Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fee-related earnings increased by 20% and adjusted net income rose by 29% year-over-year, indicating strong financial performance.
- Private markets now comprise 71% of total assets under management, with management fees growing 11% year-over-year.
- The company raised $1.8 billion in the second quarter, a 26% increase from the previous year, and expects higher fundraising in the second half of the year.
- GCM Grosvenor Inc (GCMG, Financial) has a diversified platform with strong demand for infrastructure and credit strategies, raising over $600 million for infrastructure in the quarter.
- The company has a strategic focus on expanding its individual investor channel, securing a $300 million anchor commitment for an infrastructure product targeting this market.
Negative Points
- There were net outflows in the Absolute Return Strategies (ARS) due to the partial restructuring of one client portfolio.
- Despite strong performance, the ARS management fees are expected to remain flat in the third quarter compared to the previous year.
- The company faces concentration risk in terms of large accounts with lower fees, which could impact revenue stability.
- The volatile market environment poses challenges, although it also highlights the attractiveness of alternative strategies.
- The exact timing of realizing incentive fees and carried interest remains uncertain, which could affect short-term financial outcomes.
Q & A Highlights
Q: Can you discuss the concentration risk in your Absolute Return Strategies (ARS) platform and any potential for outsized withdrawals?
A: Michael Sacks, CEO: We don't have a concentration risk in terms of revenue. We have large accounts with lower fees, leading to low revenue concentration. Our goal for ARS this year was stabilization, and we believe we've achieved that. We expect ARS management fee revenue to be stable compared to last year, and we anticipate growth in ARS fee-paying AUM by the end of 2025.
Q: Could you break down the dynamics between private markets and ARS in your goal to double fee-related earnings by 2028?
A: Jonathan Levin, President: We anticipate neutral flows in ARS with growth from compounding, using high single-digit gross returns. Private markets are expected to grow in low double digits to low teens. Embedded growth will come from contracted not-yet-fee-paying AUM and re-up relationships, with additional growth from new client acquisition.
Q: How does GCM Grosvenor differentiate itself in the wealth management space, and what opportunities do you see there?
A: Michael Sacks, CEO: The wealth management channel is underpenetrated for alternatives, with significant opportunity across various strategies. We see growth potential in infrastructure, sustainability, private equity, and credit. The channel will diversify over time, with more names on platforms beyond the current concentration in a few big brands.
Q: What is the outlook for fundraising in the second half of the year, and how has the pipeline changed?
A: Michael Sacks, CEO: The pipeline is full, and we expect second-half fundraising to exceed the first half's $3.4 billion. We have $3 billion in re-ups and several specialized funds in the market. New client acquisition and existing clients moving into new strategies contribute to our confidence in second-half fundraising.
Q: How do you view the impact of recent market volatility on your outlook and deal activity?
A: Michael Sacks, CEO: Volatile markets tend to reinforce the attractiveness of alternative strategies. While short-term economic changes like rate cuts or recession risks don't significantly impact our operations, they don't alter our long-term outlook. We believe alternative strategies will continue to be valued by clients in volatile environments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
