GCMG - Earnings call 3 2023 | Grosvenor Capital Management, L.P.

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Operator

Good day, and welcome to the GCM Grosvenor third-party Third Quarter 2023 Results Call. [Operator Instructions]

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

you. Thank welcome Third and Call. XXXX GCM to morning, Quarter Grosvenor's Earnings Good Financial I Grosvenor's President, Michael Chief GCM joined Jon Pam and and Today, by Officer, Chairman am Chief Executive Levin; Officer, Bentley. Sacks;

on They are cause fact the on quarter's regarding financial unknown this our include indicated relate involve to reminder statements do performance guarantees. discuss we These business, considered this of forward-looking results, that promises important historical known, Before may forward-looking statements this uncertainties that neither differ call matters and our other statements and for statements those by the our be risks, nor that current a projections. all call. expectations made should results materially to This not statements. factors from actual

the of Risk Commission on and are Securities of refer Factors with other all factors Exchange the our Shareholders Please of the release, section which filings earnings in our XX-K, our website. section the Public available and our to

also non-GAAP earnings We'll of are reconciliation earnings found and measures A our as of view both Public nearest business. our the website. we of in in that assessing available our to metric important on can performance the presentation GAAP section be to which the Shareholders supplement, metrics refer non-GAAP of

that Our in look we spirit, feedback. improve with we how to to our goal forward continually is shareholders. communicate with And engage your and

I'll with the Michael. And Thank over us. that, turn you for again joining call to

Michael Sacks

Thank you, Stacie.

to time spent you have feel of on our we a and have those lot seen to I Thanks, much. filing, Stacie. very that notice Stacie presentation. new of our want that. For you you thank that will earnings look a

and to an feedback it's think hearing your we on forward it. improvement, I look

the growing in markets the fees were results increasing to private year-over-year. growth management fourth year-over-year. tenth impact fee we consecutive fees. with driver double-digit XX% with This Private fee growth, year. earnings markets catch-up quarter, the prior fees, primary of were expect double-digit excluding management In again compared with the of the catch-up XX% marks line management quarter expectations private growth fee-related third quarter markets of excluding markets private Our

our is are anniversary toward our predictable accomplished programs. while continue shift public period. long-duration to we've highly of this over management we company, proud experiencing seen what a and markets We've fee-centric week from Next a revenue third business as private grow, coming material

XX% As of private quarter capital at end fee-paying comprised end, XXXX. of of from AUM, XX% markets our up the

strategies, tripled dry period, interest $XXX raised any asset $XX reflect Over investment our we deployed. we have powder recently capital the not to various share yet deployed same or have nearly of firm approximately does That number time be value and across for carried million. to our billion value net at

soft, incentive significant has in While quarters the our cash opportunities realization drive growth environment should been in flow the future. recent fee

to Turning billion. $X.X this raised most we recent quarter.

it this to that momentum total our And was the continue see accrued Jon XX% the call, nice fundraising. confident On half to last of about quarter's we've spoke earnings vertical. be 'XX second estate estate real will than We first half positive more fundraising in our exceed seen our to real fundraising of business. for

million. that representing the contributor and fundraising with vertical growth approximately at momentum greatest infrastructure to Our continues, $XXX

the ending X of its larger close of X. CIS a to than seen XX% material quarter, accounts of infrastructure fund quarter X with had We've final 'XX. IAF third $XXX billion vertical doubled the at our size for capital AUM $X X at infrastructure last Our from $XX the specialized growth end in end more billion has past the raise X and than more an of portion and of was This CIS specialized predecessor, CIS funds. funds, than XXXX both years the over that of separate X. of its million,

Infrastructure collaborative that investments with a to are Fund, and enabled union direct working Our optimized constructive, or by infrastructure on approach IAF focuses labor. Advantage X,

in We by we interest have process, raised early while nearly we're fundraising $XXX million since fund. the investor fundraising year, in this the began encouraged still are earlier and

as specialized are seeing X still moving moderate first small investors years last strong, remain activity held week. to the and in market brought broad uptick While not to last a We commitment as the and they new quickly did alternatives we're just quarter ago, a close levels. credit fund

for fund, demand X, a private invest There's SCF of to that credit credit credit lot Strategic the credit through is an Our across markets investments. Credit flexibility co-investments. has largely or private and Fund, opportunistic directly

with SCF than formation year, meaningful capital going us programs enabling private in the more has separate forward. fashion will the have credit-focused our pipeline as equity model margins. doubled X regard past accounts noting cost over our develop flexible implementation that beneficiary. and market be worth infrastructure open similar believe contributors matures, architecture We And will disciplined to a to that believe Our we to structure, and private to be programs. and our It's grow institutions remained we credit will a

culture earnings firm was for that remain to grow of approach deliver re-up continue to will reflected believe confident XX% clients to are XXXX to we XXXX. We've significantly in shareholders rates team we to We XX-month of and approximately into we and in fee-related up and and clients last continue high the put members for our beyond. and XX%, margin margin in continued enjoy XXXX, ability enjoy. Our end first, and from expansion the that the

I'll to over with And turn that, John. it

Jonathan Levin

one work outcomes that returns. Critically, investing. impact example Thank you, around risk-adjusted Grosvenor goals returns. seeking starts providing while catalyze GCM competitive investment that of competitive The nonconcessionary, meaning definition investing everything Michael doing is investments with we positive, Michael. impact Advantage measurable the Impact is align Fund clients' with our Infrastructure that do our is that earlier mentioned of just

that competing and returns is financial experience rather are than impact Our complementary objectives.

energy competitive transition diverse and have renewables Our education, consistently delivered and impact record, as such care, in track managers health returns.

vary outcomes that the can The align is even impact job outcomes clients, ours, programs. money with competitive Importantly, deliver their and our and amongst is is specific the goals. not it to it client our targeted definition of sometimes

As increasingly account services, last X meet identifying to alternative they evolving. delivering excel want interest customized on objectives. themes are acumen, solutions rapidly developing specific our require in relevant investment address provider within in the allocations customer the their also in clients' solutions is investment impact Client their ancillary via reporting Clients decades, particular, objectives. only not varied programs that for These robust portfolios. but we including

impact The certain are opportunity to looking industry can and the suited perfectly impact calling investment solutions their for at not institutions only return, is objectives to must many investing customized but scale. within in our we business. to so portfolios, it promote support also With generate scale massive evolve

same through direct we funds separate or to styles. have the extending to co-investments, combination account We investments these impact programs. to opt that offered decades through or are our secondaries, can for clients invest The implementation flexibility of custom a client

theme class, broad classes. We program create sometimes highly targeted across impact that programs themes a on multiple in cuts that or are only asset asset focused but one not multiple

of sourcing investments. We platform are leveraging open our to impact broaden our architecture funnel

hundreds successfully managers. identify also implement flow a us scale of programs. generalist have regardless of originated with impact have significant teams targeted programs various "impact Our they from trained align This our investment whether both and are enables to to highly of opportunities client deal that or invest been impact-oriented to manager" our one at

risk-adjusted proprietary attractive our built focused then investments assessment always have necessary these impact making practices returns. are criteria using ensure meet We we that set generating while on framework that best-in-class that also robust the to clients sure

Finally, leading a to we have combined systems, existing the our capabilities investments, data impact we vendors. of third-party Through our deliver across power our with view quantitative capture of qualitative clients. analytics detailed and portfolio-wide then reporting our can of and impact we the KPIs

our is objectives to firm, achieve of unique solution impact an global core, The illustration with clients, quality the as partners. impact and and traction its of breadth approach we base our investor channels. our from numerous At current our is seeing leverage what the of across each do of prospective our a of platform customized we a for customized best customized are resonating client solution

I'll over Pam. turn to Now the call

Pamela Bentley

Jon. Thanks,

Our quality the our results this consistent demonstrated were of earnings again scalability platform. our quarter expectations once and with and

of growth from year year-over-year, increased Total $XX end, a of ago. fee-paying also were management as in X% private increase quarter XX% fee AUM. market under Assets a inclusive X% AUM billion paying

fee-paying X Our represents our XX% fees, private markets fees have AUM, of private over compound and catch-up the markets a at annual growth XX% business years. excluding management now grown rate last

a the Private fees year ago. XX% grew markets to compared quarter management in

fees, in fourth the Excluding compared we fee management of to year. prior double-digit management growth the catch-up the market once private expect impact quarter again

the we fees fourth to expect fees were relatively stable to absolute be QX stable again in return quarter, management expected, last as management ARS and As strategies quarter. compared in

importantly, Most our ARS are performance. pleased we investment with

basis year-to-date to the incentive markets. with on Our little fees very of majority up is million multi-strategy growth the composite realized third X% correlation interest. from quarter, carried broad $XX a in We

reminder, a the firm's we share programs, quarter XXX $XXX have million million. of carried And to incentive interest of share gross retains the XX% in end, firm As of across the XX% as $XXX of fees. firm which unrealized is

cash last Our unrealized creating interest the has significant have impact quality activity the significant when our tripled Consequently, X we in earnings. positive share and years, flow carried the M&A nearly that diversification future believe will of of a carry returns, on potential.

fourth quarter to ARS typically each and investment Our the annual performance tied year. fees in returns crystallize are

the and rate this potential performance the for of of X% achieve high growth earnings growth combined year, 'XX impact for fee with an remainder XX% approximately 'XX where rate Given $XX performance solid is multi-strategy watermarks, investments of this our we return on to our year. return opportunistic annualized for of performance million,

today. million at fee if $XX of performance high watermark potential, all portfolios to compares earnings were annual This

our to Turning expenses.

quarter, expect in and earnings is shareholders. similar slightly below approximately we employees, Fee-related our clients in Our compensation $XX strategy the the was in rooted fourth and QX quarter. alignment second compensation fostering level million, a between

million and fees. lower general declined in $XX.X conference administrative Non-GAAP the as other expenses well as quarter as and to result a of costs professional reduced travel-related and

quarter quarter and level. in with will We our expect non-GAAP our below be G&A slightly line fourth first or second

to exercise our strategic allowing We disciplined management in while across opportunities. business, for continue growth investment expense

and EBITDA a together the net healthy cash further sheet we our flow grew is quarter, while X% X%, light and interest on year-over-year From fee-related standpoint, a a against a basis environment. rising these debt income balance factors Pulling rate certainty and gives are hedged, earnings which of in majority XX% adjusted adjusted stability grew respectively. capitalization and the

less on based our earnings dividend debt Our is relying without fee-related fees payments. for cost incentive on dividend regular of net

healthy in room yield future. for maintaining of further dividend quarterly the X.X% of share there growth $X.XX of and as last are per a Friday, or We is a dividend

Despite outstanding. buybacks, of have shares share managing are we ended repurchased our prudently quarter X float, stock-based and over nearly case we year-to-date, modest to from XXX the with dilution shares compensation In we committed programs million time. the million

that As authorization, quarter, our level end million in buyback of value. continue relative had current an stock believe third the price we and we is attractive market to of our at to the $XX remaining share

with we and trajectory revenues. markets We potential ARS growth Looking in expanded in fees, solid our to confident ahead look forward and shareholders. deliver fees, continued margins our to year, to to ahead double-digit management our growth the fee significant feel of next in clients stabilization private FRE value opportunities management incentive

Thank take your now and to you us, again joining happy for we're questions.

Operator

Worthington from [Operator comes with first question Ken Our JP Morgan. Instructions]

Kenneth Worthington

X CIS expectations X, last all actually did have including this those so or this X funds the quarter funds MAC have some closed in like fund. IFA to looks private in was year? comments fundraising in half markets your of that new you closes then Elevate Or pushed look X, the quarter? XQ? Did that of the quarter, than funds for do and as XQ we to closes comments half. towards the would of suggested you And the end the fundraising your first Which second reiterated be expect or better get It

Michael Sacks

Ken, it's Michael.

like the did fundraising -- which had in fundraising. exceed. exceed picked closes there's pipeline pick We half things QX, no up a still have We're it's not closes, return a half levels and we have clearly levels that we specifically encouraging. QX, QX. that certainly about Second is And confident to we've a a funds close. it's everything do turning capital happened has close Jon, on seeing some to of will and have while it, -- no flywheel hoped pushed fully to did give not the when but feel environment. really we specifics you that doubt pick Jon of which see we not in the question first it ones up, Transaction didn't have some picked bit. -- had yet, full second, will prior where that to but and and activity on that do There's although we're saying up. our for will again and -- just that a up not our We remain you seeing is little is start want transaction been give levels

Jonathan Levin

Sure.

CIS think closing have had MAC a on did a We on had IAF. we X closings I not small X. closing on We and Elevate.

terms talk half what script. tremendous obviously, you out back, on last the and think capital in we us for visibility recently of at report, significant accounts, as noted a second of of commingled being the more step think of amount customized his about a broadly, part that first and infrastructure ballast noted gives in more this our And franchise a in to I of the on us, just what half particular, comments, and a the that when of fundraising separate XX% put doing, not to I on platform confidence broadly, in franchise it the we're Ken, CAGR of funds that the which greater pipeline. look the actually obviously, success funds picture providing Michael your more for whole, the is than and our release on you

is and fund Elevate, deal good exciting for efficacy on that. that the we of feel so out and catalyst in And a we about of that kind first terms note business. fund, And which of think closed for our the put an

to with Michael we stuff. improving things, hard good the as It's exact it predict timing the about overall, So little bit feels like a But of picture feel noted. days. that's a

Kenneth Worthington

to how you this quarter? maybe some grown about just Where the of has year. the your that I then talk And up as capabilities. channel. of new on insurance And in the think credit are Awesome. business follow insurance end Maybe was highlighted, business it assets

the I out of sort going you help Assuming further interpreted how they are you maybe that did credit help business? capabilities grow? Or new correctly, insurance to build your

Michael Sacks

Yes.

I a think from new say necessarily manufacturing I So Ken, wouldn't standpoint. capabilities,

there's and these think that internally credit, we have, I capability I are clearly have that credit demand demand coming. alternative manufacturing think capabilities and for more is we that for

grow quarter good from our can the insurance than You maybe in It's raised of demand precise the for and credit, believe regard more lot rata just approach sort we going a seeing but growth, Jon forward. than be to see sheet, faster approach more pro forward. in demand the for going why be sort wins channel we're seen And represents able that it which channel insurance we it and that hear announce But money Stacie you'll And and specifically, get share. channel. sure. that We you've credit of is that we type mentioned to in it, about hopeful continues not equity, the last we from us balance diversified of number, its in the is credit of news of the type are private do and -- or demand. that insurance we'll broad-based so in growth in infrastructure that successful interest

pipeline going there There Aside channel. last we we there. continuously, effectively percentage to There's quarter, believe we will very of more a on more activity from stuffing been continue a of bullish grow and of just we've larger lot pretty to -- AUM. remain the insurance is the remain and and take that's -- --

Jonathan Levin

What from types a private infrastructure talking what approach not kind co-investments, interest all primary between invest channels talks When capability, we're that just the add the different it's seeing to of of and about Michael going X on credit, similarities there of said, a lot clients, Michael globally. just direct investments. we're really equity investments, referenced a the new ability Michael funds, really is diversified would about in is but secondary to and also and he point to I which Ken, it's said. deeper point

obviously, this so of noted of been the the a about industry, subsector this evolution lot quarter, the credit focused a has have and has number much have nonsponsor, the a kind just that is direct And bigger the on asset And have have sponsor, private you lending credit been of structured. on you world sponsor of alternative you backed, than think calls of franchises. you when kind even of you

and basis but asset And so in have nicely resonating using marketplace. mature they've that been that out it to used in our cost-effective allocation we'll be help on the ability we're -- alternative also in in a as clients classes about other excited same the build that them think co-investments is allocation by something do we'll way

Operator

next Stanley. Our Cyprys Michael of comes Morgan from question Instructions] [Operator with line the

Michael Cyprys

just ask I wanted to business absolute return you have. that the on

your a for maybe demand speak do evolving markets, little resonating with sales look on most bit I strategies absolute that environment. look could over the what's greater the year been guess, year most gross within business? It's you today What return to S&P you next in If you scope out the the equity the as LP volatile index. a And at you if see stocks down XX how months? public LPs? are

Michael Sacks

So Kong, today. calling actually was that in space. Hong activity I I'm talking we here about Michael, have ARS. activity think specifically from with that -- They definitely in they're and our they think team see

are but up the we're changed. in so that was there, I performing and have performing think think that a inside do showing and we performing couple to expectations. think on We're We're inflows marketplace. the numbers -- relative that's budgeting environment, relative indices, net gross actively are hasn't we're good think performing strong mentioned them peers. funds approach we think return There we important. we're of to pick inflow to I a to the script, don't our absolute general we -- will relative

net so growth line we case all expectations. do starts change in see no with flow but inflows our assumptions, of with And in base and performance, which it in is terms there

Michael Cyprys

the speak just evolving What's be a this it'd on I prospects like the follow-up facing helpful that's accelerate question meaningfully liquidity hoping here? could the for that to secondaries. to LPs activity the deployment And in as discounts you seems solution a how seeing, constraints. Great. space that there, from was for you're secondary environment

Michael Sacks

we lot discounts. a most not historical to where increases is. a of not that LP-led saw huge pretty and those a is take secondaries to where volume kind secondaries be you tell People and discounts would continuing quarter which of relative not wide change from So to activity discounts ago -- little the that hesitancy of seeing GP-led

but is picking resolving recently, another. I we're see but but we the of to or sort levels -- see for waiting think without think we has activity, I being liquidity crystal pent-up that bid where And out secondary rates that year, pent-up that in think itself way getting is the without and about that ask spread any to next -- a spoken spoken we I Jon secondary market closer, year. where where guess, the therefore, are, next and up of have activity for up do demand about, something -- the have definitional, general, it's do to we one kind the we activity, publicly, -- picking kind transaction it's demand just see think between figure pretending and ball, of kind for of Jon

Operator

Kotowski from question Chris Oppenheimer. next with comes Our

Christoph Kotowski

seems vehicle? wealth And of but accounts. wondering, is -- a you've individuals -- on retail it's like the wondering good comes and your on high a priorities list fundraising a of account kind up worth net how in your I'm deal mentioned customized comingled was past more from fund it the retail of clients. management been I high that

Michael Sacks

It's Thank you, a good Chris. question.

insurance think AUM. I our general, referring what like in the that our -- investor exceeded the is are think, quarters you're total in to, its individual fact fundraising most representation I has

the products our more growing investor bring the to channel. forward want reporting look AUM. more internal much to individual bring X, We that very to of and to We quarters channel, to individual want the next see to as once. want percentage than investor investor resources the of efforts. and more individual our more that over we a it's continuing, focus We So course on dedicated we X

Operator

any questions. showing [Operator Instructions] I'm not further

Stacie Selinger

Thank with for not, And free if with again you to we feel reach again next speaking follow-ups. look Please quarter. us today. to joining forward you out any

Operator

day. Ladies participating today's everyone and in today's We great gentlemen, for you conference. program. thank concludes hope This has a

may all You disconnect.

Grosvenor Capital Management (GCMG) 8 Nov 232023 Q3 Earnings call transcript