Q3 2024 GCM Grosvenor Inc Earnings Call
Speaker Change: Good day and welcome to the GCM Grosvenor 3rd Quarter 2024 Results Webcast.
Speaker Change: Later, we will conduct a question and answer session, and if you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call and press star 1 on your keypad to join the queue.
Speaker Change: If anyone should require operator assistance, please press star and then the key zero on your telephone.
Speaker Change: As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Selinger, Head of Investor Relations. You may begin.
Stacie Selinger: Thank you. Good morning and welcome to GCM Grosvenor's third quarter 2024 earnings call. Today I am joined by GCM Grosvenor's Chairman and Chief Executive Officer Michael Sacks, President John Levin, and Chief Financial Officer Pam Bentley.
Stacie Selinger: Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance, and projections.
Stacie Selinger: These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call.
Stacie Selinger: Please refer to the factors in the risk factors section of our 10-K, our other filings with the Securities and Exchange Commission, and our earnings release, all of which are available on the public shareholders section of our website.
Stacie Selinger: We'll also refer to non-gap measures that we view as important in assessing the performance of our business. A reconciliation of non-gap metrics to the nearest gap metric can be found in our earnings presentation and earnings supplement, both of which are available on our website.
Speaker Change: Our goal is to continually improve how we communicate with and engage with our shareholders and in that spirit we look forward to your feedback Thank you again for joining us and with that I'll turn the call over to Michael
Michael Sacks: Thanks, Stacie, and good morning, everyone. We are pleased to report another strong quarter on our way to a strong full year of growth in 2024.
Michael Sacks: On a year-to-date basis, our fee-related earnings increased 18% and adjusted net income increased 24% over the same period in 2023.
Michael Sacks: Our fee-related earnings margin was 41% for the quarter, compared to 31% at the end of 2020, and we continue to believe that we have margin expansion opportunity.
Michael Sacks: We believe that we succeed when our clients succeed. And this quarter we again delivered value to our clients.
performance across our business with solid and all investment verticals.
Michael Sacks: Absolute Return Strategies performance has been particularly strong with our multi-strategy composite generating its twelve and a half percent gross rate of return over the last twelve months.
Michael Sacks: We similarly enjoyed portfolio appreciation year over year across private equity and infrastructure strategies. Real estate valuations have largely stabilized, and the environment there is good with regard to investment opportunities.
Michael Sacks: Capital formation activity continues to improve across the business and we are seeing signs of improvement in realization activity.
Michael Sacks: We raised $1.4 billion of new capital in the quarter, bringing our year-to-date fundraising total to $4.8 billion, a 34% increase year-over-year.
Michael Sacks: We've seen tremendous growth in late-stage pipeline opportunities, which are up over 70% today from a year ago, with every investment strategy showing real pipeline growth.
Michael Sacks: We continue to expect fundraising in the second half of the year to exceed the 3.4 billion dollars we raised in the first half of the year and we see strong fundraising momentum heading into 2025.
Michael Sacks: The composition of our recent fundraising highlights the key business drivers that we've discussed on recent calls.
Michael Sacks: The shift to private markets, the shift to direct-oriented investment strategies, the power of our separate account model, and the particularly strong tailwinds behind infrastructure and private credit.
Michael Sacks: Over the last three years, 89% of the $20 billion of capital we have raised was for private market strategies, and near 50% was for direct-oriented strategies.
Michael Sacks: Today 71% of our AUM is in private market strategies and 40% in direct oriented strategies.
Michael Sacks: Both of those numbers will continue to increase based on recent fundraising trend lines.
Michael Sacks: Notably, the financial performance of our absolute return strategies has stabilized as expected.
Michael Sacks: Earlier this year, John discussed the stability and growth embedded in our separate account business.
Michael Sacks: The re-up cycle of separate accounts is a powerful foundation of our growth.
Michael Sacks: 42% of our year-to-date fundraising has been in private equity, largely driven by separate account re-ups.
Michael Sacks: Our separate accounts are programmatic in nature and are core exposures inside of our clients' portfolios.
Michael Sacks: We have a considerable REopt pipeline looking out over the next year.
Michael Sacks: Investors continue to increase allocations to infrastructure and private credit and are well positioned to be, and we are well positioned, to be part of the solution for them. You may have seen analyst reports about a sell side event we hosted last quarter spotlighting the competitive advantages of our infrastructure platform.
Michael Sacks: We are experienced. We are global. Our track record is good. We can implement all different types of investments and our sourcing engine is powerful.
Michael Sacks: These differentiators have led to success with our infrastructure AUM doubling over the last four years. We see further growth in the future.
Michael Sacks: In the case of private credit, we are positioned to provide holistic solutions for client portfolios. That includes serving as a single point of entry for the entirety of a client's private credit allocation and providing complementary credit co-investment and secondaries exposures.
Michael Sacks: Investors continue to grow and evolve their private credit allocations so the growth potential to scale with them is significant.
Michael Sacks: Credit was our fastest growing vertical by AUM over the last year and we expect continued momentum there.
Michael Sacks: We remain confident in our five-year growth target of doubling 2023 fee-related earnings by 2028, and this year's anticipated growth puts us on pace to achieve that goal.
Speaker Change: At the same time, we see significant latent earnings power in our incentive fee opportunity, which will benefit growth and adjusted net income to an even greater degree. And with that, I'll turn it over to John.
Thank you, Michael.
John Levin: The Individual Investor Channel, for good reason, is quite topical in our industry these days, and we have a lot going on in this area at GCM.
Speaker Change: So that will be the focus of my comments today. Individual investors account for roughly half of the total global AUM, so approximately $150 trillion. And this AUM is significantly under-allocated to alternatives.
Speaker Change: Even if individual investors just get to a 15% allocation, which is around half of a typical institutional target, that's still trillions of dollars, so the opportunity is massive.
Speaker Change: The individual investor channel is not a singular homogenous group. It's a broad spectrum of individuals in terms of asset and accreditation levels who are reached through a broad spectrum of distribution channels.
Speaker Change: Success requires a sophisticated and multifaceted approach to delivering solutions to these individuals.
Speaker Change: For the past several years, we've focused on strengthening our presence on wire house distribution platforms.
Speaker Change: We've raised capital via a range of vehicles, including registered funds, qualified purchaser specialized funds, and custom solutions for single individual investors, as well as for advisors who may use a single tailored solution for multiple clients.
Speaker Change: We've raised capital in the U.S., Europe, and Australia across absolute return strategies as well as private market strategies.
Speaker Change: We've raised over $3 billion of capital since 2020 from individual investors, comprising nearly 10% of our fundraising over that time period.
Speaker Change: The next stage of our growth plan is centered around launching a suite of interval fund private market products for both accredited and non-accredited individual investors.
Speaker Change: that will be sold through a broader range of distribution partners, including RIAs, independent broker-dealers, and the wirehouses.
Speaker Change: Success in this market hinges on a strong investment strategy, a well-designed product, and robust distribution resources.
Speaker Change: This quarter we reached two significant milestones in our growth strategy, both centered on forming new partnerships around new registered products.
Speaker Change: First, we announce that we will serve as a core independent manager to the Axies Private Market Fund. We will be Axies' investment partner, focused on sourcing and executing a diversified portfolio of private equity co-investments and secondaries.
Speaker Change: Second, we announced a new strategic partnership with Scion Investments focused on infrastructure.
Speaker Change: Diane has a long track record of successfully raising capital from the individual investor channel and we're excited to partner with them to distribute a product to a broader audience.
Speaker Change: As you may recall from our second quarter call, we secured a $300 million anchor commitment for this effort. Such an anchor commitment is a great advantage in this market as it provides immediate scale and launch.
Speaker Change: While both of these partnerships are in their early stages, we're very excited for their potential growth over the coming years. We also look forward to continuing to expand our suite of products and distribution capabilities.
Speaker Change: We're excited to update you in the future about our achievements in this area. And with that, I'll turn the call over to Pam.
Pam Bentley: Thanks, John. We are pleased with our strong results in the third quarter, which build on the momentum we enjoyed over the first half of the year. Year-to-date fee-related earnings grew 18%, adjusted EBITDA grew 21%, and adjusted net income grew 24% over the same period in 2023.
Pam Bentley: Assets under management, we're at a record high of $80 billion as a quarter end, a 5% increase from a year ago, and fee-paying AUM also increased 5% year over year, ending the quarter at a record $64 billion.
Pam Bentley: contracted not-yet-fee-paying AUM, ended the quarter at $7.9 billion, an 11% increase from a year ago due to stronger fundraising.
Pam Bentley: As a reminder, our contracted not-yet-fee-paying AUM typically converts to fee-paying AUM over the next few years and provides a tailwind to our top-line growth.
Pam Bentley: Private markets was once again a key driver in the quarter with private market CPING AUM growing by 7% year-over-year.
Pam Bentley: Our private markets business now represents 71% of total AUM and 66% of our fee-paying AUM.
Pam Bentley: Private markets management fees grew 6% for the quarter and 8% year-to-date compared to the prior year.
Pam Bentley: For the full year 24, we expect total private markets management fee growth to be 9 to 11 percent over the prior year. Where we fall in this range will depend on the exact timing and amount of specialized fund closings in the fourth quarter.
Pam Bentley: At the beginning of the year, we spoke about our expectation that our absolute return strategies management fees would stabilize in 24, and we are on track to meet that goal.
Pam Bentley: Third quarter ARF management fees increased 2% year-over-year and consistent with our prior guidance, we expect full year 24 ARF management fees to be stable relative to last year.
Pam Bentley: Turning to our expenses, our compensation philosophy is to align and incentivize our greatest asset, our talent, through a combination of annual and long-term awards, including FRE-related compensation, incentive-related compensation, and equity awards.
Pam Bentley: We remain disciplined in managing compensation expenses and third-quarter FRE related compensation with 37 million dollars.
Pam Bentley: Stock base compensation was $4 million in the quarter and consistent with last year we expect a seasonal uptick in the fourth quarter relative to Q3.
Pam Bentley: We plan to continue to use our buyback program to manage dilution from our equity compensation awards.
Pam Bentley: Non-GAAP, General and Administrative, and other expenses were $19 million in the quarter, and due to some seasonality, were down slightly on a sequential basis. We do expect those levels to increase next quarter.
Pam Bentley: Pulling together these factors on a year-over-year basis, fee-related earnings grew a healthy 9% in the quarter and 18% year-to-date.
Speaker Change: As Michael noted, consistent with our long-term guidance, we expect to enjoy FRE growth this year, consistent with our five-year guidance to double FRE from 2023 to 2028.
Speaker Change: Turning to incentive fees, we realized $23 million in the quarter, comprised of nearly $3 million of ARS performance fees and more than $20 million of carried interest.
Speaker Change: As Michael noted, ARS investment performance has been very strong, positioning us to generate meaningful performance fees this year.
Speaker Change: As of quarter end, we had $26 million of accrued, unrealized annual performance fees, which are incremental to the $13 million of annual performance fees we've realized year-to-date.
Speaker Change: ARS performance has continued to be strong thus far in Q4.
Speaker Change: Our growth unrealized carried interest grew approximately 5% year-over-year to 816 million dollars as of quarter end.
Speaker Change: We believe our incentive fees provide significant embedded earnings potential, which we look forward to being unlocked as the capital markets strengthen and M&A activity accelerates.
Speaker Change: Our balance sheet is strong and we are maintaining a healthy quarterly dividend of $0.11 per share. There is room for future dividend growth as we enjoy positive momentum in our earnings.
Speaker Change: We also continue to repurchase shares under our Buy Back program, and year-to-date we've repurchased $33 million of stock, leaving $32 million remaining in our share purchase plan as of quarter end.
Speaker Change: To close, we have confidence in our 24 and long-term financial objectives and look forward to the opportunities ahead to deliver value to our clients and shareholders.
Speaker Change: Thank you again for joining us, and we're now happy to take your questions.
Speaker Change: Thank you, and if you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad.
Speaker Change: Our first question is coming from Crispin Love with Piper Sandler.
The End
Speaker Change: Thank you. Good morning, everyone. Just first off on fundraising, Michael, you reiterated that fundraising in the second half should be higher than the first.
Speaker Change: Just in order to do that, you're going to need the best quarter of the year with, I think, over $2 billion of fundraising. So, first, can you just speak to your confidence there, and if there is anything specific driving that, that's worth calling out, whether it's infrastructure, picking back up, continued strength, and PE, or just other areas. Thank you.
Speaker Change: Thank you. Thanks for the question. You know, we wouldn't have said that with...
Speaker Change: a quarter to go or, you know, less than a quarter to go if we weren't confident. And we included kind of what we call like the near-term pipeline, some of which includes
opportunities where you've already won, but you haven't
Speaker Change: contracting yet and gotten going and we kind of tried to give you an image of how
Significantly, that pipeline has grown from a year ago.
Speaker Change: and you know that's that's something that was particularly when you're talking about near-term pipeline you know we're tracking very closely and there are names next to numbers and that sort of thing.
And so we do have confidence that we're.
Speaker Change: that we are going to deliver on that. And that's a good solid quarter of fundraising. It certainly wouldn't be the, you know, necessarily, like, you know, the best quarter we ever had. So we think it's.
Speaker Change: You know, it's doable and we reiterated that because we do have confidence and importantly, and I think we also tried to touch on this in the prepared remarks, but.
Speaker Change: It really is, when you look at near-term pipeline, sort of verbal and in finals, like real pipeline, very near-term, high visibility, it's every strategy where that pipeline is larger than it was a year ago.
Speaker Change: every one of our strategies. So the fundraising environment has improved. This is going to be an up year from a fundraising perspective relative to last year, and we expect it will continue to improve into next year. And we are very happy about that.
Speaker Change: Thank you, Michael. I appreciate that. And then this one, that's a little bit of a longer-term question, but when you think about your revenue and FRE make-up over the intermediate terms, the next few years, can you just provide some just general thoughts here? Fee-related revenues have been about 80% or so of revenues.
Speaker Change: and what's been a tepid deal market, but with your carried interest earnings potential.
Speaker Change: and then also just following the election, which has renewed some optimism and deal activity. Would you expect that 80% share to decrease over the coming years? And I know it's difficult with time, but just curious on your general thoughts here.
Speaker Change: Well, I think a little bit that's why we talk about things the way that we do
Speaker Change: So, we want to run a management fee-centric business that has good, solid, top-line organic growth and then has some margin opportunity and we're getting, you know, very good fee-related earnings growth.
And as we've said...
Speaker Change: We have tried to make it clear that because of the unique nature of our particular carry,
Speaker Change: and kind of the history evolution of, you know, our particular carry and the kind of macro environment where transactions were depressed, we think we have sort of.
Speaker Change: very significant earnings power inside of that Cary asset. We included a couple of new...
Speaker Change: pieces of information in the earnings deck. We try to help you see that. And we think we have, you know, significant earnings power there. So we would anticipate
Speaker Change: the comment on the election, I think the one thing that we do think is
Speaker Change: highly likely as a result of the election is that transaction activity picks up and you do see more transactions and that is, you know, good for, you know,
Speaker Change: the carry line and it's good for deployment and we do think that's a a likely outcome of the election.
Thank you and I appreciate you taking my questions.
Speaker Change: Our next question is coming from Bill Katz with TD Cowan.
Speaker Change: Okay, thank you very much, and we did notice the extra disclosure, so thank you. So maybe just coming back to the algorithm to drive toward your doubling of FRE growth. It sounds like you're softening up your guidance a little bit for this year from double digits down down to a 9 to 11, depending upon timing.
Speaker Change: So that would suggest a little more margin expansion. So as you look out over the next several years...
Speaker Change: Can you unpack sort of where you think you can get to in terms of the revenue growth for FRE versus the margin? The margin looks like it improved pretty significantly quarter on quarter, including very good leverage on comp. Just trying to understand the algorithm as we look ahead to the next few years.
Thank you for tuning in. We'll see you next time.
Speaker Change: Sure, I think that What we what we want to do over that time period and obviously, you know, it'll it's not it's not linear But we we believe you can drive
Bye.
Speaker Change: and I want to put a pin for a second in the individual investor market in answering this question.
Speaker Change: But we believe that it's kind of our core business with our core competencies and capabilities now that we can drive private market management fee growth 10% or better, we believe we get compounding and keep capital and frankly if performance keeps up and ARS will at some point will actually cease to exist.
Hopefully 10% plus
Speaker Change: range over that entire period of time and it'll ebb and flow in there. We'll have some years
Speaker Change: where it's much, you know, it's higher and some years where, you know.
Speaker Change: But that's what we believe. We believe we have margins still on the FRE line. And then, as we've said in the script and already answering the first question,
Speaker Change: The carry, the incentive fee line for us has a lot of
Speaker Change: upside in it, has upside in it from the asset that exists today at NAV. And it has upside in it from all the capital that's come into the firm over the last, you know, few years that has, you know, significant carry that isn't yet.
Speaker Change: in the money, so that new slide that we included that you noted, what we were trying to show you there was how you had an asset.
Speaker Change: You collected most of the value of that asset as of a certain date.
Speaker Change: larger today than it was at that date, despite your collections.
Speaker Change: you know organic revenue growth and from continued margin and then we think the adjusted EBITDA and the adjusted net income grow faster.
Speaker Change: Okay, very good. And then maybe one for yourself, or Johnson, as you highlighted the retail opportunity set.
Speaker Change: I was wondering if you could maybe expand a little bit on, I think you mentioned a suite of services coming down the pike, I'm sort of curious if you could talk about that.
Speaker Change: and then relatedly, maybe it's already embedded in your prepared remarks, should we assume any incremental expenditures needed to drive that growth, or do you think you have the right resources allocated to that opportunity? Thank you.
Thank you.
Speaker Change: Yeah, so maybe I'll start with actually the last part of your question first, Bill, which is that embedded in all the commentary Michael made with regard to our
Speaker Change: plans for the future and our goals with respect to the doubling of FRE from 28 in 28 as compared to 23.
Speaker Change: All that contemplates in our minds, whatever spending we need to do in our business to achieve those goals, the reality of our
Speaker Change: businesses that, and it's true frankly for other businesses in the space,
Speaker Change: is you have the ability to, based on the top line dynamics.
Speaker Change: You have the ability to keep your existing pool of talent.
Speaker Change: happy on a year-over-year basis and invest in the business and still achieve operating leverage and margin expansion. And so every year we're investing in the business.
Speaker Change: for, you know, various initiatives, individual investor being one of them, but that is not something that takes us away from the financial goals that we've laid out. With regard to the broader opportunity,
Speaker Change: in individual investor. I think we laid out some more slides on that in our presentation. We commented on it obviously in the call and so I know that's all hard to digest you know right away and hopefully you'll find some of that information valuable.
Speaker Change: But the bottom line from our standpoint was to make a few points. Point one being, you know, we've raised over $3 billion of capital from the individual investor channel, roughly $3 billion since over the last several years, you know, few years.
Speaker Change: So it's a real business today. We've raised that capital for all of our different investment verticals.
We raised it globally
Speaker Change: and we raised it in a bunch of different types of forms already today, meaning we have registered fund, for example, and they have to return strategy space.
Speaker Change: We have raised it for qualified purchaser, institutional, closed-end funds capital from individual investors that are able to buy that type of product. We've actually done separate account business in the individual investor channel.
We've done that both for individual high net worth
Speaker Change: investors, but we've also actually done it for advisors or advisory firms custom solutions that they can use for multiple clients. So it's been a very active area of the business for us, but there's a lot more to do. And to your specific question...
Speaker Change: what we highlighted on today's call and really actually highlighted earlier in the quarter.
were two specific registered products.
Speaker Change: that have or in the process of have launched or in the process of launching one around private equity and and one around infrastructure and we're excited about the prospects for both of those as well. So hopefully that answer your question but happy to kind of dive into any more detail on that though.
Speaker Change: Okay, I did pick all that up. I was intrigued by the suite of products that you had mentioned, but we can follow up offline. Thank you for taking the questions.
Thank you.
Speaker Change: And again, if anyone would like to ask a question, it is star 1 on your telephone keypad.
Our next question is coming from Kim Worthington with JPP.
and Morgan.
Speaker Change: Hi, good morning. John, just wanted to continue the discussion on wealth management. How do the economics work with the partnerships compared to what they might look like if you sold directly through the wire house or RIA channel? So thinking about this on a dollar of AUM basis, because we assume that the partnerships will probably accelerate the dollar growth. And should we look at these partnerships like sub-advised relationships, so there's sort of an ongoing revenue share, or is it different?
Speaker Change: Thanks Ken. I think it's a good question and maybe I'll make a broad comment on it first and then can make some specific comments on the two particular partnerships we talked about on today's call.
Speaker Change: I think in a broader sense of things, the idea that you can distribute through partnerships and the idea that you can distribute with your own internal distribution, one, are not mutually exclusive concepts.
Speaker Change: And you've actually seen, I'm sure, a lot of the big brand name alt firms that have very, you know, successful businesses in the individual investor space pursue both of those types of options, you know, simultaneously.
Speaker Change: and I think that the comparison of like the kind of net revenue or the net margin, whether you use internal or distribution or do it through partnerships, is not like a perfect science, honestly. I think, roughly speaking, the way you can think about it, is that, you know, you're either, you have to pay for distribution no matter what you do, and you can pay for distribution through partnership, or you can pay for distribution through internal, and that the math of both of those is a good outcome when you get to scale. And I think I would argue that the difference between them is, you know, a little bit negligible, or certainly not something that someone could do scientifically to make a clear conclusion. But I think the broader point is.
Speaker Change: We're going to pursue both strategies and that's been something that's worked worked out. Well, I think the other point to those
Speaker Change: Bill's questions was we're going to be methodical on how we invest for that growth and that it still Allows us to achieve our our targets. I think specifically to the partnerships today They're actually can operate it all differently. So in one particular case
were a core independent manager, kind of like a sub-advisor.
Speaker Change: In that particular case, Ken, it's kind of just like running a separate account, almost. You're running a separate account for a pool of capital that you have a partner that is raising capital for. You're obviously supporting them in that distribution process through your technical knowledge and through your manufacturing knowledge. You can kind of think about it as similar to just running a separate account.
in one of the other cases.
Speaker Change: It's more of a, think of it as a JV, where a dollar comes in and you're sharing that dollar between the manufacturing and the distribution, and that kind of speaks a little bit to
Speaker Change: The other, you know, point I was making, which is, you know, you're effectively, quote-unquote, paying for the distribution through giving up some of the shares of the JV, but that's instead of paying your own internal distribution. And I think the math of it is still very good math from an asset management perspective, which is why you've seen others pursue.
Speaker Change: that kind of hybrid strategy. So hopefully that gets to your question, but if there's anything else on that, please follow up.
Nope, that helps a lot.
Speaker Change: And then maybe just as a follow-up, you have a handful of specialized funds in market. You had closes in the third quarter. You'll have more closed in the fourth quarter. Can you just...
Speaker Change: maybe inform us what actually had closes in 3Q and acknowledging anything.
Speaker Change: you know, expected to 4Q can slip into 1Q, depending on just sort of timing of stuff. What at least is the hope or expectation for which of the handful are more likely that closes in 4Q?
Michael Sacks: Hey Ken, it's Michael. So we're going to have closes in most of the funds in market in Q4 on our, you know, private markets sort of
Full year management fee growth rate that Pam referenced.
Michael Sacks: You know, for where we land in that is going to be directly related to Q4 closes for two of our funds, specifically Elevate and IAF.
Michael Sacks: I think, as you know, every fund that we have, successor fund that we've brought, with the exception of one fund that was, you know,
Michael Sacks: $40 million, you know, less than the prior series. Every fund that we've brought has been higher and bigger than the prior series of fund. And as I mentioned or tried to mention, you know, our pipeline for our specialized funds
Michael Sacks: in all of our strategies and for our for our separate accounts in all of our strategy is really up significantly and that's that near-term pipeline so we hope to
Michael Sacks: will help us to make those numbers that Pam talked about and then, you know, funds continue on into next year. The only fund that might not be, you know, we might have a final close for would be Elevate.
Michael Sacks: and so otherwise everything else is still rocking and rolling and we feel really we feel very good about the pipeline we feel good about our track record of growing these specialized fund franchises and and and you know that's kind of where we where we are on that
Speaker Change: Our next question is coming from Stephanie Ma with Morgan Stanley.
Stephanie Ma: Great, good morning. Just wanted to get your latest thoughts on the private credit industry outlook, particularly after the outcome of the election. If banks now have more appetite to step in again, how do you think this changes the competitive dynamics in private credit and how are you thinking about implications and positioning for your business? Thanks.
Speaker Change: maybe John I'll try to take a little bit of that and then if I you you sort of jump in if I leave something
Speaker Change: You know if I don't don't get to something, but I think that the private credit
Speaker Change: space is growing. I just, you know, the conversation, the trajectory is up and to the right.
Speaker Change: It's coming for very good reason, and the demand is coming from everywhere in terms of...
Speaker Change: you know, type of client, geography of client, channel, et cetera. And I just, we don't, we don't think that's changing. And so can growth rates, you know, move a little bit based on risk or off risk on and appetite, you know, sure, but there, that private credit.
Speaker Change: It's just going to continue to grow. We think it's a long-term, you know, the long-term trend. It's not a short-term trend that's going to, you know, stop and start. It may...
Speaker Change: accelerate a little, decelerate a little, but it's going up into the right and it's going to go for a while and we see it being a bigger and bigger and more important part of our revenue stream over time.
Michael Sacks: Yeah, that's where I was going to go Michael. I agree with that completely, which is I think there's
Speaker Change: Definitely like cyclical aspects maybe of credit, obviously like interest rates and things like that. But the secular trends for the private credit evolution are far more powerful than anything cyclical.
Speaker Change: And I think when people focus on the secular trends, a lot of times they focus on the bank pullback. And the bank pullback is certainly something that we saw begin this trend after the GFC. But I actually don't think that's the most powerful secular driver.
Speaker Change: is the demand of the capital. And we saw it happen with public equity and private equity. We've seen it obviously happen in other private markets asset classes. It's that the capital would rather invest.
Speaker Change: in a way where you don't have the same amounts of day-to-day volatility. It might be there inherently, but it's not observed, and that's a feature, not a bug, of the industry.
Speaker Change: And so I think that that shift for where the capital would rather have its money deployed in the credit markets generally is the most powerful trend, and that's a one-way train to the point Michael's making. And I think
Speaker Change: There's two areas where you're still just scratching kind of the surface, you know, we talk a lot about corporate
sponsor back direct lending when we talk about private credit.
Speaker Change: But there's an entire area of credit markets outside of that that is still in the very early stages. And then to Michael's point, on an implementation basis,
Speaker Change: getting to a place where it looks more like private equity, looks more like infrastructure, where you have co-investing, where you have secondary investing. That's going to be a huge part of the evolution and, frankly, a huge part of where, in particular for GCM Grosvenor, there's a tremendous amount of opportunity.
Speaker Change: The last thing I would just add is in terms of sort of short term and this is not about
Speaker Change: writ large is likely to pick up in part you know as a result of the election that's not going to shrink demand for private credit in the short term.
Great. Thanks for all that, Collin.
Speaker Change: Our next question is coming from Bill Katz with TD Care.
and Kevin Cowan. For more information, visit www.FEMA.gov.
particularly for carried interest.
Speaker Change: Just looking through some of your disclosures, it looks like there was a reversal.
Speaker Change: within the comp line. So your comp, I think, was around 50-51% as a payout.
Speaker Change: Yeah, I'm not, I think that that payout ratio will, you know,
the idea that we're paying out sort of,
Speaker Change: paying that we're holding half of that or we're holding 45% of that. You know, those are...
Speaker Change: without like us talking to you about a change in comp philosophy I think those historic kind of ratios are perfectly you know comfortable for planning and for and for modeling. I think the reality of
You know that
Speaker Change: It will depend a little, it depends a little bit on...
How robust
You know, the revenues are, don't think. [inaudible]
Just being candid, it's perfectly linear.
And so when
for the firm and improve in direction for the firm.
Speaker Change: if and when we see the revenues grow, you know, frankly back to where we saw them a couple of years ago and in line with the very clear promise that they hold now. But in, you know, you know, so it's almost like I think as the revenues
Speaker Change: as the revenues increase, which we expect and which we've kind of tried to walk people through, I feel like we have margin opportunity in that line absent a change in compensation philosophy, which would then benefit the FRE line. And we'll, obviously, if we were ever to,
We talked about that when we would
Speaker Change: That would be a change in philosophy. But I don't think what you're seeing here is, you know, just anything other than margin moving around a little bit based on.
Speaker Change: on revenue level and trying to accrue throughout the year to where we think we're going to end up.
Speaker Change: for the year and I think we have more upside opportunity in that in that margin.
Speaker Change: As these revenues grow, which we anticipate them growing at a fast rate, we have upside opportunity in that margin. Again, absent us making some announcement like some others have, which is not something we're focused on.
Thank you again.
Thank you.
Thank you. Bye.
Speaker Change: And it appears there are no further questions at this time.
I will now turn the conference back to the
Speaker Change: Thank you to the company for any additional or closing remarks.
Speaker Change: Thank you. Thank you, everyone, for joining us today and taking the time and for all of the questions. We are very happy to follow up with any additional questions, or if not, we look forward to speaking with you again next quarter. Have a great weekend.
Ladies and gentlemen, thank you for participating in today's conference.
Speaker Change: This concludes today's program. We hope everyone has a great day. You may all disconnect.
See you there.
Speaker Change: and my friends and my parents and my friends and my family and my neighbors. And we just love each other so much. I love you so much.
Speaker Change: Glad you tuned in for the Stacy and Pamela Bentley�s 2016 officer uniform video
[music]
Thank you for watching.