Q1 2025 Rithm Capital Corp Earnings Call
Good day and welcome to the Rhythm capita first quarter 'twenty 25 earnings call.
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Speaker Change: I would now like to turn the conference over to M. A polo Associate General Counsel. Please go ahead.
Okay.
Speaker Change: Thank you and good morning, everyone I would like to thank you for joining us today for rhythm Capital's first quarter 2025 earnings call. Joining me today are Michael Nierenberg, Chairman CEO and President of Rhythm capital next Santoro, Chief Financial Officer for them capsule variants Silverstein President Anthony rise throughout the call we are going to reference.
Speaker Change: The earnings supplement that was posted this morning to the rhythm capital website Www dot rhythm cap dotcom, if you've not already done. So I'd encourage you to download the presentation now I would like to point out that certain statements made today will be forward looking statements. These statements by their nature, I'm, sorry, and I may differ materially from actual results.
Speaker Change: Encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and to review the risk factors contained in our annual and quarterly reports filed with the ICC.
Speaker Change: In addition, we will be discussing some non-GAAP financial measures during today's call reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement and with that I will turn the call over to Michael Thanks, Sam and good morning, everyone and thanks for thanks for jumping on the line. This morning.
Michael: Another good quarter for the company. Despite all the all the market volatility we are seeing.
Speaker Change: Play out.
Speaker Change: All of our business lines performed extremely well and when I think about the market volatility plays well into the strengths and disciplines of our organization. Our investment teams have many years of experience and in markets. Like These you wanted to make sure. Your capital is managed by investment professionals, who know how to protect afford as well as seek opportunistic.
Speaker Change: <unk> to grow the business.
Speaker Change: As you will hear us speak about the growth of rhythm.
Speaker Change: I wanted to be clear with the number one message is our desire to earn the trust of Lp's and investors and the one thing that matters is performance performance matters first and we will never sacrifice performance in lieu of growing our platform.
Speaker Change: When I think about our business I like to say why us.
Speaker Change: And this goes back to a little bit of our comments from from last quarters earnings.
Speaker Change: Results first we must have performance to grow our business.
Speaker Change: Two we have the ability to manufacture assets through our different operating businesses, we underwrite originate and service the assets from beginning to end servicing matters. Our mortgage company is the third largest servicer of mortgages in the United States, Our asset management business continues to put up great results.
Speaker Change: And we look forward to growing our business and private funds, we are seeing inflows across all of our products and all of our funds.
Speaker Change: Sculptors real estate fund five now has commitments up to three to $3 2 billion. So far and this is the largest real estate fund and sculptors history building on their 20 year track record and opportunistic real estate investing when you look at our company from top to bottom. We have we now have funds in the following real estate.
Speaker Change: State credit.
Speaker Change: Energy infrastructure, and we have cash flow based funds such as ABF, which as you know the new old buzzword of the day this quarter, we'll be rolling out MSR funds as well as you hear about the term ABF, which many of our peers in marketing today. This is nothing new and we've been doing this our entire career where it can you.
Speaker Change: Diversified risk with teens returns and current cash flow ABF. So we're seeing huge demand for that product.
Speaker Change: So our value prop is the following results first again, our investment professionals and teams are best in class across all of our investment businesses. We have over 400 individuals in our operating business lines have approximately 7000 people.
Speaker Change: When I look at our company and how we trade in the public markets are equity is severely undervalued. We continue to work on our capital structure and look forward to unlocking shareholder value and finally, our manufacturing engine for assets differentiates us from others, we can differentiate our product offerings again from others. So now I'll refer.
Speaker Change: To the supplement which has been posted online.
Speaker Change: Starting on page three.
Speaker Change: A similar slide to what we put up again.
Speaker Change: Number three mortgage servicer in the U S number five mortgage originator in the U S little under $8 billion of permanent capital.
Speaker Change: Tween assets manage that both on the private side as well as the public side is over $80 billion of assets under management. When you look to the right side of the page our family of operating companies again, one of the largest mortgage companies in the U S. New Rez sculptor, obviously, our asset management business Genesis capital one of the largest.
Speaker Change: Our RTL lenders in in again in the U S. Nonbank RTL lenders in the U S. Rhythm property Trust was the business that we took over which we rebranded from great Ajax and now we're you know we're in a very good path with that business and then finally, a door, which is our which is our single family rental business financial.
Speaker Change: Results page for.
Speaker Change: You know again very stable very solid quarter, our earnings available for distribution and 52 cents per diluted share that represents an 8%.
Speaker Change: Year over year growth. This is the 22nd consecutive quarter, where E. D was greater than common dividends paid GAAP net income 36, 5 million or <unk> <unk> per diluted share a 2% return on equity, obviously youre going to have some mark to market volatility around the MSR business.
Speaker Change: Earnings available for distribution $275 million as I pointed out 52 cents per diluted share were 17% return on equity that business should continue our business overall should continue to do something between 15 and 20% on an annual basis book value of $6 $6 billion.
Speaker Change: At the end of the quarter, we were trading at $12 and third our I'm sorry, our book value was $12.39. When you look at where we trade I think we closed last night at 10, 40, again I firmly believe that our equity severely undervalued and we're doing a we will be taking measures to hopefully unlock that and get through value out of our business.
Speaker Change: Our common stock dividend eight 7% dividend yield 25 cents per common share and dividends paid in cash and liquidity at the end of Q1 of $1.9 billion looking at the quarter and review pretty active is what I would say on the Genesis capital side, a little under a little under $1 billion in production.
Speaker Change: 7% increase year over year that business will continue to grow for US we had 33, new sponsors in the quarter and <unk>.
Speaker Change: When Aerosmith, who runs that business does a great job for us and again, we're excited about the growth prospects. There are on the asset management side sculptor $35 billion of.
Speaker Change: Continued fundraising momentum with one 4 billion of gross inflows across our platform in both real estate and credit good performance for the first quarter and then finally, we priced this back in the first quarter, which gives us some our ability to generate more fees for shareholders and do some off balance sheet and a potential acquisition.
Speaker Change: That would be off balance sheet on the investment portfolio. We did three securitization in the first quarter totaling roughly $1 $5 billion, we did a $900 million securitization on our MSR business and we also invested roughly $1.5 billion in the quarter and non QM loans residential transition loans in both arms.
Speaker Change: <unk> and ABS.
Speaker Change: Again with the with the thought process there of that.
Speaker Change: Diversified risk with teens returns will benefit both our shareholders and L piece on the new res side again top three servicer top five originator servicing portfolio 800, roughly $850 billion that includes our third party servicing which will continue to grow obviously Cooper and rocket did.
Speaker Change: A deal in the quarter and I'm sure there'll be some questions on that first quarter funded volume a little under $12 billion and then we generate $270 million of pre tax income.
Speaker Change: Ex Mark to market is up 14% year over year.
Speaker Change: Page six you know our foundation for growth.
Speaker Change: I feel like sometimes we're beating a dead horse here, but the ABF space is what I would say alive and well us and other folks in the marketplace. This is kind of the the brand does your of the date and as I pointed out in my opening remarks. This is something we've been doing quite frankly my for my whole career.
Speaker Change: Our investment teams here have been doing it there their whole career, so I feel like we have a real good edge there.
Speaker Change: To create real value for L piece as we continue to rollout funds in that space, where are we going next stage of growth grow off balance sheet capital what does that mean grow origination businesses grow funds and put and take origination and put that in funds with with and grow our L. P base, which.
Speaker Change: Which will enable us to not grow our balance sheet and get higher valuations on our overall company expand investment verticals I mentioned rhythm property Trust, which was the old great Ajax business Rhythm acquisition Corp is our spec asset based finance when the markets now with funds energy transition infrastructure we.
Speaker Change: Currently have those funds up and going as well so and then the main theme you know what I would say as you think about growth in the asset management business. Its really do you need partnerships.
Speaker Change: The traditional way of raising capital in our opinion of just going out and raising a fund is great and we'll continue to do that but having real partnerships with with Lps, who are part of your life is something that I think is really going to be the key for us as we go forward page seven when you look at how we trade we trade roughly at 83.
Speaker Change: 3% of book value, we gotta get away from the so called book value.
Speaker Change: Metric.
Speaker Change: We should be trading and in my opinion on a multiple of earnings.
Speaker Change: And if you look at where we trade relative to two others I again, I think there is a ton of value here. So if you look at the sum of the parts and the right side of the page we have a low estimate where we think we should be of $13.69 a high estimate of roughly $23 and these numbers are not made up these are real.
Speaker Change: Number is relative to peers in the marketplace, where we think we should trade.
Speaker Change: So I would encourage you to have a look at that because again I do believe our equity severely undervalued, because we get lumped into quite frankly, but other other no disrespect with other Reits and other mortgage companies and as we continue our growth into the asset management world, we'd like to make sure that we get proper valuations and I think that's going to help us grow overall.
Speaker Change: Page eight this is a slide we put in it just shows our growth over the years since 21, $6 9 billion of capital deployed to earnings growth of 53% with a CAGR of 11%.
Speaker Change: Page nine.
Speaker Change: We wanted to put this in there because a lot of the volatility has occurred over the past few weeks.
Speaker Change: And a lot of this again plays into the strength of who we are as we think about risk and risk disciplines as well as opportunistic investing we've been doing this for a very very long time.
Speaker Change: And here is a slide talking about where spreads are you could see how high yield has blown out you could see.
Speaker Change: Different movements in car and in both gold Bitcoin and oil and then <unk>. If you look on the left side of the page in equities you could you could have a good snapshot of what's going on there. None of this is is is a surprise to anybody but we do believe wholeheartedly in the so called growth of our ABF business and that's something that again, we feel like.
Speaker Change: We have an edge and we have expertise and I'll spend a few minutes on a couple of our operating businesses and then I'll turn it over to mortgage company stuff to Darren on.
Speaker Change: The Genesis side again, very very solid quarter, if you look to the right side of the page here.
Speaker Change: 46% growth year over year from a commitment perspective, 7%.
Speaker Change: Rose from from funded volume delinquencies, which are truly the core to what you know I think to what we do here remain extremely low and a lot of that is due to our underwriting in our servicing and those teams do a great job and then when you look at sponsor growth is up 37% year over year page 12, you can just have a quick one.
Speaker Change: This is just the portfolio detail there is 58% as construction, 32% as bridge and 10% is renovation we are going to be looking to grow our multifamily presence, we think theres going to be opportunities, whether that'd be acquire companies, but we wanted to grow origination in multifamily as.
Speaker Change: As we believe that that sector.
Speaker Change: Obviously, it's got hit pretty hard no different than the single family rental space, but where we need to see is the economics makes sense relative to a number of the other strategies that we do here couple of minutes on an asset management.
Speaker Change: Sculpsure business continues to perform well during the quarter as I pointed out $1 4 billion of inflows, aged 70 was due to the real estate business that brings that to $3 two.
Speaker Change: When you look at the credit fund just last week, there was announced and announcements.
Speaker Change: On the close.
Speaker Change: $900 million in.
Speaker Change: AUM on stacks, that's the sculptor tactical credit fund a great performance there and we also closed a CLO in the quarter in Europe for $420 million business is performing extremely well returns are very good.
Speaker Change: And overall when I look at our asset management business very very excited where we're going on the rhythm property Trust. This.
Speaker Change: We're doing earnings on Monday on this business.
Speaker Change: We took this where it was really a <unk> business in the single family space turned it into an opportunistic commercial read it was losing money now it's breakeven we raised $50 million of our prep in the quarter.
Speaker Change: That business is sitting on a little under $100 million of cash we have $300 million of equity there, we're going to look to grow that and as you think about asset management. There is an asset management fee. There are one 5%.
Speaker Change: And then Theres promote all of that will lead into what we hope is going to be higher a higher FRE for asset management business and just more earnings overall and then finally for me on page 16.
Speaker Change: <unk> $230 million of specs as correlates to a target of something between probably $1 billion and 1 billion and a half I think we believe today the spec market is vastly different than it was back in 'twenty, one slash 22 from.
Speaker Change: From a value standpoint, so we're excited as we continue to look at plenty of targets in that space.
Speaker Change: With that I'll skip the investment portfolio side, and I'm going to turn it over to Barrett just going to talk about new right alright. Thank you Michael good morning, everybody.
Barrett: Starting on slide 20, and as Michael mentioned, just another great quarter as we continue to execute on our 25 strategy.
Barrett: Focused on recapture technology, or AI initiatives and growing our third party businesses.
Barrett: Q1 pretax income excluding mark to market was approximately $270 million up 14% year over year, and delivering a 19% ROE for the quarter right and with newer as being the number three ranked servicer and the number five ranked originator. These.
Barrett: These results continue to show the power of the platform.
Barrett: Turning to slide 21.
Barrett: Our performance over the last few years, demonstrating really the strong momentum we've had on both sides of the business and as we continue to take advantage of opportunities to generate these consistent returns.
Barrett: And in 25, right our focus on building a best in class platform focused on our homeowners innovation through process efficiency, and AI and market opportunities, whether organically or externally that will continue to drive our returns overall.
Barrett: Yeah.
Barrett: Moving to slide 22, our.
Barrett: Our origination business continued to also to perform well Michael mentioned 11 8 billion in funded volume and $65 million in pre tax income.
And while the MBA forecast of Q1 volumes to be flat to last year were up 9% and funded volume, 7% and lock volume and 54% of pretax income when compared to the first quarter and 24.
Barrett: However, with the expected overall lower origination volume, we saw increased competition and in turn margin compression and given these conditions. We did not chase market share remained disciplined in our pricing with a focus on our ROE.
Barrett: And at these origination levels, our multichannel strategy allows us to.
Barrett: Optimize opportunities in all market environments, and all of our channels remained profitable in the first quarter.
Barrett: Turning to slide 23, one of our top priorities and significant growth opportunities our ability to retain our customers with or without a rate rally.
Barrett: Amplifying our brand and building great digital experience is key to our success and connecting with our $3 7 million homeowners.
Barrett: Our recapture investments are focused on delivering great experiences to our homeowners, including seamless easy to close refinances fantastic White glove service for home purchases and a digital home equity offering with closing as a SaaS is three days.
Barrett: Moving to slide 24, our servicing business also performing very well $242 million of pre tax income up 7% quarter over quarter, which is driven by our servicing portfolio of $845 billion, which is $509 billion of own msr's in $254 billion of third party servicing.
Barrett: Our third party servicing franchise also continuing last year's growth by adding four new clients in the first quarter alone.
Barrett: One of our top part is the expansion of our resi AI initiatives, which continue to empower our employees with real time tools that deliver a superior customer experience. In addition to the gains from our <unk> <unk> AI technology, our focus on operational excellence process efficiency and scale continue to drive our cost leadership.
Barrett: As evidenced by our $140 cost of service that's significantly outperforms the industry.
Barrett: Turning to slide 25, you'll see our owned MSR performance, which not surprisingly is reflected of current market conditions, including higher interest rates low speeds and strong consumer performance delinquencies.
Barrett: Delinquencies and associated advanced balances also improved with 60 day delinquencies down 30 basis points to three 1%, reflecting the high quality of our overall portfolio.
Barrett: Lastly on slide 26, we have an incredible third party servicing client franchise.
Barrett: Our platform advantages allow us to deliver a differentiated value prop to our partner's success and we've been doing this a long time, we have over 100 clients right and our capabilities have enabled us to retain 98% of the customers we have done business with since 2015.
Barrett: I believe our business is the best position it has ever been we're well positioned to grow market share in our third party servicing whether through wallet share with our existing customers, adding new clients are taking advantage of ongoing servicing dislocations. So I look forward to telling the new risks new res growth story throughout 2025. Thank you.
Michael: Back to you Michael.
Michael: Thanks Barry.
Speaker Change: Why do we turn it back to the operator for some Q&A.
Michael: Okay.
Michael: We will now begin the question and answer session.
Michael: To ask a question you May press Star then one on your telephone keypad.
Michael: If you were using a speakerphone please pick up your handset before pressing the keys.
Michael: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Michael: At this time, we will pause momentarily to assemble our roster.
Bose George: The first question comes from Bose George with <unk>. Please go ahead.
Speaker Change: Hey, everyone. Good morning.
Speaker Change: First can I, let me start off with a question on the Cooper rocket transaction now given that any changes in how you see the <unk>.
Speaker Change: Opportunities are the growth at new Reds.
Speaker Change: And then the related question does that change anything in terms of potential listing or other ways you're looking to.
Speaker Change: We will show the value of new Reds are little better. Thanks.
Speaker Change: Hello.
Bose George: I'm sorry Bose.
Bose George: But I would say on the <unk> side, it's going to be business as usual.
Bose George: As we go forward.
Bose George: While saying that I do think as a result of the Cooper rocket deal there'll be an opportunity to pick up some sub servicing as a result of the sheer size of the combination of those platforms. If you look worldwide 815 I think.
Bose George: <unk> I think the combination is why does something about a trillion and a half or so.
Bose George: Yes, yes, yes.
Bose George: So.
Bose George: There'll be some stuff to do and add there. The main thing for US is how do we.
Speaker Change: And Baron Barrett I think hit the nail on the head we don't want to just buy market share for the sake of market share to get bigger.
Speaker Change: We really want to do is figure out a way to grow earnings and I think we're on the right path with the company as it relates to listing.
Speaker Change: I would say is we.
Speaker Change: When I look at how we trade and if you look at the sum of the parts page on page seven.
Speaker Change: And these are real numbers right I mean, there's there's a print Cooper Cooper rocket did this deal at two times book. So if you really looked at the right side of the page on page seven the we need to figure out a way to unlock value whether thats, taking the company public whether thats externalizing rhythm whether that adds.
Speaker Change: C Corps Theres, a number of different things that we look at daily and what I would think as we I'm hopeful that we'll have some kind of capital action by the end of 'twenty five that unlocks a lot of value here. So because I do think the the equity is extremely undervalued and we're excited to actually get it to the right place, which.
If you take the mid range of.
Speaker Change: Call. It 14 in 'twenty three there is no reason, we shouldnt be able to get to something like that.
Speaker Change: Okay, Great. That's helpful. Thanks, and then could we just get an update on book value quarter to date, just given all the volatility.
Speaker Change: It's probably I think it's in and around 12 60, so it's up a bit from from the end of Q1 is what I would say in a bear market.
Speaker Change: When you look at where we are in right right right. Now I think 10 year rate is give or take 430 to front end is in and around $3 75.
Speaker Change: Or is as close to home as we've probably been in many many years so.
Speaker Change: And I think our belief is if the economy doesn't it does slow down we should be in a really good place if it doesn't slow down we'll be in a good place as well risk discipline right now is something that I think we're very good at.
Speaker Change: Okay great.
Doug <unk>: Our next question comes from Doug <unk> with UBS. Please go ahead.
Speaker Change: Yes.
Doug <unk>: Thanks, Michael how are you thinking about potential acquisition opportunities, whether that's at the rhythm level or rhythm acquisition Corp.
Doug <unk>: The dislocation we've seen in April kind of enough to shake loose some opportunities at more attractive prices.
Doug <unk>: Yeah, what I would say.
Doug <unk>: The hope is yes, our M&A pipeline is extremely active.
Doug <unk>: And that could be whether it be in the mortgage space or in the asset management space, but I would say is valuations when you look what's happening with the with the equity market valuations overall are lower.
Doug <unk>: When you look at again, the asset management business I've been pretty vocal that I believe we are under scaled in credit and we want to and we need to get bigger in credit. So that's an area that we're very much focused on.
Doug <unk>: When I again, when I look at the asset management space now that we have in energy and infrastructure business, we're really excited about that and.
Doug <unk>: And hopefully at some point in this quarter will come out with some news on that business, but I.
Doug <unk>: I expect us to be active on the M&A front and this is not just to do deals is to figure out how we play in.
Doug <unk>: On a much broader and bigger scale, because I do think you need to be bigger to compete with some of the very best asset management firms out there. So I think long winded short answer is that we need to be we're going to be more active we are active in and we hope to get a couple of deals done here in the near future.
Doug <unk>: Got it and it was a.
Doug <unk>: Solid fund raising in the first quarter any early sense as to kind of LP appetite for continuing to invest into this volatility is there a pause how should we think about fund fundraising activity given recent volatility.
Doug <unk>:
Doug <unk>: I'd say across the platform. We are all extremely active I believe our brand is very good and resonates with folks.
Doug <unk>: As you know before.
Doug <unk>: Before we internalized here at <unk>.
Doug <unk>: <unk>.
Doug <unk>: We now know is rhythm.
Doug <unk>: All of our capital is raised in the public markets in it and it's a must that we raise our money in the private markets and again I think the key to success for us is going to be to have partnerships and relationships with Lps, who are part of our life and not just fund investors and we look forward to that as well so.
Doug <unk>: I mean, I would tell you that we're extremely fired up and really excited on the prospects of where we're going with that with our company and if we could turn where we trade like whatever five six times EBITDA.
Doug <unk>: To where we should trade, which is a double digit multiple I feel like we're going to be off to the races. So very excited.
Speaker Change: Thank you Michael.
Doug <unk>: Thanks, The next sorry.
Speaker Change: Sorry go ahead.
Speaker Change: No we're good.
Rick Hagan: Thank you. The next question comes from Rick Hagan with BTG. Please go ahead.
Rick Hagan: Hey, Thanks, good morning.
Rick Hagan: Can you guys maybe share some of the performance that you've seen develop at sculptor and where you're seeing maybe the strongest returns where you expect to maybe attract the most AUM from this point forward and even the segments within sculptor where you expect AUM to be the stickiest from this point. Thank you guys.
Rick Hagan: Thanks, Eric performance has been good.
Rick Hagan: Across the board, obviously, the credit business is doing well.
Rick Hagan: When you think about the multi strat business and you look what's happened to the equity markets are still positive on the quarter. So what I would say is.
Rick Hagan: Things are going well when you look at the real estate business I mentioned before $3 2 billion of commitments.
Speaker Change: Steve or Buck and Nick Hacker and their team have done a great job over the past 20 years, Great brand I don't quite frankly, I don't think its easy for any real estate.
For them to go out and raise $3 $2 billion.
Speaker Change: And there's really very little to no legacy assets opportunistic investing with a great track record. So we're really excited about that and it's long dated money.
Speaker Change: When you look across the so-called ABF space I do I do believe there's going to be a fair amount of capital that's going to come into.
Speaker Change: In that part of the world.
Speaker Change: And across the platforms, we have ABF funds that were working on.
Speaker Change: And then when I look at you know.
Speaker Change: The opportunity in the so-called energy and infrastructure space with our new teams that we've added here Ed at rhythm I'm excited where that business is going to go so.
Speaker Change: What I would say in general very focused on again relationships partnerships.
Speaker Change: Excuse me and where we're going with the business and I think returns overall had been very good.
Speaker Change: Great to hear and good stuff I think you mentioned rolling out third party MSR funds can you maybe share some of the fees that you expect to earn on that capital are those assets and what is the total return that investors are maybe expecting from that vehicle and finally I mean some of these are some of the Lps in that vehicle also contributing into other sources of AUR.
Speaker Change: Sculptor.
Speaker Change: What I would say on the MSR funds.
Speaker Change: Not out yet will be out with them.
Speaker Change: They'll be typically.
Speaker Change: There'll be teens returns is the way that we're viewing that business.
Speaker Change: It's an effort and an opportunity to get more stuff off balance sheet into what I would call longer dated funds I think theres a lot of demand in the marketplace for those types of funds as it relates to fees I think it's TBD right now.
Speaker Change: Yeah.
Speaker Change: Got you if I could just ask one more here I mean, it looks like almost $400 million of valuation changes for the MSR in the period, how does that maybe align with your expectations and is the is the hedging offset coming from the investment portfolio or what's the best way to.
Speaker Change: Think about how that $400 million was maybe offset with hedging.
Speaker Change: The net number I believe was about 185.
Speaker Change: Overall, and that's offset with hedges, whether we're long mortgages treasuries, we have swap receivers on.
Speaker Change: And as I pointed out earlier, we are as close to home as we've been in many many years so.
Speaker Change: The market volatility really well, it's looking at screens is not always fun I do believe that.
Speaker Change: Now we're in a very good place.
Speaker Change: No matter what direction the market goes right now.
Speaker Change: Yes. Thank you guys appreciate you.
Speaker Change: Eric.
Speaker Change: The next question comes from Jason Weaver with Jones trading. Please go ahead.
Speaker Change: Hey, good morning. Thanks for taking my question first I was wondering if you could comment broadly on any credit.
Speaker Change: Credit have been served sorry credit.
Speaker Change: Possible deterioration that you've seen within the Genesis portfolio into the first quarter.
Speaker Change: No I mean performance is.
Speaker Change: We could hear is what I would say about that business, we could chase market share and grow that business pretty significantly we've seen others do that and as a result, their delinquency numbers are up pretty significantly when.
Speaker Change: When you look at our business overall performance has been very very steady if you look at it I forget what slide.
Speaker Change: Slide it is but delinquency numbers are in and around 2% for the portfolio. So.
Speaker Change: Things are good there keep in mind. We also go to a different type of what I would say sponsor relative to others in that marketplace.
Speaker Change: Fair enough. Thank you and then as a follow up to that.
Speaker Change: Let me just comment broadly on what you think the implications are for the securitization did here given the amount of market volatility out there.
Speaker Change: There is a lot of deals getting done I mean that values right now are great I mean, if youre a buyer.
Speaker Change: You look at for example in some of the single family non QM space, where there's a lot of demand both in the on the fund side and from the money manager side AAA is with a turnover with a couple of turns of leverage we are in right now somewhere around 13% to 15% IRR. So.
Speaker Change: I think one is the markets, while theres a lot of volatility or open not everybody will like the spreads that you executed at we've actually done a I think a couple of deals here recently in this space, but in general they're open wider spreads and wider spreads create opportunity for folks with capital.
Speaker Change: And we've been doing some buying ourselves for our portfolios on a variety of what I would call ABF types type assets that includes non QM that includes <unk> that includes.
Speaker Change: We just did some home improvement loans so.
Speaker Change: We're very active right now in acquiring assets.
Speaker Change: Alright. Thank you I appreciate the time.
Speaker Change: Thank you.
Speaker Change: The next question is from Kenneth Lee with RBC capital markets. Please go ahead.
Speaker Change: Hey, Thanks for taking my question.
Speaker Change: One on the sculptor asset management side.
Speaker Change: Wondering if you could just give us a sense of overall targeted fund raising levels for this year or perhaps give us a little bit more color around the size of the previous or predecessor funds that are undergoing fundraising now thanks.
Speaker Change: You know I do.
Speaker Change: Don't know the exact number of funds that are that are in the marketplace now.
Speaker Change: What I would say there there's many and that includes both credit that includes real estate that includes ABF, both at the sculptor level and at the rhythm level right now.
Speaker Change: So.
Speaker Change: What are the targets you need to and one of the things when you think about raising capital for funds you need to be able to execute on the backend and our story and we're going to stick to that knitting is performance first so it is not just raising a fund, but it's actually how do we deploy capital and earn the trust and respect of L. P.
Speaker Change: And that capital that they're that they're allocating to us as a fiduciary so while we want to raise it.
Speaker Change: Lot of money in our funds business and have strategic partnerships, we've got to execute on the backend I'm very very confident that we could do that.
Speaker Change: But we'll be out with.
Speaker Change: We are and we'll be out with multiple funds as long as we believe that we could raise the capital to be able to deploy it.
Speaker Change: And deployed at the edge.
Speaker Change: Returns I'll give you an example going back too.
Speaker Change: When I was at fortress and we were running MSR funds at fortress, we'd raised $1 billion six for MSR funds with a specific targeted return and what.
Speaker Change: When I when we took a look at and I looked at this I said, okay, we're not going to be able to deploy the capital at those return. So I gave a $1 billion back to point is we're going to raise I believe we're going to raise a lot of money, but we want to make sure that we earn the returns that that were going out to market with so.
Speaker Change: Think some it's going to be market conditions, but youll see credit Youll see ABB ABF Youll see real estate and Youll see energy and infrastructure I think those are the main funds from us now.
Speaker Change: Got you very helpful. There.
Speaker Change: One follow up if I may just not the spec vehicle the rhythm acquisition Corp.
Speaker Change: Wondering what was the motivation behind raising it using such a vehicle where there other options that were considered and you mentioned, it's been a it's a <unk>.
Speaker Change: Slightly different market than what it was back in the early 2000 Twenty's, maybe just further expand upon that thanks.
Speaker Change: It gives us it gives us the ability one to generate asset management fees for the house. It gives us the ability to generate an off balance sheet.
Speaker Change: Vehicle.
Speaker Change: And.
Speaker Change: Quite frankly, if we get to help make shareholders more money, that's really the logic around that.
Speaker Change: I don't think its anything more complicated than that it's you have two years to deploy.
Speaker Change: To deploy the money, it's a relatively low cost option in our in our opinion and from evaluations point. If you look back to again 'twenty, one or 'twenty two when the spec market was in this silly frenzy and we looked at a ton of deals when we're at fortress and we gave we actually gave them our spec money back because there was no deal there.
Speaker Change: Any sense whatsoever, if you look at valuations today they are actually.
Speaker Change: There is some reasonable valuations on things, we're looking at and again, whether that be the either in the energy and infrastructure space or whether that be in their so called financial services space. So we're excited about being able to deploy that and create more asset management fees.
Speaker Change: And ultimately there could be something that synergistic to our business in it or it could be something that says stay in off balance sheet, a great investment for them.
Speaker Change: For that vehicle.
Speaker Change: Great. Thank you very much.
Speaker Change: The next question comes from Giuliano Bologna with Compass point. Please go ahead.
Speaker Change: Sure.
Speaker Change: Good morning, Congrats on.
Speaker Change: Another great quarter.
Speaker Change: One thing I'm curious about is when you think about the.
Speaker Change: John Watson's or concession round down, especially with some of your mortgage company.
Speaker Change: Is there any kind of yes, yes.
Speaker Change: Yes trigger event.
Joe: Joe will move you closer to.
Speaker Change: Moving forward with a partner in whether it's Joe.
Speaker Change: Externalizing manager or trying to do a partial IPO of <unk> or is there anything in there.
Speaker Change: Move that process, along or is it really just market conditions and pursue value from the different initiatives.
Speaker Change: Yeah.
Speaker Change: What I would.
Speaker Change: What's going to move it along we're moving it along I mean quite frankly like I said, it's a little bit frustrating to see how our equity trades.
Speaker Change: And the results that we continue to put up.
Speaker Change: I would also say that part of this is we want to grow the so called FRE and our asset management business that is one of the keys and Thats kind of held us back a little bit from where we are right now to be in.
Moving forward with a different capital plan.
Speaker Change: While saying that I think we're at a point, where we're hopeful something's going to happen in 'twenty five.
Speaker Change: That sounds good and then.
Speaker Change: Erosion has touched on.
Speaker Change: Roughly where youre IGT listeners I'm curious Joe.
Speaker Change: Do you have any kind of you know.
Speaker Change: Target in the near term or.
Speaker Change: And thanks to run around certain hedge ratio.
Speaker Change: So somewhat flexible where you might still be opportunistic around that.
Speaker Change: Mark.
Mark: I would say we are we are home.
We're not we're not taking a lot of what I would call duration risks.
Speaker Change: Right now.
Speaker Change: I don't believe we have an edge. The one thing I will say is we've had a steepening Iran.
Speaker Change: Which has worked extremely well where you've seen the front end rally the curves steepened out I think what 20 or 25 basis points I think in essence.
Speaker Change: Since the end of last quarter.
Speaker Change:
Speaker Change: So we're going to continue with the steepening with the belief that if the economy does slow down the fed's going to cut rates front ends will benefit and I'm not sure. The long end rates actually go down they potentially could go up because it could be inflationary so.
Speaker Change: So the way that we're viewing it is against the mortgage servicing right we have.
Speaker Change: Mortgages in kind of a long dated.
Speaker Change: Long long dated.
Speaker Change: Receivers against the MSR book.
Speaker Change: And we have virtually no shorts on against the front end. So we feel like where we're set up extremely well here.
Speaker Change: That's helpful. Maybe one last quick one on the mortgage side.
Speaker Change: Sub servicing.
Speaker Change: Mr Gruber deal.
Speaker Change: Joseph.
Speaker Change: You are seeing any opportunities in the market for large sub servicing.
Speaker Change: Okay.
Speaker Change: Yes, I would say there is a limited number of large scale such services out there.
Speaker Change: It sounds like that could spur some movement around the industry Im curious if youre seeing anything.
Speaker Change: Activity perspective out there in the market.
Speaker Change: Yes, I mean, the answer is yes. There is no question about it there continues to be a fair amount of movement.
Speaker Change: And.
Speaker Change: Our pipeline is active I would say overall.
Speaker Change: Certainly the Cooper announcement that a lot of sub servicing and as a matter of.
Speaker Change: Those clients are obviously evaluating their alternatives and options as well.
Speaker Change: That sounds good I appreciate it and I'll jump back in the queue.
Speaker Change: Thank you.
Speaker Change: Our next question is from Randy Binner with B Riley FBR. Please go ahead.
Randy Binner: Hey, Thanks, I have a couple.
Speaker Change: The first is.
Speaker Change: Following up on other questions around kind of measures to unlock value.
Speaker Change: The potential spend of new resins cover but is there are there any other structural changes that you might consider in that kind of closing the gap between where the value is now.
Speaker Change: Some of the parts that's laid out.
Speaker Change: The answer is yes.
Speaker Change: It's like.
Speaker Change: We this is something that's kind of a thorn in our side. We continue to look at all options. We have views we've been working with them in some of our different <unk>.
Speaker Change: Investment banking friends at different firms and and we're confident that we're going to do something we're hopefully going to get something done here in 'twenty five.
Speaker Change: Okay, and so I mean, maybe it's a little bit of an obvious question or observation, but being a REIT is not.
Would that be.
Speaker Change: Changing that'd be on the table.
Speaker Change: I mean, it could be I mean, if you look some of the success you've seen in some of the financial services firms have been where they've changed doesn't mean, we would give up our total read but there is the possibility you can create a C Corp, you could drop things down like for example, the REIT gets smaller down below.
Speaker Change:
Speaker Change: That's probably the most likely path.
Speaker Change: The one thing that's great about our business as we if you take a step back and say okay. What is rhythm rhythm has 8 billion of permanent capital give or take it's got $80 billion of assets under management between the asset management business and the balance sheet.
Speaker Change: It makes a $1 billion a year so start with those three things and then you turn around and say well you trade at.
Speaker Change: Five five or $6 billion market cap or whatever that number is.
Speaker Change: It's pretty shitty to be honest. So then the question is how do we extract value. The one thing that's very important I think is the all the earnings that continue to come in the company. There is a ton of cash flow that enables us to grow our business. So part of it as a patient thing, which quite frankly I don't have any.
Speaker Change: But the other part is how do we get there. So I think the bones are there we need to grow our FRE or grow our asset management business. Then you are going to get a true valuation on the asset management business.
Speaker Change: And it's kind of no different than what some of the bigger and larger asset managers have done over the course of course of the past three to five years.
Speaker Change: And we want to get there as well I do know one thing you can't compete on the global stage, unless you grow but as I pointed out before we need to perform before we grow and we do perform and if you look at our our returns over the course of our life. When we started this company at fortress and 13. The returns have been great. That's the only thing we care about we don't need another dollar unless.
Speaker Change: We're going to make people.
Speaker Change: A lot of money and that's the most important thing in having those relationships. So I think youll see us unlock value this year.
Speaker Change: And it's very frustrating the way that we trade and we got to figure this out.
Speaker Change: Alright, that's very helpful. And then if I may just because I think of late enough in the order here.
Speaker Change: Throw another one in.
Speaker Change: GSE reform it came up.
Speaker Change: In the prior call.
Speaker Change: And.
Speaker Change: Meanwhile, I mean in your last quarterly call and then there's been quite a bit of activity from FHFA.
Speaker Change: Personnel changes and Derisking and just commentary.
Speaker Change: That privatization efforts will most likely come forward. So is that is there any any update on your side of kind of what youre looking for there and what.
Speaker Change: What any potential impacts to the business might be.
Speaker Change: Assuming that.
Speaker Change: That the administration and Pulte you move forward.
Speaker Change: It plays extremely well to our strengths.
Speaker Change: If there is a prioritization.
Speaker Change: Not sure how much that really affects the market, but to the extent there is the ability for us to deploy capital and for example, you go more what I would say nongovernment guaranteed type paper.
Yes, I think that plays really really well and again that that feedstock. The so called the ABF story as well even more.
Speaker Change: So where we sit in that ecosystem I think we're extremely excited I don't think its something thats going to happen right away I think obviously, there's probably a lot of talk there.
Speaker Change: Barrett and Iron are off next week to have a bunch of meeting. So we'll see what happens I think it's something that's going to probably take a little bit of time, but at something.
Speaker Change: My guess is that they want to focus on.
Speaker Change: Great. Okay. Thank you appreciate it thank you.
Speaker Change: The next question is from Crispin Love with Piper Sandler. Please go ahead.
Speaker Change: Thank you good morning, first one with the asset management business, Michael you talked about adding partnerships can you just dig a little bit deeper there what kind of partnerships are you looking to add at overtime and just how is that progressing in this environment.
Michael: So what I would say is the past couple of years, we've done what I would say is a lot of brand building without selling anything.
Michael: And I think that resonates extremely well with people, it's no different than dating or developing relationship with somebody.
Michael: So for example, if there is a large transaction or something that we'd want to do I think it's highly likely.
Michael: <unk> is different today than going back in time that we would bring in that we would look to bring in partners for those types of transactions.
Michael: The same thing on the fund side when you look at traditional fund raising.
Michael: There is there is.
Michael: <unk>.
Michael: Fundraising into funds, but there's also folks that want to partner with you.
Michael: And help grow your business.
Michael: So we are.
Michael: Extremely keen to develop more partnerships and bring people into our world. A. Good example, then and this was announced yesterday publicly.
Michael: Mubadala owns 70% of fortress Mubadala made an announcement yesterday, they were putting I think $1 billion I believe into funds.
Michael: Those are the kind of transactions or relationships that we want.
Michael: And I'm hopeful that that will materialize over the course of.
Michael: As we continue to grow here.
Michael: Great.
Speaker Change: That's all helpful. There and then just one second question from me on New Ross.
Speaker Change: What are you seeing residential volumes trending in April just considering the current rate call that we've seen and just expectations as you look throughout 2025, especially with rates elevated here, but with some potential volatility ahead.
Speaker Change: Moves.
Speaker Change: I mean certainly it's.
Speaker Change: Seeing the spring buying coming in so you're definitely seeing some pickup in production versus what we saw in the beginning of the first quarter.
Speaker Change: As I mentioned right, we remain opportunistic it's still very competitive.
Speaker Change: We definitely are seeing a pickup in volume overall certainly in the month of April our expectation is going for.
Speaker Change: Into second quarter overall.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session.
Speaker Change: I would now like to turn the conference back over to Michael Nierenberg for any closing remarks.
Michael Nierenberg: Well thanks for thanks for all the thoughtful questions. This morning I appreciate the.
Speaker Change: To support any.
Michael Nierenberg: Any follow ups, we're here and and have a good spring and have a good weekend.
Speaker Change: Thanks, everyone.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].