Grosvenor Capital Management, L.P. Price & Performance (GCMG)

A reconciliation of non GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement both of which are available on our website. Thank you again for joining us. And with that, turn the call over to Michael to discuss our results. Thanks, Stacy. Good morning, everyone. We are pleased to report a very strong fourth quarter and full year 2024. Importantly, we report not only good financial results, that exceed expectations, but progress with regard to a number of our key strategic priorities that will contribute to our growth over the coming years. With regard to our financial performance, we had a strong finish to a good year that saw solid results for our clients and significant growth in both fundraising and profit. In the fourth quarter, our fee related earnings increased 22% and our adjusted net income increased 63% as compared to the fourth quarter of twenty twenty three. For the full year 2024, fee related earnings increased 19% and adjusted net income increased 36% over the prior year. These results represent a good start toward our goal of doubling 2023 fee related earnings by 2028. While our path to that goal will not be linear, we remain confident in our ability to achieve that target.

In 2024, we also continue to realize the operating leverage we have long seen in our business. Our fee related earnings margin was 42% for the year compared to 38% in 2023 and thirty one percent at the end of twenty twenty. We believe we continue to have operating leverage in our business and see opportunity for continued FRE margin During 2024, we achieved $7,100,000,000 of total fundraising a 40% increase compared to 2023. We are pleased with that growth and pleased that as expected, our fundraising in the second half of the year exceeded that of the first half. Our fourth quarter fundraising of $2,300,000,000 and importantly our late stage pipeline remains robust. Looking at that pipeline today, our re ups and based upon a bottoms up build created with our investment and business development teams, We expect twenty twenty five total fundraising to exceed the 7,100,000,000.0 we raised in 2024. We were particularly successful last year with regard to fundraising for our specialized funds closing on $1,900,000,000 of commitments to private market specialized funds. That is our second highest year on record. The fourth quarter saw the final close of our Elevate [indiscernible] a first time fund for a private equity seeding strategy.

Elevate closed at nearly $800,000,000 which is respectable in a difficult market for a first time fund, particularly for a strategy that is not yet mainstream. We've made some investments from the Elevate fund that we're excited about and we expect that strategy to grow over the next five years. This quarter, we'll see the final close our third private equity co invest [indiscernible] GCM and the final close of our second infrastructure advantage fund, IAF2. We expect both of those funds will be larger we look forward to reporting on those results next quarter. Later in 2025, we plan to hold first closings for the next vintage of our private equity secondaries fund [indiscernible] our direct oriented infrastructure fund [indiscernible] Beyond our financial and fundraising we made meaningful progress in 2024 with regard to a number of key business priorities. During the year, we deepened our credit investment talent with a number of important hires who brought complementary expertise to our team, Clients are recognizing the value of our credit platform where we raised $1,800,000,000 or over 25% of total funds raised last year. As investors grow and evolve their private credit allocations, we believe we are well positioned to be a value added partner serving as a single point of entry for a diversified portfolio of credit primary fund investments co investments and credit secondaries.

We also saw improvement in our absolute return strategy platform with twenty twenty four ARS management fees stabilizing year over year. The flows picture is improving in ARS. The business performance last year was enabled by excellent investment performance. Our multi strategy composite generated a 4.5% the full year, outperforming indices and peers. Those returns generated $55,000,000 in annual performance fee revenue marking the third time in the last five years ARS performance fees exceeded $50,000,000 As we have discussed previously, with $41,000,000 in firm share of unrealized carry at net asset value and significant carry at work that is not yet in the money our incentive fee earnings power remains strong and should support growth in adjusted net income over time. Finally, as we discussed at length last quarter, one of our priorities for 2024 was to expand our product offerings and distribution in the individual investor channel.

Just two weeks ago, we announced that our infrastructure interval fund is open for investment with a seeded portfolio of $240,000,000 across 43 infrastructure assets and $82,000,000 of dry powder. While it will take some time for sales from this product to build, and we are not assuming significant 2025 revenue from the Fund. We do believe its potential over time is meaningful. We anticipate investing further in our individual investor capabilities and look forward to sharing news of that in the future. The tailwinds created by our financial and strategic give us confidence looking out Our growth targets remain achievable as we've always said, and as John will discuss next, our diversified platform gives us a number of ways to win. And with that, I'll turn it over to John. Thank you, Michael. The hallmarks of our platform are our breadth, depth, and flexibility.

Across asset classes, the ways in which we can implement investments and most importantly, how we work with our clients. The diversification of our platform is a key strategic advantage in positioning us to win with clients of all sizes and types. Our capabilities and positioning in this attractive alternative investment industry provide a unique combination of stability, embedded growth and optionality for the platform in the future. I spend a significant amount of time with our clients around the world. Regardless of where in the world I find myself, or whether the client is big or small, a public pension, a sovereign wealth fund or a firm representing individual investors. We hear two common themes.

Alts continue to grow as a percentage of investor portfolios. And clients are generally under resourced to attack the opportunity set. They need trusted partners to assist and to help build out alternative programs.

And where they need help varies by client. It could be a very specific area like credit secondaries, as Michael mentioned. Or an exposure to a certain geography. Or incorporating co investments into their portfolio across the different alternative asset classes.

The good news is that we can help clients with any variation of their alternative needs given the positioning of our platform. This flexibility means that we can compete for nearly all mandates of all sizes and with all client types, our breadth across asset classes, which uniquely includes both private and public markets, also means that we can win in nearly every environment. As clients shift their allocations between various alternative strategies. This flexibility and breadth of coverage in combination with the deep involved nature of our partnerships with our clients provide us with the distinct privilege of being able to evolve with our clients as they evolve their portfolios and expand into new areas. For example, as we've discussed on past calls, many of have been prioritizing their allocations to infrastructure and private credit in recent years. We've been a beneficiary of this focus and trend in the market. Infrastructure has been our fastest growing asset class since we went public, and credit was a massive contributor to our 2024 fundraising. We see persistence behind the significant investor demand for both of these strategies. In particular, we believe our full coverage of credit strategies combined with our significant unlocked origination ability across credit strategies, positions us ideally to capture greater market share as investors grow and diversify.

Credit exposures. While absolute return strategies contributed less significantly to our '22 and 'twenty three fundraising, it was a meaningful contributor to our growth in 2024. We raised $1,300,000,000 for the strategy in 2024, higher than the prior two years combined. The improvement investor sentiment has occurred on the heels of strong performance strong and strong alpha generation. Our ability to meet the demands of clients in a wide range of market environments provide important diversification and business stability. Plus numerous paths for growth and upside. Said another way, our confidence in doubling our fee related earnings by 2028 from the fact that we have so many ways to win and therefore aren't dependent on a single strategy client or backdrop.

We also continue to expand our offerings and therefore create new ways to win. And as Michael said, last year was an important year in driving those initiatives and we expect more momentum in 2025. With that, I'll turn the call over to Pam. Thanks, John.

Our strong results in the fourth quarter and 2024 exemplify the broader momentum that we are enjoying as a business Assets under management ended the year at $80,000,000,000 and fee paying AUM ended the year at $65,000,000,000 Our strong fundraising drove a 12% year over year increase in our contracted not yet fee paying AUM, ending 2024 at a record level of $8,200,000,000 Our contract did not yet see paying AUM provides a foundation for organic growth and we expect it to convert to CPANG AUM over the next few years.

Private markets again was a key driver of our 2024 growth.

We enjoyed very strong fourth quarter private markets management fees which increased 20% over the fourth quarter of twenty three inclusive of over $7,000,000 of catch up fees. From IAS2 and Elevate. We expect lower catch up fees of $2,000,000 to $3,000,000 in the first quarter of 'twenty five primarily from IAF2 which will have its final close at the end of Q1.

We are expecting private markets management fee growth ex catch up fees of around 10% year over year. After IAF II's final close, our funds in market will be earlier in their fundraising periods and therefore we expect minimal catch up fees in Q2 to Q4 of twenty twenty five.

At the beginning of the year, we spoke about our expectation that absolute return strategies management fee would stabilize in 2024, which they did increasing 1% year over year We entered this year with a solid pipeline of activity on the heels of our ex In the first quarter of twenty twenty five, we expect ARS management fees, to increase by 4% to 5% from the first quarter of twenty twenty four. Turning to our expenses, our compensation philosophy philosophy is to align and motivate our greatest asset through a combination of annual and long term awards, including FRE related compensation, incentive fee related compensation and equity awards. We remain disciplined in managing compensation expenses while also investing in talent and incentivizing our employees. Fourth quarter fee related earnings compensation declined sequentially to $35,000,000 Looking to the first quarter of twenty twenty five, we expect FRE related compensation and benefits to be in line with or slightly higher than our 24 quarterly average. Non GAAP general and administrative and other expenses were $20,000,000 the fourth quarter, down slightly on a sequential basis, and we expect those levels to remain stable in Q1. Pulling together these factors, our fourth quarter and full year fee related earnings grew 2219% respectively As Michael noted, we continue to have confidence in our long goal to double our 23 FRE by 2028.

Turning to incentive fees. We realized $57,000,000 in the quarter, comprised of $42,000,000 of annual performance fees and $15,000,000 of carried interest. These results brought our annual performance fees to $55,000,000 the third time we have exceeded $50,000,000 over the last five years.

Run rate annual performance fees entering 2025 stand at $30,000,000 Fairy realizations have been muted. Our gross unrealized carried interest stood at $836,000,000 as of quarter end, more than double what it was at the end of twenty twenty. And we believe that provides significant upside. Our balance sheet is strong and we are maintaining a healthy quarterly dividend of $0.11 per share. As of Friday, we had a 3.2% dividend yield and there is room for future dividend growth as we enjoy positive momentum in our earnings We also continue to repurchase shares under our repurchase authorization plan and our Board recently approved a $50,000,000 increase in our share repurchase program As a reminder, we intend to use the $82,000,000 now remaining in our program to largely manage dilution. To close, we enjoy significant industry and business tailwinds heading into '25 giving us confidence in our long term financial objectives. We look forward to the opportunities ahead to deliver value to our clients and shareholders. Thank you again for joining us and we're now happy to take your questions.

To allow your signal to reach our equipment. In the Ask a Question box and click send. And our first question is coming from Chris Binlove with Piper Sandler.

Thank you. Good morning.

My first question is on FRE margins. You've had several years of steady growth in margins But curious if you could discuss your margin outlook Do you believe you can continue driving margins higher to the mid-forty percent range on an annual basis and beyond? And as you look out further, is there a cap on margins over the long term? Thank you. Thank you. Thanks for the question. We did note that we've to your point, we've had [indiscernible] Very strong operating leverage and significant FRE margin improvement over the last several years. We also wanted to be clear that we do think we have continued operating leverage We do think we have continued FRE margin expansion ahead of us And I think that as far as a cap goes, That's we're just sort of looking out a year, two years' time and seeing that our FRE margin can continue to grow. I suppose at some point there's a cap, but we think from current levels we have room to grow those margins over the next several years while we're doubling our FRE from 23.

Perfect. I appreciate that.

That was helpful. And then secondly on fundraising, curious about the cadence for 2025 you had very strong quarter, in the fourth quarter and I heard your 2025 guide expect to be higher than 2024. You mentioned some funds closing in the first quarter.

As you look at 2025 as a whole, can you talk about the expected cadence of fundraising And is there anything else worth calling out on a quarter over quarter basis? Thank you. Sure. John, you want to take that?

Sure.

I think, Chris, one thing to just back up and contextualize around our fundraising before answering your specific question is kind of how it works for us, right? So we and some of the historical commentary we made, I think we had felt that '23 was a tough fundraising environment for the sector for us. We thought '24 was going to be better than '23 and it was. The environment we think continues to improve, which gives us some macro commentary that feels like '25 better than '24. But for us kind of specifically we have a lot of insights into what happens in a given year just because of the separate account re up profile. So we know going into a particular year which clients are scheduled to have a separate account re up We know which activities is you said, of specialized funds are meant to go to market and have their closings. And so we can kind of over a year period of time look at the year and say, yes, based on all that bottoms up buildup, there'll be some kind of go get in that number, but we have a pretty good baseline to feel like 25 is going to be better than '24.

When it comes to like when what's specific quarter something will happen, that's where it gets a little bit tougher. Right? You can literally have situations where someone's meant to to sign a contract on a particular day and they get sick and it flips to the next quarter and those can be big chunky moves. So I don't know that we'd give you a specific quarter by quarter analysis, but what we would tell you is that the pipeline is strong. The re up calendar inside of the year is strong. And therefore kind of feel good about that 25% looking better than 24 type of guidance over the course of the year? Great.

Thank you, John.

Appreciate you. I'll take my questions.

Our next question is coming from Ken Worthington with JPMorgan.

Hi, good morning. Maybe first, you've got a nice pipeline building in the private markets business.

The pace of the pipeline build was quite a bit faster than the pace of conversion from pipeline to fee paying AUM how should we see this conversion from pipeline to fee paying AUM look in 2025? Do we see a nice pickup given the better market conditions and maybe the seasoning of the pipeline? Or is it Should it for some reason continue to sort of lag the strong sales growth that you're generating? Thanks, Ken.

This is something we've actually talked about before. So obviously, the most important thing is that the the macro environment and the attractiveness of the strategies remain very strong. The pipeline to your point is building and there's a lot of demand. And then specifically how that pipeline converts to fee paying AUM, is a function of whether the funds raised essentially ramp in funds, which turn the fees on as over specific time period, a specific amount of fees, specific dates, whether they are pay on committed funds, which start fees right away, pay on committed funds with catch up fees, start fees paying fees right away and there's a catch up from prior periods or their pay as investment funds where you make an assumption about how the capital is invested and when the fees turn on.

We've had since we first met you going back to 2020, a significant amount of what we publish and call contracted not yet fee paying AUM, which is where those fees either turn on a fixed schedule or those fees turn on as invested. Every year we raise capital where the fees turn on immediately upon closing. [indiscernible] it's that It's very hard to give specifics there just as John talked about sort of pace of fundraising, We every year, every quarter, it's sort of all of the above. We're winning new business that is every type of fee that we that I described. And it is and so I don't think much has changed from the first time we met you And I think we've had that mix of type of fee I think we've said to you in the past when we price business, we're trying to price it on effective fee so that different types or structures of feed result in similar levels of actual feed to us and similar cash collections and margins over time. But I don't know that there's been a change there.

And Clint, maybe John, I would just add one thing. I'm not sure exactly which metric you're looking at, but if you look at contracted not yet fee paying AUM at the beginning of the year, $7,300,000,000 We ended the year at $8,200,000,000 So that was up 12%. But if you look at the contributions in the fee paying AUM walk from CNYF POM, is about $2,800,000,000 which is not about a third or so of the capital that we started the year with on a CMYO fund basis, which is not which makes sense to us. If you think about an investment period of a program being about three years, the way that would work, whether it's time based or invested based, being about a third of that beginning year number is is kind of a number that's generally in line.

Okay, great. Thank you. As we think about the opposite return business, had one of its better years, Are you seeing a change in the reception or the nature of the dialogue you're having with your customers Like are we starting to see the alpha generation I don't know, maybe market valuation levels, Again, I guess just change the dialogue that you're having. [indiscernible] And so whenever performance is good, there is a change in the dialogue. It may be It may vary in terms how significant the change, but whenever you have good performance which we've had for a while now, the dialogue changes. And I think in general, the pipeline is solid there. Outlook for that business is as good at this time of the year as it has been in quite a long time. And so while our sort of base case budgeting doesn't hasn't hasn't changed and we certainly are more optimistic with the with regard to the prospects for ARS than we have been in a while in the pipeline and the fundraising profile is decent. [indiscernible] Great. Very much.

Our next question is coming from Chris Kotowski with Oppenheimer.

Yes. Good morning and thank you. First, I just wanted to make sure we got Pam's guidance on the private markets fee outlook correct. So you mentioned $7,100,000 catch up fees in the quarter.

And first quarter though would be two or three. So all things being equal, we're first quarter would be down $3,000,000 $4,000,000 $5,000,000 sequentially. Then you gave the guidance of private markets ex fees up, I think you said 10% to 12%. But there, we're only looking at the prior year catch up fees, which is $6,800,000,000 or less than there was in the fourth quarter. Do I have that?

I think that Are those the baseline? I said let me just Chris, it's Michael. Thank you for the joining and for the question. Let me just kind of reiterate what Pam said just to make sure it's clear. We wanted to make sure we were providing apples to apples numbers. And so in the past, we had talked about private market management fee growth ex catch up, with catch up and we wanted to just lay it all out. So specifically what Pam said was for the first quarter, We expect catch up fees of $2,000,000 to $3,000,000 which is lower than Q4. Okay, lower than first quarter of twenty twenty five. And we expect ex catch up fees. So excluding that $2,000,000 to $3,000,000 dollars private markets management fee growth 10% year over year. So Q1 'twenty four versus Q1 'twenty five, 2025 is up 10% excluding catch up fees add $2,000,000 to $3,000,000 to that and that was our our walk on the private market management fees for Q1.

Okay. Great. Thank you. And then I wonder if you could talk a little bit give a bit more color on retail vehicles that you've launched. And I guess specifically, I'm wondering is there a potential on the private equity side also to have an anchor tenant like you did on the infrastructure side.

And then also if you can give any color on what should the marketing effort look like and what would success look like in 2024 and 2025? Is the effort to get is the goal to get listed on wirehouses or is there a different distribution channel? What's important to you in the next twelve to twenty four months?

Sure. So [indiscernible] a bunch of really good stuff in there. So first, I would say that we were clear and we tried to be very clear in our in our comments prepared remarks that we're not we are not expecting significant revenue contribution from that infrastructure fund in 2025. And because we launched it and frankly launched it in such a terrific way, which is with around $300,000,000 of anchor, as you called it, capital a bunch of currently invested specified portfolio that people can look at, some dry powder We feel very good about the way we launch [indiscernible] with real anchor capital like that if you can, it just is a leg up. That said, we were clear, don't bake in a ton of revenue. Don't be at all for $25,000,000 this is going to build, it will build over time we're not telling you what that's going to mean for 2026 or 2027, but by the end of twenty twenty eight, we expect there's going to be real capital there. And real revenue and we think it has the potential to be a really terrific vehicle for us as a firm, obviously for the investors. But for us as a firm.

There's that infrastructure space is is not crowded in the individual investor channel. And having a high quality option is a terrific thing and we are we are optimistic that over time this can build to be a real significant product and real significant revenue generator for us. But it's not going to be in 2025 and it's probably not going to be a ton of it in 2026. We would hope that this will find a home eventually Eventually, in the wirehouse world, in the RIA world, maybe the independent [indiscernible] is in the RIA space and that is where the initial focus is. As you know, historically, our relationship set for the portion of our AUM that is represented by comes from individual investors has been Wirehouse. So one of the nice things about this is we are going into the RIA space with our our capabilities and our brand and our name. We do hope over time that we'll have more to talk about in the terms of the individual investor space, both how we're pursuing marketing there and eventually ultimately more choice for investors there. And we just we look forward to talking about that over time and continuing to update people as there are substantive things to update you on.

Okay, great. Thank you. That's it for me. Thank you.

Our next question is coming from Bill Katz with TD Hey, thank you very much for taking the questions this morning. Maybe just focusing on the opportunity in the realized carry opportunity for the carry portfolio.

Just sort of wondering, it looks like the comp ratio to GCM after sort of contractual payments was rather low this quarter, both quarter on quarter and year on year. How do we think about to the extent that the revenue back drop and the monetization activity were to pick up the payout ratio associated with with those realizations? Thank you.

When you're you're talking about the of gross carry revenue, the percentage of that that belong that is owned by the firm? That was owned by the firm last year?

Right. So if I look at if I strip out the sorry, but it's such complex question. So if I look at the Harry I back out the contractual payment that you have at the NCI, etcetera, and then the payment that you have for performance fees. And I look at the rest, which you didn't pay out to the GCMG employees, I think if I did that math correctly from your disclosure, that ratio is around 45% this quarter.

And I think it's been sort of averaging sort of 55 plus So I was wondering as the is it just a quantum opportunity here? How to think about that payout ratio? So I guess the broader question is, how should we think about variable payout on realizations.

I think that the It's a great question to ask. I think the main way that you should think about it is that we have a ton of upside there. And the way that we look at it is there's a gross amount of carry. We separate the carry from the performance fees on the ARS side. We had a lot of performance fees on the ARS side. This past year, dollars 50,000,000. It's third time in five years it's been at $50,000,000 We've shown that the run rate on base case kind of budgeting is about $30,000,000 We've generated over $50,000,000 for the last few years. Three of the last five years. If you look at the carry, when you look at how much of the carry comes to the firm, that number has been significantly below the percentage of the carry in the ground that we own.

So we own over half of the carry in the ground. The firm owns right around $4.00 $1,000,000 of the carry in the ground. Is owned by the firm and yet the firm's share of revenues gross coming in from the carry has been well below that. And that's because older carry comes in first and the firm owned a lot less of the carry historically that it's owned over the last ten years. So we think the percentage of carry dollars over the next ten years that the firm owns is much higher than it was over the last ten years. Including last year. And that and the amount of carry in the ground is higher than it's ever been. So the picture there is very good because you've got more carry in the ground to be realized You've got the firm owning more of that and frankly, you've got a ton of dry powder carry or whatever you want to call it.

Carry that's not yet asset value, but is behind the the carry at NAV. So that carried NAV should Good. Replenish over time as we're enjoying the higher percentage of it.

We think that's a very we got a lot of earnings power looking out from that line.

I agree with everything Michael said there, Bill. And I think there's one further element, which you might have been also inquiring about, which is the cash based incentive fee related compensation. Which was being paid out at a higher ratio in the earlier quarters. Of the year and then was a lower percentage in the fourth quarter, which brought the full year to the 50% that you're referring to? Is that part of what your question was as well? Exactly, John.

And so yes, that is true. So we had always guided, I think as historically that that number would be 40% to 50%. And so the quarters can bounce around a little bit, but the full year came in the high end of that range. Part of that is because, as I think you know, not the carry, but hedge fund performance fees get crystallized for the most part in the fourth quarter. So that happening in the fourth quarter allowed the margin effectively in the fourth quarter to be higher to bring the full year in line with the top end of that range that we've given historically.

Okay. Thank you for that color. And then coming back to retail for a moment. I appreciate this is a couple of years out. In terms of bottom line contribution. Could you talk a little bit about maybe just state of the union of how many folks you have how many distribution channels you might be on and sort of what the roadmap might be in terms of headcount additions and maybe geographically or by sub subsection of the distribution of where you see the greatest sort of opportunity over the next couple of years just to drive that more meaningful growth?

Happy to address that one and Michael can add on to Bill. But as Michael just noted in response to the question from Chris, a lot of our success historically has been in the wire house channels where we have a handful of people who are so focused on that channel. As I think you know for the infrastructure product, that was recently launched, we've also extended our distribution capability through a partnership with a group called SCION that's going to help from a distribution resources standpoint. And we've got kind of a two pronged approach. We're going to and they're not mutually exclusive and I think you've seen this model works successfully for many others in our space, where there are some areas where you have partners that help leverage your distribution while you're building your own distribution [indiscernible] [indiscernible] But I think it is absolutely the case that always investing in the business, we're always investing in distribution, the marginal dollar of investment today is going into distribution within distribution. It's going into into the individual investor distribution. And I think you'll see us invest more in that space and have news to share in that space over the coming weeks, months, quarters?

Great. Thank you very much.

And it appears there are no further questions at this time. I will now turn the call back to Stacy for any closing remarks.

Thank you, everyone, for joining us today. We appreciate the engagement and the questions. If there are follow ups, feel free to reach out. If not, we look forward to speaking with you again next quarter.

Have a good day.

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