Q3 2024 Rithm Capital Corp Earnings Call
Speaker Change: Good day and welcome to the Wism Capital 3rd quarter 2020 for earnings conference call. All participants are in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Do ask a question, you may press star then one on your telephone keypad. The majority of questions, please press star then two. Please note, this event was being recorded. I would now like to turn the conference over to Emma Bolla, Associate General Council. Please go ahead.
Emma Bolla: Thank you and good morning everyone. I would like to thank you for joining us today for rhythm capital's third quarter 2020 for earnings calls.
Emma Bolla: Joining me today are Michael Nierenberg, Chairman CEO and President of rhythm capital, Nick Centoro, Chief Financial Officer of rhythm capital and Baron Silverstein's President of new res.
Emma Bolla: Throughout the call, we were going to reference the earnings supplement that was posted this morning to the Rhythm Capital website www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now.
Emma Bolla: I would like to point out that certain statements made today will be forward-looking statements. These statements by their nature are uncertain and made different materialy from actual results.
Emma Bolla: I encourage you to review the disclaimers in our press release and earning supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC.
Emma Bolla: In addition, we will be discussing some non-gap financial measures during today's call. Broken affiliations of these measures to the most directly comparable gap measures can be found in our earnings supplement. With that, I will turn the call over to Michael. Thanks, Emma. Good morning, everyone. It's thanks for joining us.
Michael Nierenberg: So during the quarter we had a very strong quarter across all of our business lines.
Michael Nierenberg: Before I get into the...
Michael Nierenberg: but I would call the meat of our business. I wanted to point out a couple things.
Michael Nierenberg: Before we go into the deck, first of all you'll see a value slide depicting some of the parts analysis which we put in last quarter and again we put it in this quarter. Frankly I believe our equity is very cheap when you look at peers in the business and our actual results.
Michael Nierenberg: We have the best in class lending business, a large balance sheet, and an asset management business with huge upsides.
Michael Nierenberg: Last quarter, I got a couple questions on our equity race and I just wanted to address that as well. We raised 300 million. I got asked, what are you going to do with the money? So you understand our thought process? Since 2021, we have deployed $5.8 billion.
Michael Nierenberg: We haven't raised any equity while growing our earnings by approximately 60%. I would say that's pretty impressive. We have funded our growth with our operating businesses, balance sheets, and a little bit of high yield debt.
Michael Nierenberg: As we think about risk, there are multiple wars going on, where in the middle of what could be a highly contested election, and as many of you know, we are always engaged in activity to grow our platform to Emma A. So I would say all of these.
Michael Nierenberg: Factors are good reasons why we want to have more capital. Now back to our operating companies.
Michael Nierenberg: New Reson Genesis, our lending businesses produced excellent results.
Michael Nierenberg: Genesis had a record quarter and we cannot be more thrilled with that platform. As Banks pulled back,
Michael Nierenberg: We win. In New Res, we have a portfolio of 875 billionish.
Michael Nierenberg: of mortgage servicing rights, which include both owned servicing rights and third-party servicing. These assets have been great. Our rich nation business had another very good quarter with increased volumes and profitability.
Michael Nierenberg: on the S.A. Management Science Scolter, which was acquired less than a year ago, less November.
Michael Nierenberg: Performances is extremely good across all of our verticals, including real estate, credit, and its multi-strat fund. The teams are out raising money and we're starting to see inflows across the entire platform.
Michael Nierenberg: This is past quarter to real estate group announced their first closing of their multi-billion dollar SRE fund five. We're very pleased with how well the fundraising is going despite such a challenging environment and expect that fund to be over subscribe.
Michael Nierenberg: A true testament to the team. We look forward to when you will see meaningful contributions from the sculptor franchise to the bottom line of rhythm.
Michael Nierenberg: On Great A.J.s, the Reef Week took over the Management Contract on in Q2. We have repositioned the residential assets in the company, and the floor to growing the vehicle with opportunities to invest in the commercial space.
Michael Nierenberg: We've done this before, while building new residential and fortress going back to 2013 and we'll do it again.
Michael Nierenberg: The commercial real estate business today is one of those periods where we feel current capital deployment will be hugely rewarded down the road. And being patient, searching for the right investments will reward our shareholders.
Speaker Change: One left note on A.J. Last week we announced we were changing the name from Great A.J. to Riven Property Trust, which should happen in the fourth quarter. Now I'll refer to the deck which has been posted online.
Speaker Change: So on Page 3, the way to think about the company today is effectively across all of our business lines. We manage $80 billion of assets. We have $7.8 billion of permanent capital in the public markets.
Speaker Change: and again we have a $875 billion servicing portfolio.
Speaker Change: So real scale across all of our business lines.
Speaker Change: We don't need anything today. When you look at it at the verticals that win and you think about the current market environment.
Speaker Change: So where are we going and what do we want to do here? One obviously we want to grow a UM but what matters first is performance.
Speaker Change: and when you look across the platform, all cylinders are firing.
Speaker Change: We want to expand our direct lending. So what does that mean? Obviously we have new res in Genesis which contribute meaningfully to our business. We're going to continue to look at other areas in financial services where we can expand our direct lending.
Speaker Change: on the market opportunities, we're always looking to grow, but again we want to be prudent and think about different areas where we can grow that we have real expertise around the house and that we're going to make a meaningful contribution to the bottom line of rhythm for our shareholders.
Speaker Change: We're obviously continuing to try to grow our private capital business.
Speaker Change: I mentioned during the quarter we're starting to see real inflows in the sculptor business at the rhythm level around looking at other opportunities to raise capital as well. And then again, we are we continue to look to expand into new investment verticals.
Speaker Change: for the quarter and excellent quarter. This is the 20th consecutive quarter where our earnings available for distribution was greater than common dividends paid.
Speaker Change: Book Value, up 8% since.
Speaker Change: Since 2021, a very stable quarter of a quarter, one note on that when the Fed announced earlier this year that they wanted to start cutting rates, we got very close to home, which is where we are today. You're going to see, I believe, you'll see very little book value.
Speaker Change: and volatility as we go forward.
Speaker Change: David Nierenberg currently traded 8.8% and that's as of 9.3024. And we close the quarter with roughly 2 billion of cash in liquidity.
Speaker Change: For the quarter-gat net income $97 million, 20 cents per diluted share, earning available for distribution $270 million or 54 cents per diluted share with a return in equity number of 18%.
Speaker Change: But value closed to quarter six point four billion, 1231 per common share. Today it's roughly 12.5 or something in and around that.
Speaker Change: We paid 25 cents in dividends and again 2 billion of cash in the Quity and our balance sheet. Page 5, some of the ports, I'm not going to spend it's on the time on it, have a look at it.
Speaker Change: Bottom line is we trade it in and around 10 and a half to 10, 60 or something like that. Books value today is give or take 12 and a half. If you look at the value of our ports and comparison peers, I personally have a very strong view that our equity is extremely attractive here and think they're significant upside.
Speaker Change: Page Six, this was some of the earlier comments that I referred to. When you look at our capital deployments since 2021, if you look to the left part of the page.
Speaker Change: Jan of 2021 earnings available for distribution with 34 cents.
Speaker Change: Today we're 54 cents. We've deployed $5.8 billion to capital since 21 that includes acquiring different operating platforms that included in that as sculptor. We bought a billion for consumer loans from from Goldman, we acquired Genesis Capital, we bought Caliber.
Speaker Change: We board SLS, when you think about all those transactions and you think about actually the portfolio growth and not going out to raise the ton of equity, it's a great story. Learning to be able to vote.
Speaker Change: As I look at again earnings growth roughly 60% and our cake is 14%. So I think the team should be really proud of those numbers. And again, that should dispel any of the questions about why we're raising $300 million of equity in a quarter.
Speaker Change: When we look at the next phase of growth, like I hope said earlier.
Speaker Change: We don't really need anything. We want to raise more money in our private capital business, or a balance sheet grows a little bit less as we go forward. We want to continue to put up what I would call very good results across all of our platforms.
Speaker Change: From a credit perspective, there's a lot of talk about everybody growing private credit. We're in that camp as well, and we want to grow our private credit. But just keep in mind, we've been in these businesses for 10 years. When you think about direct lending, you think about the mortgage company we both. You think about Genesis Capital, you think about Sikita.
Speaker Change: Secured Credit, Unsecured Credit, whether it be at Skolster, whether it be at rhythm, you think about real estate. We've been in these sectors for a long, long time. And now it's as creating more scale around our private capital business.
Speaker Change: on new res, we built this company quite frankly from scratch, while at Fortress.
Speaker Change: If you go back to the fortress days we built Mr. Cooper. Obviously those guys have done a great job but if you look at where we are today, I think we're at top three mortgage.
Speaker Change: Thank you, non, non, non, non, thank you, more get to originator and service in the US.
Speaker Change: large portfolio service, you know over 4 million customers, huge third party businesses we grew through our SLS acquisition.
Speaker Change: Company makes a lot of money in third quarter. If you look where we are from a production standpoint, through Q3, we're 41 billion in a regeneration, and that's higher than where we were in all of 23. Genesis Capital.
Speaker Change: for another great story. We acquired this company from...
Speaker Change: Goldman's Merchant Bank, I believe, in 22 earnings just to give you a sense when we bought the company, I think we're doing something around 50 million in EBITDA this year we should do something between.
Speaker Change: you know, diverting 90 million of Eva's production numbers are up.
Speaker Change: from $2 billion and we make close to you or something around $3.5 to $4 billion. So real good story. Most importantly here is when you look at the portfolio to the link with seed numbers or extremely low, sponsor growth is high and the return of equity. And that's how we think about all our businesses. Return of equity for our shareholders is just extremely high.
Speaker Change: Skopter
Speaker Change: But I would say in sculptor is again we go back to November of last year, close on the company I believe around November 20th.
Speaker Change: It's a great business.
Speaker Change: Great Business, has a ton of upside.
Speaker Change: Heans of doing really well. Every day it gets better. When you look at real returns for the LPs that sculptor and the leadership serve.
Speaker Change: They're great. I mean, there's just no reason why this company is not going to grow in significant scale as we go forward. There's plenty of room for us, there's plenty of room for our overall franchise. And again, it's performance first.
Speaker Change: [inaudible] That's our mantra. We want performance before we grow A, U, M. And when you look at this platform, there's nothing that disputes.
Speaker Change: and that way of thinking. On the commercial real estate business on page 11, we do some balance sheet investing at the rhythm level. We've been pretty methodical there.
Speaker Change: I do think over time that when we look at rhythm we look at great age acts.
Speaker Change: um
Speaker Change: What you're going to see is more strategic partnerships, I think, off the rhythm balance sheet. As we look forward, we do think.
Speaker Change: around the real estate business today that we're in one of those periods of time as I pointed out in my opening remarks.
Speaker Change: that current capital deployment is going to be hugely rewarded down the road as we look at the real estate business. Page 12 is talking about the macroeconomic themes, obviously when a period where who knows what's going to happen with this election. You know, when you think about it.
Speaker Change: Inflation, you think about deficits, you think about yields.
Speaker Change: I think regardless what you're going to see, you could see our higher yields in the long end. We have seen a steepening of the yield curve where the front end should be anchored here, but I think you could see higher long-term rates on the back end as deficits continue to balloon.
Speaker Change: Another common theme as it base finance. Everybody's talking about asset base finance as I pointed out we've been doing this for.
Speaker Change: and I've been in the business for it.
Speaker Change: and we've been doing this together as a group for a long, long time. So there's nothing different here. When you look at banks, banks continue to look for capital relief around either their balance sheets or some of the things that they're doing. We're very active in when I would call credit restransfer.
Speaker Change: for the credit risk transfer. We've done some large transactions with some of our large money center banks who will continue to do that as we go forward. On the consumer's side, consumers continue to remain resilient. We don't see any degradation or deterioration and consumer credit. And then I brought up on the on the real estate side from the cycle standpoint.
Speaker Change: is going to take us out and talk about new res and the mortgage company, and then I'll jump back in a little bit later in the queue.
Baron Silverstein: Baron, thank you, Michael. Good morning. I'm going to start on slide 16.
Baron: and we delivered another strong quarter in with pre-taxing come, excluding Mark to market on the own MSR portfolio over approximately $246 million, which is an increase of 8% quarter over and delivering a 24% return on equity.
Baron: Key drivers included strong performance in our Reginations platform, as we're able to remain disciplined and growing our production while also increasing margins overall and maintaining our market share.
Baron: While on the servicing side we saw continuing growth in our third party franchise, you know, coupled with our best in class operational efficiency, you know, which is also highlighted by the completion of the SLS integration, which we did three months post acquisition.
Baron: in the second quarter. And these results overall just continue to present the foundation Michael talked about that we've built over the last few years. Driven by our industry-leading service and capabilities, our robust client franchise, best in class customer experience, and our proprietary technology.
Baron: 30-5-17
Baron: and you can see there that we just remain in growth mode. In the third quarter, as Michael mentioned, New Resment, in our position as a second largest non-bank service with over 755 billion notionally UPB that we directly service.
Baron: and the fifth largest lender in the industry with a 3.4% market share. We remain well positioned to continue to take market share through organic and organic growth while maximizing performance for our shareholders.
Baron: Moving this light 18, the scale of our MSR portfolio affords a significant opportunity for portfolio recapture and customer growth through future cross-ale strategies.
Baron: and the customer retention overall is driven by market events, but also by our consumer connections, whether they're real to referrals or local sales relationships or other connectivity.
Baron: As part of our strategy, we're making significant investments in building out our brand, our digital tools to enhance our customer experience and also data science to meet our customers where and how they want to be met.
Baron: The table on the right side of the page shows our direct lending refinance recapture results, which we believe is the proper way to measure how we're performing with consumers looking to refinance.
Baron: Right, year to date, we have a 20, excuse me, sorry one second.
Baron: You're to date we have recapture rates of 55% when including second leans as a retention tool and 38% is just our overall aggregate, we pronounce recapture rates through the third quarter.
Baron: We completed the first phase of our CRM rebuild in the second quarter of 2024 and we believe there is significant room to improve our ability to retain and continue to gain traction with our customers overall.
Baron: Away from recapture in turning to slide 19.
Baron: Our Rigenation Business continued to perform well this quarter with 15.9 billion and funnid volume up 9% from last quarter.
Baron: While the market remains competitive overall, we're able to improve margins to weighted average 1.23%, which is an increased 17% quarter over quarter, while maintaining market share. But also get back to a normalized level that's seen in most of 2023.
Baron: All of our channels remain profitable and the design of our platform allows us to take advantage of market opportunities, regardless of the interest rate environment. As mentioned before, top priority and biggest opportunities are abilities to retain our customers, and that will continue to drive benefits to all of our businesses.
Baron: on slide 20.
Baron: Just connecting on our servicing business that also continues to perform really well. Our operational efficiency is highlighted through our scale and cost leadership with an industry leading cost per loan of $113. And as I mentioned, the completion of the SLS integration and our best in class digital and customer experience.
Baron: Our cell point mortgage third party client franchise remains strong with a 5% gain quarter over quarter through continued momentum gaining while it's shared with existing customers while also adding new customers.
Baron: And while our own MSR delinquencies have increased quarter or quarter, they remain at historically low levels.
Baron: and our special servicing division is fully prepared to assist and support homeowners through any challenges, whether financial issues or storms to find solutions to keep customers in their homes.
Baron: I believe our business is as best position as it ever has been and I'm looking forward to continuing tell the new restorative of Martha.
Michael Nierenberg: Thank you, and back to you, Michael. Thanks, Baron. It's a couple of slides and then we'll go to Q&A on Genesis. I mentioned...
Michael Nierenberg: 2, 3, effectively a record quarter when we look at P&L and return on equity.
Michael Nierenberg: The team does a great job there, continuing to grow that business. I would be very surprised if it doesn't get significantly scaled up here over the next couple years. Obviously, a lot of it's demand-based, but overall performance has been great there. It couldn't be happier with Clinton, his team, and the overall performance of the business.
Michael Nierenberg: On the sculptor side I mentioned earlier, the real estate team is out, they're out with a large, a multi-billion dollar fund, they close to Billion 3, be very surprised if that doesn't get over subscribed. The team...
Michael Nierenberg: Cannelly is truly best in class at what they do and it's really one of the crown jewels in our overall franchise.
Michael Nierenberg: During the quarter, closed a new CLL for $400 million. The CLL business will continue to grow for sculptor and for us as we look at this business going forward.
Michael Nierenberg: Not only here in the US, but also overseas in the UK.
Michael Nierenberg: from an overall performance standpoint I mentioned before the teams are doing a great job performance.
Michael Nierenberg: is the number one thing that matters in the obviously in the SM Management Business. We lead with performance, A-U-M is going to follow, we're starting to see more A-U-M come back on the platform. So again, really, really excited with the prospects of sculptor in the overall team. And then finally on a door, this is our single-family rental business.
Michael Nierenberg: We have 4,200 units. You know, what I would say there is cap rate, so when you look at real cap rates, no matter what.
Michael Nierenberg: where how people advertise of what it be in the built-in rent space or in the scattered lot space.
Michael Nierenberg: typical cap rates are really in what I would say the low fives.
Michael Nierenberg: When you think about rhythm or sculptor or any of our other investment platforms, we looked to seek what the best opportunity is.
Michael Nierenberg: for a overall capital.
Michael Nierenberg: So when you think about growth there, we're not just going to grow a business, if we think we could deploy capital better in another area to increase enterprise value for the overall franchise. So when it's period of time where if cap rates don't get higher or when I do, whether it's a quite a unit that's a much higher cap rate, we have to evaluate what we're doing there and I think it's...
Michael Nierenberg: The debt business is better served in a third party vehicle than it is on our balance sheet.
Michael Nierenberg: So that's it, overall, you know, things we had a very, very good quarter across all of our platforms and now we'll turn it back to the operator for Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing any keys.
Speaker Change: Fred Hennymore, any time your question has been addressed and you would like to withdraw your question, please best star, then too.
Speaker Change: The first question comes from boss George with KBW, please go ahead.
Boss George: and everyone good morning. So, Michael, you noted this some of the parts, you know, valuation potential. What year late is Scott's on potentially listing part of Ures as, you know, the way to potentially sort of realize some of that difference?
Speaker Change: You know, I think, here's what I would say. We put in the slides that talks about how much capital we've deployed since 2021 without raising equity. One of the things that gives us the ability to do that is being that.
Speaker Change: rhythm has all these holy own subs and all the capital stays in one bucket.
Speaker Change: Well, I'll say in that...
Speaker Change: You know, we have to, I mean, can't only we have to figure out a way to get our equity price to trade where it should trade.
Speaker Change: So it's probably my guess is it'll be a 25 event. It's when we take this company public.
Speaker Change: and we'll evaluate that. There's obviously other things we're thinking about in the M&A or from an M&A landscape perspective but I think it's more likely going to be a 25 event as we think about the mortgage company.
Speaker Change: Okay, great. Thanks, and then you could be getting update on the popularity of October.
Speaker Change: It's roughly 12 and a half both
Speaker Change: Don't forget to subscribe, thank you!
Speaker Change: The next question comes from Stephen Laws with Raymond James. Please go ahead.
Speaker Change: Good morning.
Speaker Change: and Baron, quick question around the residential volume. Befinance our Timothy tape. You know, we need to cross out that hat.
Speaker Change: Was that rape driven? Was it a function of the increased recapture opportunity? And kind of how do you see that trending October? Maybe if you look forward with some.
Speaker Change: Gotta gotta woke up a little bit
Speaker Change: I don't know, you kind of broke up a little bit there so just I continue to continue to work.
Speaker Change: Markets Rowley, a fair amount in the third quarter and then it's obviously given back.
Speaker Change: All of those games. We certainly saw Reap and Anciome, basically all in get closer to say 30% of overall production. I think we're going to get ourselves more to a...
Speaker Change: and I'm going to say it's a market on a normalized basis. That said, we see our direct lending channels, as we continue to basically give momentum through our recapture investments to continue to improve and increase.
Speaker Change: and then switching gears over to sculptor Michael Nierenberg, who I believe we typically get some annual performance fees that hit in view four. Can you maybe try to quantify that and maybe what type of earnings that I'm getting as far as hard to know on those performance fees?
Speaker Change: Fourth Order.
Speaker Change: I don't think I could give you forward looking for formance fees. I would say as you know in the asset management business, particularly in the scope of your business, you should see some performance fees come in the in the fourth quarter.
Speaker Change: I think when you know just going back to when we first acquired the company in November of last year, as you know in that management, you assume a certain multiple of you know, where these trade versus earnings.
Speaker Change: or D.E. and I would say that if you look at...
Speaker Change: Where we are today.
Speaker Change: from an acquisition perspective and you think about the actual multiple. It's really something I would call it the high single digits right now based on 24. And I think that number obviously gets lower as we go forward. So when you think about true value creation here,
Speaker Change: I personally believe this will be one of our better partnerships, slash investments that we've made in many, many years as this platform continues to.
Speaker Change: to grow. So you're going to see more lumpiness, I think, you know, particularly going into the fourth quarter, but that's when you're going to see the both of the yearning cities as we see monetization. And we see more A when come on the platform.
Speaker Change: Great, certainly nice to see the AUM growth in the business at 34 billion. Look forward to watching that to grow. Thanks, Michael.
Michael Nierenberg: Thanks Stephen.
Speaker Change: The next question comes from Eric Higgins with VPTIG, so you go ahead.
Eric Higgins: Hey, thanks, good morning. Maybe first off, I mean, in this scenario where rates continue rising, if you were to grow book value, because of a write up in the MSRs, do you feel like you have the flexibility to effectively take the capital from new res and repurpose it to other segments of the portfolio?
Speaker Change: Yeah, I mean it's a, you know, just goes back to those questions, everything sits in effectively one pot.
Speaker Change: and that's given us the ability to grow earnings from call it low 30s and 21 to 54 cents where we are today.
Speaker Change: So the answer is, again, Eric going back, you know, I use the sample on the single-family rental business. We don't have to be in a business to be in a business. We want to think about the best ways to deploy capital. If we don't have a resource for a rich, we would just, you know, potentially you could just turn around and sell them. It's a great cash-flowing asset that's unlovered in, you know, the way that we see it's something between a 10%
Speaker Change: So I don't see any change there. Just one other caveat there when we look at book value and where we are today from an over-a-head perspective. One of the reasons our balance sheet looks grossed up is because we're for the most part fully hedged against our entire business to take out any kind of book value volatility.
Speaker Change: Well, say in that, we reported 1231 today, we were about 12.5. So, we feel like we're in a really good shape both folks, I use the ability to redeploy capital away from the mortgage company. If in fact we want to do that, but I think it's more grow to across the entire platform.
Speaker Change: Yep, that's really helpful. Okay, so what are you?
Speaker Change: Sorry about that. What are your perspectives on the mixed messaging around consumer credit that we seem to be picking up through earnings here? I mean, some indications that consumers are a little over-laborators and struggling at the same time rates are coming down on employment as well. What's the right read through to the portfolio when we think about the servicing on one side and then the rest of the portfolio, if you will, on the other.
Speaker Change: We have, if you look at the servicing portfolio 878, I think 235 billion of that is third-party servicing, the rest is own servicing.
Speaker Change: You know, thinking back in time, we have a bunch of legacy.
Speaker Change: Anybody that ever rich at that refide in 2021 that has two and changed coupon mortgages, I think those folks are in very good shape.
Speaker Change: You might see a tad higher in dealing with these but overall it's still seems to us that the consumer is in reasonable shape. I think a good telling, you know.
Speaker Change: If you look at some of the bank earnings, I think that would probably be a good place to look. You know, when I didn't say Primado, the Supreme Auto said Rolled over a little bit here, when you look at Rolled to liquid seas, but overall our portfolio is looked like they're in pretty good shape.
Speaker Change: I think we're looking at slide six, it looks like maybe you bought some access Emma's ours in the quarter, can you talk to that purchase? Is that an investment in the new red segment or is that the investment portfolio?
Speaker Change: It's in the investment portfolio, it's something that we owned already.
Speaker Change: and there was a liquidation of an MSR fund.
Speaker Change: that actually we used to manage and we bought some of those Emma Sorcerer, the XSemmon Sorcerer.
Speaker Change: Got you. Thank you guys very much.
Speaker Change: Thanks, Eric.
Speaker Change: The next question comes from Kenneth Lee with RBC Capital Market. Please go ahead.
Kenneth Lee: Hey, good morning. Thanks for taking my question. Just one on sculptor. I wonder if you could just give us a rough sense of what the recent netflow picture has been there.
Kenneth Lee: and then as you look across the various strategies within credit, real state and multi-strategy, which areas could be the most attractive areas for potential organ growth opportunities as you look forward to them.
Speaker Change: So the growth in the platform, I think the last time we reported, I think we showed a number of roughly 32 billion of AAMS, so you could assume it's up a few billion.
Speaker Change: You know between what we're doing and what's happening in the CLO business, the real estate fund just grows at a billion three I think they're expecting another close here
Speaker Change: Shortly, the performance overall on the platform, when you look at actual real numbers, it's been excellent. So you're going to see some natural A-U-M growth as a result of the overall performance.
Speaker Change: but I think it's across all of the platforms. Obviously, you know.
Speaker Change: Every acid manager keeps talking about private credit, private credit, we'd like to scale up our private credit business.
Speaker Change: The real estate team, you know, like I said, is out with a multi-billioner fund that.
Speaker Change: It's likely to get over subscribed and I think they'll be more fun beyond that.
Speaker Change: and then you know, on the multi-strat side as well as performance is good. I see no reason why they're not going to see more flows coming back. So I think it's a crafty and a entire platform. You know, one area that you know, and I'll speak from the rhythm perspective for a second, you know, when you look at the large asset managers,
Speaker Change: There's been a huge asset growth in the insurance space.
Speaker Change: Obviously we're not there right now and we'd love to get there. It's a valuation thing and finding the right asset.
Speaker Change: to help you grow. But when you look at where we sit as an organization in our direct lending, we manufacture when you look at our funds and the things that we do, at the rhythm level, in all of our business lines, we manufacture assets.
Speaker Change: It's like, you know, we are in so-called direct lending and we want to continue to grow that in the event that real but acquire some kind of
Speaker Change: and Shurin's liability structure or something that could help us grow. I think that's really where you're going to see real growth at the overall platform. But on the closer side, it's more of the same. We've just didn't, or not, we have. But you know, you almost a year into the clothes.
Speaker Change: He gets a better every day, performance is great. I see no reason why all the verticals have at the sculptor level won't continue to grow.
Speaker Change: and just want to follow up if I may disinteress the direct landing expansion and you talked a little bit more about that. What kind of form could this expansion look like? It sounds like you already got some capabilities around it and are you talking about, for example, like middle markets, direct landing things that I made your thanks.
Speaker Change: The direct lending, like obviously we have a large mortgage company that makes a ton of money, we have the genesis business that makes a lot of money. We are under scale, I would say, in credit at the rhythm level. So when we look at direct lending and think about ways to...
Speaker Change: Partner with Scope Dur and things that we could do on the direct lending side. We are looking, we are looking hard at that space. We don't want to pay them multiple. If you think about...
Speaker Change: Realastic growth over the course of the past 20 years you've been in a cyclical, more than a cyclical, you've been in a full market where equities have gone up.
Speaker Change: credits done extremely well. But with the banks, when you think about the banks and you've heard it from all the other asset managers, with the banks pulling back in certain areas.
Speaker Change: We think there is room for us to find or grow the right platform around direct lending. So it's definitely a space where very keenly focus on it.
Speaker Change: Thank you.
Speaker Change: The next question comes from Chris Ben Love with Piper Sandler. Please go ahead.
Speaker Change: Thanks for watching!
Speaker Change: Just on operating RLEs across the business, you had 18% operating RLEs in the quarter that improved. But just curious on your expectations for sustainable operating RLEs over the intermediate to long term, as we hopefully come out of a trough mortgage environment here, is it high teams, is it low to 20 secs on if you have any thoughts there?
Speaker Change: I think on, you know, everything we do, we measure risk, you know, risk returns, you know, we're not going to shoot for the stores
Speaker Change: Unless we think we have an edge, obviously, you look at our mortgage business and you can compare it to other friends and peers out there. I think we've performed as good as anybody, right, frankly.
Speaker Change: When you look at the Rhoys, the Genesis business continues to do well. We just spoke about the recollending. You look at the portfolio of assets we have.
Speaker Change: We're going to try to put up mid-teens type returns. I don't think that's anything different than you've heard from us over the years and when you actually look at the real performance.
Speaker Change: Going back since the company was started, it's probably something in and around and mid-teens type of return in all all environments and this goes back to 13. So, and I think those are realistic numbers. Obviously it's overweight mortgage and the mortgage company is done, done it's job, but I think as we grow the asset management business and our platforms, you'll continue to see those type of numbers.
Speaker Change: Great thanks Michael appreciate that and then Michael also in your in your prepared remarks you mentioned the election. I was just wondering if you could share
Speaker Change: and you just thought that's on election implications for rhythm. We could see great moves, potential volatility, housing implications, just curious on how you're thinking about it near an intermediate term on a potential impacts of rhythm. Thank you.
Michael Nierenberg: Yeah, I think when we look at some of the messaging that's coming out of both parties, you know.
Michael Nierenberg: I mean, Kamala Harris is talking about giving people money, you know, first time homeowner's to buy things
Michael Nierenberg: to buy homes you're looking at, Kamal Harris going after.
Michael Nierenberg: and what I would call the S.A. Force space around corporate, going out and buying housing. I think what's going to end up happening and I think it would be the best outcome probably for the country. I don't care what party you're thinking about is if you have a divided government. So I think a lot of the so-called rhetoric that you have coming out of.
Michael Nierenberg: Both candidates is going to be hard for them to pass a lot of the things that are going on.
Michael Nierenberg: I think a lot of this stuff is going to be harder to pass. The biggest challenges in the year are from some of the very smart people in our business is the deficit.
Michael Nierenberg: The deficit's going to grow no matter what, the government needs to continue issues tons and tons of debt. How do we think about that from an overall rate perspective?
Michael Nierenberg: While saying that, you have to think about the uncertainties that could be created. If Trump got in and for example, you had tariffs, what does that really do to the economy? How do we think about that?
Michael Nierenberg: How do you think about...
Michael Nierenberg: The immigration policies and do start seeing wage inflation.
Michael Nierenberg: So I think the way that we're positioned now is to have an abundance of cash in the liquidity. We are extremely close to home from an overall rate perspective.
Michael Nierenberg: and that's the way we're going to run until we get some other kind of tea leaves that made rear their heads. But we're close to home, we feel good about our risk profile. I mentioned before, you know, book values up again in a quarter or a quarter obviously because of the rates so off.
Michael Nierenberg: but we are going to be extremely close to home from a duration standpoint, our financing is extremely buttoned up so we feel good about where we are.
Speaker Change: Great, thank you, Michael, and appreciate it taking my questions.
Speaker Change: Thanks.
Speaker Change: Next question comes from Jason Weaver, which don't straighten. Please go ahead.
Jason Weaver: Thanks, good morning. Hey, Michael, I think you mentioned during your prepare to remarks. It's been something like 20 quarters that you've over under your dividend on EAD.
Jason Weaver: Considering that RWE that you're throwing off right now and maybe contextualize with what's likely to happen in the next couple months and beyond that, what do you think about the level of the dividend payout here? And if that could possibly be moderated upwards.
Speaker Change: The dividend policy is driven by the other CR board. I've been pretty clear.
Speaker Change: about the dividend.
Speaker Change: based on our board discussions that we were in raising our dividend because you're just giving back the capital to redeploy it.
Speaker Change: Well, I'll say in that, you know, with hedge friends having shorts out there, you know, when I love to raise the dividend significantly and drive it, the answer is yes, but I don't, you know,
Speaker Change: Again, it's a board decision. I don't see us raising the dividend today because with the thought process, if you trade at 8 to 9 dividend yield and let's assume that our equity does right itself.
Speaker Change: Um...
Speaker Change: Effectively we could deploy the capital, if we could deploy the capital to Ben Tins, it's only going to create more earnings for shareholders and effectively it should drive the valuation of our overall enterprise significantly higher. Little frustrated obviously with where we're actually trades but...
Speaker Change: You know?
Speaker Change: I do think over time it'll write itself both as about the mortgage company.
Speaker Change: We're looking a lot of other things.
Speaker Change: While we want to manage quarter to quarter and I think we do a very good job and try to put up consistent earnings. We're in it for the long game and I see no reason why our equity shouldn't be significantly higher down the road. You look at a lot of the large SM managers, I look where they were a few years back and you look where they are now if we stay.
Speaker Change: If we stay true to our knitting and where we think we're going to go here, I think that our company has tremendous upside. So for now to give back to capital, I don't think makes sense. Again, a little frustrating, but I think it's more, you know, based on board decisions, it probably stay the course.
Speaker Change: and thank you for that color. And then maybe one for Baron. curious about how you think about the operational footprint given what could be wildly different sort of origination volume scenarios going forward. And how you can maintain that flexibility.
Baron Silverstein: When you ask about footprint, you're talking about how we manage our ops on a origination and servicing. I'm not really sure what you're at. So your originator capacity there to be able to handle additional volume or even lighter volume.
Baron Silverstein: Yeah, so I look at some absolute focus I think for the industry overall, we feel and we continue to believe that we have significant
Baron Silverstein: Headroom
Baron Silverstein: from an operational perspective. We've actually moved a fair amount.
Baron Silverstein: you know of our operations from an offshore perspective as well to give us that added flexibility. But you know from where we stand today we believe we do have significant headroom from any kind of rate environment that we will see coming in the future.
Speaker Change: Got it, okay, thank you very much.
Speaker Change: Thank you.
Speaker Change: The next question comes from Trevor Cranston with Citizens G.J.B. Please go ahead.
Trevor Cranston: Hey, thanks, good morning. I'm looking at questions that have been addressed. I guess one more on new ways.
Trevor Cranston: Can you maybe spend a minute talking about the whole sale channel? Obviously, you kind of dominated the top two players there, but you guys have had some growth over the course of 2024. It's curious to be able to talk about how you see your positioning within wholesale and the growth opportunity there. Thanks.
Speaker Change: So, you know, like you mentioned, it's dominated by, you know, really the one company and then there's a second larger one.
Speaker Change: I think there's room for a lot of players in there where we can continue to position. We've certainly positioned from an onagency perspective, which is part of our original DNA. We've also did...
Speaker Change: A pretty significant technology upgrade.
Speaker Change: and we're continue to work on our technology to basically deliver downstream to our hostel broker partners. The industry has changed, pretty significantly overall.
Speaker Change: You know, whereas brokers have grown multi-folded and they've had it a lot of...
Speaker Change: when I'll say is loan officers throughout their entire ecosystem. So we're really, you know, basically just...
Speaker Change: Coming up to looking at our technology is really going to continue to drive our growth. I would also just say Michael's been really clear about how we're putting out our capital. We remain very disciplined in wholesale to the extent that the market allows us to take advantage.
Speaker Change: of putting capital in wholesale, we'll do that.
Speaker Change: and the last couple of quarters there's been some room for us to take market share, but we're going to remain disciplined in the sector and technology for us is really going to be the way that we're going to drive.
Speaker Change: for the earnings growth. As I mentioned, we focused on wholesale a lot on our non-HNC products and to the extent that we can pick up added volume where we think it's attractive, we'll do that.
Speaker Change: Okay, that's all, we'll thank you.
Speaker Change: This concludes our question and our session.
Speaker Change: I would like to turn the conference back over to Michael Nierenberg for any closing remarks. Please go ahead. Thank you. Appreciate everybody. Appreciate all the questions everybody down in this morning. Obviously, no way to find us if you have any follow up. Have a great week. Stay safe. Speak to you next quarter. Thanks everyone.
Speaker Change: This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Music Music