Q3 2024 P10 Inc Earnings Call
Yeah.
Lit Trees: Hello, and welcome to the P. Canada third quarter 'twenty 'twenty four conference call. My name is lit trees, and I will be coordinating your call today.
Lit Trees: Currently all participants are in a listen only mode.
Lit Trees: After the speaker presentation, there will be a question and answer session.
Lit Trees: As a reminder, today's conference call is being recorded.
Speaker Change: Now hand, the call over to your host Mark Hood, EVP and Chief administrative officer Mark. Please go ahead.
Speaker Change: Thank you operator, and thank you all for joining US today on today's call. We will be joined by Luc Sarsfield, Chairman and Chief Executive Officer, and Amanda Cozenage, EVP, Chief Financial Officer, and Chief compliance Officer. Additionally, in the room with US today, It's RJ Jameson EVP head of strategy.
Speaker Change: Before we begin I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward looking statements within the meaning of the federal securities laws, including the private Securities Litigation Reform Act of 1995.
Speaker Change: Looking statements reflect management's current plans estimates and expectations and are inherently uncertain.
Speaker Change: Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and our periodic reports filed from time to time with the SEC.
Speaker Change: Forward looking statements included are made only as of the date hereof, and we undertake no obligation to update or revise any forward looking statements as a result of new information or future events, except as required by law.
Speaker Change: During the call. We will also discuss certain non-GAAP measures, which we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC I will now turn the call over to Luke.
Luke: Thank you Mark good afternoon, everyone and thank you for joining us today.
Luke: I am exceptionally pleased with our record third quarter and year to date financial results as well as the progress we've made on our five point strategic growth plan.
Luke: Before we discuss the quarter I think it is important to recognize that we recently marked our three year anniversary as an NYSE listed firm since our public debut in October of 2021, we have demonstrated that this business is durable resilient and extremely well positioned for continued growth.
Luke: Because we celebrated our three year anniversary of being a public company I also completed my first year as CEO.
The past 12 months have been foundational in so many ways and represent an inflection point for the business as we developed our strategic growth plan.
Luke: Livered and executed across each imperatives, including announcing a value creating strategic transaction.
Luke: Our team's ability to raise and deploy capital across our attractive and compelling franchises and enhanced our shareholder engagement and communication, culminating in our first Investor day. This past September.
Luke: And all the while we've generated durable alpha while expanding our product offerings and the ways, we engage with our clients.
Speaker Change: Upon joining the company in October of 2023, I thought the perspectives of our stakeholders, who I knew we'd be instrumental and propelling our business into the future.
Speaker Change: Namely our employees, our strategies, our clients and our shareholders.
Speaker Change: To do this I embarked on a listening tour.
Speaker Change: I visited each of our strategies met many 10 colleagues and engaged with Lps and public shareholders, both existing and perspective.
Speaker Change: This deep dive provided a more complete understanding of the organization along with valuable insights that confirm my core thesis that <unk> has the potential for significant profitable growth.
Speaker Change: We're listening and engaging with the team.
Speaker Change: We developed and launched our strategic growth plan last February thus.
Speaker Change: Thus unveiling our northstar to direct our actions.
Speaker Change: Yes in one year, we have made substantial progress against all of the key objectives that I will cover in detail momentarily.
Speaker Change: First I want to highlight a few key takeaways from our financial results.
Speaker Change: In the third quarter, we raised and deployed $1 4 billion and gross new fee paying AUM.
Speaker Change: With about $300 million of that amount coming from commitments that closed a quarter earlier than we expected.
Speaker Change: We delivered revenue of $74 million representing.
Speaker Change: Representing 26% year over year growth.
Speaker Change: <unk> related revenue for <unk> was $73 million.
Speaker Change: A 26% increase compared to the prior year period, and we generated approximately $35 million of fee related earnings or FRE, a 19% increase from Q3 2023. This.
Speaker Change: This represents an FRE margin of 48%.
Speaker Change: In short this performance represents record quarterly results across all of our major kpis fundraising revenue and fee related earnings.
Speaker Change: Throughout 2024, we have driven significant demand from our funds that are currently in the market and I want to take a moment to highlight some of our momentum on the fundraising front during the quarter.
Speaker Change: Our private equity solutions raised $1 1 billion.
Speaker Change: We have three large funds currently in the market RCP direct five RCP secondary five embolic or two additionally.
Speaker Change: Additionally, our private credit solutions added $220 million to fee paying assets under management, while our venture capital solutions sleeve raised $105 million in the third quarter.
Speaker Change: And while we saw brisk activity across our commingled funds. We also raised over $200 million in Sma's as.
Speaker Change: As you will recall from our Investor day, finding new ways to leverage our expertise on behalf of clients is critical to our future growth and this highlights the early progress we're making on this front.
Speaker Change: As we think about 2025 and beyond we will be focusing on additional ways for investors to interact with us outside of traditional co mingled vehicles.
Speaker Change: Through the first three quarters of 2024, we've raised and deployed $2 9 billion.
Speaker Change: Which handily beat our full year $2 5 billion guidance that we provided in February.
Our momentum is a direct result of our team's unified efforts each of our strategies has been collaborative and constructive as we execute on the strategic growth plan that I shared at the beginning of the year. We have all bought in and we know that we are better together.
Speaker Change: And now I want to offer a little more color on the progress we've made year to date.
Speaker Change: First we have now built a corporate level organizational structure that is positioned to accelerate growth with four experienced and talented leaders guiding key parts of the organization and reporting directly to me.
Speaker Change: I am proud to work alongside this exceptional team and they are already delivering results.
Speaker Change: Second we are focused on enhancing organic growth through deepening and expanding our relationships with clients. As you heard me say earlier, we have real fund raising momentum.
Speaker Change: As we continue to deepen and amplify our leading position in the middle and lower middle market, we will create momentum for our strategies as they raise capital.
Speaker Change: Further in September Cerita nurse, and Jarrod began her role as global head of client solutions.
Speaker Change: So read his appointment as a milestone for us as we now have a senior leader who is singularly focused on organic growth and we are implementing operational protocols and processes to better serve our clients.
Speaker Change: Chen has real momentum, we're a category killer in the lower middle market and Cerita is helping us accelerate that vision as we enter 2025.
Speaker Change: Third we are laying the appropriate foundation for generating inorganic growth.
Speaker Change: In September we announced our acquisition of quality funds. The first edition to our platform since 2022.
Speaker Change: Quality funds as a leading European private equity fund of funds manager based in Madrid, managing approximately $1 billion and fee paying assets under management at.
Speaker Change: It provides fund of funds direct co investing and net financing products and the European lower middle market to more than 1300 limited partners across the ultra high net worth.
Speaker Change: The office and institutional channels.
Speaker Change: The founders and their talented team have built an incredible firm with strong performance and a deep and loyal investor base.
Speaker Change: Furthermore, the firm has a strong expected growth trajectory and we are so excited to add them to our platform.
Speaker Change: This acquisition will establish a European presence and meaningfully grow <unk> investor base positioning us as a leading global multi strategy private markets firm focused on the middle and lower middle markets.
Speaker Change: As we talked about at Investor day quality sponge is extremely complimentary with RCP advisors, they share an existing relationship through a joint venture dating back to 2017.
Speaker Change: More recently the quality team has also been working with hark on NAV lending opportunities in Europe.
Speaker Change: They share our client centric culture, and dedication to serving clients with elite access constrained investment opportunities in the middle and lower middle markets.
Speaker Change: We continue to expect to close the deal in the first quarter of 2025 and thereafter, we will provide more color on what we see is a terrific opportunity for us in Europe.
Speaker Change: Fourth we are generating operational efficiencies through incentivizing collaboration and leveraging data insights.
Speaker Change: We're creating value through doubling down on focus areas that are performing eliminating ancillary processes and implementing world class systems that are set to yield tangible results.
Speaker Change: To support our strategies, we curate top tier technologies and manage vendor relationships. So our strategies can focus on generating alpha for our Lps.
Speaker Change: We're also collaborating by rolling out shared software tools and by using our buying power to generate savings in areas like employee benefits.
Speaker Change: And finally, we're enhancing our transparency and shareholder dialogue during the third quarter, we hosted our inaugural Investor day, which provided a fantastic opportunity to showcase the attractive and compelling attributes of our business.
Speaker Change: You will also recall that earlier this year and our commitment to enhance transparency, we began providing new kpis that make it easier for our public investors to compare us to peers.
Speaker Change: Last month at Investor Day, we reported client re up rates for the first time and we also introduced long term guidance in several key areas.
Speaker Change: First we intend to more than double fee paying assets under management by 2029 with the vast majority coming from organic growth.
Speaker Change: Secondly, we're focused on value, creating M&A and believe we can become the acquirer of choice in our market space.
Speaker Change: Finally, we expect core organic FRE margins, excluding M&A to expand from the mid 40% range in the near to intermediate term to near 50% in the out years.
All Investor day materials are available on Investor Relations web site, including a full replay of the event.
Speaker Change: We believe in telling the investment community our plans.
Speaker Change: And then reporting back on our progress.
Speaker Change: <unk> delivered that in my first year, and we will continue to abide by that principle moving forward.
Speaker Change: Our progress to date is only an indicator of what's to come.
Speaker Change: There are so many compelling and positively differentiated attributes of our business model and we have multiple avenues for growth both organically and inorganically.
Speaker Change: We are relentlessly focused on supporting our strategies through our one <unk> culture that we have carefully cultivated and fostered.
Speaker Change: As we head towards the end of 2024, our outlook is positive our future very bright and we continue to believe our stock repurchases are a reflection of our view that the current price represents an attractive entry point for investors.
Speaker Change: When we speak again on our fourth quarter earnings call in February we plan to share our updated strategic initiatives for 2025, along with more granular 2025 financial guidance, including the impact of the quality funds acquisition.
Speaker Change: With that I'll hand, the call over to Amanda.
Amanda Cozenage: Thank you Eric at the end of the third quarter fee paying assets under management were $24 9 billion a 10.
Amanda Cozenage: 10% increase on a year over year basis.
Speaker Change: In the quarter $1 $4 billion of fundraising and capital deployment with offset by $285 million and step downs in exploration.
Speaker Change: As anticipated most of the third quarter step downs and explorations are attributable to repayments in our private credit solutions businesses.
Speaker Change: For the full year, we expect step downs in exploration to total approximately $1 5 billion, which leaves roughly $200 million expected in Q4.
Speaker Change: Revenue in the third quarter with $74 $2 million.
Speaker Change: <unk>, 6% increase over the third quarter of 2023.
Speaker Change: Average fee rate in the third quarter was 119 basis points.
Speaker Change: It's driven by direct strategy with higher fee rate, becoming a larger part of our fee paying AUM mix as well as higher catch up to you.
And the third quarter catch up fees for $6 million, bringing the total for the year to about $20 million catch up fees are driven by the timing of fund closing and in the third quarter. The fees were primarily attributable to closings related to Bon accord, Q and RCP multi strat.
Speaker Change: Due to the timing of <unk> closing our year to date catch up have exceeded our previously stated annual guidance of $16 million and.
Speaker Change: It will be helpful for investors to think of our catch up fees and two category.
Speaker Change: Normal course catch up fees from our primary funds and more episodic catch up fees from our direct and secondary strategy, which tends to be larger in size and have longer fundraising period.
Speaker Change: For the quarter nearly all of the catch up fees from our direct and secondary strategy.
Speaker Change: And bifurcate, our catch up fees investors will see a more normalized run rate of our revenue growth.
Speaker Change: Operating expenses in the third quarter were $65 four.
Speaker Change: 4, million% to 12% increase evidenced same period a year ago. The increase was primarily driven by compensation expense placement fees and professional fees from the qualitative sense transaction and our recent debt refinancing.
Speaker Change: GAAP net income in the third quarter with $1 3 million, an increase compared to a GAAP net loss of $8 8 million in the prior year third quarter.
Speaker Change: Adjusted EBITDA in the third quarter of 2024 with $35 $3 million, an increase of 19% from the third quarter of 2023.
Speaker Change: For the quarter, our adjusted EBITDA margin was 48% our margin came in at that higher than expected due to catch up fee and product mix.
Speaker Change: We still expect margins for the year to be in the mid 40 <unk> as we continue to make key investments that we believe will deliver clear ROI.
F R in the quarter was $72 9 million.
Speaker Change: Representing a 26% annual increase in FRE with $35 1 million, representing a 19% increase.
Speaker Change: FRE margin was 48% in the third quarter.
Speaker Change: For the third quarter, adjusted net income or Eni was $38 million.
Speaker Change: <unk>, 6% increase over the third quarter of 2023.
Speaker Change: Diluted EPS was <unk> 26 cents per share an increase of 32% on a year over year basis.
Speaker Change: Cash and cash equivalents at the end of the third quarter were $61 million at quarter end, we had an outstanding term loan balance of $325 million and Nobel and found the revolver Eric.
Speaker Change: <unk> $175 million available on the revolver and an additional $125 million available on the accordion feature.
Speaker Change: And the third quarter, we repurchased 609300 shares at an average price of $10.15 per share.
Speaker Change: That brings the number of shares repurchased since the beginning of 2024 to about $5 8 billion.
Speaker Change: Presenting about $48 $7 million in aggregate value.
Speaker Change: The inception of our repurchase program in 2022, we have repurchased a total of $8 9 million shares at an average price of $8 80 per share.
Speaker Change: As of September 32024, we had approximately $13 $9 million remaining on the program.
Speaker Change: You'll note, we did not repurchase as many shares in the third quarter as we did in previous quarters.
Speaker Change: This is a reflection of having fewer days to repurchase shares as a result of our blackout imposed as we work to announce the peloton transaction.
Speaker Change: As Luc mentioned, we continue to believe our stock presents a compelling entry point for investors, who are looking for access to a diversified alternative platform focused on the lower end core middle market.
Speaker Change: We also continue to pay our quarterly dividend for class, a and class B common stock today, we declared a quarterly cash dividend of $3.05 per share payable on December 22024.
Speaker Change: Stockholders of record as of the close of business on November 29 2024.
Speaker Change: Finally as of September 32020 for our class a shares outstanding were 53 million 813892.
Speaker Change: Class B shares outstanding were $57 million 407903.
Speaker Change: As I discussed at our Investor Day in September.
Speaker Change: <unk> business model continues to strengthen with every dollar of new capital. We deploy every new company added to our database and every new fund launches our FRE centric financial model creates investor alignment by leaving the majority of carried interest with our investment team.
Speaker Change: Furthering investment performance and leading to solid fee paying AUM growth.
Speaker Change: I am thrilled with our third quarter results and our progress year to date.
Speaker Change: Thank you for your time today, we look forward to updating you on our continued progress in February as we execute against our growth initiatives.
Speaker Change: I'll now pass the call over to the operator to begin the Q&A session.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Speaker Change: Our first question comes from Kenneth Worthington with Jpmorgan you May proceed.
Speaker Change: Hi, This is Alex <unk> on for Ken Thanks for taking our questions and congratulations on the strong quarter.
Speaker Change: Wanted to double click on <unk> appreciate the comments you made around the different allocations.
Speaker Change: And what's perhaps the strategies are driving this higher pace.
Speaker Change: 24 is also helpful for us to visualize that I believe you previously guided to 105 is sort of a steady state now we've been above that ex retro fees for two quarters in a row, which I think makes us wonder how high do you think that theories can get in the future.
Speaker Change: How does the asset raising mix expected to change over time.
Okay.
Speaker Change: Thank you Alex the vast majority of <unk> P. M. Today comes from traditional traditional commingled funds.
Speaker Change: Our fee rates within our primary strategies have also remained stable over the last several years.
Speaker Change: And that's due to our fun often being oversubscribed.
Speaker Change: Also giving our investors access to the attractive middle market lower middle market sectors, and strong investment returns over decades.
Speaker Change: I think as we.
Speaker Change: Additional guidance for.
Speaker Change: For 2025 will be able to comment a bit more on our on our average fee rate growth.
Speaker Change: But really it comes from.
Speaker Change: And next our traditional commingled funds and SMA relationships as we continue to build this out.
Speaker Change: Great Thanks into SaaS another one.
Speaker Change: Fundraising, obviously really strong quarter, even if you are considering the pull forward from Q4 to what extent.
Speaker Change: Reviewed any of that system. The initiatives that were laid out on Investor day cross selling things of that nature or having more dedicated folks is it still early for those items to be the driver here.
Speaker Change: Or was there an impact in <unk>.
Speaker Change: Any anecdotes that you can provide for us thanks again.
Speaker Change: Thanks, Alex look I'd love to tell you that it was all due to all the strategic initiatives, we are driving but I think we have to be honest.
Speaker Change: Clients, particularly clients, we're engaging with them and we're trying to build and deepen and broaden relationships those can take quarters, if not years Anytime's right. That's just a reality of how it is.
Speaker Change: And so I think we built great infrastructure around it I think we have outstanding teams, who are already engaging in it and David day to day activities with these clients, but obviously over time, we think there is another kind of growth leg that we can push on and we obviously are very focused on continuing to build that out and so we will do that.
Speaker Change: This success that we saw in this quarter is really just a testament to a few things one is the.
Speaker Change: The compelling nature of our investment strategies and the outstanding Alpha that we have generated for clients to the depth of the client relationships that we have and the appeal, but I think our product offering has in the current market, which is really really appealing and then I would point out one other thing as I mentioned, we are really focused on finding ways.
Speaker Change: Outside of traditional commingled drawdown vehicles to engage with our clients and as I noted there was about $200 million of SMA.
Speaker Change: Assets in there, which obviously still a small number in the Grand scheme of things.
Speaker Change: <unk> is a really kind of compelling sign of things, we can do with clients to engage with them in ways beyond traditional drawdown commingled funds and so that's something we're super excited about we see real promise for and like our cross selling initiatives like many of our other initiatives to deepen and broaden our client base.
Speaker Change: <unk> design and development is another important attribute of how we see ourselves growing.
Speaker Change: That asset base that we have here at <unk>.
Speaker Change: I appreciate the answers. Thank you so much.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ben Rubin with UBS you May proceed.
Speaker Change: Hi, guys. Thanks for taking my questions.
First one is on the FRE margin.
Speaker Change: Just reiterated your guidance for the mid 40% FRE margin for this year, but with year to date margins around 48% I guess number one how should we think about the step down and what's driving that in the fourth quarter and then secondly.
Speaker Change: Investor Day, you guys spoke about getting back to that 50%.
Speaker Change: Margin over the long term so at a high level, how should we be thinking about the balance between expense discipline with the ongoing investments youre, making in the platform. Thank you.
Speaker Change: Thank you Ben.
Speaker Change: So the margin did come in a bit higher than expected due to the strength of our direct strategies and product mix.
Speaker Change: We still expect margins for the year to be in the mid 40 percents as we said.
Speaker Change: As we continue to make our key investments that we believe will deliver clear RLI.
Speaker Change: I've mentioned at Investor Day, we do expect margins to expand from the mid forties in the near to intermediate term to near 50% longer term.
Speaker Change: Ongoing mix shift within our existing portfolio of strategies, we have newer and faster growing businesses, such as monoclonal harp and <unk>. The popular core adjusted EBITDA margins than other parts of our business.
Speaker Change: And then another influence on our margin is our foundational human capital investment as you mentioned, which we expect to drive core growth and high ROI for investors.
Speaker Change: Yes, I'll just add a few things just to put some context on it.
Speaker Change: I think one of the other things you've heard Amanda say as part of her comments was that because of some of the catch up fees.
Speaker Change: Excess catch up fees relative to what we had guided at the beginning of the year.
Speaker Change: Those come at a very high margin and so they will have the natural <unk>.
Speaker Change: Packed a pull of margin up in a certain period of time, but obviously they are not something that some will persist for an extended period of time, but not those direct and secondary very lumpy ones that Amanda talked about and so I think they had the net effect of kind of pulling margin up obviously in a very positive way, but that's going to be a transitory effect.
Speaker Change: I want to go back to the Investor day guidance, because I think thats really the key of what we're talking about we expect margins to be in the mid Forty's ex M&A in the near to intermediate term and then we do think because of the nature of our business because of the inherent operating leverage in our model because of our product and strategy mix shift over time.
Speaker Change: That there will be some things that will accrue and that will enable us to move back closer to the 50% range, but again the guidance as we laid it out near to intermediate and remember that was five year guidance I want to be clear on that so near to intermediate term.
Speaker Change: Talking about kind of the mid Forty's margin guidance ex M&A and then we think because of the favorable dynamics, particularly operating leverage dynamics that can expand from there as you get into the out years.
That's great I appreciate the color and then just for my follow up.
Speaker Change: Mentioned, you did $6 million of buybacks last quarter, but you also flagged that youre out of the market a little bit.
Speaker Change: Some other issues, so and look as you mentioned the stock still looks compelling at these level. So I guess just kind of stepping back how should we what's the best way to think about the pace of buybacks going forward from here given the stock's still as attractive.
Speaker Change: From a buyback perspective, thank you.
Speaker Change: So great question I'd say a few things one is we think the stock continues to look incredibly compelling I think you've heard me say that I think you heard of may ever say that.
Speaker Change: Probably can't say that enough. So let me say it one more time, we think the stock is unbelievably compelling at these levels.
Speaker Change: You heard exactly kind of what it may have a set which is big.
Speaker Change: Because of the fact that we were executing on the quality transaction.
Speaker Change: During the quarter, we made we think the very sound and prudent judgment that we had to suspend some of our buyback activity.
Speaker Change: We were getting close to something that we view it as a kind of a material event and a material disclosure we have to make and obviously didn't want to be doing anything inappropriate and we were very very careful.
Speaker Change: Just to be cautious and prudent and getting a lot of great legal advice of legal input around that having said that as you know we think it continues to present, a very attractive opportunity.
Speaker Change: Just go back to.
Speaker Change: Our kind of hierarchy of capital uses use one will always be to pay the dividend rate and we continue to do that youll see us do that this quarter as we do every quarter.
Speaker Change: And then we will have kind of two I would say co equal uses one will be for share repurchase and the other will be for value enhancing M&A and we'll continue to execute on both of those and obviously over any given period of time, if we execute an M&A deal you might see a little less on share repurchase if we're not doing an M&A deal than the primary use for that quarter will be.
Speaker Change: Share repurchase and then obviously, if we have excess capital left over after embarking on those three.
Speaker Change: In the hierarchy, we would repay debt, but thats going to be the lowest priority look we are very very focused on being disciplined and prudent stewards of shareholder value and shareholder capital and we want to find ways to return that capital to reward our long standing shareholders.
Speaker Change: Got it that's very that's very clear. Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ben <unk> with Barclays. You May proceed.
Speaker Change: Alright, good evening and thanks for taking the question.
Speaker Change: I wanted to just touch on M&A I know you talked quite a bit about this but just could you remind us kind of go into the next year, you've announced a deal recently in Spain. Just curious how you see the next say three or four quarters unfolding in terms of cross sell.
Speaker Change: Talking about kind of changing how the organization will go to market. So how should we think about expectations specifically for how the new ASIC will function as part of <unk> going into next year.
Speaker Change: Well look great question.
We are have been and continue to be just unbelievably excited about quality funds about Eric and Sergio the incredible team. They built and it's funny you spent a lot of time that somebody announcing the M&A deal, but then you get the privilege of spending even more time with them. After the M&A deal as you work through integration, we're very excited about where we are.
<unk> vis vis <unk>.
Speaker Change: And I would say more time, we spend more excited we are.
Speaker Change: It is an incredible strategy. They have built an incredible team and as you heard US talk about it is just so strategically aligned with so many of our existing strategies in particular RCP longstanding relationship long standing partnership tremendous amount of respect across those organizations and mutual touch.
Speaker Change: Points across those organizations and <unk>.
Speaker Change: Now increasingly with heart.
Speaker Change: On their NAV lending strategy in Europe, the ability to kind of coordinate collaborate and work together has been extraordinary and so we're really excited about it we think they bring a lot to the table. We think there's a lot we can learn from each other we think there are.
Speaker Change: Opportunities that they will open up for some of our legacy franchises in Europe and I imagine there are concurrent opportunities that we will open up for them in the U S and so.
Speaker Change: It's really early days again reminder, we haven't closed the deal yet and won't close the deal until the first quarter.
Speaker Change: But once we get it closed and really embark on what we think is going to be a super exciting journey together.
Speaker Change: The Sky's the limit for what we can do in tandem.
Speaker Change: Got it helpful. Maybe.
Speaker Change: Maybe another question sort of thinking about next year.
Speaker Change: If you look at the market reaction to a lot of the asset manager stocks in the past couple of days clearly theres, an expectation things are about to be a lot better.
Speaker Change: Your model is always kind of been one, especially thinking about franchises like RCP, where youre in the market more frequently you are not asking for a bigger check size and so you've seen less of an impact in the past couple of years on your fund raising and so as activity picks up and.
Speaker Change: Kind of traditional private equity in Europe, it's going to get easier theoretically to raise its more capitals returned how do you see tenants willing as positioned to benefit where do you see the biggest opportunities to say upsize fund sizes to sort of increase the fundraising how do you think about that playing out over the next say 12 to 18 months.
Speaker Change: Well look it's.
Speaker Change: From your lips to God's ears on the macro environment I certainly hope that's right.
Speaker Change: If it were we'd all be excited by it.
Speaker Change: You did kind of hit on an interesting point there one of the things we've always prided ourselves on is that we think we have an all weather mix of businesses and we think we have strategies that work in virtually every market environment and frankly any market environment now, obviously, a different market environments different strategies will come to the fore and different strategies may not be so relevant but.
Speaker Change: One of the beauties of the diversified portfolio.
Speaker Change: Is that it is inherently hedged against market volatility. The other thing I would just note and of course there is can we talk a lot about this.
But there are some really attractive characteristics of our meaningful presence in the middle and lower middle market that also provides the loculation against some of this market volatility I think to your point that maybe some others have seen obviously to your point if youre in the traditional buyout business. There is a huge focus on DPI and I think theres, probably increasing enthuse.
Speaker Change: Yes.
Speaker Change: Maybe some things will break on the macro whether it's borrowing costs, whether its M&A activity that will allow for more DPI to be unleashed and I think that will be a net positive for the industry and clearly things that are positive for the industry can also be positives for us right. So.
Speaker Change: I think to your point, we see a lot of opportunity.
Speaker Change: In the traditional kind of buyout business and we think obviously through RCP and then to qualify us as well, we're really a leverage proxy to be a beneficiary of a lot of that activity also I think we're seeing some very heartening signs in the venture market environment in general.
Speaker Change: There was probably a period of time, where that market was in reset mode and now it seems to have found the basin. Some stabilization and continue to move on the forward and we think there's also some real opportunities for us. So we continue to see attractive opportunities for us across many of our credit businesses and so we're really excited about the forward. We think we've got this great diversity.
Speaker Change: Slide all weather portfolio in a protected part of the market, where we are the category killer.
Speaker Change: But obviously, a rising tide will lift all ships and we hope to be a beneficiary of that should there be a RASM guide.
Speaker Change: Understood appreciate your thoughts thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Cyprus with Morgan Stanley You May proceed.
Speaker Change: Hi, This is Stephanie filling in for Mike just wanted to double click into the SMA opportunities you have.
Speaker Change: So over $200 million this quarter, hoping you could unpack for us a bit in terms of pace versus last few quarters or maybe control various from either our superior <unk> and then just going forward how should we think about the growth trajectory of opportunities for further estimates what steps, you're taking to accelerate and capture but still seems like an early innings opportunity for you.
Speaker Change: Guys. Thanks.
Thanks, Stephanie and Great question. So you are right. This is still a very early innings opportunity for US I think we showed a slide at Investor day, where we talked a little bit about our existing.
Speaker Change: That book of business social call. It in the SMA space, which represents rough justice, 15% of our total assets at this point, so remember that the vast majority of our assets and the even faster majority of our fees are still coming from the traditional co mingled vehicles, but we see a real opportunity to engage with clients to go deeper to do more.
Speaker Change: <unk> with them.
Speaker Change: We think engaging particularly with bigger and more sophisticated clients want to do something a little bit more customized a little bit more bespoke, maybe a little bit more.
Speaker Change: Off the one that what you would get in a traditional commingled format, it's a great way to do it.
Speaker Change: I think you know this because of the nature of the dialogue, it's never going to be linear right. So it's not like we're going to do X one quarter and then one to ask the next quarter and $1 four extra following quarter. These are generally longer tailed conversations. They generally are initiated by hey, let's get to know each other a little bit.
Speaker Change: Talk about what you the client want talk about what we <unk> 10 across our strategies can do.
Speaker Change: I think increasingly there is an opportunity to do it across some of our <unk> verticals. So they may just not be kind of single affiliate conversations they may be multi strategy multi affiliate of conversations that we could have and I think thats really exciting I don't at this point is definitely want to get into the details of.
I think you can go down a rabbit hole pretty quick about what what client and what vertical.
Speaker Change: I would say stepping back our focus is on doing this and doing it more broadly I'm doing it with a broader cross section of clients.
Speaker Change: But being able to lift our eyes, and maybe do it with larger clients than we've traditionally add there are some very very exciting conversations I will tell you right now that we are having the beauty of this is I think once you managed to work something out with the client. They are very durable. They are very sticky and I think they tend to grow over time and so the initiation is.
Speaker Change: Really important and once you get it in place and working well the opportunity to grow together is massive and I think again it comes back to what we can provide that nobody else can provide and that is this differentiated access in the lower middle market and that is this differentiated ability to access specialized niche and fragmented market as an alternative.
Speaker Change: And so I think increasingly as clients are maybe getting more open to stepping out from just traditional large cap buyout traditional large cap private credit.
Speaker Change: We're really a unique and differentiated partner and we hope to capture that real estate.
Speaker Change: Got it I appreciate that color and as we think about this opportunity contributing more going forward and the implications to the mix impact of fee rate our margins that we should be considering especially if we're successful here.
Speaker Change: Well I would pull those two apart a little bit I would say on the on the.
Speaker Change: Revenue mix, I presume, which is what youre asking clearly generally.
Speaker Change: General I think but I think it is almost always true these will come at lower fee rates than the traditional co mingled business right. We showed that you could see that in our investor day slides, where the 85% of our business that was in Commingle fund format was at a higher fee rate than the 15% of our business that was in SMA format and that was why there was an even greater.
Speaker Change: Differentiation when you looked at it on a revenue basis, but what I would say is.
Speaker Change: I actually think Thats only half the story in your margin question is a really interesting part of it generally speaking.
Speaker Change: Because these are leveraging core areas of expertise that are already resident at P. 10, the incremental cost to setting up these kind of SMA is generally quite low in some cases virtually zero or at least zero and that it can be done with the existing team presumably there was some time in resourcing capability is.
Speaker Change: <unk>.
Speaker Change: It will be subsumed by that but at least in the narrow this should be very very high margin business because it leverages existing embedded in house expertise capability knowledge.
Speaker Change: Et cetera, and so I think while it will have potential.
Speaker Change: If we were to do a lot of it it would have pressure on revenue over time I could actually see a big margin contributor in the second line.
Speaker Change: Great. Thank you.
Speaker Change: Thank you I would now like to turn the call back over to Luke Sarsfield for any closing remarks.
Luke Sarsfield: Well, thank you operator, and thanks to you all for joining us today.
Luke Sarsfield: In addition to our earnings release.
Luke Sarsfield: They have seen an 8-K today announcing the departure of co founders Robert Alpert from Clark Webb from the <unk> Board of directors, we want to extend our sincere appreciation for their many contributions to the company over the last few years. We are so pleased with the board we have in place with Tracey Benford as our lead independent director and we believe.
Luke Sarsfield: <unk>, we have the proper governance and oversight in place to guide the company to higher Heights in 2025 and beyond.
Luke Sarsfield: Finally, as we made clear during our Investor day and on this call. It's an exciting time at <unk> and we are gaining momentum every day.
As I close today I would like to remind you all of the key factors that summarize how we are thinking about the opportunity in front of us first.
Luke Sarsfield: And favorable secular trends supporting the growth of private markets.
Luke Sarsfield: We're specialists with over two decades, and what we believe to be the most attractive parts of the market and that is the middle and lower middle market, our reputation our focus and our longevity producing information advantage that results an asymmetric investment opportunities.
Luke Sarsfield: Third we have significant white space as we focus on deepening and expanding our large and diverse global LP base.
Luke Sarsfield: The quality of our funds acquisition demonstrates the disciplined and process driven M&A engine, we are building.
Luke Sarsfield: And finally, our team is aligned and dedicated to collaboration across our platform, we are driving operational efficiencies and building scale and meaningful ways. Thank.
Luke Sarsfield: Thank you again for your time, we so appreciate your ongoing support and we all look very much forward to speaking with you again in February.
Luke Sarsfield: Okay.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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