk>.

Kind of hit that guidance.

My completely off base here or.

We did fund raising get pushed from <unk> to <unk>.

I think that we we have always talked about raising more money.

In the second half than in the first half.

And we.

We did that and we also talked about kind of the growth rates of private markets management fees and we are in and we were we were pleased with the growth there and how that's gone over the last several years.

Michael: No, you heard that correctly, and we were careful to try to say that we think we have Handing FRE margin from growth without doing that. And then we are cognizant of the opportunity associated with that, but what we've talked about does not rely on us to take that opportunity at all. And at this time, we are not, you know, we have no plan to do that.

So I I think we did do what we said we would do.

In terms of second half fundraising exceeding first half fundraising that said.

Always your your your your fundraising total it comes down to whether a.

Michael: We think we can improve our FRE margins. Without that, I think, if I can shamelessly flatter you, I think the way you wrote that up was, was, you know, similar to the way that we sort of view it, which is, you know, not, I'm not entirely clear how it pencils out on a trade, but when you factor in the sort of multiple differential between the two different revenue lines, it works out well for the shareholders. And I think we sort of view it the same way, and we probably own, you know, a larger percentage of the company than most. So we're going to, you know, obviously look at all of those alternatives and options over time, but our views on FRE margin and the guidance Pam gave on FRE comp expense do not assume that we do something, you know, major like that. Okay, great. Just wanted to clarify that. That's it for me.

A couple of things that Youre trying to get closed by the end of the quarter get closed or slip and I do think we came into the first quarter with a few things that could have closed in the fourth quarter.

And you know that's probably part of the you know where our confidence comes from that our momentum going to continue that and are in our pipeline.

Okay.

Add on to what Michael said in and Michael did say that it's been and we can certainly follow up with you after the call, but if you take.

It's total fundraising so if you take the total amount of fund raising in the third quarter and the fourth quarter as compared to the total amount of fund raising in the first quarter in the second quarter, the third and fourth quarter were higher.

I agree with.

Okay.

We had.

In Q2 and Q3.

On our calls we were confident that would be the case.

Okay, Great and then two.

2023 was a much better year for the absolute return business.

So it did underperform equity markets as you would expect but yields on cash remain elevated.

Christoph M. Kotowski: Thank you. Thank you. Our next question is coming from Ken Worthington with J.P. Morgan. Hi, good morning.

How do you see sort of the yield environment and the strong equity environment.

Impacting demand so you sort of called out that.

Absolute return.

Ken Worthington: Thanks for taking the question. So, I may be crazy here, I hate to do this on a public call, but I thought the guidance was for private market fundraising to be greater in the second half than the first, and that 3Q was sort of lighter, and we were expecting sort of a bigger pop, additional fundraising than you got in 4Q kind of hit that guidance. Am I completely off base here, or did fundraising get pushed from 4Q to 1Q? I think that we have always talked, Ken, about raising more money in the second half than in the first half. And we We did that.

<unk> was good.

It seems to me like the risk free returns are also quite good and the equity markets were substantially better is that sort of weighing on how your investors are looking at.

Return and their willingness to sort of contributing dollars here.

Or.

When we talk about good performance, we really talk about two things and I think I mentioned them. Both one is relative to peers. So how are you doing relative to other providers and we did well last year and then how are you doing relative to benchmarks, which are really kind of client expectations and things like that and.

Michael: And we also talked about the growth rates of private markets and management fees. And we were pleased with the growth there and how that's gone over the last several years. And so I think we did what we said we would do in terms of second half fundraising, exceeding first half fundraising. That said, your fundraising total always comes down to whether a couple of things that you're trying to get closed by the end of the quarter get closed or slip. And I do think we came into the first quarter with a few things that could have closed in the fourth quarter.

We did well there.

Also so we have a from a performance perspective with regard to recent.

2023 performance, we have a client base that generally is constructive.

In light of the 23 returns I mentioned two other facts that are.

Relevant and that.

But you know set them.

Against the backdrop, but we're not changing our sort of base case budgeting.

Michael: And that's probably part of where our confidence comes from that our momentum's going to continue with this in our pipeline. But, Ken, just to add to what Michael said, and Michael did say this, but, and we can certainly follow up with you after the call, but if you take total fundraising, so if you take the total amount of fundraising in the third quarter and the fourth quarter as compared to the total amount of fundraising in the first quarter and the second quarter, the third and fourth quarter were higher, and I agree. And that was what we had.

But one is that the.

Currently scheduled redemptions for the rest of the year that we're aware of.

Is lower today than it has been at this point in time in previous years, and that's a good thing and that our pipeline is significantly larger.

It was a year ago.

So in general you know, where we're sitting here today coming off a good year of performance with less scheduled redemptions that we know of today and a much greater pipeline and we.

As compared to a year ago, where the performance wasn't as good we had more scheduled redemptions on a smaller pipeline. So we're in it.

Pam Bentley: Q2 and Q3 on our calls. We were confident that would be a key. Great.

Michael: And then 2023 was a much better year for the absolute return business. It underperformed equity markets, as you would expect, but yields on cash remain elevated. How do you see the yield environment and the strong equity environment sort of impacting demand? So you sort of called out that. Absolute return.

Better place than it was a year ago on many factors.

Okay, great. Thank you very much.

Our next question is coming from Adam Beatty with UBS.

Alright, Thank you and good morning.

Another one on fund raising appreciate the the schedule of the specialized funds out in market with the vintages.

Just wondering if you could help us kind of size or did get a handle on how far along those fund raises are either individually or maybe collectively as a group and also how the size or expected size of those funds compares with the prior vintage thanks very much.

Michael: The performance was good, It seems to me like the risk-free returns are also quite good, and the equity markets were substantially better. Is that sort of weighing on how your investors are looking, and their willingness to sort of contribute new dollars here, or not? Yeah, I think when we talk about good performance, we really talk about two things, and I think I mentioned them both.

Sure. Adam This is John when you could get most of this information.

I think on page 17 of the earnings presentation.

When you look at the funds that are currently in market.

Michael: One is relative to peers, so how are we doing relative to other providers, and we did well last year. And then how are we doing relative to benchmarks, which are really kind of client expectations and things like that, and we did well there also. So we have a, from a performance perspective with regard to recent 2023 performance, we have a client base that is generally constructive in light of the 23 returns. I mentioned two other facts that are relevant, and that, but said them both against the backdrop of we're not changing our sort of base case budgeting.

They're kind of listed actually kind of in order of where they are in there on the bottom half of the page. They are listed and where they are and theyre kind of evolution. So.

Let me note on.

The Mac three fund.

The the main fund held its final close although we are in discussions with some investors about.

That missed that due to their own kind of timing budget and constraints about potentially adding some capital in a parallel vehicles. So that's kind of more towards the end.

Co invest you know kind of middle late innings, elevate middle innings infrastructure middle innings credit in advance kind of early innings.

And for the most part.

Michael: But one thing is that the currently scheduled redemptions for the rest of the year that we're aware of are lower today than they have been at this point in time in previous years, and that's a good thing. And then our pipeline is, you know, significantly larger than it was a year ago. So in general, you know, we're sitting here today coming off a good year of performance with less scheduled redemptions that we know of today and a much greater pipeline than we did a year ago, where the performance wasn't as good, we had more scheduled redemptions and a smaller pipeline, so we're in a better position than it was a year ago on many factors. Great, thank you very much. Our next question is coming from Adam Beatty with UBS. Thank you and good morning.

Kind of across the board.

Frankly, with the exception of Mack any fund that had its final close has been bigger than its predecessor fund.

And you know, we still feel as Michael said.

That it's going to be a productive year for fund raising are following what was a more difficult year and that's inclusive of the various specialized funds and market.

Excellent I appreciate youre hitting all those points John Thanks very much.

Then just one more just around you talked about the opportunity in private credit and one of the dynamics that some folks are talking about is the idea of sort of gp's entering that market just because theres a lot of demand and what have you. So I'm. Just wondering you know kind of what you're seeing out there in terms of GP selection and how are you.

Adam Klauber: Just another one on fundraising. I appreciate the schedule of the specialized funds out in the market with the vintages. Just wondering if you could help us kind of size or get a handle on how far along those fundraisers are either individually or maybe collectively as a group and also how the size or expected size of those funds compares with the prior vintage. Thanks very much.

Kind of might correct or calibrate for you know a bit of a gold rush environment.

To the extent that you perceive it in that sector. Thank you.

Yeah look there's certainly a lot of discussion and all the while the demand for private credit right now I think some of that is secular.

Secular and it's been going on for a long time, frankly since the great financial crisis, where more of the credit capital formation generally in all markets is coming in the form of private credit as opposed to you know kind of bank led or traded credit I think some of it is a little bit cyclical.

John: Sure, Adam, this is John, and you could get most of this information on page 17 of the earnings presentation, but when you look at the funds that are currently in the market, they're kind of listed actually in order of where they are in their, on the bottom half of the page, they're listed, and where they are in their kind of evolution. So, as we note in the MAC3 fund, the main fund had its final close, although we are in discussions with some investors about that missed that due to their own kind of timing, budget, and constraints about potentially adding some capital in a parallel vehicle. So that's kind of more towards the end, co-invest, you know, kind of late innings, elevate middle innings, infrastructure, middle innings, credit in advance, kind of early innings.

In the sense that when our absolute interest rates are higher obviously, the absolute returns you can generate from credit instruments becomes more attractive relative to you know liability or other types of assumptions that you're making.

But the secular trend Israel or any time you have.

Strong secular trends for an industry you have a lot of new business formation, a lot of new capital formation I don't view that honestly for a fee.

Firms like ours to be you know a.

I think interest right, we have the opportunity to look at.

Hundreds of investment opportunities and selected investment opportunities that kind of make their way through our very rigorous funnel.

John: And for the most part, you know, kind of across the board, frankly, with the exception of MAC, any fund that's had its final close has been bigger than its predecessor fund. And, you know, we still feel, as Michael said, that it's going to be a productive year for fundraising following what was a more difficult year, and that's inclusive of the various specialized funds in the market. Excellent. I appreciate you hitting all those points, John. Thanks very much.

And does.

Does that mean, you'll have some of the states are there sure like anyone but I don't view it.

It was us being very susceptible to that are kind of the risk, but you know I think the most important thing for our platform.

Is the kind of open architecture, a one stop shop to providing a very interesting and complementary credit solution.

And that could be offered to some of the most sophisticated investors in the world who are great programs and building on their own and they still may find the need for us to provide something that's complementary or for people that are.

John: And then just one more, just around the corner. You talk about the opportunity in private credit, and one of the dynamics that some folks are talking about is the idea of sort of GPs entering that market just because there's a lot of demand and what have you. So just wondering, you know, kind of what you're seeing out there in terms of GP selection and how you kind of might correct or calibrate for, you know, a bit of a gold rush environment, to the extent that you perceive it in that sector. Thank you.

Trying to just kind of build their credit allocation in one place where we can offer that from a.

The diversification standpoint, and an implementation standpoint in a way that's kind of a super attractive relative to building that program on your own when you step back and think about it which is part of it comes back a little bit back to your question is what's the real value in there what's the real asset that we have and its origination right.

You see all of the new funds that come to market.

John: Yeah, look, there's certainly a lot of discussion and a lot of demand for private credit right now. But I think some of that is secular, and it's been going on for a long time, frankly, since the great financial crisis, where more of the credit capital formation generally in all markets is coming in the form of private credit as opposed to, you know, kind of bank-led or traded credit. I think some of it is a little bit cyclical in the sense that when absolute interest rates are higher, obviously, the absolute returns you can generate from credit instruments become more attractive relative to the liability or other types of assumptions that you're making.

And that is very helpful to obviously building to fund the portion of the bundled solution.

You'll also see a tremendous amount of of direct credit deal flow, whether that's like co investments or a real direct deal or a secondary opportunity because we operate in all the alternative markets and those are the users are private credit and real estate firms infrastructure firms private equity firms and so our ability to kind of harness that origination network harnessed that.

Tunnel and create thoughtful solutions, depending on what the particular client needs is a pretty we think is a pretty powerful mousetrap.

To help people in this area as that market evolves.

John: But the secular trend is real, and sure, anytime you have secular trends, foreign industry, you have a lot of new business formation, a lot of new capital formation. I don't view that, honestly, for a firm like ours to be a huge risk, right?

Yes that makes sense you highlighted the direct capability in the past cool thanks very much John appreciate it.

Sure.

And our next question is coming from Michael Cyprus with Morgan Stanley.

Oh, Hi, good morning, Thanks for taking the question just wanted to ask about.

John: We have the opportunity to look at hundreds of investment opportunities and select the investment opportunities that kind of make their way through our very rigorous funnel, and does that mean you'll have some mistakes here and there? Sure, like anyone, but I don't view it as us being very susceptible to the kind of risk that you note. I think the most important thing for our platform is the kind of open architecture, one-stop shop for providing a very interesting and complementary credit solution. And that could be offered to some of the most sophisticated investors in the world who have great programs they're building on their own, and they still may find a need for us to provide something that's complementary or for people that are trying to just kind of build their credit allocation in one place where we can offer that from a When you step back and think about it, which kind of comes back a little bit to your question is, what's the real value and what's the real asset that we have? It's origination, right?

New clients you guys continue to have high re up rates with existing but just on the new clients, maybe you could talk a little bit about the environment for bringing new clients to gcmg today versus six or 12 months ago, and how you expect that to trend in 24 here you on the fundraising backdrop to be better, but just on new customers, maybe talk about some of the steps youre taking to broaden out the clients.

Well thank you.

John You want me to take a first crack at that.

Sure go ahead.

So hey, Michael.

First.

I would say that we have.

Or adding new clients.

Both kind of large.

So separate account new clients and new clients that are writing tickets for the first time or co mingled funds.

And we're doing that most of the Commingled fund new client growth is coming from North America.

Not all of it but most of it and the separate accounts are coming from all over the world you know globally and.

And we are seeing growth.

Regard to new clients from.

In both of those.

Arenas.

John: You see all of the new funds that come to market, and that is very helpful to, obviously, building the fund portion of any solution. But you also see a tremendous amount of direct credit deal flow, whether that's a co-investment or a real direct deal or a secondary opportunity because we operate in all the alternative markets. And those are the users of private credit, real estate firms, infrastructure firms, and private equity firms. And so our ability to kind of harness that origination network, harness that funnel, and create, you know, thoughtful solutions depending on what the particular client needs is, we think, a pretty powerful mousetrap to help help people in this area as that market evolves. Yeah, that makes sense.

And it's across strategies, obviously with scale assets gathering the most capital.

Where we've seen the most growth.

Bunch of that has been separate account.

Although our infrastructure of something special.

Specialized infrastructure fund as part of new clients and we will continue to throughout this year.

Throughout this year as well so.

The backdrop for us and if you look at our pipeline across all the categories. It's it's a it's good and it's a it's strong in its full in its Scott.

The re ups that we mentioned, but it also very clearly has new client growth. The other thing that isn't quite.

Hum.

You know, an apple or an orange in terms of what your question is we did have a pretty good chunk of capital last year that we raised that was existing clients.

John: You highlighted the direct capability in the past. Cool. Thanks very much, John. I appreciate it.

Michael J. Cyprys: Thank you. And our next question is coming from Michael Cyprys with Morgan's. Oh, hi, good morning.

Wasn't a re up they were working with us and a new strategy and that might've been a fifth of the capital. We raised last year was existing clients moving into a different part of Grosvenor with us and that's obviously a very good thing as well.

Michael: Thanks for taking the time to answer the question. Just wanted to ask about new clients; you guys continue to have high re-upgrades with existing clients, but just on new clients, maybe you could talk a little bit about the environment for bringing new clients to GCMG today versus six or 12 months ago, and how you expect that to trend in 2024, here you are on the fundraising backdrop to be better, but just on new customers, maybe talk about some of the steps you're taking to broad Thank you. John, do you want me to take a first crack at that? Karaguer

It's something we want to continue to drive.

Great and just a follow up on that point with the new client growth for separate accounts, how much would you say is new customers.

That are moving into the private for the first time versus share gains from competitors versus moving from an in sourced to an outsource solution and just how do you think about the sizing of the broader market opportunity for separate accounts.

Okay.

Michael: So, hey, Michael, first. I would say that we are adding new clients, both kind of large separate account new clients and new clients that are writing tickets for the first time for commingled funds. And we're doing that. Most of the commingled fund new client growth is coming from North America Not all of it, but most of it and the separate accounts are coming from all over the world, you know globally And we are seeing growth with regard to new clients from in in in both of those you know arenas And it's across strategies obviously with real assets gathering, you know, the most capital That's where we've seen, you know, the most growth and a bunch of that has been separate account Although our infrastructure Specialized infrastructure fund is as part of new clients and will continue to throughout this year Throughout this year as well So, you know the back the backdrop for us and if you look at our pipeline across all the categories, it's it's Good in in it's it's it's strong and it's full and it's got The reups that we mentioned, but it also very clearly has new client growth The other thing that isn't, you know quite, um you know an apple or an orange in terms of what your question is.

Right.

Oh go ahead go ahead John.

I was just going to say are we said this on prior calls.

It's an important one.

None of our business model is not ours or our peers rely in any material way in any kind of share gains.

We wouldn't have you know, 90% plus re up rates in order with our peers. If there was a huge part of the story.

But that's but that doesn't mean that you're not yeah coming.

Coming into a client that might work with a peer of yours in some other way to help them in a different vertical maybe they work with someone in private equity or helping them in their infrastructure are things that that might you might see stories like that I think the reality is is that when you look across the world today, maybe with the a little bit of an exception around the individual investor most people would have some allocation.

Two.

Private markets.

But everyone's in a different stage of that journey.

Maybe it's not all the asset classes, yet, maybe it's only funds and not yet co investments.

Maybe it's not yet secondaries, whatever it might be and so I think each story is obviously a pretty different story when you get into the details of it.

But you're helping them you know you're entering the picture to help them along that journey with a part of that private markets program that is either not yet developed or in some form of a stage of transformation and when you look at our pipeline or a capital raising historically.

Michael: We did have a pretty good chunk of capital last year that we raised that was from existing clients. It wasn't a re-up, they were working with us on a new strategy, and that might have been, you know, a fifth of the capital we raised last year was existing clients moving into a different part of Grosvenor with us, and that's obviously a very good thing as well, and it's something we want to continue to drive. Great, and just a follow-up on that point: with the new client growth for separate accounts, how much would you say is new customers that are moving into the private for the first time versus share gains from competitors versus moving from an in-source to an outsource solution, and just how do you think about the sizing of the broader market opportunity for separate accounts? I could take that one, Michael.

Yeah, it's hard to put a number on that you know that the size of the private markets. There's just a massive massive size it would be ridiculous number and we don't see that kind of macro trend change.

Changing at all in terms of People's dedication to and commitment to continuing to build out their alternatives and specifically their private market programs.

Yeah, Yeah. The one thing I would add is just that.

At this stage.

You don't have.

Too many huge balance sheets that have no alts.

John: Okay, go ahead. I was just going to say, we've said this on prior calls, and I think it's an important one. None of our business models, not ours or our peers, relies in any material way on any kind of share gains.

But you definitely have big balance sheets that.

I don't have a whole suite of alternative strategies or.

Don't have a full suite of implementation approaches within an alternative.

John: We wouldn't have, you know, 90% plus re-up rates, nor would our peers if that was a huge part of the story. But that doesn't mean that you're not coming into a client that might work with a peer of yours in some other way to help them in a different vertical. Maybe they work with someone in private equity; you're helping them with infrastructure or things that might, you know, we might see stories like that. I think the reality is that when you look across the world today, maybe with a little bit of an exception around the individual investor, most people have some allocation to private markets. But everyone's at a different stage of that journey.

Those are that that you know really speaks to the.

Adoption of new strategies with us from existing clients.

Seeks to the mix shift we talked about what you know where people are utilizing our co invest in secondaries.

In conjunction with their primary.

Reallocations and you know that is that to some degree at the core of what John talked about with regard to the credit opportunity and so all of that is still very favorable as a backdrop.

With we think a lot of legs for the whole of the industry.

John: Maybe it's not all the asset classes yet. Maybe it's only funds and not yet co-investors. Maybe it's not yet secondaries, whatever it might be. And so I think each story is obviously a pretty different story when you get into the details of it.

It was a slow fundraising year last year and it was significantly impacted by transaction levels, which are easy to see and kind of the carry line.

John: But you're helping them, you know, you're entering the picture to help them along that journey with a part of that private markets program that is either not yet developed or in some form of a stage of transformation. And when you look at, you know, our pipeline or our capital raising historically, it's hard to put a number on that. You know that the size of the private markets is just a massive, massive size. It would be a ridiculous number, and we don't see that kind of macro trend changing at all in terms of people's dedication to and commitment to continuing to build out their alternatives and, specifically, their private markets program.

As that starts to that that.

We think that flywheel is starting to loosen up.

Here more commitment to transactions on the part of sponsors and things like that so there's.

Plenty of good solid fundamental backdrop here.

It Hasnt changed at all and as the flywheel loosens up and transactions activity pick up.

The fund flows pick up as well and we see it today in our pipeline.

Great. Thank you.

Yeah.

I am not showing any further questions I will now turn it back to Stacy sellinger for closing remarks.

Michael: The one thing I would add is just that I think at this stage, you don't have too many huge balance sheets that have no all, but you definitely have big balance sheets that don't have a full suite of alternative strategies or don't have a full suite of, you know, implementation approaches within an alternative, and that speaks to the adoption of new strategies with us from existing clients. It speaks to the mixed shift we talked about, where people are utilizing co-invest and secondaries in conjunction with their primary equity allocations. And, you know, that is to some degree at the core of what John talked about with regard to the credit opportunity. And so all of that is still very favorable as a backdrop with, we think, a lot of legs for the whole of the industry. It was a slow fundraising year last year, and it was significantly impacted by transaction levels, which are easy to see in kind on the carry line.

We just wanted to say thank you again to everyone for joining us today.

Right the interest and feel free to reach out if you have any other questions. If not we look forward to speaking with you next quarter and have a wonderful day.

Yeah.

Ladies and gentlemen, thank you for participating in today's conference.

Concludes today's program, we hope everyone has a great day you may all disconnect.

Yeah.

Okay.

[music].

Michael: And as that starts to, you know, we think that the flywheel is starting to loosen up, we hear more commitment to transactions on the part of sponsors and things like that. So there's plenty of good, solid, fundamental backdrop here, and that hasn't changed at all. And as the flywheel loosens and transactions activity picks up, I think, you know, the fund flows pick up as well, and we see it today in our pipeline. Great, thank you, www.circlelineartschool.com; I am not asking any further questions. I will now turn it back to Stacey Selinger for our closing remarks. We just want to say thank you again to everyone for joining us today. We appreciate the interest, and feel free to reach out if you have any other questions.

Yeah.

[music].

Yeah.

[music].

Stacey Selinger: If not, we look forward to speaking with you next quarter, and have a wonderful day. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. We hope everyone has a great day. You may all disconnect. See you there! Thank you for watching the video...