Q4 2023 Silvercrest Asset Management Group Inc Earnings Call

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Operator: Good morning and welcome to the Silvercrest Asset Management Group Inc. fourth quarter and full year 2023 earnings conference call. All participants will be in listen only mode.

Good morning, and welcome to the Silvercrest asset management group incorporated fourth quarter and full year 'twenty twenty-three earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero after today's presentation.

Operator: You can email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. This event is being recorded.

There will be an opportunity to ask questions. Please note. This event is being recorded.

Operator: Before we... Let me remind you that during today's presentation, statements made regarding our future performance, our forward, are based on current conditions, which are subject to a number of risks and many factors could cause actual results to differ materially from the statements that are made. Those factors are disclosed in our filings with the SEC, for all such forward-looking statements, claim the protections provided by the Litigation Reform Act of 1995, all forward statements on this call are made as of the date hereof, and Silvercrest has no obligation to update. I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Before we begin let me remind you that during today's call certain statements made regarding our future performance are forward looking statements. They are based on current expectations and projections, which are subject to a number of risks and uncertainties and many factors could cause actual results to differ materially from the statements that are made.

Those factors are disclosed in our filings with the SEC under the caption risk factors for all such forward looking statements. We claim the protection provided by the litigation Reform Act of 1995.

All forward looking statements made on this call are made as of the date hereof and Silvercrest assumes no obligation to update them.

I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Richard R. Hough: Thank you very much and good morning. After the volatile and difficult market environment of 2022, we hope 2023 will lead to improved markets helping to recover both Silvercrest's discretionary assets under management as well as our top-line revenue. The year 2023 was unusual. Equity market gains were highly concentrated in a handful of large-cap technology companies.

Yeah. Thank you very much and good morning to our Q4 and year end 2023 results.

After the bottle a difficult market environment of 2022, we hope 2023 would lead to improved market, helping to recover both silvercrest discretionary assets under management as well as our topline revenue.

The year 2023 was unusual equity market gains were highly concentrated in a handful of large cap technology companies as a result of such narrow leadership and economic uncertainty during the third quarter 2023 earnings call I'd stages, we faced challenging market conditions in silvercrest for yet another year during the fourth quarter of two.

Richard R. Hough: As a result of such narrow leadership and economic uncertainty during the third quarter of 2023 earnings call, I had stated we could face challenging market conditions at Silvercrest for yet another year. However, during the fourth quarter of 2023, company participation in equity market gains broadened significantly, and progress has continued into 2024, setting the stage for a better environment for our business.

Thousand twenty-three company participation in equity market gains broadened significantly progress has continued into 2020 for setting the stage for a better environment for our business.

Richard R. Hough: During the fourth quarter of 2023, Silvercrest's discretionary AUM rose by $1.4 billion, or 6.8%, to $21.9 billion. And its total AUM increased by $2.1 billion, or 6.7%, to $33.3 billion during the fourth quarter. For 2023, Silvercrest's discretionary AUM increased by $1 billion, or 4.8%. Our total AUM increased by 15% during 2023 by $4.4 billion to $33.3 billion from $28.9 billion at the end of 2022. The total 2023 increase was attributable to market appreciation of $3.8 billion and client net inflows of $0.6 billion, or $600 million. Silvercrest's revenue for the year, however, significantly lagged increases in assets under management due to broad market gains concentrated in the fourth quarter of 2023. Silvercrest primarily bills quarterly in advance.

During the fourth quarter of 2023, Silvercrest discretionary AUM rose by 1.4 billion or six 8% to $21 9 billion and Silvercrest total a one increased by $2 1 billion or six 7% to $33 3 billion during the fourth quarter for 2023 Silvercrest.

Discretionary AUM increased by $1 billion or four 8%.

Our total AUM increased during 2023 by 15% or $4 4 billion to $33 3 billion from $28 9 billion at the end of 2022.

The total 2023 increase was attributable to market appreciation of $3 8 billion in client net inflows.

6 billion or 600 million.

Silvercrest revenue for the year, however, significantly lag the increases in assets under management due to broad market gains concentrated in the fourth quarter of 2023 silver.

Silvercrest, primarily built quarterly in advance revenue decreased by $5 8 million or four 7% to $117 4 million for 2023 from $123 2 million for 2022. This decrease was driven by market depreciation in prior years, partially offset by market appreciation and net.

Richard R. Hough: Revenue decreased by $5.8 million, or 4.7%, to $117.4 million for 2023 from $123.2 million for 2022. This decrease was driven by market depreciation in prior years, partially offset by market appreciation and net inflows during 2023. However, revenue for the fourth quarter of 2023 was flat year over year.

Inflows during 2023.

Revenue for the fourth quarter of 2023 was flat year over year.

Richard R. Hough: Our financial results in the fourth quarter also were negatively affected by adjustments to total compensation for 2023, with total recurring cash compensation as a percentage of revenue rising to 59 percent from Silvercrest's typical interim accrual rate of 55 percent. Silvercrest completed the year with adjusted EBITDA of $26.9 million, or 22.9 percent of revenue, down from $32 million or 26 percent of revenue. Adjusted diluted earnings per share for 2023 was $1.12, down from $1.35 in 2022. For the fourth quarter, adjusted EBITDA was $2.6 million or 9% of revenue, down from $4.4 million or 15.6% of revenue in the fourth quarter of 2022, both affected by the fourth quarter adjustment. Adjusted diluted earnings per share for the fourth quarter was $0.07, down from $0.15 in the fourth quarter of 2022. With the AUM increases during the fourth quarter and so far in 2024, we expect a better environment in 2024. Silvercrest's pipeline of new business opportunities has significantly improved since the fourth quarter of 2023.

Our financial results in the fourth quarter also were negatively affected by adjustments to total compensation for 2023 with total recurring cash compensation as a percentage of revenue rising to 59% from silvercrest typical interest accrual rate of 55% Silvercrest completed the year with adjusted EBITDA of $26.

$9 million or 22, 9% of revenue down from $32 million or 26%.

Revenue adjusted diluted earnings per share for 2023 was $1 12 down from $1 35 in 2022 for the fourth quarter. Adjusted EBITDA was $2 6 million or 9% of revenue down from $4 4 million or 15, 6% of revenue in the fourth quarter of 2022, both affected by fourth quarter.

Adjustments adjusted diluted earnings per share for the fourth quarter was <unk>.

Seven cents down from 15 cents in the fourth quarter of 'twenty to 'twenty chip with the AUR increases during the fourth quarter and so far in 2024, we expect a better environment in 2024.

So we've got a pipeline of new business opportunities have significantly.

Improved since the fourth quarter of 2023, while the institutional search environment remains slow silvercrest actionable institutional business pipeline has increased to $735 million.

Richard R. Hough: While the institutional search environment remains slow, Silvercrest's actionable institutional business pipeline has increased to $735 million. Silvercrest's outsourced Chief Investment Officer, or OCIO AUM, has risen to $1.7 billion, which includes a new small college endowment. The OCIO pipeline has increased to $585 million, and our consultant relationships have strengthened. Silvercrest has never been busier with its new initiatives.

Silvercrest outsourced Chief investment Officer R. O C. I O <unk> has risen to one 7 billion, which includes a new small college endowment.

The OCR I O pipeline has increased to $585 million and our consulting relationships are strengthened.

Silvercrest has never been busy year with its new initiatives or focus on those new opportunities as well as investments to drive growth in the business, including value added hires Scott.

Richard R. Hough: We're focused on those new opportunities as well as investments to drive growth in the business, including value-added hires. Scott, that concludes my opening remarks. If you could cover the financials, thanks. Great. Thanks, Rick.

That concludes my opening remarks, if you could just cover financials. Thanks, alright. Thanks Robert.

Closer to our earnings release for the fourth quarter discretionary.

Scott Andrew Gerard: As disclosed in our earnings release for the fourth quarter, discretionary AUM as of the end of 2023 was $21.9 billion, and total AUM as of the same period was $33.3 billion. Revenue for the quarter was $28.5 million, and reported consolidated net loss for the quarter was $0.6 million. Revenue for the fourth quarter was approximately. $28.5 million was flat for the same period in the prior year.

As of the end of 2023 was 21 9 billion and total AUM as of.

In the same period was $33 3 billion revenue for the quarter was $20 5 million and reported consolidated net loss for the quarter was point 6 million.

Revenue for the fourth quarter was approximately.

$28 5 billion was flat for the same period in the prior year.

Fences for fourth quarter.

Were $29 5 billion, representing approximately 21% increase from expenses of $24 4 million for the same period last year. This increase was primarily attributable to an increase in compensation and benefits expense of $4 million in general and administrative expenses of $1 2 billion.

Scott Andrew Gerard: Expenses for the fourth quarter were $29.5 million, representing approximately a 21% increase from expenses of $24.4 million for the same period last year. This increase was primarily attributable to an increase in compensation and benefits expense of $4 million, and general and administrative expense of $1.2 million. Compensation and benefits again increased by $4 million, or approximately 21%, to $22.7 million for the fourth quarter, from $18.7 million for the same period last year. The increase was primarily attributable to increases in bonuses of $3.5 million, salaries and benefits of $0.3 million, primarily as a result of merit-based increases and newly hired staff, and an increase in equity-based compensation of $0.2 million due to the granting of additional restricted stock units. General and administrative expenses increased by $1.1 million, or approximately 20.8%, to $6.8 million for the fourth quarter from $5.7 million for the same period in the prior year.

Compensation and benefits again increased by $4 million or approximately 21% to $42 7 billion for fourth quarter from $18 7 million for the same period last year. The increase was primarily attributable to increases in bonuses of $3 5 million salaries and benefits.

It's a point 3 billion, primarily as a result of merit based increases and newly hired staff and an increase in equity based compensation point 2 million due to the granting of additional restricted stock units.

General and administrative expenses increased by $1 1 million or approximately 28% to $6 8 billion for the fourth quarter from $5 7 million for the same period in the prior year.

Was primarily attributable to an adjustment to the fair value of contingent consideration related to the car T. The acquisition of point 8 million recorded during the three months ended December 31st 2022, an increase in your judgment to the fair value of contingent consideration related to the Doj.

The acquisition of <unk> 3 million.

And also increases in occupancy related costs and charitable donations, partially offset by a decrease in professional fees reported consolidated net loss was <unk> 6 million for the quarter as compared to $3 3 billion of net income in the same period in the prior year reported.

Scott Andrew Gerard: This was primarily attributable to an adjustment to the fair value of contingent consideration related to the Cortina acquisition of $0.8 million recorded during the three months ended December 31st, 2022, an increase in the adjustment to the fair value of contingent consideration related to the Neosho acquisition of $0.3 million, and also increases in occupancy and related costs and charitable donations partially offset by a decrease in professional fees. The reported consolidated net loss was $0.6 million for the quarter as compared to $3.3 million of net income in the same period in the prior year.

Loss attributable to silvercrest or the class a shareholders for fourth quarter, 2023 was approximately $44 million or five cents and four cents per basic and diluted class a share respectively.

Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense and noncore nonrecurring items was approximately $2 6 million or 9% of revenue for the fourth quarter compared to $4 4 million or 15, 6% of revenue for the same period into <unk>.

Prior year.

Scott Andrew Gerard: The reported net loss attributable to Silvercrest or the Class A shareholders for the fourth quarter of 2023 was approximately $0.4 million or $0.05 and $0.04 per basic and diluted Class A share, respectively. Adjusted EBITDA, which we defined as EBITDA without giving effect to equity-based compensation expense and non-core, non-recurring items, was approximately $2.6 million or 9% of revenue for the fourth quarter compared to $4.4 million or 15.6% of revenue for the same period in the prior year. Adjusted net income, which we define as net income without giving effect to non-core and non-recurring items, and income tax expense, assuming a corporate rate of 26%, was approximately $1 million for the quarter, or $0.08 and $0.07 per adjusted basic and diluted earnings per share, respectively. Adjusted earnings per share is equal to adjusted net income divided by the actual Class A and Class B shares outstanding as of the end of the reporting period for basic adjusted EPS. Then, to the extent dilutive, we add unvested RSUs and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS.

Adjusted net income, which we defined as net income without giving effect to noncore and nonrecurring items and income tax expense, assuming a corporate rate of 26% was approximately $1 billion for the quarter or eight seven.

Seven cents per adjusted basic and diluted earnings per share respectively. Adjusted earnings per share is equal to adjusted net income divided by the actual class a and class B shares outstanding as of the end of the reporting period for basic adjusted EPS and Judy extent dilutive, we add unvested.

<unk> use and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS.

Looking at the full year revenue for the year was approximately $117 4 million and that represented a four 7% decrease from revenue of $123 2 billion for the same period last year. This decrease was driven by market market depreciation in prior year.

There is partially offset by market.

Market appreciation and net client inflows during 2023.

Fences for the year ended December 31st 2023 were $98 6 million representing.

Scott Andrew Gerard: Looking at the full year, revenue for the year was approximately $117.4 million, and that represented a 4.7% decrease from revenue of $123.2 million for the same period last year. This decrease was driven by market depreciation in prior years, partially offset by market appreciation and net client inflows during 2023. Expenses for the year ended December 31st, 2023 were $98.6 million, representing approximately a 16% increase from expenses of $84.7 million for the same period last year. This increase was primarily attributable to increases in compensation and benefits expense of $1 million and general and administrative expenses of $12.9 million.

Approximately a 16% increase from expenses of $84 7 million for the same period last year. This increase was primarily attributable to increases in compensation and benefits expense of $1 million and general and administrative expenses of 12.9 billion compensation and benefits expense.

Was approximately 1% higher.

At $72 6 million for 2023 compared to $71 6 million in 2022. The increase was primarily attributable to increases in equity based compensation expense of <unk> 5 billion due to an increase in the number of unvested restricted stock units.

And Unvested nonqualified stock options outstanding.

And an increase in salaries and benefits expense of $1 3 billion, primarily again as a result of merit based increases and newly hired staff, partially offset by a decrease in the accrual for bonuses and point 8 million general and administrative expenses increased by $12 9 million to $26 million for two.

Scott Andrew Gerard: Compensation and benefits expense was approximately 1% higher at $72.6 million in 2023 compared to $71.6 million in 2022. The increase was primarily attributable to increases in equity-based compensation expense of $0.5 million due to an increase in the number of unvested restricted stock units and unvested non-qualified stock options outstanding, and an increase in salaries and benefits expense of $1.3 million, primarily, again, as a result of merit-based increases in newly hired staff, partially offset by a decrease in the accrual for bonuses of $0.8 million. General and administrative expenses increased by $12.9 million to $26 million in 2023 compared to $13 million in 2022.

<unk> 23 compared to $13 million in 2022, the increase was primarily attributable to increases in the fair value of contingent consideration related to the core Jinan and New York show acquisitions of 11 8 million endpoint 3 billion, respectively also increases.

In portfolio and systems expense occupancy and related costs marketing costs, depreciation and amortization and office expense.

These increases were partially offset by lower professional fees sub advisory and referral fees and telephone and Internet costs reported consolidated net income was $15 2 million for 2023 compared to $30 8 million in the same period in the prior year.

Reported net income attributable to silvercrest for the year ended 12, 31, 23 was approximately $9 1 million or <unk> 96 cents per basic and diluted class a share adjusted EBITDA was approximately $26 9 million or 22, 9% of revenue for 2023.

Scott Andrew Gerard: The increase was primarily attributable to increases in the fair value of contingent consideration related to the Cortina and the OSHO acquisitions of $11.8 million and $0.3 million, respectively. Also, increases in portfolio and systems expense, occupancy and related costs, marketing costs, depreciation and amortization, and office expense. These increases were partially offset by lower professional fees, sub-advisory and referral fees, and telephone and internet costs. Report consolidated net income was $15.2 million for 2023, compared to $30.8 million in the same period in the prior year. Report net income attributable to Silvercrest for the year ended December 12, 1231.23 was approximately $9.1 million or $0.96 per basic and diluted Class A share.

Compared to $32 million or 26% of revenue for 2022.

Lastly, adjusted net income was approximately $16 1 million for 2023 or $1 16, and $1 12 per adjusted basic and diluted EPS, respectively quickly looking at the balance sheet total assets as of the end of 2023 that were 119.

$9 6 million compared to $212 7 million at the end of 2022 cash and cash equivalents were approximately $78 3 billion at the end of 'twenty three compared to $77 4 million at the end of 2022 total borrowings as of the end of 2020.

Scott Andrew Gerard: Adjusted EBITDA was approximately $26.9 million, or 22.9% of revenue for 2023 compared to $32 million, or 26% of revenue for 2022. Lastly, adjusted net income was approximately $16.1 million for 2023, or $1.16 and $1.12 per adjusted basic and diluted EPS, respectively. Quickly, looking at the balance sheet, total assets as of the end of 2023 were $199.6 million compared to $212.7 million at the end of 2022. Cash and cash equivalents were approximately $70.3 million at the end of 2023 compared to $77.4 million at the end of 2022. Total borrowings as of the end of 2023 were $2.7 million.

Three were $2 7 million total class a stockholders equity was approximately $82 7 million at the end of 2023 that concludes my financial remarks, all for over to Rick for Q&A, great. Thank you Scott So look forward to talking to.

Anyone on the call. Thanks.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Your question. Please press Star then two.

Today's first question comes from Freddie Strickland with Janney Montgomery Scott. Please go ahead.

Hey, Thanks, and good morning.

Let's start on on expense trends understand the revenue drop in fourth quarter impacted the ratios.

G&A and compensation I mean should we expect a more normal year for those ratios as we look into this year.

With regards to two.

Richard R. Hough: Total Class A stockholders' equity was approximately $82.7 million at the end of 2023. That concludes my financial remarks. I'll turn it over to Rick for Q&A. All right. Thank you, Scott. I look forward to talking to anyone on the call. Thanks. We will now begin the question and answer session. To ask a question, you may press the star, then one, on your telephone keypad.

For joining us.

Friday I saw a report this morning, just as a comment I think it was pretty close to.

Two to getting a getting the situation right.

With regards to 2024 are certainly as we enter it and build.

For the first quarter based on the increase Q4 that we saw with the broader market participation you would expect the compensation ratio to come back down.

Freddie Strickland: If you're using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star then 2. Today's first question comes from Freddie Strickland with Jannie Montgomery Scott. Please go ahead. Hey, thanks, and good morning.

Towards our normalized 55% as progress is made that said.

We are making investments in the business of new personnel.

And.

Depending on when those occur during the year it could affect that ratio.

Richard R. Hough: I just wanted to start on expense trends, understand how the revenue drop in the fourth quarter impacted the ratios on G&A and compensation. I mean, should we expect a more normal year for those ratios as we look into, you know, this year? With regard to, and thanks for joining us, Freddie, I saw the report this morning, just as a comment. I think it was pretty close to getting the situation right.

And if market progress were to stop it would affect that ratio or if you've got something in the pipeline. So the expectation is it would go in that direction, but where we plan to invest in the business and you may recall that I have commented in several calls about the need to make investments in personnel to grow the business.

That that would hit earnings in EBITDA, when I did that really what youre seeing in 2023 is is the market effect. In addition to.

Richard R. Hough: With regard to 2024, certainly as we enter it and build for the first quarter based on the increase in Q4 that we saw with the broader market participation, you would expect the compensation ratio to come back down towards our normalized 55% as progress is made. That said, We are making investments in the business and new staff. And, depending on when those occur during the year, it could affect that ratio, and if market progress were to stop, it would affect that ratio, or if you've got something in the pipeline. So the expectation is it would go in that direction, but we plan to invest in the business, and you may recall that I have commented on several calls about the need to make investments and hire staff to grow the business and that that would hit earnings and EBITDA when I did that.

Some new investments that are not yet there.

The ratio that we strive to achieve for the company both in terms of contributing our compensation as well as EBITDA.

<unk>.

What I think we will consider doing is increasing that ratio in 2024 and accrue at a different level I don't know what that will be yet.

It will not be 59% I can tell you that.

But it will be higher than our typical 55.

We don't like making big adjustments in the fourth quarter to normalize the year, sometimes that works and everyone's favor you may recall the <unk> the.

The fourth quarter adjustment for 'twenty 'twenty. One was was a was very significant in the other direction I think our ratio that quarter was 52 or three maybe even been below 52, I don't quite recall, but it was in that range.

So I think given the investments we plan to make and and in just my general comments are carrying over from last quarter about the the economic environment I think it would be prudent for us to accrue at a higher rate even if.

Richard R. Hough: Really, what you're seeing in 2023 is the market effect in addition to some new investments that are not yet at the ratio that we strive to achieve for the company both in terms of contributing compensation as well as EBITDA. What I think we will consider doing is increasing that ratio in 2024 and accruing at a different level. I don't know what that will be yet. It will not be 59 percent, I can tell you that, but it will be higher than our typical 55. We don't like making big adjustments in the fourth quarter to normalize the year, but sometimes that works in everyone's favor.

On a steady state basis to the business without.

Without significant new investments, we would target and do target that 55% cash our compensation ratio. So we haven't changed the business model, what we're looking to do it.

It's really more about being realistic about where we are with our with the market's hope that's not too long winded, but I think that deserves a very thorough explanation.

No that's very helpful. I appreciate that.

Just switching gears for a second I appreciate the color on D C I O pipeline it.

Richard R. Hough: You may recall the fourth quarter adjustment for 2021 was very significant in the other direction. I think our ratio that quarter was 52 or 53, maybe even below 52. I don't quite recall, but it was in that range.

It sounds like there's still some solid momentum there are plenty of potential.

Do you have an idea of how much the CIO could be as a percentage of total a lab.

Just over the next four or five years is there a specific goal you have in mind, the big picture there.

Richard R. Hough: So, I think given the investments we plan to make and just my general comments carrying over from last quarter about the economic environment, I think it would be prudent for us to accrue at a higher rate, on a steady state basis for the business without without significant new investments. We would target and do target that 55% cash compensation ratio. So we haven't changed the business model, or what we're looking to do. It's really more about being realistic about where we are with the markets. I hope that's not too long-winded, but I think that deserves a very thorough explanation. No, that's very helpful.

I mean, my specific goal is for that to be a few to several billion I know, that's a bit of a range but.

I can see is crossing well over $2 billion. This year, if things go well just the pipeline alone is 585 million up a $400 million last quarter.

And it's always been my goal for it to be in that range. When we're talking about total assets to use do you use that metric you just gave a 33 billion.

Then the total.

Within a reasonable period of time could well be you know 50.

15% of total a wet in terms of discretionary AUM, which is down.

Richard R. Hough: I appreciate that. And just switching gears for a second, I appreciate the color of the OCIO pipeline. Sounds like there's still some solid momentum there, plenty of potential. Do you have an idea of how much OCIO could be as a percentage of total AUM just over the next, you know, four or five years? Is there a specific goal you have in mind in the big picture there? Yeah.

At.

28.

Let's see but what is it.

Where are we at sorry, I lost my my data here it anyway. It would be it would be a higher share of that you know, let's call it 20% or something like that.

But that that'll take a.

A couple of few years to get to $21 9 billion, sorry eluded me so.

You know if we if we can get to it.

Richard R. Hough: I mean, my specific goal is for that to be a few to several billion. I know that's a bit of a range, but I could see us crossing, you know, well over two billion this year if things go well. Just the pipeline alone is 585 million, up from 400 million last quarter. And it's always been my goal for it to be in that range. When we're talking about total assets, to use the metric you just gave of 33 billion, then the total within a reasonable period of time could well be, you know, 15% of total AUM. In terms of discretionary AUM, which is down, Let's see, where is it?

If we can increase as I expect to let's.

Let's say double that over the next two years or so you know that's going to be a meaningful part of our a lab when one important part about <unk> is that there were a lot of consultants.

And players that are virtually giving the business away, we don't view it as an economic model and we're being very selective about the institutions, we work with who want a partner who wants to spoke solutions, who want discretionary management and so in doing that we're maintaining reasonable fee basis that looks more like our institutional business, but it also.

Means our passing on.

Really low fee based business that we don't think progressive things.

That takes a lot of effort for very little reward.

Richard R. Hough: Where are we at? Sorry, I lost my data here. At any rate, it would be a higher share of that, you know, let's call it 20% or something like that, a couple of years to get to $21.9 billion. Sorry, that eluded me. So, you know, if we can get to, if we can increase, as I expect to, let's say double it over the next two years or so, that's going to be a meaningful part of our AOM. One important part about OCIO is that there are a lot of consultants and players that are virtually giving the business away. We don't view it as an economic model, and we're being very selective about the institutions we work with who want a partner, who want bespoke solutions, who want discretionary management.

The sum total of that means that we will grow steadily but a bit more slowly. If we were just trying to win everything out there.

Understood.

One last one real quick just.

Curious in terms of M&A acquiring other asset managers have you seen pricing a shift at all there.

I've seen it shifted debt E. The there are players who sort of exited.

Temporarily it seems.

They're really aggressive acquisition that we were seeing in the past and it continues to be pretty hot.

Especially at the smaller retail end of things.

Richard R. Hough: And so in doing that, we're maintaining a reasonable fee basis that looks more like our institutional business, but it also means passing on really low-fee basis business that we don't think progresses things, that takes a lot of effort for very little reward. You know, the sum total of that means that we will grow steadily but a bit more slowly if we were just trying to win everything out there. Okay. Just one last one real quick.

The the multiples definitely have come down, but I would argue they've come down.

More in term deal and in deal terms than they have in say the nominal multiple that's put out of business because.

If you shift more to earn outs.

Or certain performance goals over a period of years.

The nominal multiple on EBITDA for the business may still look the same but in effect on a discounted ray.

Freddie Strickland: Just curious, in terms of M&A acquiring other asset managers, have you seen pricing shift at all there? I've seen it shift a bit. There are players who have sort of exited temporarily from the really aggressive acquisition that we were seeing in the past, but it continues to be pretty hot, especially at the smaller retail end of things. The multiples definitely have come down, but I would argue they've come down more in deal terms than they have in, say, the nominal multiple that's put on a business. If you shift more to earn out or certain performance goals over a period of years, the nominal multiple on EBITDA for the business may still look the same, but in effect, at a discounted rate and reality, it could well be very different.

And reality it could well be very different so if you want to use the analogy of sports contracts right that it does big top multiples are being hit if there is growth. If you win the Super Bowl or whatever it might be so in practical terms they've come down even if they've only slightly come down in terms.

The headline nominal number.

Yeah.

I think sports analogies always help so I appreciate it. Thank you for taking my question.

Welcome.

Thank you. The next question is from Chris Sakai with singular research. Please go ahead.

Freddie Strickland: So if you want to use the analogy of sports contracts, right, those big top multiples are being hit if there is growth, if you win the Super Bowl, whatever it might be. So in practical terms, they've come down even if they've only slightly come down in terms of the headline nominal number. I think sports analogies always help, so I appreciate it.

Hi, good.

Good morning.

Just I had a question on bonuses how are they calculated and what can we expect in this quarter in the new year.

So there's a mix at the firm obviously you have a lot of people who are on a discretionary.

Joichi Sakai: Thank you for taking my question. You're welcome. Thank you. The next question is from Chris Sakai with Singular Research. Please go ahead.

Compensation plans you have equity teams and investment teams that are.

Tightly related both to their their AUM revenue as well as to our performance I've mentioned before for example that our growth team in Milwaukee has had absolutely outstanding performance that increases.

Richard R. Hough: Thank you for having us. Just, I had a question on bonuses. How are they calculated, and what can we expect in this quarter and the year? So there's a mix at the firm. Obviously, you have a lot of people who are on discretionary compensation plans. You have equity teams and investment teams that are tightly related both to their AUM revenue as well as to performance. I've mentioned before, for example, that our growth team in Milwaukee has had absolutely outstanding performance.

Their compensation versus the amount of revenue that you're getting on a U M. A P.

Portfolio managers are tightly linked to AUM.

Revenue as well.

The pool overall will grow when you make new hires.

That those new hires are ahead of any <unk> or revenue growth.

Richard R. Hough: That increases their compensation versus the amount of revenue that you're getting on AUM. Our portfolio managers are tightly linked to AUM revenue as well. The pool overall will grow when you make new hires, and those new hires are ahead of any AUM or revenue growth. The real story here is investing in our partners. To maintain the business in the face of some declining revenue and a difficult environment that we've been in for some time. But what you're not seeing is an increase in the bonus pool.

The real story here is is.

Investing in our partners.

To maintain the business in.

In the face.

Some declining revenue in difficult environment that we've been in for some time.

What you're not seeing is is an increase in the bonus pool, what youre seeing is an increase in the ratio to revenue.

Bonus pools were actually down across the firm this year.

Okay. Thanks for that and can you help me understand as far as the AUM and revenues concern and it looks like you had higher a year.

Richard R. Hough: What you're seeing is an increase in the ratio to revenue, but bonus pools were actually down across the firm this year. Okay, thanks for that. And can you help me understand, as far as AUM and revenues are concerned, it looks like you had higher AUM a year ago, but about the same revenue. Is that just because of the AUM, the mix in AUM?

A year ago, but about the same revenue is that just because of the mix in a win.

If you looked at our.

A year ago, we are.

Ended with $28 9 billion in total AUM and we ended 2023 with $33 2 billion in AUM. So it's actually up as it was in discretionary so a lot of that is mix, but keep in mind. There was a significant change in the fourth quarter that really had a lot to do.

Richard R. Hough: If you looked at our AUM a year ago, we ended with $28.9 billion in total AUM, and we ended 2023 with $33.2 billion in AUM. So it's actually up as it was in discretionary. So a lot of that is mixed, but keep in mind there was a significant change in the fourth quarter that really had a lot to do with increasing that AUM. We have not; we don't bill in arrears. We don't bill in the stub period until the money comes in.

Do with increasing that AUM, we have not we don't bill in arrears we.

We don't Bill in the stub period, the money comes in so the fourth quarter, you increase that you see in discretionary.

<unk> is really a first Q2 thousand 24 item because we built quarterly in advance four days in the year really matter to us and that's the end of each quarter.

Richard R. Hough: So the fourth quarter increase that you see in discretionary AUM is really a first Q 2024 item because we bill quarterly in advance. Four days in the year really matter to us, and that's the end of each quarter. So really, our year is set by where we are as of September 30th, 2023. And as you know, there was a lot of market appreciation as well as new business for us in the fourth quarter of 2023. Okay, great. Thanks. Thank you. As a reminder, if you have a question, you may press star then 1. The next question... with Evaluate Research. Please go ahead. Hi Sandy.

So really our year is set by where we are as at September 30th 2023, and as you know there was a lot of market appreciation as well as.

New business in the fourth quarter of 2023 for us.

Okay, great. Thanks.

Okay.

Thank you as a reminder, if you have a question you May Press Star then one.

The next question comes from Sandy Mehta with evaluate research. Please go ahead, hi, Sandy.

Sandy Mehta: Yes. Good morning. In your comments, you mentioned that the overall equity markets have been broadening out a little bit in the fourth quarter, as well as Q1. The Fed is done raising rates, and now they're likely to lower rates. The financial stocks have done well in the last few months, which is a big component of value indices. So can you talk a little bit more about, I think you mentioned that the pipeline going forward or the marketability is probably improving? Can you talk about where you see more traction going forward in terms of marketing efforts going forward in this environment with a broadening market? Thank you. Yes, you're welcome, Sandy.

Yes. Good morning in your comments, you mentioned that the market. The overall equity markets had been broadening out a little bit in the fourth quarter.

And as well as Q1, the fed is done raising rates there now they're likely to lower rates.

The financial stocks have done well in the last few months, which is a big component of value indices. So can you talk a little bit more about a I think you mentioned that the pipeline going forward or the market ability.

<unk> is improving can you talk about where you see.

All right.

In terms of marketing efforts going forward in this in this environment with a broadening market do you see more traction going forward. Thank you.

Yep, you're welcome Sandy I don't necessarily see a high correlation between the broadening of the market and a more constructive environment and the pipeline opportunities I think that they're pretty loosely correlated.

Richard R. Hough: I don't necessarily see a high correlation between the broadening of the market and a more constructive environment and pipeline opportunities. I think that they're pretty loosely correlated. If market participation obviously has a big effect on revenue and what our assets look like, the general economic or macro environment as well as where people are with their events is really what drives the pipeline. In terms of the institutional pipeline, I mentioned that it was $735 million. That's really the only pipeline we measure. It's much harder to do it on the high net worth side.

But the market participation, obviously has a big effect on revenue and what our assets look like.

The general environment.

And economic or macro as well as where people are with there.

Their events is really what drives the pipeline in terms of the institutional pipeline I mentioned that it was $735 million, that's really the only pipeline we measure it's much harder to do it on the high net worth side and that's up from $650 million.

Richard R. Hough: And that's up from $650 million that I reported on in our last earnings call. We have several new searches, particularly in the small cap space, small cap growth, small cap opportunity, and small cap value. But I will say that it's a very...

That I reported on in our last earnings call. We have several new searches are particularly in the small cap space small cap growth small cap opportunity.

And it's small cap value, but I will say that it's it's a very.

Richard R. Hough: Despite that pipeline, it's a low, anemic search environment generally. We're seeing rebalancing in performance bleeds, that is a bit of a headwind. And the search for active management seems primarily focused right now on alternatives, whether that's credit or private equity. So despite the good pipeline, it's not a great search environment. We've seen it much better.

Despite that that pipeline, it's a it's a low anemic search environment generally.

We're seeing rebalancing and performance bleeds.

Where is that as a bit of a headwind and the search for active management.

Seems primarily focused right now on alternatives.

<unk>.

But whether that's credit or private equity.

So despite the good pipeline, it's it's not a great search environment, we've seen it much better we've had pipelines twice as bad.

Richard R. Hough: We've had pipelines twice as big, if not close to three times as big. So that's constructive; it's good. I'm optimistic about this year with regard to our new business initiatives. But I think it's important to keep in mind, despite the pipeline growing, it's somewhat of an anemic search environment. On the high net worth side, that's a little bit more serendipitous. It can take a month to acquire a new client, it can take years, and there's not a process associated with the high net worth business that I can measure as reliably as I can the institutional pipeline. The institutional pipeline that we report to you all is very rigorously put together. It's only when we're in the finals, semifinals, or invited searches that you can't quite do the same on the high net worth side.

If not close to three times as big So that's constructive it's good I'm optimistic about this year with regards to our new business initiatives, but I think it's important to keep in mind. Despite the pipeline growing it is somewhat of an anemic search environment.

Hmm.

On the high net worth side, that's a little bit more serendipitous. It can take a month to acquire new client and can take years.

And it's it's there's not a process associated with the high net worth business that I can measure as reliably as I can be institutional pipeline institutional pipeline that we report to you all as very rigorously.

Put together, it's only more in finals semi finals are invited searches and you can't quite do the same on the high net worth side for the high net worth side.

Richard R. Hough: For the high net worth side, we're seeing more and more activity come to us via the internet and direct phone calls. There are lots of good conversations. That's about the best color I can give you.

We're seeing more and more activity come to us via the Internet direct phone calls.

There are.

Lots of good conversations that's about the best color I can give you I feel pretty good about the high net worth business.

Richard R. Hough: I feel pretty good about the high network business this year. We also will be investing in and investigating pure business development roles for that business. Previously, we have tended to leave business development entirely up to the portfolio managers working with clients.

This year, we also will be investing and investigating a pure business development roles for that business.

Previously we have tended to lead business development entirely up to the portfolio managers are working with clients.

Richard R. Hough: But given the maturity of the firm and where we are, I think it's time for us to start focusing on pure business development roles, so we'll be looking potentially to invest in that this year, which has to do with some of my comments on personnel. You talked about the accrual rate and compensation as a percentage of revenue. Are you still overall targeting EBITDA margins on a normalized basis in the high 20s range? I think the business in a mature, steady state environment without investments should be in that range.

But given the maturity of the firm and where we are I think it's time for us to start focusing on pure business development roles. So we will be looking at.

Potentially to invest in that this year, which has to do with some of my comments on personnel.

Yeah.

And you talked about the accrual rate Oh with compensation as a percentage of revenue are you still overall targeting our.

EBITDA margin on one more.

The life business and the high Twenty's range.

I think.

The business in a mature steady.

Steady state environment without investments.

Should be in that range.

Richard R. Hough: Keep in mind as well that we're often in that range when we receive performance fees. The highest we ever hit, I think, was 32% EBITDA margin in the fourth quarter of 2021 for that year, which was a great market year. But we also had very substantial performance fees, which largely went to the bottom line. So that's in the mix.

Keep in mind as well that we're often in that range. When we receive performance fees are the highest we ever hit I think was 32% EBITDA margin.

And in the fourth quarter of 'twenty four 2021 for that year, which is a great market here, but we also had very substantial performance fees, which largely go to the bottom line. So that's that's in the mix and of course, we haven't had any of the past two years. So that also affects kind of total revenue that that affects that compensation ratio when you look at it.

Richard R. Hough: And, of course, we haven't had any in the past two years. So that also affects total revenue, which affects that compensation ratio when you look at it. The compensation ratio in terms of the EBITDA margin we target has been, as you know, 55%, which leads to that better margin. As we've discussed recently, however, we've also seen higher expenses for some of our fixed costs in this inflationary environment, which occurred at the same time as declining our flat markets, at www. SilvercrestAssetManagement.com We grew faster than those investments in part because of very constructive markets. But that's not the environment we find ourselves in.

The the the compensation ratio in terms of the EBITDA margin.

Target has been as you know, 55%, which leads to that better margin.

As we've discussed recently however, we've also seen higher.

Expenses for some of our fixed costs in this inflationary environment, which occurred at the same time as declining or flat markets.

That pressure is going to take a while to grow out of so while we target that EBITDA margin.

It won't be easy to hit near term.

I've also said that as we invest in personnel.

We could very well hit EBITDA and therefore earnings in order to propel growth and we're not afraid to do that and that's that's a possibility when we've done it in the past we grew faster than those investments in part because of very constructive markets. That's not the environment, we find ourselves in so in effect when we made those investments.

Richard R. Hough: So in effect, when we made those investments previously over the past several years, those increased costs were hidden from our investors because we were able to grow faster than the investments we were making. So that's why I'm looking at accruing at a higher rate this year. It's going to take a while to continue growing out of this.

Previously over the past several years those increased costs were hidden from our investors.

Cause we were able to grow faster than the investments we're making.

So that's why I'm looking at accruing at a higher rate. This year, it's going to take awhile to continue growing out of this as I said last quarter I need to make these investments I think it's good for the shareholders to continually grow the firm in this way and then if I were to stop I would absolutely expect both EBITDA and those margins to rise back to where they are.

Richard R. Hough: As I said last quarter, I need to make these investments. I think it's good for the shareholders to continually grow the firm in this way. And then, if I were to stop, I would absolutely expect both EBITDA and those margins to rise back to where they've been historically.

Historically.

Okay. Thank you.

Richard R. Hough: Great, thank you. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Rick Hough for any closing remarks. Great. Thank you for joining us for our fourth quarter report, as well as our 2023 results. As I mentioned, things are looking constructively better, especially with the increases we saw in the fourth quarter continuing in 2024. And many of our new business initiatives are just very active right now, which gives me some optimism for being able to continue to grow throughout this year, especially with the tailwind of constructive markets. I look forward to talking to you in the next quarter, and I appreciate you dialing in. Thanks, the conference has now ended. Thank you for attending today's presentation. You may now go to, www. SilvercrestAssetManagement.com www.silvercrest.com www.silvercrestassetmanagement.com

Yes.

Thank you. This concludes our question and answer session I would like to turn the conference back over to Rick Hough for any closing remarks.

Great. Thank you for joining us for our fourth quarter report as well as a 2023 our results.

As I mentioned.

Things are looking constructively better, especially with the increases we saw in the fourth quarter continuing in 2024.

And many of our new business initiatives are just very active right now, which gives me some optimism for <unk>.

Being able to continue to grow throughout this year, especially with the with the tailwind of constructive markets look forward to talking to you next quarter and I appreciate you dialing in thanks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Okay.

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