GCM Grosvenor Inc - Ordinary Shares - Class A Stock

Thank you. Good day and welcome to the GCM Grosvenor Second Quarter 2026 Results Webcast. Later, we will conduct a question and answer session. If you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call and press star 1 on your keypad to join the queue. If anyone should require operator assistance, please press star zero on your telephone. As a reminder, this call will be recorded. I will now like to hand the call over to Stacey Selinger, head of investor relations. You may begin.

Thank you. Good morning. Before we discuss our results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance, and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the risk factor section of our filings with the SEC related to these statements. We'll also refer to non-GET measures that we view as important in assessing the performance of our business. A reconciliation of non-GAP measures to the nearest GAP 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 now I'll turn the call over to Michael Sachs, our Chairman and CEO.

Thanks, Stacey, and thank you to all listening to this second quarter 2026 earnings call. I'm pleased to report that GCM Grosvenor had another strong quarter, both generating returns for our clients while growing revenue and profits for the firm and our shareholders. ended the second quarter with $97 billion of assets under management and $78 billion of fee-paying assets under management, an increase of approximately 13% for each from a year ago. Constructively, all investment strategies and all investor channels contributed to that growth. During the quarter, as expected, we saw an increase in fundraising from the first quarter's $1.5 billion to $2.3 billion in the second quarter, bringing first half fundraising to approximately $3.9 billion. Importantly, those results were again broadband. across the platform. We continue to expect second half fundraising to exceed the levels experienced in the first half and are pleased to report that our pipeline remains full. Credit was the largest contributor to second quarter fundraising, accounting for more than $900 million of the $2.3 billion raised in Q2, making credit $1.4 billion of the first half's $3.9 billion of fundraising.

John is going to go into some detail on our credit vertical in his remarks. It's worth mentioning that the individual investor and insurance channels were significant drivers of fundraising, representing 23% and 18% of our year-to-date fundraising against the 5% and 4% of AUM they represented respectively at the start of the year. As you know, both channels are areas of focus for us. From a revenue and profitability perspective, we saw second quarter fee-related revenue grow by 11%, fee-related earnings grow by 21%, and adjusted net income grow by 22% as compared to the second quarter of 2025. On the last couple of earnings calls, we have been asked about the impact of AI disruption generally. We have maintained that we have more upside from AI disruption than risk associated with it and noted that we have some direct exposure to disruptors. We continue to believe that. we were asked about SpaceX.

And we said that we thought that in the wake of a successful IPO, it would likely be appropriate to address that exposure. And so I want to do that now. GCM Grosvenor in our ARS and private markets portfolios through primary fund allocations to managers, direct investments into dedicated vehicles, and secondary market share purchases invested approximately $150 million in SpaceX, a conservative sum for our capital base. The average cost of our investment is approximately $6.37 per share, and as of last week's market close, those investments had a value of approximately $3.5 billion split fairly evenly between ARS and private market portfolios. While these gains have not yet been realized and generally remain subject to lockup, that investment is the largest single-issuer gain in the history of the firm. For the overwhelming majority of our SpaceX exposure, the timing and form of exit is controlled by underlying managers. Should we receive shares in a distribution, we will decide on a course of action in real time based on facts and circumstances.

The SpaceX investment is a good example of the strength of our origination platform and the breadth and quality of opportunities we can bring to investors, as well as the way our various verticals strengthen and enhance the whole of our firm for our investors. We are of course pleased with this investment thus far. Given the magnitude of the SpaceX success, real-time versus one-quarter lag timing differences in mark-to-market policy between ARS and private markets, stock price variability, we feel it is important to highlight for all of our constituents ARS returns both inclusive and exclusive of SpaceX impact. For the quarter, our ARS multi-strategy composite delivered gross returns of approximately 14% inclusive of SpaceX and 10% excluding SpaceX. Year-to-date, those numbers are 15% and 11%. It is... It's worth noting that excluding SpaceX, ARS performance is very strong on both an absolute and relative to peer and benchmark basis. Pam will talk in a bit about how to think about SpaceX with regard to annual ARS performance fees.

The combination of strong second quarter investment performance and positive net ARS inflows drove a 22% year-over-year increase in ARS fee-paying AUM as of June 30th, and our ARS pipeline remains full. Investment results were also strong across private market strategies without the benefit of the SpaceX IPO marks, where private equity, infrastructure, real estate, and private credit all delivered positive quarter-over-quarter performance. We remain long origination with considerable operating leverage, meaning our sourcing capacity meaningfully exceeds our current investment pace, leaving substantial room to scale activity without sacrificing selectivity. The middle market, the area of private markets where we primarily operate, has held up better than the broader private equity market. While deal activity and realizations are not yet firing on all cylinders, we see the opportunity for a pickup in activity and acceleration of realizations going forward. The precise timing of that is not predictable. Importantly, as we have discussed in the past, we have a high ratio of firm unrealized carry relative to market cap, meaning that as the realization environment improves, there's significant upside to our earnings.

We remain confident in our ability to achieve the profitability targets we laid out at our investor day and think that our durable, highly visible management fee growth, significant upside from embedded incentive earnings, full fundraising pipeline across verticals, operating leverage, and dividend provide an attractive value proposition for shareholders today and over the long term. And with that, I'll turn the call over to John.

Thank you, Michael. Today I will cover our credit platform, which is one of the fastest growing areas of our business and an increasingly important differentiator for the firm with clients. As of quarter end, our credit platform managed nearly $18 billion of assets. The credit vertical was the largest contributor to fundraising in the quarter, reflecting strong client demand. but has been frankly an uncertain credit environment. That to me is a great endorsement of our capabilities. We raised over $900 million for credit strategies in Q2, doubling what we raised in Q1. During the quarter, we successfully closed our inaugural credit secondaries fund. which raised approximately $1.2 billion across the flagship fund and related vehicles. We're pleased with that outcome, but believe it is just the beginning of what can be a huge opportunity for us.

Secondary markets develop, of course, after the formation of the primary market. But as the primary market matures, the secondary market growth almost always grows considerably faster than the overall category. And when you think about the total addressable market here, it's important to remember that the overall size of the credit markets far exceed that of the private equity markets. So being early and meaningful in a category with such massive growth opportunities is an exciting opportunity for the firm. Providing liquidity to the private credit markets through purchasing other investors' positions and funds or specified assets at a discount to market is a huge opportunity. Not all the headlines surrounding private credit this year have been positive. Certain parts of the market, particularly direct lending, have experienced increased scrutiny around valuation, exposure to software categories, leverage levels, and liquidity. particularly in the evergreen semi-liquid market.

Fortunately, our exposure to those more challenged areas is relatively limited. What continues to resonate with clients is the highly diversified and flexible nature of our credit platform. From an investment perspective, our competitive advantage begins with sourcing and broad coverage of the market. Across our global platform, we review approximately 1,400 investment opportunities annually, spanning virtually every corner of the private credit market. That That breadth of sourcing allows us to identify attractive opportunities across primary funds co-investments, secondaries, and direct transactions, which we then combine into client portfolios diversified across strategy, sub-strategy, geography, vintage year, and industry. The result is portfolios with dozens of underlying investments rather than concentrated exposure to a small number of transactions or a specific part of the credit market. Equally important is the flexibility on how we deliver those investments to clients.

Every client enters the credit market from a different starting point. Some have mature credit programs and are seeking complementary strategies or specialized exposures. Others are entering private credit for the first time and need assistance designing an allocation from the ground up. Our platform allows us to partner effectively with both types of investors. A couple fundraising examples from this quarter illustrate that flexibility. First, in credit co-investments, we expanded our relationship with a longstanding institutional client by developing a strategic partner designed to accelerate deployment into credit co-investments. The program combines our sourcing capabilities with the client's own deal flow and includes both discretionary investments as well as client-originated opportunities, enabling the client to pursue attractive opportunities that otherwise would have been difficult to execute on.

The result is a highly tailored solution that leverages the strengths of both organizations. A second example highlights the range of our broader capabilities, of which credit is an important piece. We were selected by an institutional investor, making its first allocation of private markets. Rather than starting with a single strategy, we designed a customized program providing diversified exposure across both private equity and private credit. The solution incorporated co-investments and secondaries alongside fund investments to accelerate deployment, reduce the J-curve, and provide immediate diversification. These examples exhibit that we are not tied to a single part of the credit market or implementation style. Instead, we begin with the client's objectives and then utilize the full tool set we have as a platform to deliver a solution that best fits the needs.

We believe our position in delivering those solutions for clients has never been stronger. And with that, I'll turn the call over to Pam.

Thanks, John. Fee-paying AUM grew a healthy 13% year over year, ending the quarter at $78 billion. Contracted not yet fee-paying AUM grew to $9.7 billion, up 11% from a year ago, which provides a strong foundation for continued organic growth as a result of the increase that capital is deployed and converted into fee-paying AUM over the coming years. Private markets management fees this quarter continue to benefit from solid fundraising and investment activity and increased 10% over the second quarter of last year. As we look ahead to the third quarter, we expect private markets management fees to increase in the mid-single digits year over year. As a reminder, based on the timing of our specialized funds in the market, we are not expecting material catch-up fees in the back half of the year. Absolute Return Strategies had another outstanding quarter driven by strong investment performance combined with positive net inflows. ARS management fees in the quarter increased 11% year over year.

ARS management fees are primarily charged in advance, so given the strong second quarter investment performance, we expect third quarter ARS management fees to increase by approximately 10% sequentially, which would equate to a nearly 20% growth rate year over year. Total fee-related revenue for the quarter was $111 million, an increase of 11% year-over-year, reflecting solid management fee growth across both private markets and absolute return strategies. Turning to expenses, we remain disciplined in managing our expense base while investing thoughtfully in the business. FRE compensation and benefits totaled approximately $38 million during the quarter, and we estimate FRE compensation to be $1 million higher in the third quarter. Q2 non-GAAP general administrative and other expenses were almost $22 million in line with our expectations. While we continue to invest in technology, including AI initiatives across the firm, we remain focused on driving operating leverage and expect G&A expenses in the third quarter to remain relatively consistent with Q2. Putting these factors together, fee related earnings for the quarter were $50 million, representing growth of 21% year over year, and our FRE margin was 45%.

We believe there is significant scalability embedded in our business and remain confident in our ability to further expand margins over time. Turning briefly to incentive fees, investment performance across the platform remains strong. We earned approximately $7 million of annual performance fees in the first half of the year, and we estimate based on recent ARS investment performance, we have approximately $35 to $40 million of unrealized annual fees. performance fees. The majority of our performance fees crystallize in the fourth quarter, so the amount of performance fees ultimately realized will depend on ARS investment performance in the second half of the year, of which for which SpaceX is an important driver. Specifically, as Michael discussed, SpaceX has been a great investment for the firm and is a terrific example of our origination power. We made investments across many different ARS and private market portfolios that were appropriately sized for the risk at the time, and we have generated billions of dollars of profits for our clients. Given the current size of the position, you can expect some variability in our unrealized incentive fees as the price moves. $35 to $40 million of unrealized performance fees I mentioned assumed $110 share price for SpaceX.

That number would be higher as of the end of last week. Each additional $10 movement in SpaceX's share price is worth about $4 million of performance fees. Ultimately, performance fees will fluctuate based on broader ARS investment performance for the year. As of June 30th, gross unrealized carried interest was $965 million, with $493 million attributable to the firm's share. A variety of factors can cause fluctuations to our unrealized carry balance from quarter to quarter. Our private markets portfolios are marked on a one-quarter lag, meaning that next quarter's unrealized carry balance will reflect valuations as of June 30th. For example, the SpaceX exposure in our Q2 unrealized carried interest was marked at $84 per share, so we could see a meaningful increase in our unrealized carry next quarter due to our SpaceX exposure, again, given the one-quarter lag.

Our balance sheet remains strong, providing us with significant financial flexibility. We are maintaining our quarterly dividend of 12 cents per share while also investing in the long-term growth of the business and opportunistically repurchasing shares. We continue to actively manage dilution through our buyback program, repurchasing 1.6 million shares for approximately $17 million during the quarter. We have $55 million remaining in our buyback authorization. Overall, we are pleased with our results for the second quarter and first half of the year. accelerating fundraising, strong investment performance, expanding management fees, growing embedded incentive fee earnings, and ongoing operating leverage position as well for the balance of 26. we remain confident in both our near-term outlook and our long-term financial objectives.

Thank you again for joining us today. We'd now be happy to take your questions. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one for questions. We'll take our first question from Chris Katowski.

with Oppenheimer. Yes, good morning and thanks for taking the question. Pam mentioned that the market on SpaceX was $84 a share, I think, at March 30. I'm curious what that was at year end. And then I guess I think how typical is that kind of process you know, lift in the marks between, between, you know, say three, six months before an IPO or monetization event and, and, and, the ultimate outcome. And I guess I'm curious if you think about some of the other high profile IPOs that are kind of in the pipeline. Is that kind of a typical lift that we might expect? you know, if some of these major IPOs come to fruition in the next, you know, three,.

nine months? Thanks Chris for the questions Michael. I don't think and I think it would be I think it would be a mistake to look at that and try to project that out onto, you know, onto anything. I think it's, you know, obviously a lot of these companies have built tremendous revenue streams and tremendous value in a short period of time, and there are a range of views as to how that plays out going forward. But SpaceX, sort of everything about it is a little bit one-on-one, and I wouldn't look to – put that onto anything and I think you just gotta you know see how it how it how it all rolls forward. Okay. Fair enough. I mean, you saw, you know, from the fourth quarter of last year to the first quarter to the IPO, and frankly, since the IPO, you know, you've just seen a tremendous amount of movement in valuation and financials. for what it's worth, they seem to have done a terrific job. Some of the concerns with regard to the magnitude of expiring lockups seem to have been a bit overinflated. But,.

I don't think you project anything from that onto anything else. Okay. And then can you remind us, how is ARS billed? Is that billed a value at the beginning of each quarter or at the beginning of each month?.

for for the most part in ARS it's quarterly fees are quarterly in advance based on the beginning quarter AUM number so the performance of the second quarter is in the third quarter beginning AUM number, you bill on that number for the third quarter, you then have your inflows and outflows, and you have your appreciation and hopefully not depreciation, and then you bill for the fourth quarter and so on.

Okay, great. That's it for me. Thank you. Thank you. We will take our next question from Bill Katz with TD Catwin.

Okay, thank you very much. So I wanted to come back to a couple of different things. In your prepared remarks, at least on the press release, Michael, you sort of quoted saying excited around the momentum of the franchise. I'm wondering if you could maybe as you look ahead where you see the greatest lift. It sounds like a lot of good things are happening on the ARS side. Maybe just broaden out the pipe of what your perspective is on that, quote, unquote, exciting momentum. Thank you.

Yes, I think, Bill, and I'm not being, you know, I'll go into anything with you. But it is really we are we are doing well. And this would have been a good, upbeat, positive call without the SpaceX conversation. And the reality is the SpaceX IPO and the increase in value in Q2 didn't really impact revenue at all. yet so in Q2 so You know, we talked, you know, I mentioned our insurance efforts, our individual We highlighted credit, which we think has real momentum we mentioned our pipeline we you know so we're just you know we're head down we're working nobody's taking anything for granted we've all been around for a long time And get that, you know, but but it's it's we're we're we're enthusiastic about a lot of different areas of the business right now. And it feels feels good to us.

Bill, I would just add one other comment there, which is we mentioned that we thought second quarter fundraising would be larger than first and it was. We mentioned again that we think second half will be fundraising will be larger than first half and you know obviously what we see in our pipeline and in our activity you know gives us the confidence to go out there with with that prediction.

Great, thank you. Just as a follow-up, you mentioned that you also feel good about the realization opportunity. So how should we be thinking about that? I don't know what kind of line of sight you have, just given your footprint. And then just from a technical perspective, when we think through the compensation waterfall, how are we thinking about... the carry payout ratio, and then the overall firm payout ratio once you get to the net level. Thank you.

Let me take the last piece first because, and then kind of just get back to the macro market environment. We've maintained, you know, roughly, I think, for 50% margin, I think, where the firm holds, you know, 50% of the firm share. of the incentive fees for a long time. We've said a number of times and, you know, it starts out in the year. We hold the beginning of the year. We hold a little bit less. We see how the year evolves and we have landed at about 50%, at least I think the last two years, uh, And we have said at times when we start to see that carry asset, you know, cash flow more. and or you see extraordinary performance fees out of the ARS business, growth and extraordinary performance fees out of the ARS business, we think the firm can hold more of that over time. And so we do think we have margin there over time when we start to see that the sort of real value of that come through.

We have never put a number on that. We're not going to put a number on that. 50 percent assumption has been a safe base case, you know, the last couple of years, but we do think we have opportunity. do think we have opportunity you know in excess of that over time because as you've noted in the past it's a very big asset relative to our market cap As far as realizations, you know, it mentioned in the call improving But, you know, not yet, I wouldn't say like robust, you've got a better IPO market for us in the middle market, that's probably a little bit less relevant. that we see in our co-invest business, transaction activity is up pretty significantly from this time a year ago. And so the number of transactions that have been done inside our co-invest portfolios is up significantly and that's a positive sign. So we, but we just can't, nobody can predict timing. And frankly, I think the whole industry has been waiting for this for a little, for a little while. So, and it, you know, it's been a volatile, it's been a volatile world. So, you know, the important thing is that the assets there, and that the value of the asset is growing.

And Pam touched on that a little bit in her remarks. We're going to see a lift in that asset next quarter as Q2 values roll through. for the Q3 mark and SpaceX alone's going to give you a lift there. So that value continues to move in the right direction.

Thank you. We'll take our next question from Jeff Schmidt with William Blair.

Hi, good morning. On the ARS business performance was obviously really good. Michael, I think you mentioned the timing of fees earlier. So is that what kind of drove the average fee rate down a bit, the strong AUM growth and the denominator effect versus any sort of fee pressures? Yes.

Yes, so no fee pressures. Anything that impacts that fee growth is really just about mix of investor size and the size of money coming in, that type of thing. It's, there's no, we haven't had any kind of rewriting of fees or anything like that, and we're not feeling that, and that's not a, That's not really any place we're feeling any pressure. And I don't believe that the second quarter numbers were impacted by anything that went on with problems profitability in the funds or marks or anything like that in Q2. That wouldn't affect the second quarter numbers at all.

Okay, great. And then in international fundraising, it's been pretty strong. I think you recently added some senior talent in a couple of markets there. Just curious, how scalable is your international platform today? Will you need to make additional investments as you scale that, or would you expect to see operating leverage from here? Sure.

You want to take that, John? Sure. In general, I would say, Jeff, yes and yes, meaning the business overall is scalable. So our ability to continue to raise assets from all of our channels, whether it's the insurance channel, the individual investor channel. The institutional channel in the U.S., outside the U.S., is something we've proven the ability to do now over the last several years as we continue to raise capital from the investments we're making. And the nice thing is those are relatively modest investments because we've been able to do that with pretty good controls around expenses. expenses generally. That being said, we are always looking to add talent and where we see opportunities to accelerate distribution efforts. And so we continue to think there's just, you know, great opportunity out there kind of everywhere for ALTS businesses and particularly for our business that can meet anyone where they are on their ALTS journey.

Great. Thank you. We will take our next question from Ken Worthington with JPMorgan.

Hi, good morning and thanks for taking the question. So, solid fundraising quarter, you mentioned the $900 million in credit. How much of the $2.3 billion this quarter was in private market funds versus the SMA business?.

John, do you have that number handy or Stacy? I don't have that right in front of me, do you?.

Maybe ask another way, which of the funds in market had closes this quarter and about how big were those closes?.

Let me just. Well, John's looking Ken for a specific number. Let me just, you know, what's interesting is so we're in market. We're at a place now where, and it's funny because we talked about this a little where we're in market all the time. with all kinds of different funds. And we're in different markets. And so we're in traditional institutional markets with traditional closed-end specialized funds. And we're in the wealth channel with open-end specialized with open end product. And we're, you know, so there's the most, we're, you know, that which fund had a close and which, when's that fund expire, and those questions are a little bit less, you know, impactful today than they were, you know, seven years ago, with just maybe the exception of the general comments we give on catch-up fees, because as you know, some of these funds are in market, you know, for 18 months, and last close, the power of of that last close is pretty significant when you have a catch-up fee involved. And so we still try to give you a sense of what kind of catch-up fees we're looking at.

But there are always funds in market now, and there are always... You know, there's just a lot more activity than there was originally. I don't know, John, if you found anything specific you wanted to touch on or not. Okay.

I think year to date, Stacy, you can correct me if I'm wrong here. about 400 million of it is for private market specialized funds. That's correct. But just to add on to Michael's commentary to give you some perspective around it, can we probably have at any given time 10 to 15 specialized funds in market. So you're going to have around half of those be closed-end private market funds. You're going to have the other half be evergreen, which could either be for ARS or for the individual individuals investor channel. So at any given time, you've obviously got a lot going on there.

And I think, right, yes, to that point, like, I think the number John gave is really the traditional closed and institutional specialized or commingled funds, not including the wealth channel where you had other flows in the first half in those channels. So.

Just to put a point on the number John gave you. Perfect. And then you mentioned the pickup expected for second half. You clearly see the pipeline and we see the generalized pipeline. Where do you expect the pickup in second half sales to come from?.

I think it'll be pretty broad based, Ken, just like what we've seen so far this year, meaning all this stuff we just touched on, meaning your specialized funds that are your traditional private market one, your evergreen specialized funds, which could be either in the ARS space or in the semi-liquid or individual investment space. investor channel, your separate accounts. I think you'll see it across asset classes. you know credit and infrastructure still tend to be the kind of leading contributors right now I think you'll see it from you know all the different types of channels and geographies just in general when we look across our pipeline right now the strength is pretty broad-based.

Great, thank you very much. We will take our next question from Crispin Love with Piper Sandler.

Thank you. Good morning. I'm looking at slide 9, focusing on the 20% plus real assets. Kager, definitely a step function higher, looking at 25 relative to 24, and then solid momentum recently. Just with all of the anxiety year to date around direct lending and credits uncertainty, as you referenced, have you seen investors lean more into real assets? And then can you just share what you've been seeing as it relates to demand and infrastructure versus real estate? Sure.

John, you should address it. The one thing I would say is that I don't, I think, think that the demand, you know, we just talked about growth and credit. John just talked about growth and credit in a tough environment for credit with lots of headlines swirling around and all kinds of stuff. And, you know, so I sort of think of it, the demand is pretty significant everywhere. And I think in real assets, it's not like demand has, increase necessarily, it's been strong for a while. And it's been, as you point out, growing at a terrific rate for a while. maybe it's just has a it's you know got a little bit less headwinds a little bit less noise fair bit less headwinds and noise than the you know, than credit has had, but we've experienced growth in credit. So I think, we're seeing this growth everywhere and it's,.

John, I don't know what you want to add to that. John Steele yes, look, infrastructure has been on at least a, I would call it a... 10 to 12 year run so far, and I don't see the run stopping anytime soon. Uh, I think that it is a fantastic asset class for what investors look for generally in the terms of, uh, a stable return profile, a yield-based profile, Profile to it an inflation protection profile to it a long duration asset that's a nice matching for liabilities. So in general, I just see the infrastructure market continuing to grow. It's been 20 years. 25% of our second quarter fundraising. It's been the highest contributor over the last 12 months. Our platform there is very experienced and has excellent funding. flexibility with respect to how to deliver solutions.

And that's obviously before you get into what all the consultants around the world would be talking about in terms of the trillions and trillions of dollars that are needed over the next several decades to improve infrastructure globally. So I think it has a lot going for it. I don't think that it necessarily, you know, has been all of a sudden a good thing because of what's going on in credit by any stretch. Although I do think that it also does show that the ability for the role to play in a portfolio that you thought private credit played, that it competes well with that. It's not a zero-sum game, but that it's also an idea. asset class to have part of your well-constructed portfolio generally.

Great, thank you. And then can you just discuss what you're seeing in Grove Lane recently, the wealth channel distribution? Just any update there would be helpful. Sure. We mentioned in the prepared remarks that.

that's the individual investor. And we mentioned insurance being much more meaningful contributors to our capital formation than they are of our AUM, which just means they're obviously growing So our efforts there in terms of the investments we've made to expand our distribution, are paying off, but it's still early. And still feel like there's just a, you know, a tremendous amount of growth opportunity, but also a tremendous amount of product creation opportunity there. We've got infrastructure registered product. We've got apps that return registered product. We talked on the last quarter about coming to market with a private equity registered product that we think will be differentiated in the marketplace. And as Michael has always cautioned, it'll be some time before all of that momentum and excitement is hugely meaningful to the financial results of the business. But it's absolutely going well and will be a great growth driver for the business for years to come.

Thank you. With no additional questions in queue at this time, I'd like to turn the call back over to our speakers for any additional or closing remarks.

Thank you. Appreciate everyone joining this morning, and thank you for your questions and engagement. We look forward to speaking with you again next quarter. Have a great day.

That will conclude today's call. We appreciate your participation.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, everyone. Thanks for joining us. I'm Mike Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research, and we're thrilled to kick off day 1 of our U.S. Flagship Financials Conference with Jon Levin, President of GCM Grosvenor. Thanks for joining us, Jon.

Thank you for having me.

Great. So GCM Grosvenor is a global alternative asset manager with over $90 billion of assets under management across private equity, infrastructure, real estate, credit and absolute return strategies. All right. So let's dig in.

Big picture, let's start. You guys are a solution provider, which is a bit different from the Blackstones and the KKRs of the world. And for those in the room that may be a bit less familiar with GCM Grosvenor, can you just give us a quick overview of your platform, how you work with clients and what it means to be a solution provider?

Great. Thank you for having us here, and we get to kick off the early morning. So hopefully, people weren't up too late watching Knicks game last night.

GCM Grosvenor, a 55-year-old business. And as you mentioned, kind of falling in this category of solutions provider, I think, means we're sitting in a privileged position in what I think is an unbelievably dynamic and unbelievably attractive ecosystem, which is the alternative asset management ecosystem. And as a solutions provider, you are able to provide capital to the alt ecosystem in a bunch of different ways across a bunch of different subgroups within the alternative ecosystem.

So you've got private equity, infrastructure, real estate, private credit, absolute return strategies. And as an investor, we are able to deploy capital into funds as a primary fund investor, co-investments, individual companies and securities and assets, a secondary investor, multi-asset secondaries, GP-led secondaries and also as a direct investor.

So tons of flexibility in the way that we can partner with hundreds of different other types of investors in the ecosystem to provide capital. As we face clients, what that means is we've got an amazing kind of toolkit to work with clients to understand to listen to where the gaps are in their investment portfolios and to see where the word is going from, provide the appropriate solution, whether that be a customized separate account, whether that be a commingled fund, whether that be a registered vehicle for the individual investor channel, the ability to package all of those different manufacturing capabilities in an open architecture way to provide that holistic solution to the client.

And I think the reason I use the word privilege is I think it gives us a ton of optionality, a ton of ways to win, a ton of ways to be able to sit with providers of capital, understand what their goals and objectives are and then use our toolkit to help them meet their goals.

Great. And one of the differentiators, and you did touch on this, is your customized separate account business. which represents about 70% of your AUM and has seen re-up rates of about 90%, I believe, on average. Can you talk about how you've been able to scale this business, which is a key question investors often ask because it is customized and oftentimes can be bespoke. So how do you scale that business? And why the model results in such sticky client relationships?

Yes, it's a great question. So customized separate accounts or fund of ones or strategic partnerships. These are all different terms people would use to describe the nature of those relationships, have represented roughly 2/3 to 75% of our AUM for 30 years. And it's been a huge part. That delivery mechanism has been a huge part of our success.

So one of the things, first off, that I like to separate is separate the manufacturing from the delivery mechanism. We talked a little bit about all the different ways we can deploy capital, how we can invest capital.

And then the delivery system can be, as I mentioned before, it could be a registered fund, it could be a commingled fund or it could be as we're talking about a separate account. And those -- all those different wrappers or all those different delivery mechanisms use the same manufacturing platform. And the reason I give you that context is it's one of the ways that you can scale customization, which is leveraging the same manufacturing resources to deliver that.

That being said, it is a human capital and technologically intensive delivery mechanism because you are working with clients to deliver something custom, and you're delivering something that is consistent with their objectives and constraints, which I think is kind of important.

The reason that it represents such a big part of our AUM is, I think, a little bit of luck and a little bit of skill. I think the -- maybe the luck and skill part of it was that early on, what we realized was that if we could walk into a client's office and talk to them about what they're trying to accomplish and try to understand their objectives and then design a solution to meet that as opposed to walking into their office and saying, here's this product we're selling, do you want it, that we would be a more effective partner. So maybe that's the skill part.

I think what the luck part was is the answer to your second part of your question. I don't think we had any idea at the time how good of a business that was.

So to your point, the ability to create these very long duration, very sticky relationships that allow for a tremendous amount of kind of embedded organic growth if you continue to execute and do a good job with those clients as we have and your ability to become an extension of their staff, your ability to become a key part of their alternatives program in terms of not only the investment risk return that you're delivering, but also the services and the support that you have around that, everything from advice on how to build their program, to operation, to due diligence services, to customized reporting, to training programs, to secondees. You name it, we've done it for a client and you become not just a fund that they happen to invest in every 3, 4 years, but you become their partner. And that enables you to grow the relationship.

That enables you to expand the relationship into other areas. And it's really you become kind of sitting in a very privileged position where you're sitting on the same side of the table as your client helping them build a program over the long term. And we really think about it as program. It's not just a fund that we're selling or product we're selling, we're helping them implement a key part of their alternatives program. And a lot of times, we become the institutional knowledge. Many times, there's changes at the clients, and we're still there. So these are very, very long relationships that have been very successful.

And one of the things we highlighted in our Investor Day last fall was just what you can expect when you start with a relationship with a client on a customized basis in terms of that growth of that, just that relationship over long periods of time. And so it's been a great part of the business and something, frankly, that I think has some competitive advantage to it, but also not so easy a moat around it. It's not so easy to build that into your processes and build that into your culture overnight.

It's a good segue to the next question on cross-sell because I think that's one of the implications of what you're describing. I think about half of your top clients work with you across more than one strategy and about 1/4, I think, of your annual fundraising comes from cross-selling. So what is it about the platform that enables you to cross-sell so effectively? And how much runway do you still see ahead for that?

Well, 50% work with us in more than one product, that means there's 50% that don't. So that's opportunity. But also in that number would be people that work with us obviously with 2 products, but they could work with us in 3 or 4 or 5.

So I see it as being a key part of our capital formation strategy going forward. And when I look at the overall pie chart of capital formation, you have about half of your capital formation that is coming from the same client doing the same thing with you each year. You have about 1/4 that comes with an existing client doing something new with you and then you have about 1/4 that will come from new clients. That's a very good formula for embedded growth, visibility into growth as well as opportunity for further expansion, and that's what's driven our numbers.

I think it really comes back, Michael, to the -- what I said before, which is once you're sitting in that privileged trusted position once you've proven your ability to deliver for clients, that puts you in a really good position to be able to do something else with them. And I think the reason we're so good at expanding the relationships is because we don't think about it as cross-selling. We think about it as listening to our clients. We think about that as engaging with our clients regularly. We think about that as trying to understand what our clients are trying to accomplish and then evolving the relationship over time to meet their needs.

If you go back 10, 12 years, that 50% number would have been single digit. Now that's a function of a couple of things. One, I think it's a function of having broadened our manufacturing capabilities over that period of time, so you have more things that you can do with those clients. I think it's a function of being a beneficiary of the trend of clients wanting to do more deeper stuff with fewer partners. Oftentimes, it's thought that only the really big guys that everyone's heard of are a beneficiary of that trend. I would argue the solutions providers are as big, if not bigger beneficiary of that trend. And it's a function, obviously, of us focusing on that from a business perspective, which is just make sure that as we're dealing with our clients and understanding what they're trying to accomplish that we react to that.

And I always say to them, if we're working with you in private equity and you're doing something in infrastructure, whether we work with you or not in infrastructure, use us as a resource, use us to understand what you're trying to do. And I think over time, that enables you to expand your relationship with your clients.

You mentioned some interesting numbers. I just want to make sure I got them down right. I'm always up for those little nuggets. So half of the fundraising, it's half of fundraising is from the existing clients doing the same thing, quarter from existing clients doing new things. So that's the cross-sell component. And then 1/4 is new clients coming in.

Yes. And that's over -- every year is not going to look like that. But if you looked at it over broad periods of time, that would be roughly a breakdown.

Okay. All right. Fascinating. All right. Let's shift and talk about fundraising. You're coming off a record fundraising year in '25 and have continued to highlight a strong pipeline ahead. You said second quarter fundraise should exceed what you did in the first quarter and second half should exceed the first half. So can you unpack what you're seeing in the pipeline today that gives you confidence in this fundraising momentum that you expect to continue to build as we move through the year.

Yes. So maybe I'll answer that in 2 parts. Start with the macro picture and then focus on kind of GCM specifically in the numbers that we've put out or at least the guidance that we've put out around capital formation.

From a macro standpoint, the market is extremely active. I think that when you travel around the world, as I'm fortunate to do and meet with all different types of clients and all different types of geographies, you would be hard-pressed to walk into a meeting and come out with that meeting with a conclusion that someone is reducing their exposure to alternatives.

So you're not seeing that.

No.

Okay.

No. You might find someone that's saying, "Oh, I'm going a little bit slower here right now or I'm leaning in here or whatever it might be, and we can talk about some of those different trends. But in general, over the last 5, 6 months or the first half of this year, I've been in more countries and cities than I can count in hundreds of meetings, and I'm yet to find a meeting that's not where someone saying, you know what, I'm really trying to reduce my alternatives program.

And that's despite the challenges that we hear about TPI and liquidity challenges.

That's despite the challenges. So now someone might be saying, I'm a little bit above target right now, and so I might slow my allocation a little bit so that I can catch up and grow from there. But there's no one that's walking into an asset allocation meeting or a strategic asset allocation process or an asset liability study or whatever the different things or a total portfolio approach or whatever someone is doing and looking at their pie chart and their goal and saying that they want that alternatives number to decrease that I'm meeting with.

And then you've got people that are on different parts of that journey. You have places, maybe a U.S. public pension plan that's been doing it for decades that might be mature and at allocation, but even some that at allocation is growing because they're expecting their balance sheet to grow by 7% or 8% a year.

And then you've got places that are way earlier in their journey, whether it's a certain part of the world or whether it's the individual investor, whether it's an insurance company, whatever it might be. So I just think that is a megatrend that is the secular trend that all alternative investment firms are a beneficiary of.

I think to your question about us specifically, one of the nice things about our business, and we talked about it in the context, in particular, with customized separate accounts is we just have great visibility into our business. We know when we're scheduled to sign certain contracts or present at certain Board meetings or close on a certain fund or whatever it might be, which gives us the confidence to talk about our second quarter being larger than our first quarter and our second half being larger than our first half. And so we feel really good about the capital formation environment.

I think part of that is the environment. I think part of that is with each passing year, we have more ways to win, more capabilities, more products, more channels that we're touching and an expanding total addressable market. And so you can find individual challenges and headlines, which obviously are more -- they must sell more articles with those headlines than they do with good news that present challenges, and there are challenges out there. I don't want to have head in the sand about that. But in general, I feel pretty good about it being a pretty productive environment.

Great. Why don't we shift and talk about absolute return strategies, or ARS, as you guys call it. You've delivered some very strong performance over the last few years and has recently started to show positive net flows after some time of flow challenges. What is your outlook there for the ARS business here in '26? And over the long term, what is the realistic growth rate would you say for that part of the platform?

So let's just start with the environment first. It all starts with generating outcomes for clients. And over the last several years, as you pointed out, the returns have been excellent on an absolute basis. They've been excellent on a relative basis. They've been excellent on a risk-adjusted return basis for the quants out there in the world, if you get into the technicals, they've been great in terms of alpha production return relative to kind of risk taken or market exposure you have. And we've seen that continue so far this year. Having a environment where in the first quarter, markets were pretty weak and hedge funds protected capital and even made a little bit of money. Markets come back in April, and we capture a lot of that upside growth. That's and you're doing that without a lot of beta, that's very attractive.

I think that the factors that are driving that attractive environment are manyfold. I think an environment where rates are going to be higher for longer probably is a good thing for active hedge fund strategies. I think that geopolitical tension is not a good thing for the world, but it's probably a good thing for those strategies. I think that any time you're in a technological revolution, which I would argue we are with AI, that's a good thing for active strategies. And so you have more dispersion and more volatility.

And so it's a very good environment for return production. So it has to start there. And what that means typically then is it becomes a better environment from a business standpoint.

So as you pointed out, we had modest net inflows in 2025. We had net inflows in the first quarter of '26. We feel like it's hard to think about what that means over the long term, but it's certainly a better picture now than it would have been 3, 4 years ago when returns were a little bit muted in a lower interest rate environment and everyone was putting tons of marginal dollars out into their private strategies. And so what we've said is the pipeline is very good. The conversations and activity level is very good.

What we model over a long-term basis is that business growing at effectively high single digits. We say that is from assuming neutral flows and then just compounding capital in the market as the fees there grow with NAV. Some people will say, well, could you have a little flow or a little more return or a little less return. There's a bunch of different ways to do the math. And for those people that follow traditional asset managers are used to doing that math. I would argue that the ARS business has many of the same attributes as the traditional asset management, but on every metric kind of better in the sense of the place they play in the portfolio, the return generation, the flows dynamic over different periods of time.

And so we feel like we're in a good environment there right now and feel great about our ability to deliver value for clients, which is the most important part of that picture.

In terms of the flow strength, you made a very compelling and interesting argument around the environment for alpha generating outcomes supporting performance. supporting flows. Do you have a sense of where that incremental flow is sort of coming from?

It's good, it's good.

Because I think over the last decade and change or 1.5 decades, the private markets have benefited at the expense of, say, the absolute return industry. How do you see that pendulum swinging here?

Yes, I think it's a really hard question to answer. I mean, look, the biggest place everyone flows comes from right now is when the market goes up every day, there's more capital to invest.

So that's the strongest source of capital you'll ever find. It's hard to know exactly where it comes from. We don't always have perfect insights into that part of a client's decision-making. They may not even have perfect insight. But I think that you can see a few different things. One, sometimes it can be coming out of a fixed income book where you feel like because of the minimal beta or market exposure in the portfolio, you're not taking a lot of incremental risk, but can kind of grind a higher return. Sometimes you might see it coming out of the traditional equity portfolio where you want to still take some equity market risk, but not necessarily with the same vol. Sometimes it might be coming with slightly less allocation to some of the private market strategies.

So I think it can come from all different places. But in general, I think the idea of, hey, I can generate some really good absolute return. I can do that while sleeping well at night because I've got a little bit of a hedged portfolio to that. And oh, by the way, I can do it where I still have quarterly liquidity and I don't have to lock up my money for 12 years. That's a pretty nice package to be offering clients as a tool in their portfolio.

Why don't we shift and talk about private side of the business. Your unrealized carried interest balance has grown meaningfully since going public, now stands at over $1 billion. What could a more constructive realization environment mean for earnings power of the business going forward?

Yes. The first thing I would say is I would have lost a few bets already on the realization environment.

I don't think you're the only one.

Yes, just in the sense that the only one -- maybe not the only one that would lost a few bets, maybe the only one that would admit it.

But I think that if you would have said, hey, you got a reasonably healthy credit markets, equity markets reflate and companies going public and raising capital at trillions of dollars and all these things, people probably would have said, oh, yes, that's probably an environment turns on a little bit. We have seen it come back a little bit in the realization environment. We're definitely off the trough, but it's not back to where it was.

Now I would argue it shouldn't necessarily go back to kind of 2021 periods of time ever. I mean it will, of course, in some other buoyant market, but you're not supposed to raise private capital funds every 2 or 3 years and hold companies for 2 or 3 years. In a way, I would argue that, that completely undermines the entire philosophy of buying assets and making them better because it takes you 6 months when you own an asset or a company to find out where the bathroom is. You're not creating tons of value and selling it 2 years later.

So I think the idea that you fundraise every 4 or 5 years and you hold companies 5, 6, 7 years, that actually makes more sense to me.

That being said, we are in an elongated period of time. And if you ask me when it turns back on, I would tell you, I have absolutely no idea. But I do see signs of improvement there.

But what I would further tell you is that we are in a unique, and I'll use the word again, privileged position with our $1.2 billion gross carry asset in the sense that it is about as diversified as it gets.

You've got every type of private market strategy inside of that. You've got a bunch of different noncollateralized waterfalls because of your separate accounts, right, a bunch of separate accounts, a bunch of commingled funds. You've got vintage diversification. You've got sponsor diversification. You've got all sorts of asset diversification.

So I'm not going to go out there and make the argument that our carry stream is so diversified and so the portfolio construction is so diversified that you should look at it like a multiple of a management fee stream that I think would be a little bit too far afield. But I would argue that it's virtually impossible for me to picture an environment where the realization environment improves generally, and we aren't a top participant in that in light of the diversification of that asset for us.

And when you think about that number, roughly half of that being the firm share, that represents, I don't know what it is, roughly 25% or so of our market cap today, which probably puts us on the high end in the industry. And so we feel like it's an incredibly valuable asset that we have that will be providing a tremendous amount of cash flow for years to come.

Why don't we talk about private credit, which has been in the headlines over the last 9 months, although maybe not in the most positive light. You and your peers continue to see strong demand for institutional clients. What gives institutional clients continued confidence, would you say, in the asset class? And talk about the role that GCMG plays in the broader evolution and the growth of private credit.

So let me -- I'll kind of answer the question in the order you asked it, which is first on the market and then a little bit about us. I think that at this point, what we have seen is less a credit fundamental problem. I'm not saying we won't see one. I'm not saying that anyone invests without losses. I'm not saying you won't see cycles with normal frequency and default ratios and all the things we've all seen for years in public credit and it will happen in private credit, and it will happen in equity strategies. That's investing.

What we've seen so far is asset liability mismatch that is then being discussed as a credit or an AI problem. And again, I'm not saying there won't be credits that lose money, companies that get disrupted by AI. I'm sure all that will happen to some companies. But what's happened really right now is you've had people that are investing in private assets that have then been wrapped in structures that are meant to provide liquidity under certain conditions. And when there is negative headlines, those conditions are not conducive to providing that liquidity. And I think the healthiest thing that could happen to the individual investor market and the wealth channel, in particular, is learning that lesson as early and as often as we can.

I go to a lot of meetings with our wealth distribution team, and I'll sit with the first prospect and they'll say, "Oh, well, what's the liquidity of your infrastructure fund? And I say it's not liquid. And they say, what are you talking about? It's an interval fund. I said, no, it's not liquid. I'm thinking the sales guys might not take me out on the road anymore. And they say, what you want to know the terms of the fund. I'll tell you the terms of the fund. But I think it's incredibly important that people understand that you can't take an illiquid asset and magically turn it into a liquid asset because a document says that you might provide liquidity under certain conditions.

And I think the earlier -- and again, the more often that investors and especially new investors in this asset class understand that, the healthier the growth of that market will be. And I don't see, by the way, any change to the long-term growth trends for the individual investor or the wealth market as a result of what's happening now. I view it as a 2 steps forward, 1 step back, 2 steps forward, 1 step back.

And again, I view it as a very healthy education time. That being said, there will absolutely be, as I said before, cycles in investing, and there might be cycles in private credit investing and cycles in equity investing, and we'll see how all that plays out. And there will absolutely be companies that are beneficiaries of AI. There'll be absolutely companies that are getting disrupted by AI. We think in our ecosystem, in particular, we happen to be more net long companies that benefit from it than we are long companies that are meant to be disrupted by it, but we'll see how that plays out. For GCM Grosvenor in particular, what we have been preaching for years to clients and what we still believe today, and I think what is evidenced, even supported evidence has been the last few months for what we have been preaching, which is you need a diversified approach.

Nobody in private equity decided after having 2 or 3 investments with large buyout firms that they were done with their allocation. They had large, middle, small and U.S., Europe and Asia and growth strategies and turnaround strategies and distress strategies, and I can name 10 other strategies.

So people that have built private credit portfolios, what we've said is -- you've started to build that program if you have a few large direct lending sponsor businesses, but you're just at the very beginning. Where is your asset-backed exposure and your opportunistic exposure and your structured finance exposure? And are you doing large, medium and small? And are you doing global? Are you doing co-investments? Are you doing secondaries in private credit? And you should be thinking, I believe, about building out your private credit portfolio with a lot of the same principles that you've used to build out your private equity or your infrastructure portfolios. And I think some of the last few months are hopefully supportive of folks listening more to that advice.

Let's talk about secondaries. We've seen a surge in recent years in terms of activity in secondaries as investors seek liquidity amidst a more challenging exit environment, which you alluded to. Some of the peers have challenged some of the industry norms such as day 1 markups despite being accepted accounting practices. Others have argued that the day 1 markup makes sense as secondaries are buying funds at a liquidity discount. So as a solution provider yourself, what is your perspective on this debate? And how likely is it that we could see changes in the accounting timelines?

Yes. So the first thing I would say is that the secondary markets across all the private market asset classes are going to continue to grow. You can't find over hundreds of years of capital markets history any markets where a secondary market didn't ultimately dwarf the size of the primary market in terms of volumes.

Go back to the late 1800s and IPOs, it used to be that you would have an IPO and then it wouldn't really trade and then all of a sudden, it traded a ton or high-yield markets of the '80s, leveraged loan or term loan markets.

I'm not saying that will happen in all private markets because there's some operational and transparency issues why maybe you can't necessarily see that complete evolution, but we're even hearing people talk about now creating trading desks for private credit. And I would argue, once you do that, what's the difference between that and a term loan. And so I don't view that as a bad thing. I just view that as maturation and health of markets that you have secondary markets and liquidity providers evolve once you have a primary market developing at trillions of dollars, then people need ways to trade their financial assets.

And so I just think you naturally are going to have a continued significant amount of growth in secondary market. As for the debate itself, I actually don't think it matters. What I think matters is do your investors understand it. And I think second, the structure matters. So if you're in a closed-end fund, for example, it doesn't matter if you take the markup on all on day 1 because you're using the practical expedient valuation approach and it's appropriate or if you amortize it over time because no one is getting any different fees based on that. No one's getting any carry until it's realized and it's all just on paper and it doesn't matter. And so does the investor understand the return profile and no one's incentives change.

I think when it comes to an evergreen vehicle or a registered vehicle, again, I don't think there's necessarily a right or wrong answer, but there needs to be education and then you need to understand as an investor what it is you're buying. So if you're going into a secondary fund that is growing in size, the fact that they bought a bunch of discounts and generate a bunch of IRR 5 years ago is irrelevant to you because you're coming in today at today's NAV. And again, not bad,they're good, just understanding.

And so to me, what it really comes down to is the concept is only particularly relevant for evergreen funds or for registered funds, and I'm not going to opine on what the right or wrong answer is or what the accountants will say. What I will opine on and what I will always say is it is really, really, really, really important that investors have complete transparency and understanding of what they're investing in and that there's complete education out there.

Great. Maybe to wrap up in the last 2 minutes that we have. At your Investor Day, you reiterated a goal to double 2023 FRE by '28 and introduced an ANI per share goal of $1.20 by 2028. As we sit here today, how are you tracking against these objectives? And what are some of the key building blocks toward achieving these goals?

Yes. So tracking great against it. I have every bit of confidence in those objectives as we had 9 months ago, if not more. And I think that one of the things that gives us confidence is I can construct the building blocks to get there in 5 different ways. And it could be a function of different FRR growth rates depending on different segments. It could be a function of continued margin -- operating margin. It could be a function of the realization environment coming back over that period of time. We've got a lot of different ways to win, and those are just the things we know about today. And so I think we are fortunate to be in a great industry with very constructive dynamics. We're fortunate, I think, to have a platform that has a bunch of different ways to win and capture different trends depending on where the market goes. And every day, I think we increase our earnings power and our growth power through the investments we're making in the business. And so feel very good about that. I feel very good about the sector overall and feel really good about GCM Grosvenor's positioning in it.

Great. Well, let's leave it there, Jon. Thanks so much.

Thank you for having me.

Good day, and welcome to the GCM Grosvenor First Quarter 2026 Results Webcast. [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.

Thank you. Good morning, and welcome to GCM Grosvenor's First Quarter 2026 Earnings Call. Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks; President, Jon Levin; and Chief Financial Officer, Pam Bentley.

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

Please refer to the factors in the Risk Factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release, all of which can be found on the Public Shareholders section of our website. We'll also refer to non-GAAP measures as we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us.

And with that, I'll turn the call over to Michael to discuss our results.

Thank you, Stacie, and good morning, everyone. GCM Grosvenor had a good first quarter of 2026, delivering solid investment performance across our strategies, growing our fundraising pipeline and making solid progress on several of our key strategic initiatives, particularly with respect to the individual investor channel. In a period marked by war and energy price shocks, our business has demonstrated consistency, resilience and growth.

During the first quarter, our AUM and fee-paying AUM grew by 12% and 11% year-over-year. First quarter 2026 fee-related revenue and fee-related earnings were essentially flat year-over-year. But importantly, when adjusting for the impact of catch-up management fees, which were significant in the first quarter of 2025, fee-related revenue and fee-related earnings grew by 8% and 20% year-over-year.

Our unrealized carried interest now exceeds $1 billion, a record high for the firm and a 16% increase over the prior year level. The firm's share of that unrealized carry interest is more than $500 million as of quarter end, which is a 23% increase year-over-year. Despite the heightened volatility that has persisted since our last earnings call, our forward-looking view for the business remains quite positive.

During the quarter, we raised $1.5 billion for a total of $9.3 billion over the last year. Fundraising was broadly diversified across the platform. Infrastructure, which has been our fastest-growing strategy over recent years, led with $2.6 billion of fundraising over the last 12 months, followed by $2 billion raised for absolute return strategies. While we're not changing our base position on flat ARS flows, we did enjoy net inflows in the first quarter and today enjoy a larger pipeline than we have seen in many years. Jon will address the ARS opportunity more fully in his remarks. Outside of ARS, our capital formation pipeline also remains strong.

Our clients are either growing or maintaining their alternatives allocations with many moving into new strategies where we are ideally situated to serve as their partner. While separate account fundraising can be a bit lumpy quarter-to-quarter, we expect second quarter fundraising to be larger than the first quarter fundraising, and we expect the back half of the year to be larger than the front half of the year.

We have made a number of new business development hires to strengthen our platform and support our growth initiatives, including key hires to expand our presence in the Middle East, Europe with a particular focus on the Nordic region and Southeast Asia. We also added a senior leader to our direct infrastructure investment team in light of the continued growth.

A bright spot in the quarter was the continued progress of our efforts in the wealth channel, where sales momentum continues to build. It is worth noting that due to the positioning of our products and solutions, we are not exposed to the range of issues, including redemption pressures, marks and fee-related performance fees that are impacting the private credit and secondaries asset classes in that channel. The current picture for us remains one of accelerating growth in the individual investor channel.

During the first quarter, we raised approximately $500 million from that channel, which is a higher number than we have historically seen in many full years. Drilling down in the first quarter, we secured an anchor investment to build a private equity co-invest portfolio that is intended to become our private equity registered fund. That fund is currently in registration and consistent with our infrastructure interval fund, we are aiming to go to market with significant capital and a partially seeded portfolio, both of which are valuable accelerants to success.

Our infrastructure interval fund is ramping nicely, supported by healthy flows and strong underlying performance. Our Grove Lane distribution joint venture is having early success, and we will continue to invest in that business. As we have said previously, while there's a long-term build, we are very constructive on the role the individual investor will play in our future growth.

As you know, credit has been an area of focus for the firm and an area of concern for the market. We raised nearly $500 million for credit in the first quarter, representing approximately 1/3 of our total fundraising. As a reminder, our private credit offerings are diversified with no particular concentration in any private credit subtype and diversified implementation styles.

Performance across our credit portfolios remains consistent, and we see attractive opportunities to deploy capital, including in credit secondaries, where we've raised nearly $1 billion over the past year and see significant opportunity for growth. We do not see systemic issues in our credit vertical and remain confident in our ability to deliver for our credit clients. Following Q1, we remain confident that the goals we laid out at our Investor Day for both FRE and ANI growth are achievable.

In closing, I want to take a minute to touch on AI. It's an important focus for the firm, and we believe something to touch on regularly with you. As we noted last quarter, we believe we are a net beneficiary from AI disruption, both with regard to our direct exposure to disruptors and with regard to the positive impact on the assets owned in our portfolios. While we do not have a view on how AI will impact people, we believe it is positive for equity. Across our business, we are increasingly utilizing AI within our operations to drive efficiency, enhance operating leverage and support the firm's growth.

To be clear, we have always been and will continue to be a people-centric organization. Our team is our greatest asset. Our culture is our greatest asset. At the same time, we already see how AI can enable our team and our culture to be more efficient, more productive and deliver even greater value to our clients, which will, in turn, deliver value to shareholders.

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

Thank you, Michael. This quarter, I'm going to focus my remarks on our absolute return strategies business, a core pillar and a key differentiator of our platform. To frame the discussion, as of quarter end, we managed $26 billion of ARS fee-paying assets, 16% larger than a year ago. FPAUM has grown at a 9% CAGR since the recent trough at the end of 2023, supporting the increasing earnings power of that business. We serve hundreds of institutional clients, many of whom we have partnered with for long periods of time, and we also manage approximately $3 billion for individual investors in that segment.

The ARS business has always been durable, but now it's also a source of growth. An interesting fact, 100% of our top 25 ARS clients from 2020 are still clients with us today. Our ARS business is built on experience, relationships, scale and high-touch client partnerships. Together with a long-term track record of performance, particularly over recent periods, the value proposition is compelling to our clients and especially in a world with great market uncertainty. Our clients hire us to consistently deliver competitive risk-adjusted returns that are largely uncorrelated with the broader markets, and we've consistently delivered on that value proposition.

Our multi-strategy composite has generated an 8% gross return since inception. On a 1- and 3-year basis, the gross return has been 16% and 12%, respectively. Importantly, over this period, our portfolios have consistently done their job as diversifiers, demonstrating low correlation to traditional markets and providing downside protection during periods of market stress and drawdown. That role is especially relevant in today's environment where investors are increasingly focused on capital preservation alongside return generation. The beta of our ARS portfolios is typically less than 0.3. So the returns are impressive on a risk-adjusted basis.

In the first quarter of this year, amid elevated market dispersion and generally down equity markets, our ARS portfolios preserved capital and delivered positive returns. And notably, as markets reflated in April, our portfolios participated with early indications of April performance being generally north of 4% across most portfolios. Our industry relationships and scale provide a meaningful competitive advantage investing capital.

Our platform includes approximately 190 approved funds, many of which are top performers and sometimes capacity constrained or closed to new investors. We believe as investors seek to add or reenter the ARS market, it would be very difficult to replicate our offerings. As we face clients, our model is high touch. We operate in a very customized solutions-oriented way and often function as an extension of our clients' teams. This includes not just investment management but also support across operations, risk management, portfolio construction. That level of engagement creates durable client relationships and contributes to the stability of the business that I mentioned earlier.

From a financial perspective, our ARS business produces high-quality earnings. It's cash generative with recurring management fees that compound alongside positive performance. There's also meaningful upside from performance fees. You've seen that. We currently have approximately $35 million of run rate performance fees. And as a reminder, in multiple recent years, we've generated more than $50 million annually in performance fees. While the timing of those fees can vary and are hard to predict, they represent an important source of earnings and cash flow.

We're seeing improving client demand, supported by a market backdrop that's increasingly favorable for hedge fund strategies. Higher interest rates, greater dispersion across markets, elevated volatility and ongoing uncertainty all tend to create a more attractive opportunity set for active hedged investing. We generated positive inflows of approximately $200 million in the quarter coming off a positive net inflow year in 2025. The recent investment performance in combination with a constructive flows environment enabled Q1 ARS management fee growth of 10% year-over-year and supports continued growth from there.

With that, I'll turn it over to Pam.

Thanks, Jon. Our business showed solid momentum to start the year, supported by both investment performance and ongoing fundraising activity. Assets under management for the first quarter of '26 was $91 billion and fee-paying AUM was $74 billion, a 12% and 11% increase year-over-year, respectively, reflecting growth driven by performance as well as capital formation across our strategies.

Contracted not yet fee-paying AUM was $9.8 billion, a 20% increase year-over-year, providing a strong foundation for continued organic growth as that capital is deployed and converted into fee-paying AUM over time.

Private markets management fees for the quarter were $63 million, down from $67 million at this time last year due to $7.6 million of catch-up fees in our Q1 '25 results. Excluding the impact of these catch-up fees, private market management fees for the quarter grew 7% year-over-year. For the second quarter, we expect private market management fees to increase by approximately 2% on a sequential quarter basis over the first quarter of '26. Absolute return strategies management fees were $42 million in the quarter, a 10% increase over the prior year. As Jon highlighted, this reflects both performance and net inflows, and we continue to benefit from that strong investment results in the strategy.

In the second quarter, we expect ARS management fees to again be up approximately 1% on a sequential quarter basis, which equates to an approximately 10% growth rate year-over-year. Total fee-related revenue for the first quarter was $107 million, and we expect fee-related revenue to increase in the second quarter by a high single-digit percentage growth rate year-over-year.

Turning to expenses. Our compensation philosophy remains centered on attracting and retaining top talent while aligning interest with our clients and shareholders. FRE compensation and benefits were $37 million in the quarter, which represents a year-over-year decline due to the benefits of operating leverage. We expect this figure to increase by approximately $1 million in the second quarter.

Non-GAAP general, administrative and other expenses were $23 million in the quarter, slightly higher than expected and includes costs of faster AI-related technology investments. We continue to manage expenses in a disciplined manner while also investing in the business to support our long-term growth initiatives. We expect G&A and other expenses in the second quarter to be consistent with the first quarter.

Pulling this all together, first quarter fee-related earnings were flat year-over-year at $47 million, resulting in an FRE margin of 44%. Excluding the impact of the prior year catch-up fees, our fee-related earnings in the quarter grew by approximately 20% year-over-year, and we continue to enjoy organic growth and operating leverage across the business.

Turning briefly to incentive fees. Performance remains solid across the platform. As a reminder, ARS performance fees are primarily realized in the fourth quarter, and we continue to view these fees as a meaningful contributor to our overall earnings power. Our carry fund investment performance remains strong, and this quarter, we surpassed a notable milestone with gross unrealized carry exceeding $1 billion and the firm share exceeding $500 million, up 16% and 23% year-over-year, respectively.

Our balance sheet remains strong, and we are maintaining a healthy quarterly dividend yield of $0.12 per share. As of Tuesday, we had a 4% dividend yield, and there is room for future dividend growth as we enjoy positive momentum in our earnings. During the quarter, we repaid $65 million of our term loan and repurchased $18.6 million or 1.6 million shares under our stock repurchase authorization plan. We intend to use the $64 million remaining in our program as of May 1 to largely manage dilution.

More broadly, we remain well positioned for growth in '26 and beyond. We benefit from strong fundraising momentum and strong investment performance alongside embedded revenue growth from contracted capital and ongoing operating leverage within the business.

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

[Operator Instructions] Our first question comes from Bill Katz of TD Cowen.

Michael, I'd like to go back to some of your commentary, speaking, maybe you can unpack the confidence in the gross sales. I think you mentioned you expect it to be up sequentially and the second half of the year will be higher than the first half. Can you unpack where you're seeing the growth, break it down between maybe the SMA side, the specialized side? And then just to leverage on some of Jon's comments, how you're sort of seeing that between maybe the private market side versus the absolute return side?

Thanks for the question, Bill. So I think the first thing that I would say is that our first quarter fundraising was in line with our expectations. And I think that's important for everybody to hear. It was obviously a lower number than the first quarter a year ago, but it was what we expected. And all of our statements regarding our confidence with Q2, the back half of the year, the full year are absolutely still intact. We feel very good about that. The pipeline is quite full.

We see that growth coming really everywhere. So we see our separate account re-ups and new separate accounts being a source of fundraising and growth for the year. We see our specialized funds being a source of fundraising for the year, and we see the individual investor channel continuing to be a source of growth and fundraising for the remainder of the year.

Our specialized fundraising for this year will be weighted towards the back half of the year and likely weighted towards Q4 as certain funds will turn on in terms of fundraising later in the year in the second half. And so I think that's touching on all of the things you asked me to comment on. And if not, you'll let me know. But our pipeline is quite full, and we are making progress monthly in our individual investor efforts, and we are enthusiastic about the way things are looking and which led us to reiterate our guidance for '28 from Investor Day that we've given you before.

Okay. I can follow up off-line. On the -- just coming back to '28 for a moment. If I do the quick math on your guidance for management fees, and you look at where it was a year ago, it's running sort of more of like a mid-high single-digit kind of growth rate. What kind of acceleration do you think you need to ensure that you can hit your '28 goal of doubling FRE?

So let me answer from 2 directions. One is top line. And let me just actually take a big step back and say we're confident we've recommitted to that -- to those growth objectives. Obviously, getting to those growth objectives, I don't think we ever thought or communicated was a perfectly linear function like straight line, and we expect -- expected and continue to expect years where we would be above the CAGR, so to speak, and years where we would be below. But we think that that target CAGR is well within our reach, and we feel very good about our ability to get there.

I think we will see over that period of time some increase in the top line growth. And as you know, and as we've consistently said, we continue to believe we have margin expansion as well. So if you look at our revenue growth adjusted for the catch-up fees and then you look at our FRE growth, you see that impact of margin expansion. And so I think it will be a combination of solid top line growth, probably higher over the full period than the numbers you just quoted, but also margin expansion that will deliver the profitability growth.

We'll go next to Ken Worthington of JPMorgan.

I want to dig a little bit into wealth. I apologize if I misheard this. I think you said that you raised $500 million this quarter in the wealth business. You've got the infra product in market. Where does the money go if I heard it correctly, and it was $500 million? And did the $500 million include some of the seed capital that you raised for the registered private equity fund?

So Jon, I'm going to let you sort of take that. But the one thing that I do want to mention, in our last quarter call, Jon talked a lot about our private label wealth growth. So while we have the infrastructure interval fund in market raising money every day, and we are bringing the private equity co-invest fund in registration, we are -- we continue to raise money in the wealth channel outside of the registered vehicles. And I think that's important to just remember. And Jon spent a bunch of time on that last quarter, quoted the number of private label relationships we started over the last year or 2, and it was a significant number, and we're going to continue to grow in that part of the wealth channel as well. And so Jon, anything else you want to add, welcome.

Yes. I think I'll just expand on that point, Michael, which is our ability to raise -- we're super excited about the infrastructure product. We're super excited about the private equity product that will come in registered form. It did not include, by the way, Ken, to your point, the seed capital because that came from an institutional investor, so $500 million does not include that. But at a broader level, as Michael pointed out, the registered funds are exceptionally important, but they actually will probably never be the majority of the capital that we raised from the wealth channel, maybe over time, but certainly not for the near term.

We raise capital across all of our verticals, private equity, infrastructure, real estate, absolute return strategies. And we have the ability to raise that capital in separate account form where you're doing possibly separate accounts for a single wealth individual of a high net worth nature. It could be a separate account that is for an advisory firm or an adviser at a large firm that services or serves to be a solution for a number of that particular adviser clients. It could be a 3(c)(7) kind of private traditional closed-end fund. And of course, then it could also be registered funds. And so it's pretty broad-based.

And I would argue, and we do argue and do say, and Michael mentioned, I talked about this in one of our previous calls, we think that's actually one of our real competitive advantages in the wealth channel is that flexibility, both on the broad diversified open architecture solution, but also flexibility with respect to the wrapper.

We'll go next to Crispin Love with Piper Sandler.

This is Ben Graham in for Crispin Love. I'm just wondering if you could discuss what you're seeing in Grove Lane recently and more specifically, just if the current climate and sentiment in alts has changed your near-term views for Grove Lane at all?

Yes. Our near -- so Grove Lane is doing well. We're adding to the Grove Lane team. As we said in our comments, we're going to continue to invest in Grove Lane, and we're very happy with what we're seeing there and with how Grove Lane and the Grove Lane team, which we have added to over the last year is performing. We are -- we mentioned that some of the issue set that has captured a lot of conversation and attention in the wealth channel with regard to alts. It's, for the most part, an issue set that we're quite insulated against and perhaps even a beneficiary of because our products aren't in that -- in the center of that conversation in any way.

And we -- I sort of laid out the specific places that where we're not impacted, which is where all that kind of conversation is. So we're not seeing we're just seeing growth there, and we're seeing opportunity there. We're very happy with Grove Lane. We're investing with Grove Lane. And we're not -- I'm not stating that I think that we are a beneficiary from the conversation and stresses associated with redemption or fee-related performance fees or marks or anything like that. But we don't have those issues in our portfolios and our offerings in the wealth channel. And so we are growing admittedly off a low base, but we're growing, and we feel very good about that.

We'll go next to Bill Katz with TD Cowen.

I got myself disconnected just as you answered my prior call, so I apologize for that, but I think I got the notice of my team. Just think about realizations for a moment. And you mentioned that you're now north of $500 million in terms of your share of that. It looks like your ratio of that is going up over time. So maybe a 2-part question. How do you sort of see the realization backdrop over the near term? I appreciate that the macro is very choppy from day-to-day. And then one of your peers recently had a very unique way of trying to accelerate the realization possibility and capital raising by creating new entities to sort of transfer some of that value. Just wondering as you've looked at that, and is there an opportunity here to somehow accelerate the late earnings power? Because if I do the math, it looks like the net accrued carries about 20-some-odd percent of your market cap. It just seems like a lot of untapped earnings.

So thank you, Bill, for the question, and thank you for the realization of the value of our net accrued carry. And I would start the answer by pointing out that behind that net accrued carry at net asset value is a tremendous amount of carry at work that is not yet in the money. We're not today working on a transaction like that. We're familiar with what you're referencing. We're not working on that today. There may be opportunities for us to do that and to accelerate the realization of some of the carry.

It is not the easiest thing to do. It's a longer, broader conversation. Carry is a huge asset class across the industry, and it is an asset class that is, at this point, largely unfinanced. And I do think there are opportunities for financing markets to unlock some of that value, but it's not the easiest asset class to value and unlock because there is so much carry at work that is not yet in the money, that is harder to find agreement on value. So the carried NAV is not particularly hard. It's NAV. Everything is liquidated yesterday, that's what you get.

But you have this giant asset behind that that is not in carried NAV yet, and that's where -- it's not the easiest asset to value and to find agreement on value for. And we, as you know, are significant owners of the firm and therefore, the firm share of both carry at NAV and carry at work, and we're always going to want to -- we're not going to want to do anything that we don't think is a fair and full reflection of value just to accelerate. The timing of something that we believe is a when, not if, and we believe it is growing and its fundamental value is growing while we're holding it.

So we're certainly -- this is something we spend a lot of time talking about internally because we do think that there are opportunities to try to finance the carry asset, not just for Grosvenor but across the industry, that's a big opportunity. But that carry at work piece is hard to get to a place where you are happy with the value you're getting, it's necessarily attached and tied to carry at NAV, and we're just not going to make a deal that short changes value for short-term realization when we believe that the value is growing -- the value of the carry at NAV is growing from increased value of portfolio holdings and the value of the carrier work is coming into the money and growing your carried NAV as well. Does that make sense to you?

Right. It does. I was just wondering, just given the backdrop, how you are thinking about the opportunity to maybe tap into that $500 million as you look over the next several quarters just in terms of realization potential.

I'll jump in -- maybe I would just jump in to say, one of the -- Michael talked about people financing different assets on the balance sheet that the corporation owns, there's also what you've probably seen is a huge amount of activity around continuation funds. The transaction from one of our peers you might have been referring to could have been a recent deal where there were some leverage put on a prior fund such that the proceeds from that leverage could go commit to the new fund and potentially unlock some carry in the prior.

Any time you have a massive amount of capital invested in the private markets, there will be various tools and innovations developed to, as Michael pointed out, finance that and be creative in terms of kind of liquidity provider. I don't -- and I wouldn't say we would -- we're not looking at any stuff like that right now. As Michael pointed out, I won't say we would never look at stuff like that. I think the broader point from our perspective is you have an asset that is compounding, as Michael pointed out, at very nice growth rates, which means that it is working for you, the shareholders, even while it is not yet necessarily turned into cash.

And I think the other point from our perspective is it's made up of well over 100, if not 150 kind of waterfalls, which is unique, and it's diversified across all the asset classes and all the implementation styles. And our clients are patient with respect to the realization of capital, and we're patient with respect to the realization of that asset, especially when it kind of continues to build value and work for you.

We'll go next to Tyler Mulier with William Blair.

It looks like you're in the market with 2 new specialized funds. I think one of them is the next multi-asset class fund. The predecessor funds there last year raised about $1 billion each and pretty strong performance. How are those initial conversations going? And any color you would offer on those?

Jon, do you want to take that? I think we're kind of in premarket, but do you want to take that, Jon?

Sure. Yes. I mean I think we're -- that's our MAC IV franchise that you're talking about. You're correct that the prior fund is roughly that size, and you're correct that the performance has been very good actually, as you've heard us talk about probably more in the last call. It happens to be one of the areas, not the only area, where we were able to leverage the broad origination of the platform and leverage the information we get from our privileged position in the ecosystem to pick up on various themes going on in the market, which meant that it was a place where we were able to get along some of those AI themes and data and energy and technology themes that are kind of powering the market now. And so it's been a very good story for investors.

It's one of those products that doesn't neatly fit into a bucket, but for investors that just appreciate the value of our origination and appreciate the delivery of an attractive risk-adjusted return profile, we're excited to start, as Michael said, kind of premarketing and start talking to clients about that subsequent fund towards the back half of this year.

And the only thing I would add is that I believe that MAC III just not hit the market, came to market at a time that wasn't the best time for MAC III. And I think that had it been 6 to 9 months earlier that we were back in market, it would have actually been a much larger raise than it ended up being, and I think the timing for MAC IV, which will be in market later in the year, and we're sort of premarketing now, the timing for that is much better. And so we're enthusiastic about trying to drive MAC IV for the reasons Jon mentioned and just for the simple timing, which was unfortunate and I think did result in MAC III being a lower raise than it could have been, and we don't -- we have advantageous timing now with MAC IV.

Got it. And then I got to ask on SpaceX since it held up pretty well last week. Is there any color you're willing to share about your exposure in the current market?

All we would -- all I think we're prepared to say at this time is we do have exposure to SpaceX. It's been a very, very successful investment for the firm. And obviously, with all of the public information that's out regarding SpaceX and their planned offering as early, I guess, as next month and their relatively frequent announcements with regard to progress, including yesterday and their deal with Anthropic, we're enthusiastic about the upside potential that our SpaceX exposure provides us over the remainder of the year.

[Operator Instructions]

Let me just add to that last answer just to say that I think if SpaceX does become public, at that time, we'll probably talk about it in a bit more detail, and it probably will be more volatile than it has been in terms of valuation and marks sort of week-to-week, month-to-month. And so we'll want to provide more detail on that if that does happen later in the quarter or in the third quarter.

And I'm not showing any further questions.

Thank you, everyone.

This does conclude today's conference. We thank you for your participation.

All right. Hello. I'm Mike Brown, the U.S. asset manager and broker analyst here at UBS. I'm pleased to introduce, Michael Sacks, the Chairman and CEO of GCM Grosvenor who served as CEO since 1994.

GCMG is a global alternative asset manager solutions provider with $91 billion of AUM across private equity, infrastructure, real estate, credit and absolute return investment strategies.

Michael, thank you so much for joining us.

Thank you for having us, and we're glad to be here. Thanks.

It's not so hard to switch around to get down to Florida, is it?

Not this time of the year when you live in Chicago.

So Michael, maybe we just start with an overview of GCMG.

Sure.

You kind of described yourself as a solutions provider, as I just mentioned. And so what does that mean in practice? And how does that mindset really shape how you engage with your clients?

So I think the concept of a solutions provider primarily relates to the fact that a large percentage, slightly over 70% of our client relationships are in customized separate accounts or funds of one, which are portfolios that we create with clients, meaning we settle on objectives and constraints and what will be included and won't be included broadly described with the clients and then we go ahead and we implement those portfolios.

And I think that, that's a much more iterative and interactive process that has some service aspects and elements associated with it and some consultative aspects and elements associated with it than a ticket to a fund. So I think if 70-plus percent of your business is custom separate accounts and you're going through that process with your clients and you're engaging at that level of detail and helping your clients solve problems beyond the -- beyond just the return of the portfolio, I think you're a solutions provider. We do like to also point out that we're -- you specifically had said your clients. And so that's my answer there.

But we also think we are providing solutions to the broader alternative investment space, and we're providing a lot of value add to the sponsors and the other participants in the space as well. So I think that custom separate account is probably where it's anchored, but it's really being a solutions provider, a capital provider, an idea provider to the breadth of the space.

Let's talk a little more about the customized separate account side of the business since that's 70% of your AUM. You talk about a lot of the stickiness and perpetual nature of those relationships. So what really differentiates your approach to the separate account model? What's driven that 90% re-up rate?

Look, ultimately, performance matters with everything. And so we have to be delivering good investment results on a return basis, on a risk-adjusted return basis with regard to targeted return inside levels of volatility that are -- have been talked about we have to deliver kind of as advertised, if you will, with quotation marks around advertising. But beyond the performance, there is a very significant element of service and consultative value where you are, to some degree, an extension of staff.

What we find is that where we have these large custom separate account relationships, we almost like act as like the base of a pyramid for our clients where, say, private equity, there's a big chunk of their private equity allocation that we're managing for them in a custom separate account and we're helping them with.

And then they have allocations on top of that, that are also garnering a degree of support from our efforts. And so it makes for -- they will move around that top of the pyramid, but it makes for a very, very strong stable base of the pyramid. Our separate account relationships have a tremendous tenure. They have almost all of them have re-upped multiple times. You've mentioned a high re-up rate. We have -- when we make an initial sale, you're working with the client for several years through your first investment period, they're re-upping, you're working with them again, they're re-upping.

And just yesterday on our earnings call, Jon gave, I think, 2 examples of large separate account relationships that are many, many, many multiples of the initial relationship size as we've kind of gone through time and delivered for the clients and done more and more for them. So it's separate account business is a very -- a very good business in the sense of stickiness, real relationships, real value add outside of the -- just the return stream. And there's a reason it's got much higher re-up rates than, say, commingled fund investors do.

So it's got a real compounding effect. That seems to be pretty clear here. So you just mentioned earnings and you reported earnings yesterday. Certainly, very strong results. Stock reacted quite positively, up over 14%. Maybe just talk through some of the highlights from the fourth quarter.

First, we can't take too much away from the stock reaction because the stock had gotten crushed in this SaaS scare a few days before that. And so I think we -- I've got to acknowledge that. We had a very good year, and we had a very good quarter. And from an investment performance standpoint, it was very strong. So we delivered a lot of value to clients and I always like to start there.

From a fundraising standpoint, it was the best year we've ever had. We raised $10.5 billion. It was the best quarter we ever had. So those were kind of records. We generated terrific performance fees in our absolute return strategies business. The absolute return flows were good. It was just a very -- we had margin improvement. We got more operating leverage, which we had said we were going to get, but it was good to see it come through. And it was just -- it was a very good year.

I think for me, most importantly, we had a full pipeline at the beginning of 2025. We had this very significant fundraising success throughout 2025, and we start '26 with a pipeline that's actually larger than it was a year ago in 2025. So we not only raised all that money, but we fully restuffed the pipeline to have it be as robust as it was a year ago when we had this terrific year. So I think it bodes well for '26.

As you know, we've set -- put out there some -- we put out some long-term goals with regard to our FRE growth from 2023, with regard to our adjusted net income by the end of 2028. And after last year is the second year of that 5-year period, we put out those long-term goals, we're certainly on track to achieve our goals, and we feel good about that. And we reiterated that on the call yesterday.

That's all great. Great to hear. You talked about the pipeline there. So I wanted to maybe just dive a little deeper into the fundraising environment for 2026. So when you talk about the pipeline, you talked about how it's greater than where it was this time last year. Maybe give us a little view into the timing of how that pipeline comes through and what that means for fundraising for the year?

So we had a pretty consistently good year last year, and we were kind of closing business all of the time. When you are -- when you do have a heavy custom separate account, approach, you can have -- you have large -- they're large relationships. And so you can have a little bit of lumpiness just based on does something close before quarter end or is it closing push into the next quarter. But that pipeline is very full. And what's interesting about the pipeline and what was frankly interesting about our numbers, our results last year, all the verticals grew.

We were taking money into -- we're doing infrastructure, real estate, private equity, private credit and hedge funds, ARS. All of those saw -- capital commitments last year saw good top line fundraising. And that fundraising, by the way, came from a breadth of clients in terms of client type, client geography, so during -- you had a slowdown in private markets in '22. Rates spiked after the war started and you -- we had a slowdown. Our fundraising had been up around $7 billion, $8 billion. It dropped down to, I think, in '23, a little over $5 billion. It popped -- sort of recovered a bit in '24 to $7.5 billion, $7 billion, $7.2 billion, if I remember precisely, and then $10.5 billion, $10.6 billion last year.

Throughout that whole period, we were very clear, like we were saying demand is not going anywhere. We're talking to clients every day. We're talking to the market every day. Sales cycle is stretched. Rates are up. People are doing their own checking to see what kind of damage they have in their portfolios, but nobody is backing away from alts and alts still have strong demand. And I think that's -- we've now seen that with '24 and '25 that none of that demand went away. It just sort of stretched the sales cycle a little bit. And it seems like that sales cycle is back, and we would envision pretty -- again, sometimes you're closing on a $700 million account on a $10 billion raise. So if that moves a quarter, it can be a little lumpy. But by and large, it's a full diversified pipeline with a lot of opportunity in it.

Okay. That's great to hear. Maybe if we change gears to the individual investor, where you are really kind of just scratching the surface there. You've made some significant process -- progress over the past year. You did launch the infrastructure interval fund and the joint venture with Grove Lane. So maybe talk about where the business stands today? How do you think about continuing to scale that channel over the next 3 years?

Yes. So we -- it's a major strategic priority for us. And I think it's arguably -- I think our core institutional business has tremendous sort of compounding built into it naturally. And so I'm going to get to individual investor in a minute, but I just -- between re-ups and between successor commingled funds and between cross-sells where a long-term client starts to work with us in a new asset class and between -- and looking at that contracted not yet fee-paying AUM that's already signed and sits on the shelf, those -- without adding any new clients, those result in real growth of our core institutional business.

Our wealth channel business or individual investment business is only about 5% of our capital. And there's -- as I think everybody probably is aware, there's huge opportunity in that space. It's significantly underallocated the investors, the wealth channel investors are significantly under allocated to alts as compared to institutions, and they are significantly under diversified as compared to institutions.

So we think a lot more flow and a lot of new names and new product from new sponsors finds its way in that channel, and it's a pretty tremendous amount of capital that you could see coming into alternatives over the next decade. And it's obviously been tremendous over the last 5 years. And so we're making a real push there. And as you said, we -- this was a big year for us in terms of making that push. We said it was a real strategic priority. We launched a distribution effort in a joint venture with a group called Grove Lane that we went out and found assembled structured relationship with, and they're working with us on distributing Grosvenor product, and we've got very talented people there, and we're adding to that team, and we're excited about how they're -- about the future, but we're actually excited about what they've done already.

They've added a number of relationships, and we are now -- we feel like we have a presence there. We have the infrastructure interval fund where we work with a terrific firm called CION, that's a wholesaler that has distributed in the past for Ares and for Apollo, and they're working with us on this fund, and they're doing a great job, and that fund is now raising capital every day, and that is growing, and we're hopeful that it's going to get to a size soon enough to then be able to plug it into the wire house channel somewhere, which is something we've done -- we've had success with in the past.

And we filed registration for a private equity product that will be in the wealth channel as well. So we're making a big push there. I mentioned we have a number of ways to win in that wealth channel. So we have product. We also have white label, private label relationships where we have -- I think what Jon said on the call yesterday, 11 of those in place in the last 2 years where we work with certain RIAs, certain adviser groups, and we create a version of a custom separate account for them to offer to their clients, and we think that can actually take some market share.

And then I do think you're going to have like sub-advisers on model portfolios that will be adopted over time. And we're as good a player to pick up a piece of a model portfolio as anybody. So all of that actually just out there driving individual product, doing our private label activity and then working to get into the model portfolios and doing it across the full spectrum of the wealth channels, I think it's a tremendous opportunity for us.

Maybe just a quick follow-up on the wealth channel. I'd love your view on this, just given your perspective in the market. You talk about the decade opportunity here, and it's clearly a decade and multiple decades. But right now, in the current environment, there's certainly a bit more -- maybe a little more turmoil or a bit more kind of speed bumps in the space, particularly for the industry you're seeing in the private credit funds that we're seeing. Elevated redemptions and slowing gross inflows. So my question is, are you observing any pause or slowdown in the wealth channel? Again, you guys are really growing and ramping here. But what's your views on how that could play out over the next year?

For us, because we're starting at such a low base, it's all upside for us, and it's all growth. My sense is that while you may see different product type asset class, different asset class type investment activity be more in favor and out of favor at different points in time. And you certainly will see different structural models be in favor or out of favor, your tender fund versus interval fund, et cetera. You -- there's a tailwind and there's a tailwind for a while.

So I think that when you're operating a business with a tailwind, I've been in the alts business and essentially since 1988, it's been a tailwind, and it's been -- it's great. And I think with regard to the wealth channel, you're going to have a tailwind for a while, and it may be more robust and less robust, but I don't see anything that turns that into a headwind for the foreseeable future.

Okay. Great. I can't let you off stage without talking about software. So I'd love to maybe talk a little bit about kind of your views and perspectives on the industry here. But maybe just start by kind of breaking down the software exposure broadly for GCMG. And then as you think about the industry, I'd love to hear your views on how to think about AI-related disruption, whether it's in private credit, private equity and maybe how LP allocations could react if we do see some real challenges flow through private assets.

So first, just even before I get to software, I'll say with regard to Grosvenor and the way that we operate as a solutions provider, one of our core tenets in every one of our verticals is diversification. And so the amount of diversification that we have in a typical diversified private equity portfolio or typical diversified private credit portfolio is significant. And there is no one industry, one issuer, one manager, one strategy that is ever going to be kind of an insurmountable problem for any of those. And that's a core tenet of how we operate. We've always operated that way, and it holds true for our exposure to the SaaS businesses that got crushed last week or last several weeks. The -- and I think that's just important to point out.

Firm-wide total AUM, about 4% in SaaS businesses and credit business, about 6% in credit -- in SaaS businesses. I think our view is that the credit attachment points are likely to protect against -- I'm not saying there will be certain things that -- there's always things that are problems. But the credit attachment points generally will protect the credit portfolios. I actually -- I just personally think it's -- how SaaS businesses are valued from an equity perspective is maybe the more meaningful change because you had a lot of valuation that was revenue-based valuation without regard to necessarily cash flow or levels of profitability, the growth was terrific. And it's -- any per seat model is going to have to reinvent itself to some degree.

And so you may see changed growth rates, and you may see changed valuation metrics there. But I think the -- I will say this, again, having been in this world since the late '80s and having been a bit of a student of the world for the times prior -- before I was in it, there's always noise around the alternative asset management space. There were -- you can go find articles in the '60s and the '70s, predicting the demise of hedge funds that AW Jones started this thing called the Hedge Fund, and it was going to -- they were going to go away and they were dead. And like you can always see this -- you have noise around private credit. You have noise around AI. And so I think it's important.

It seems like over these last few weeks, the markets have reacted very, very sharply to things that, frankly, are is a new version of Claude or there's a new app, but it's not like we all haven't known AI was coming and was going to bring about it a lot of change and hopefully a lot of efficiency.

And in fact, Grosvenor, we have more net -- we think we have more net -- we have direct long AI exposure, and we think that we have more net long AI and AI beneficiary exposure than we have exposure to SaaS or software. We're long the disruptors. Like if it turns out that it's the level of disruption that some of the recent activity implies, it's going to be a good thing for Grosvenor and for our portfolios and our investors.

So I think it's important to just sort of do the work and stay -- keep your head on straight. And it's a lot of change and it's a lot of opportunity, and it's probably beneficial, I think, for investors over time.

Yes, that historical perspective is really interesting as we all kind of try to digest this really fast-moving evolution here. Maybe if we change gears to the origination side. You often talk about that your long origination and short capital. That contrasts with many peers. So what really enables you to scale origination? And how are you thinking about distribution to really fully leverage your manufacturing platform?

I think that the -- there are a couple of points embedded in that. And so one of them is that, that origination is here today. We don't really need to scale that origination. We have excess capacity. So long origination in its most simplest terms means we could put a lot more capital out without necessarily doing a lot more -- a lot more -- making a lot more investments, a lot more transactions.

We have room to upsize in the things that we are already doing such that we could grow significantly with very, very little impact to margin. And I think that the loan origination comment is a comment that relates to maybe our attractiveness to some of the very, very large institutions that have capital that they need to invest that may have most of that capital allocated to the very, very large providers and where we're significantly in the middle market, they can come to us and get a lot of middle market capacity very easily and very quickly and we have conversations like that.

But I think that loan origination really is fundamentally also essentially an operating margin point. What we're basically saying is to the marketplace, we're saying we have this capacity, come get it. We want to sell it to you. But I think what we're saying to shareholders and to analysts like you are, we can grow significantly with -- with positive margin.

We don't have to -- we have a lot of capacity in our existing business. We said that when we came public. We have seen our operating margin grow significantly. Over that period of time, we added a couple of hundred basis points of margin last year, and we think our margins are going to continue to expand between now and the end of '28 when we put these longer-term goals out there.

Right. That's great to see that margin continue to go in the right direction. So a lot of optimism in 2026 about the capital markets recovery and that more exit activity will continue to happen in the sponsor space. Your unrealized carried interest balance has been growing meaningfully. So how should investors really think about the earnings potential from the carry in a more constructive realization environment?

So I think the way that I think about it, the way I'd like shareholders and prospective shareholders to think about it is that it's a very significant, very meaningful asset. It's roughly 20% of our total enterprise value sitting in carry at net asset value as of the end of 12/31. It has been depressed because of the depressed realization environment. So it's not flowing through our financial statements and cash flows the way you would expect it to in a more normalized basis.

So the only number that we were disappointed with last year, we had a great year as a firm, but our fourth quarter realized carry was a low number. We were expecting that to be higher, frankly. And so the way I would hope people look at it is, it is simply a question of when, not if. And if the value of that asset is compounding at a good rate between today and when, I'm perfectly happy, and I would hope shareholders will be happy. You'd like -- you want the cash, you want the -- but it's -- are you -- is it compounding? Is it growing at a good rate? We did mention on the call yesterday that based on some things that we're already aware of it's -- we're highly likely to have a good first quarter in terms of the growth of that asset. And it's a material asset.

And the thing that we did touch on is we do have a lot of -- that's carry at net asset value. That's liquidate all of those portfolios and what does the firm get from the carry. Separately, there's a ton of carry at work, which is AUM subject to carry that is in the early stages of deployment. The investments haven't seasoned yet. It should grow into carry at net asset value over time.

There's a tremendous amount of that in our system, multiples of our carried NAV. So when you -- if you go back 5 years or so and you look, we had, I don't know, $135 million of carried NAV, that's about $478 million today. And on the way from $135 million to $478 million, we collected $85 million or whatever we collected.

We think that, that $478 million is going to have a similar experience. I'm not saying 3.5x, not saying identical, but my view -- my belief is that, that $478 million is going to be a bigger number 5 years from now than it is today, and we will have collected a bunch of cash along the way. And so it's just a terrific asset, and it's actually an important part of our valuation.

I don't know that it gets credit for a dollar good asset from the market. I think cash and after-tax investments get kind of subtracted out, but I'm not sure the carried NAV does, but it's a pretty good asset.

Well said. So 2025, you guys had a great Investor Day event. You laid out some new financial targets. It sounds like you basically affirmed them on the earnings call yesterday. Where do you think there's some upside potential to those targets?

Yes. I think we have -- so this is actually -- I'm really actually very -- it's a good question. Glad you asked it. I actually think the upside optionality of our business is, one, is something that's not appreciated at all by the market. So if you look at our business and you look at where we trade and you look at our multiples and just our growth rates and you look at everything, I think there's a pretty easy argument that our target prices much higher than where we're trading today that we're trading quite cheaply relative to the market, quite cheaply relative to peers.

We have a high dividend yield compared to most of the other people in the industry, et cetera. And so I just think on a -- and we have this really good business that spits off a lot of cash and it compounds and it's got this built-in growth from all the institutional investors. And it's just a really constructive idea. None of that is incorporating any of the upside optionality that I think exists in the business. So we're still on a relative basis, small, like it's easy.

We raised $10.5 billion last year. We had a great year. We're starting the year with fee-paying AUM, 12%, 13%, something like that percent higher than a year ago. I just visited somebody in Japan that is making a 3% allocation shift to alternatives on a $1 trillion balance sheet. Like it's easy for us to kind of blow through -- you've sort of seen maybe what slow period looks like over the last few years what slowed down.

I think it's easier for us to blow through a lot of things. The white space in the wealth channel is monstrous. So I do think we have a lot of that carrier work that I talked about is a big thing. So I think that we have a lot of upside that is going -- completely unappreciated and the optionality, if you will, is on the upside, not the downside for Grosvenor and in particular, for Grosvenor as a business, but in particular, as a stock at these price levels.

Got it. And maybe if we talk about some areas where you have been seeing very good growth and that perhaps contributes to that upside is maybe infrastructure and private credit. That's been some of your fastest growth strategies. Really, if you could boil it down, what really differentiates GCM Grosvenor here? And how durable do you think the growth is there?

Yes. So first of all, I think the growth in infrastructure is quite durable. We've been growing at very high rates there. And I think that it's likely that infrastructure continues to grow like painting myself as an old guy. But the -- if I go back and I look at the evolution of hedge funds, I look at the evolution of private equity, and infrastructure is -- these are asset classes that were not on the efficient frontier. They weren't in model portfolios. They weren't in all the institutional portfolios, and that sort of all happened from the late '80s to where we are today, and it became an institutional asset class and infrastructure is early days in that.

What's interesting about infrastructure is there's actually this true sort of fundamental need for the asset and the asset base to get bigger. We have massive need for power generation. We have -- there's -- all of the infrastructure projects have a fundamental underlying demand, which is a little different than an operating business going from being privately owned to private equity owned to being publicly owned to be privately owned. These are the real capital needs for infrastructure that come with returns. So I see infrastructure continuing to grow.

Our approach is a diversified infrastructure approach where we have direct investments, we have co-investments with secondary investments and we have primary investments. And we tend to sit just below that kind of massive Global Infrastructure Partners, Macquarie, Brookfield kind of level. And there's a ton of deals, a ton of investment opportunity down where they need to deploy lots and lots of capital. So there's a lot of opportunity that we get to see and get to look at that we think is sort of super interesting.

So our returns there have been quite good. And I think that business is just going to continue to grow. Our team is terrific. We're adding to the team over -- we add to the team over time, and we -- we're very enthusiastic about the infrastructure continuing to grow. Credit is a little different. And what I mean by that is of all the alternative strategies, it's hard to hear that ever like a client -- I'm not saying you don't hear it, you do hear it. But there's huge fixed income portfolios.

A credit conversation is often a conversation about changing the type of fixed income exposure. So it's not about where I'm saying I think infrastructure is going to increase in model portfolios or I'm saying, I think hedge funds are going to appreciate by compounding but not see a ton of incremental flows by an increased allocation on a model portfolio. I think for credit, you don't really have those conversations. It's just what -- how is this private credit or alternative credit, which, by the way, can be sponsor-backed, it can be asset-backed, it can be consumer, but how does that relate to your other fixed income portfolio? And are you willing to move parts of your fixed income portfolio over to that less liquid alternative private credit piece.

And so that is a I think you -- if we're going to see a prospect and that prospect thinks they're full on alternatives, we can always talk to that prospect about doing some more private credit because they've got a ton of fixed income and it's a better risk reward than what they have. And so I think private credit continues to grow as well. But infrastructure has been our fastest grower for a few years and likely to continue.

Great. I wanted to shift gears to the absolute return strategy side of your business, certainly a kind of a unique piece of the business versus maybe some of your peers, but one that does seem to really have some good tailwinds here as we get into 2026. Maybe talk a little bit about the outlook there?

Sure. So the absolute return strategies business for us is -- has been a slower growth business than our private markets business for the last 5 years. And it is, I believe, like it's a business that is less appreciated by the market.

It is actually a great business. It is a solid fee-generating business that spits off a ton of cash that delivers terrific value to clients that we've been in for 55 years or 54 years. And we have a strong market position, and we're pretty good at it. And it's just a very, very good business.

As I said earlier, I don't see that business seeing significant increased allocations from institutional portfolios anyway in terms of like a model portfolio or more on the efficient frontier. I do see that business as being able to keep and hold on to compounding, which is good growth over time. And that business, unlike a lot of the private market businesses, you're earning a fee on AUM and as AUM appreciates, your revenues are moving up like a traditional asset manager. And that business has had great performance for us.

We -- our 1-year, 3-year, 5-year numbers for clients are very, very, very happy client base. We had net inflows last year, and that business is going to continue to generate a lot of cash, support a lot of activity at Grosvenor, have a high DCF and whether it ever attracts any multiple from the market, you know better than I do, but I've never understood why that business would be valued any less attractively than a traditional -- a well-run, high-quality traditional asset management firm. And I think we've been through periods of time where there's been very little value attached to that business. It's just a mistake. It's been wrong. It's been proven wrong.

Very fair point. So Michael, we've reached the end of our session, and thank you so much for joining us here down in Florida. And everyone in the room, just join me in thanking Michael.

Thank you, and thanks for having us. We appreciate it.

Thank you.

Good afternoon, everyone. This is Rodrigo Ferreira from Bank of America, and thank you all for joining Bank of America's 34th Annual Financial Services Conference.

I'm pleased to introduce Michael Sacks, Chairman and CEO of GCM Grosvenor. GCM Grosvenor has been a leading global alternative asset manager for over 50 years. Michael joined the firm in 1990 and became the CEO in 1994. Under his guidance, GCM Grosvenor grew from an early participant in the cottage industry to its current position as one of the largest open-architecture alternative asset managers. The firm currently manages $87 billion of AUM with a client-centric approach evidenced by 70% of AUM being in customized separate accounts.

With that said, Michael, thank you for joining us.

Thank you for having us. It's our pleasure to participate. We're glad to be here. Are you guys looking to swap something out? Okay. Not sure what it is.

Michael, maybe to start, you reported earnings today. Your stock had a very positive reaction. It was up 14%. For those who may have not had a chance to see the results, can you talk about what the highlights of the call were and if there were any key takeaways to mention?

Sure. Craig, first, I just want to acknowledge you, and that was a good catch on the feedback on the mic there. I saw you did that.

We had a good call. We had a good year. We had a very strong year, and we had a very strong close to the year, strong fourth quarter. So what we announced today was that we had record fundraising for the firm at $10.5 billion for the year, that we had a record quarter in terms of fundraising of $3.5 billion for the quarter, that we had a very good performance in our ARS business. So we had we had very strong performance fees from our ARS business for the full year, which are realized in the fourth quarter, and we announced that today.

And then the only thing that I think wasn't just kind of lights out for the quarter was the level of realized carry revenue in the quarter, which was actually kind of light. It was lighter than we expected. But our unrealized carry at net asset value, which is mark all the carry to market, liquidate it tomorrow, here's what you get. That number jumped pretty significantly in the quarter, and it now stands at a pretty significant number relative to our total enterprise value.

We told everybody that we had a pretty good year with regard to some of our strategic milestones. First, we realized some of the operating leverage that we've been talking about in the business. So our fee-related earnings margin increased by a couple of hundred basis points, and we said that we see operating leverage continuing. Going forward, we see more operating leverage, more room in that margin. We had made the wealth channel a priority, and we had a number of unique developments in the wealth channel that we talked about on the call, both I touched on that and John touched on that. And those are -- in terms of the $10.5 billion we raised, what -- how much of it came from the wealth channel. It was a good number. What we've done in the wealth channel over the last couple of years. We have a new distribution partnership that we're an equity owner in that is working in the wealth channel now, and we have launched a fund earlier in the year that's raising money every day, and we just filed to launch the second fund. So we kind of went through all of that. All in all, it was a very -- it was a good year.

And I think maybe the most important thing that we -- we gave pretty good guidance for Q1, but the most important thing I think we said on the call was a year ago, we had a pipeline, and we told everybody the pipeline was full.

I don't mind I'll take a step back, '22 alts kind of slowed down, private equity slowed down. It got tougher. We've been saying consistently throughout that period of time that demand has not moved. Demand has stayed really strong, but sales cycle stretched out. And so we were raising $7 billion, $8 billion a year and then '22 came and we got knocked down, I think, in '23 to $5.2 billion, '24 up to $7.4 billion last year, $10.5 billion. And that demand has stayed strong.

What's interesting is we raised $10.5 billion last year. It's a record for our firm. That's all third-party fundraising. We don't have insurance assets that generate liabilities. And our pipeline is bigger today than it was a year ago. So we're optimistic with regard to '26 on the heels of a very good strong '25.

Maybe staying on that topic and looking a little bit at the macro. When you look around and think about interest rates, what you're seeing in transaction volumes, this AI concentration, tariffs, credit quality, just these more broader topics. And how does -- I guess, how does the rate backdrop shape where GCM Grosvenor sees risk and opportunity today?

So -- there's a lot in there, and it's actually, I think, interesting and it's all reasonably constructive. So what I should have mentioned to your first question, one of the things that we spent time on today that 1.5 weeks ago when Stacy gave me the first draft of our script wasn't in the script at all, was talk about your SaaS exposure, talk about it firm-wide, talk about it in your credit book, talk about what it means because that obviously blew up in the last week or so. We joke Hamilton Lane got lucky and they didn't have to address it on the earnings call because it was Monday last week. Everybody after that has had to give all the facts and all these information. So we happen to have a fairly low level of exposure there at about 4% of AUM.

We said on the call today, we really went through that in a fair bit of detail for anybody that wants to -- is interested in the company, wants to go look at that. But we basically think actually that the attachment point, we don't think all SaaS companies are going away. We -- I think there was kind of no differentiation, lots of volatility happens to be a good environment for our ARS business. We actually have more long exposure to AI directly and to beneficiaries from AI than we have exposure to re-rating or reworking the business -- re-rating the pricing or reworking the business model of SaaS.

But with regard to the credit specifically, which is where a lot of the conversation seems to have been, our view is the attachment points are pretty protective of capital. So we see a tremendous amount of change from AI. We think it's a huge opportunity for our firm. We think it's going to change a lot of things. We actually like push on it certainly every week, and we're trying to push the whole of the firm to embrace and become better through the use of AI. But a little bit there were -- and I think we were one of them, there were a lot of things that were just painted with a very broad brush over the last 1.5 weeks. And so we're glad to have had a good call and a good result.

Interestingly, and I think this matters, I talked about demand hasn't wavered from '22 when rates gapped up 400 basis points shortly after Ukraine started. And we said this repeatedly on our quarterly calls, so we've not -- you can fact check that. We're saying demand is strong, sales cycle stretched. So that matters, but it wasn't like anybody was running away from -- and this is institutional. It wasn't like anybody is running away from increasing or committing capital to alts, and we felt that very clearly. We're in very close contact with our clients and the market. And so you saw that kind of -- you've seen that now prove out that, that demand is there. There's a huge opportunity in the wealth channel.

What's interesting, I think, is when we had the tariff volatility in April, nothing slowed down. Deployment slowed down a little bit. You got foggy in terms of deploying capital and making commitments, but fundraising didn't slow down. And so with a lot of volatility from a policy perspective, a lot of certainly lack of clarity in terms of which way rates are going. And you've seen -- we've enjoyed very strong demand for alternative investment product. Mostly -- biggest piece, infrastructure, followed by private credit. But on the call, we said -- we pointed out that all of the verticals. So we're broadly -- we're a $90 billion firm, broadly defined private equity, private credit, real estate infrastructure, hedge funds, open architecture in all of those areas, solutions provider, so a big heavy separate account business or fund of one business, if you will, where we sit down with large institutions and we figure out the program with them and then implement for them. And that -- through all the policy volatility, business has grown nicely.

As you think about strategic priorities over the next few years, which areas of the business are most critical to sustaining durable long-term growth?

So I think that one of the most promising strategic priorities is the wealth channel that I want to put a pin in that and come back to it because I think an important sort of feature of our business in terms of durable long-term growth. When you look at the amount of capital that we raise every year, we have incredibly high re-up rates with our clients. And so there's a -- first of all, we always have a pool of capital, we call it committed not yet fee-paying AUM. These are signed contracts where the fees turn on over time, either with the passage of time or as capital is deployed. And so that's a chunk of capital. That is more than 10% of our total AUM today that's sitting there. It was up significantly last year.

Our CNYFPAUM grew as our Fee-Paying AUM grew. And so you love to see that because that's like more than just replenishing the pipeline. We have -- clients have very high re-up rates. So we've shown slides before. We did an Investor Day in the fall, we make an initial sale. There's a 3-, 4-year investment period. There's a re-up. There's another 3-, 4-year investment period, another re-up. You go out 8 years, 12 years, and you see this growing amount of AUM and a growing fee stream and those re-up rates happen with very high -- at very high rates, 90%. And so clients are long-term clients and clients are very sticky clients.

Beyond the re-up, we have a cross-selling element to our annual fundraising where a client that hired us in strategy A, 3 years down the road wants to work with us in a new -- they're going to re-up on strategy A, but they want to also work with us in strategy B, and we start doing some -- a new activity for them. And we actually gave a couple of examples of that on the call today, real actual -- told some stories about that on the call today.

And so I think the core business is a durable growing business that without anything particularly exciting happen is, we believe is likely to compound at very good rates. Then you take a look at the wealth channel, where there is an under-allocation to alts relative to institutional portfolios and there is an under-diversification inside -- I don't even know if that's a word, but under-allocation, I'll go with. But there's a lack of diversification inside the allocation that is there, and there's just tremendous opportunity in the wealth channel. It's a huge -- that's -- so I'd say that's probably -- my strategic priority is always, take care of your existing clients and keep doing what you do, keep doing it well, keep delivering performance for your clients. Good returns last year.

But I think in terms of where we see opportunities for growth, the wealth channel is a very big one. And then we're in the midst of a shift as well to sort of higher value-add activities. I think the client base has become more -- much more sophisticated over the last 5 to 10 years. And so we have a lot more capital that is engaging with us to implement co-investment portfolios for them, direct investment portfolios for them, secondary portfolios for them, and those are higher revenue, higher-margin activities for us. So that's kind of a shift that's good as well. But the business is a pretty durable business with pretty good tailwinds.

You started to touch on this. But late last year, you held your Investor Day and you laid out goals for the different businesses within GCM. As we sit here today, how are you tracking against those objectives? And are there any areas you're especially focused on in the near term?

Yes. So we basically had 2 goals. We had a goal of doubling FRE from '23 to '28, and we have a goal of $1.20 a share of adjusted net income for '28. And we think if you do the math and we've achieved those goals, it represents a significant stock price appreciation opportunity, and we are now 2/5 of the way through that. We're tracking perfectly well in that regard. I think the first year, we maybe outperformed the average that we needed to execute on a little bit. This year, we were a tiny -- it's implied 15% CAGR on FRE. And some years, we'll be over that and some years, we'll be a little under that, but we're tracking well, and we feel like there's ample opportunity to do that.

And again, because of what I said earlier about CNYFPAUM, about re-ups, about cross-sells, the amount of actual pure new go-get that we need to kind of raise to achieve that is probably less than most people would guess at.

And so we think it's -- we think those goals are achievable. And everything is contributing. In the last couple of years, infrastructure and private credit have been our 2 fastest-growing verticals. Absolute Return had a terrific year last year and has great performance for the last 3 years. And so we'll see how we continue to move forward. There the adoption of private equity co-investment has been good. So we're -- everything has moved forward, all slightly different paces, but all progress.

I did want to touch on ARS. So based on your platform, what have been the recent dynamics within Absolute Return Strategies in terms of both of inflows and performance? And given that backdrop, how are you thinking about organic growth in the strategy in the near term?

So if you look at all of the alternative investment strategies, I would argue -- none of this is like precise, but I would argue that hedge funds and private equity are probably the most mature. They've been around the longest. They have -- they've been on the efficient frontier for a while. They have a portfolio allocation and they're probably the most mature. That doesn't mean they don't evolve and secondaries doesn't get hot and co-investment doesn't get hot, but the fundamental allocation of those 2.

Infrastructure is not as mature, and so it's -- I believe -- we believe it's going to see increased target allocations, whatever somebody's target for infra is today, likely to be higher 5 years from now. So they're below target now and they'll keep moving towards target and then the target will go up and they'll keep moving. So I think you're early innings on the evolution of infrastructure, and that is a strategy that's going to take capital going forward.

Credit is a little different. I should have said real estate also efficient frontier long time, so a lot mature, pretty mature. Credit is a little different because credit is more of a fixed income restructuring or reallocation. So there's plenty of fixed income capital that is in private credit or that is rated IG only that can shift on margins to different types of credit. And then credit is also -- private credit is kind of a big brush to paint consumer asset-backed sponsor-led, all different types of exposures in the private credit space.

But that's how we see the strategies, and we do see them all growing. The ARS strategy will grow, we believe, more from compounding the assets than from increasing model portfolio allocations and capital flow shifts, but there's nothing wrong with that and it has the ability to compound nicely. And it just is a fact, it maybe shouldn't be. But when you have a period of time of good performance, flows tend to follow that.

You touched on credit. You've grown the credit business to around $17 billion of AUM. Which areas of credit are most attractive to you today? How are you expanding within those segments? And how would you characterize the competitive landscape that you're operating in?

Well, today, it could be picking over like crushed SaaS credit. I don't know. The -- but I think we have -- we deployed capital everywhere last year. I think one of the places that we've found interesting opportunity is in credit secondaries, which is not something that you have heard sort of talked about a lot, but you're basically buying credit portfolios and you're buying them at a discount, and we think that's interesting, and we've been raising capital for credit secondaries and deploying capital in the credit secondaries space. And that's maybe -- we have liked asset-backed for a long time. We've probably been a little bit light on buying sponsor-backed credit for a bit, but we've been deploying capital across the whole spectrum.

Staying on credit, how did the negative press last year around private credit and concerns over credit quality impact your business? And was there anything you learned from that period that you're carrying forward in 2026?

So separate the press from what we learned. Having been in this general business since the late 1980s and at Grosvenor since 1990, you get used to bad press around alternative asset management. It's just like a constant. So I started out in the late '80s in the hedge fund business. You can go back to the '60s, the '70s, and you can literally find articles, the death of hedge funds, the hedge funds going back decades. And this kind of constantly comes up the private equity model is broken. There was a must story last week about Ghost private equity funds and stuff. We had the biggest fundraising year that we've ever had in the midst of bad headlines on private credit, headlines on Ghost middle market private equity where we have a focus.

So I don't put a ton of stock in that. I actually think there's like something about alternative asset management firms in the alternative asset space, I've never totally understood, but there's just a lot of -- there's always some chatter and so you have to separate out -- we have to separate away from chat. You have to separate out noise.

We always think that the best proof point is your performance and your fundraising. So the clients are pretty smart. And if there is a worry about how things are marked and that there's some chronic overmarking or something, the clients are going to be worried about that. The clients are not going to be allocating a lot of capital. They're 3 steps closer to it and 3 more levels of detail than the press. And so they're -- and there's plenty of money allocated.

So credit is always -- credit goes in cycles. You have credit cycles. We've been through a period of time with very low default rates. And so you expect an element of cycles, like we haven't outlawed these things. They're supposed to happen to some degree. But in general, we think with good private credit managers who do their work on security selection.

I would expect some of the -- if problems are going to show up, they're maybe going to show up in more of the ratings-based buyers that have to buy certain things because they fit, whether it's a BDC, could be some regulated financial insurance company, whatever, That's where these kinds of things will show up more than in the portfolio of a private credit firm that can actually -- has degrees of freedom to do work and make individual security-specific selection.

We talked a little bit about infrastructure. Infra has become an increasingly attractive asset class, as you mentioned globally, particularly as AI-driven demand for power, data centers and related assets continues to grow. What type of infrastructure assets have you been targeting? What funds do you currently have in place? And how do you see this platform continuing to scale from here?

Yes. So infrastructure is a really interesting space. I think one of the things that's most interesting about sort of infrastructure writ large is that there is actual significant fundamental demand for the assets underpinning the industry. So we think about stocks, we think about bonds, business needs capital to grow. So you need a stock market, you need capital to grow. You need to sell more debt at times to be able to invest in your business and grow.

But whether you're doing that through private equity, you're doing it through the public equity markets, whether you're doing it through private credit, you're doing it through bank debt, like that's not sort of necessarily like fundamentally transformational. I know it is. And on the margin, the cost of capital changes the growth rate, and I get all that. But you're looking -- when you look at infrastructure, you're looking at whole huge markets that need capital because supply is behind demand. So everybody talks about the data centers and everybody talks about the AI phenomenon. That is exciting, super exciting. It's wild the numbers are sort of crazy, but the power generation that's needed to actually enable that and make that happen is equally as exciting.

So anything that you can do to unlock, unblock or increase and provide power in infrastructure today, there's just so much underlying demand for it. It's very exciting. We've done cold storage platforms. We've done -- we've invested in ports. We just -- and it's a space that needs capital. And it just -- to me, it's a different kind of need than the need for private equity capital or the need for private credit capital. It's a -- it requires capital to come to the assets and come to the space. And so I think that generally sort of tilts things in your favor when you're investing in that environment.

The deployment and realization environment has been rapidly evolving over the past few quarters. What's your updated view on that backdrop for both private equity and real estate?

So I think the most important thing is like we really look at are we carry at net asset value. And for us, that is a question of when, not if. And when, not if can be a different answer if the assets are not appreciating along the way. But if you look at our carried NAV, it's just -- it's appreciating. So we would love to realize it sooner, but it's -- as long as it's growing -- I'd rather have it grow at a high rate and get it a couple of years later than get it today and give up that growth. And so you can look at how that has grown.

There are -- IPO markets better. It's open. It was closed for a while. We're seeing more transaction activity, it feels -- your bankers will have a point of view on how busy they think they are. We've been fooled a little bit the last few years. So I have to -- just being candid, we expected an increased transaction environment a couple of times since '22 that didn't really come to fruition. I mean we thought -- there were, I think, a lot of expectations, animal spirits after the last election. And I think the animals got smaller with less spirit in terms of what actually happened, although the markets have been terrific.

So we're more focused on how that is compounding than when. We have no ability to really precisely predict when we do see some positive signs. I'm a little gun-shy because we thought this once or twice in the last few years. But I will -- but you look at our $900 million of carry at NAV and -- which is up a lot over the last few years. And so we'll -- it is when, not if, and it will be great when that comes.

I should mention, we have, I think, 20% of our total enterprise value in carry at NAV. And so it's like a significant asset for us as a company that's just not reflected in our current earnings. It was diminished last year. You can go back and look at like 2022 levels of revenue and they're 3x or whatever they are last year. So we -- and we've got -- and we had no -- we had a fraction of the size of the asset at that time.

So there's a lot of earnings power in that carry and realizations will pick up. Meanwhile, for the cycle, the investing cycle, the evolution of GP-led secondaries has enabled sponsors who want to offer liquidity to clients but don't like the pricing and don't like where they can execute transactions to come up with transactions that can let the clients choose to roll or exit. And so that's, I think, from a market perspective, from a client perspective, a sponsor perspective, that's a good development.

Does it mean you permanently have longer hold times? Maybe. But I think this is -- at some point, you're going to see a pickup in active realizations and a lot more money being distributed. There's no doubt the sponsors would prefer to sell at good prices and distribute capital to the LPs who are kind of banking on that model than they would to do a GP secondary at some kind of discount.

If we turn to distribution and focus on the insurance channel for a moment, this is an area that was relatively small for GCM and for much of the industry 3 to 5 years ago, but has since become one of the most important sources of capital. Can you talk about how you've been able to scale your presence within insurance? And what do you see the opportunity to further expand in that channel for you?

I think for us, it's a little bit shame on us because it took us a little while, but insurance is truly like a unique channel with a unique language, and you have to have insurance people who speak insurance. We've said sometimes, to be a good salesperson in the insurance space, a good business development person, you almost have to have enough knowledge and education to be able to be like a CFO at a small insurance company. Like you just have to understand how the insurance companies work, what works for them and doesn't work for them, and it's different than the pension community or the endowment foundation community or what the issue sets are for sovereigns or things like that.

So I think we started to add sophisticated insurance people a few years ago, and we've seen return on that and we've seen results on that. I think last year, we raised -- north of 10% of our capital came from insurance companies against the insurers making up 4%, 5% of our AUM. So it's -- we're raising at twice the rate of representation and the conversations we're having are increasingly more sophisticated conversations about various ways to work with the insurers and partner with the insurers. So we're very bullish there, and we expect that will continue to be a more important channel for us.

We have put that pin on wealth. Maybe we come back to that now. Last year, you formed Grove Lane Partners joint venture. Can you talk about how this JV has helped to scale the wealth platform and how the platform itself has evolved since it formed?

Sure. So Grove Lane Partners is really -- I think the way to think about it is it's a distribution team. It's a sales, marketing and client service team for the wealth channel. There were a number of firms that had pretty significant success in the wealth channel. Everybody in the room knows who those firms are. Very, very good firms.

And there were, I think, some -- a bunch of people working in that firm that kind of got there when there were no wealth channel assets, saw the wealth channel assets grow to be pretty significant. And we're making more money at the -- by the end of that 3- or 4- or 5-year period, but didn't really participate in the tremendous value creation of opening up that market.

And so we found a few of those people, and we said, why don't you start -- why don't you come partner with us, start an entity, we'll fund it, we'll finance it and you'll own equity and we'll own equity, and we'll have the ability to call your equity in the future, but you can capture this equity value creation. We've got a capped price on it, but you can capture this equity value creation that you didn't capture last time around.

So a lot of very good people who have been very successful at some of the bigger well-known alts firms have real experience selling alts in the RIA channel as an example, putting together seed capital for launching funds, things like that, that we're very -- we got great talent, and that's what Grove Lane is, and they're out there selling every day now, and we watch those flows every day. We watch the relationships that they turn on and that they create. And we're thrilled with -- we're excited about it, and we think it's got a really bright, important future for us.

Maybe staying on the topic of wealth, what other opportunities do you see in the channel, both in terms of products and distribution? And how are you currently pursuing those opportunities or planning to pursue them over the long term?

So for a smaller firm like ours, the -- we've had success historically with wirehouses. And this is for closed-end fund, 3C1 kind of private placement with the wirehouses. I think the market moved to registered funds and the wirehouses don't want to own the product. They want enough capital from other intermediaries so that it's -- so that their clients aren't the only investor in a vehicle. And if they decide they want to move, they have some flexibility.

So we have Grove Lane and we have a JV partnership on an infrastructure interval fund, where we're targeting the RIA space, and the goal is to get the flows up to a level that the flows are big enough that then one of the wirehouses says, great, we'd like to put it on the shelf and then another one does. And we think that's what will happen with product and it's registered product and it's either interval fund or tender fund and who wants which of those structures can change and evolve. Our infrastructure funds and interval fund, we just registered a private equity product that's a tender fund.

Outside of that, put a product on the shelf, have a sales team go out and do a great job with it. There are a couple of other opportunities in that wealth channel that I think are perfectly -- are really well suited for Grosvenor. One we talked about on the earnings call today is the ability for us to private label a product for RIA firms, for big teams inside a wirehouse. We've done that. I think we said today, we have done 11 of those in the last 2 years. And we think that's a real growth opportunity. There's a lot of reasons why that's very good for the advisers because they're involved. It's something created specifically for them. It's true that it is unique and created for them and they can tweak bells and whistles on it that they want. But that's also a valuable part of a value-add story for an adviser to be able to tell a client that we created this -- we created this with our best views for you as opposed to we're buying an off-the-shelf product, you could buy 5 other places. So we think that's going to continue to grow. And as I said, we've turned on 11 of those relationships in the last couple of years.

And then the last piece is we believe that there's like -- there's a concentration in the wealth channel now with a relatively small number of large, very large kind of brand name alts firms. And the majority of the capital that's kind of come -- is in a pretty small number of big, big global brand name alts firms with 100x the market cap that we have, 10x the market cap that we have. So -- and inside a given strategy and inside any kind of wealth channel, there's not a lot of diversification. So those portfolios, in addition to having total allocation size, that's not -- doesn't look like the institutional world. They have an absence of diversification that makes it very clearly different from the institutional world.

Our belief is that the level of diversification there will increase, that the number of names will increase and that there will be almost like sub-advisers to take a piece, they'll target model portfolio and the sub-adviser would take a piece of model portfolio and say, you run the private equity piece. So that's kind of third ways. You have direct product, you have private label and you have the -- manage this part of our model portfolio. We're going to have these 3 people manage the private equity piece of the model portfolio and you be one of them. And we think all 3 of those have pretty huge markets in front of them.

Great. And with that, Michael, I think we're out of time, but thank you so much for joining us.

Thank you. Thanks for having us. Thank you.

Good day, and welcome to the GCM Grosvenor Fourth Quarter and Full Year 2025 Results Webcast.

[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.

Thank you. Good morning, and welcome to GCM Grosvenor's Fourth Quarter and Full Year 2025 Earnings Call. Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sachs; President, John Levin and Chief Financial Officer, Pam Bentley.

Before we discuss our results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-K our other filings with the Securities and Exchange Commission and our earnings release, all of which can be found on the Public Shareholders section of our website.

We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results.

Thank you, Stacie. 2025 was a great year for GCM Grosvenor. Most importantly, we drove value for clients as our investment results, the cornerstone of our value proposition, we're strong across the board. Absolute return strategies performance was excellent with our multi-strategy composite generating a 15% gross rate of return in 2025. Infrastructure, our fastest-growing strategy of late, returned approximately 11% for the year. All of our other verticals in aggregate were positive and competitive as well.

We think the investment opportunity set remains strong, and we're pleased to have approximately $12 billion of dry powder. From a capital formation perspective, 2025 was the best fundraising year in the history of the firm. We raised $10.7 billion of total capital with approximately $3.5 billion of that coming in the fourth quarter, both records. Jon will go into more detail, but our fundraising was broad-based with all of our verticals, including ARS, having positive flows and all investor channels and geographies contributed. Our pipeline of activity is very strong entering 2026, which bodes well for fundraising this year. 2025 financial results were similarly strong. Our fee-related earnings, adjusted EBITDA and adjusted net income were up 11%, 15% and 18%, respectively, when compared to 2024. Our fee-related earnings margin for the year was 44%, which is 200 basis points higher than our margin in 2024.

We continue to enjoy significant margin improvement since coming public, and we believe we still have positive operating leverage. Our adjusted EBITDA and adjusted net income were aided by the $68 million of performance fees generated from our ARS business. In that regard, 2025 represented the fourth time in the last 6 years that we have generated more than $50 million in annual performance fees from ARS. While carried interest realizations were light for the fourth quarter, our earnings power from carried interest continued to increase at a rapid pace. Our gross unrealized carried interest balance stands at an all-time high of $949 million, up $113 million or 14% from the end of 2024 was approximately 50% and or $478 million of that belonging to the firm. Based on a number of real-time positive developments, we believe we will see another increase in this balance when we close our books at the end of Q1.

We ended '25 with $91 billion of assets under management, a 14% increase compared to the end of '24 and a new high watermark for the firm. Fee paying AUM increased 12% year-over-year to $72 billion and contracted not yet fee-paying AUM increased 27% year-over-year to $10 billion. Our contracted not yet fee-paying AUM is an important leading indicator of future revenue growth within real embedded FRR growth in that number. Finally, 2025 make meaningful progress towards several of our key strategic objectives, particularly in regard to the individual investor channel, where AUM increased 18% year-over-year. In 2025, we launched Grove Lane Partners, our new wealth management distribution joint venture. We launched our infrastructure interval fund, which is now raising money every day, and we recently filed registration documents for registered private equity fund, which Grove Lane will support. While we always caution the new distribution markets take time to ramp up, we remain enthusiastic about the future of the wealth channel for our business.

Before turning the call over to John, I want to comment on the challenging market over the past couple of weeks. The consensus seems to be that the market stress has been driven by concerns of AI disruption and impact on equity and credit valuations with regard to SaaS businesses. While we probably prefer a somewhat less volatile environment, we are pretty sanguine with regard to the recent developments. First, diversification is the defining characteristic of our investment and portfolio management process. In the private equity, private credit and ARS space, all of our verticals actually, our typical portfolios include exposures to several hundred companies or assets on a look-through basis. Those positions are diversified across markets, industries different asset class types and geographies, and we have always believed this diversification is a core tenet and a significant part of the value we deliver to clients.

Second, with regard to our SaaS exposure, we believe we have less exposure than peers and very limited exposure generally. SaaS exposure represents only 4% of our total AUM and less than 6% of our credit AUM. Third, our view generally is that not all SaaS businesses are the same, that SaaS businesses are not going away, and they also will benefit from AI. With regard to SaaS-related credit specifically, existing credit attachment points are generally protective with regard to impairment. Fourth, we believe last week's significant pullback was without differentiation across companies, which always provides opportunity. Our absolute strategies portfolio had positive performance in January and in general, this is the type of environment where ARS strategies often add value.

Finally, we believe that across our platform, we have more exposure to the disruptors and the beneficiaries of disruption that we do to the businesses where disruption to business model or future prospects is of concern. Simply said, we have more net long opportunity from AI trends, including direct exposure to AI and to all the related [ ad ] beneficiaries than we have to exposure to loss from those disrupted. Of course, our stock has not been immune to the recent market dislocation, and we ourselves are a good example of a proverbial baby being thrown out with the bathwater. With our stock trading at a lower earnings multiple than the S&P 500 and that of our alternative investment peers, with solid growth prospects and with a current dividend yield of approximately 5%, and we believe we represent good value today and that buying back stock represents an attractive use of capital.

Consequently, we have increased our buyback authorization by $35 million leaving us with $91 million to repurchase shares. Given our ample cash balance generated in part from strong cash flow generation and in part from the proceeds from warrants exercised in November, we can buy back stock, minimize dilution from stock-based compensation, and also repay $65 million of our term loan, which we are doing this week without prepayment penalty. In closing, 2025 was a very strong year. Momentum remains strong, and we remain on track to achieve our goals to more than double our 23 FRE to over $280 million and grow adjusted net income per share to more than $1.20 by 2028. And with that, I'll turn the call over to Jon.

Thank you. As Michael noted, my remarks will focus on our strong fundraising results for the year 2025. Our $10.7 billion raised in addition to being a firm record, is notable for its diversification across strategies which is best illustrated on Page 10 of our earnings presentation. Every investment strategy contributed meaningfully to our results this year and all have sizable pipeline heading into 2026. But the numbers only capture part of the story. So to bring our fundraising to life, I'm going to take you through a few real examples of 2025 wins.

First, as we've discussed in the past and at our Investor Day, evolving alongside our existing clients, through cross-selling has been a key driver of our growth, generating approximately 20% to 25% of our fundraising in any given year. One such client is a large public pension that has partnered with us for years on a multi-asset private markets program focused on smaller cap opportunities in private equity and real estate. Through our ongoing dialogue, our client described that they had strong demand for what they call the missing middle of real estate, sitting between smaller and very large opportunities. We designed a new program specifically to address that gap.

Importantly, the client also re-upped to their original private equity and real estate programs committing more than twice their initial allocation. It's a strong example of listening closely, adapting quickly, creating durable solutions and growing alongside our clients. To that point, our AUM with this particular client is 4x what it was when they launched their first program with our firm. The second example highlights similar expansion but in the [ Apps-return ] strategy space. In this case, we worked with the client for almost 20 years, managing small and middle-market programs across private equity, infrastructure and real estate. As a result of this evolution, our AUM with this particular client is many, many multiples of what it was when they launched their first program with us almost 20 years ago.

The programs we manage to serve as an alpha generator by attacking less traffic areas of the market incorporating significant fee efficiency due to meaningful exposure to co-investments and direct investments. In fact, in this particular relationship, we do everything from direct control investing to co-investing to fund investing across private equity, real estate, infrastructure and absolute return strategies. The fund investing activity serves as a farm system of relationships that ultimately transition to the client directly. In 2025, we expanded that relationship by introducing ARS making this one of the many programs that comprise the $1.9 billion of ARS fundraising in the year, the highest amount since 2021. Michael mentioned our growing success in the individual investor channel and I'll highlight a key example of that momentum, strong demand for white labeled solutions.

We've long believed that the differentiation that's made us successful in the institutional market serving as a customized separate account partner would translate well in the individual investor channels, and we're seeing that thesis play out. Over the past 2 years, we've raised almost $1 billion across 11 white label solutions in the wealth channel. We believe these customized solutions will be a meaningful contributor to our growth in the channel going forward alongside everything we're doing from a product standpoint. The last example is an Asia-based institution for whom we've managed an ARS program for more than 2 decades, alongside providing broader advisory and value-added services. The client wanted to increase their exposure to Japan-focused ARS strategies. And despite having a large and sophisticated investment team, they sought our partnership to leverage our experience and capacity in that market.

Leveraging the depth of our global ARS team and long-standing relationships with Japan-based managers, we designed a customized Japan-focused ARS program tailored specifically to the client's objectives. These examples represent only a snapshot of how we partner with clients over the past year. Collectively, they reflect the power of our platform, the strength of long-term relationships and our ability to tailor solutions across client types and channels. While each client relationship is unique, our success is driven by a common foundation, a broad flexible platform that lets us adapt to market conditions, tailor creative solutions and deliver across a wide spectrum of opportunities. With that, I'll turn it over to Pam.

Thanks, Jon. Both our fundraising and investment performance led to strong asset growth in the fourth quarter and the year. Private markets fee paying AUM and management fees grew 10% and 6% year-over-year, respectively, from a combination of solid fundraising and conversion of contracted, not yet fee-paying AUM. Growth in all of our various earnings drivers throughout the course of '25 sets us up well for continuing momentum and earnings expansion. As usual, let me touch on key figures for the upcoming quarter. For the first quarter of '26, we expect private markets management fees to be relatively consistent with the fourth quarter. It's also important to note that given timing and fee structure of our specialized funds and market we expect limited catch-up fees this year.

As noted, Absolute Return Strategies had strong investment performance and capital formation resulting in ARS fee-paying AUM and management fees growing 15% and 5% year-over-year, respectively. For the first quarter of '26, as a result of positive net flows and terrific investment performance, we expect ARS management fees to increase by approximately 5% from the fourth quarter. Turning to expenses. Our compensation philosophy is centered on attracting and retaining top talent by aligning their interest with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation and equity awards. We remain disciplined in managing expenses and our FRE compensation and benefits remained stable for the year at approximately $148 million or an average of $37 million per quarter. As a reminder, we typically see a seasonal uptick in compensation in the first quarter of the year, and we expect FRE compensation and benefits to be approximately $1 million higher in Q1 of '26 versus Q1 of last year.

Non-GAAP general, administrative and other expenses were consistent in the fourth quarter at just over $20 million. We expect non-GAAP general, administrative and other expenses in the first quarter of '26 to be in line with or just slightly above the first quarter of '25. Turning back to 2025. In addition to strong AUM metrics, it was a productive year on our financial drivers. I point you to Pages 4 and 5 in the earnings presentation for a summary of the key metrics. Total fee-related revenue for the year was $416 million, an increase of 6% year-over-year. Our fee-related earnings grew 11% year-over-year, and our fee-related earnings margin expanded to 44% for the year. Adding our strong incentive fees, adjusted net income grew 18% year-over-year. During the fourth quarter, our outstanding warrants expired with a portion exercised, resulting in the issuance of approximately 10 million shares at the strike price of $11.50 per share generating just over $110 million in proceeds.

We also repurchased 2.8 million shares during the fourth quarter at an average price of $11.11 per share or a total of $31 million. As of year-end, $56 million remained under the existing share repurchase authorization, and today, we announced that our Board has approved an additional $35 million for share buybacks. Additionally, we are prepaying $65 million of our term loan, reducing our leverage and saving over $3 million per year in interest expense. While these actions enhance our financial flexibility and support shareholder returns, our primary focus remains on strategic investment for long-term growth with strong fundraising, excellent ARS investment performance, steady FRR growth, margin expansion and upside from incentive fees, we believe we have all the ingredients in place for a very strong 2026. Thank you again for joining us, and we're now happy to take your questions.

[Operator Instructions]

The first question will come from Jeff Smith with William Blair.

Could you discuss your capital allocation plans just with balance sheet cash up on the warrant exercise. Pam, you had mentioned you paid down some debt over the last week or 2 in up share buybacks. But what are your plans from here? Should we expect additional debt paydowns?

Thanks, Jeff. So it's Michael, and then Pam jump in if I leave anything out here. But you know we've always talked about the fact that we're capital light business and we've paid a healthy dividend and increased that dividend a number of times since coming public. And we've said numerous times, we intend to sort of stay capital-light business. So we did -- you saw in the Q4, we bought back shares post warrant exercise and we are going to pay some debt down now. And I think that with the current authorized exercise and the current -- and the debt paydown we announced this morning, that kind of puts us back in a pretty comfortable range.

Obviously, we have a quite healthy dividend yield, not getting a ton of appreciation for that. So while we probably do have cash flow to be able to increase that dividend, it doesn't seem to be [indiscernible] rewarded particularly by shareholders sort of focused on increasing that buyback.

Okay. And then you continue to see really good operating leverage in the business. I think the fee-related margin was 44% for the year. It's up -- it's up a lot over the last 5 years. and you continue to keep expense growth low as this business scales out through '28, which was sort of your medium-term outlook, can you continue to drive margin expansion over that period?

We believe we can. And so we do think -- I think I mentioned it in my comments, we believe we have continued operating leverage, and we think that we can and will continue to drive FRE margin and overall margin through '28. Thank you.

The next question comes from Ken Worthington with JPMorgan.

The Absolute Return business had a great quarter, had a really solid year. You've been highlighting for some time the expectation of flat flows how you're feeling about the business? And how do you feel about that business sort of returning to organic growth as we look to the future, given sort of the successes you've had in the in the past couple of years?

Well, again, we're going to flash back to our Investor Day conversation when we were out in the call. We're not changing our budgeting, and we're not changing and making any proclamations on a call like this. And as anybody who was at the Investor Day or watched that Investor Day recording nose, we definitely have people in the firm in that vertical that are more bullish on the vertical than we are budgeting, but we're not changing that budgeting at this time.

And this point out, Ken, that budgeting relates to flows, which obviously translates directly into management fees, but it also does relate to performance expectations and kind of what we sort of talk about as run rate performance fees at budget. And I did highlight that for the last 6 years, we've beaten run rate at budget on the performance fee side as well.

That was an elegant way of answering, so I appreciate it. As we think about I just want to dig into --

It's Jon. Let me add one thing. I mean I agree with everything Michael said. I do want to just make sure we make the important distinction because you framed the question in the context of organic growth. If Pam gave guidance for the first quarter of 26% and you might have been specifically referring to flows as opposed to just FRR. But that guidance for the first quarter of of '26 does have embedded in it, obviously, FRR growth from that vertical in light of the success we've been having. So I just want to make sure that when you follow back and look at that script, you catch that piece.

Cool. And just on 2 funds, maybe first advance, how much has been raised thus far in the strategy and how much time is left until that fund closes and then CIS is back in the market. Just remind us how big the prior fund was?

Sure. Let me take -- Jon, let me take advance and you just give the specific number on CIS. So Ken, we are in market for Advance. We actually have the ability to extend the period to raise funds for Advance and we have talked to our LPAC about doing that. And so we'll be continuing to try to raise money for advance going forward the next several next quarter or so. Advance is, in my view, likely to come in smaller than the prior Advance. It will be one of the few funds we've ever had where a successor is smaller than the predecessor.

And as you know, Advance focuses on emerging managers, which is emerging and diverse managers, and there's been a lot of conversation about diversity and diversity equity inclusion over the course of the last year or so. And it's been a steeper slope for the fund raise this time around. And I think that's just a fact. That's a fact we've been living with. And when we have our final close, we don't announce the numbers along the way, but when we have our final close, it will be I think, smaller than the prior fund. I would say that as -- given the size of the prior fund, it's not going to be all of our forecasts and everything incorporates the idea that it's going to be smaller. So we've understood that. We understand the landscape. We've been -- that, that fund has been operating in for a while now, and that's baked into our guidance and our expectations.

And just CIS, the prior one?

Yes. It's about between roughly $1 billion. there were some sidecar vehicles that invest alongside that fund. But for CIS III plus or minus $1 billion were, as you said, now in market with critical infrastructure solutions for and you know that we've talked a lot about the success we're having generally in the infrastructure space. And so when you look at the total capital formation for infrastructure vertical across separate accounts and various products. This is just a piece of it, but we feel as good about this piece as we do about the broader infrastructure strategy, which is obviously going pretty well.

And the next question will come from Bill Katz with TD Cowen.

So Jon has spent a lot of time talking about the depth and breadth of the gross sales dynamic for 2025. And I think between you and Michael sort of hinted at a pretty good '26. I was wondering if you could maybe unpack the drivers for 2026 and maybe break that down between specialized versus maybe the SMA side of the equation, retail global wealth versus institutional and any other metric you think is sort of salient for us as we sort of work through our math?

Sure. I don't know, Bill, if I broke it down, I would break it down much differently from what the flows formation and the makeup of that formation has been over the past couple of years with the relevant embedded trends in it. So when you think about it being broad-based globally, when you think about being broad-based across the channels, when you think about it being highly diversified across many of our verticals the mix between separate accounts and specialized funds being roughly the same mix as that's represented in our AUM at 70-30 with the underlying trend still being relevant to that infrastructure is strong and we're in market with a bunch of infrastructure stuff.

And the individual investor market is growing faster than the institutional. We had individual investor AUM up close to 20%, which is larger than our -- what our overall AUM growth was continued growth from the capital from the insurance channel as compared to what it represents in AUM. So I don't think that I would call for something kind of markedly different in any period of a reasonably long period of time that you would capture capital formation over. I would say that our expectation would be a continuation of the trends we're seeing, which is a very healthy environment for capital formation. And us benefiting from the diversification and breadth of the business and where we're making investments in particular to get behind the tailwinds that we're all collectively seeing in the market.

Bill, it's Michael. I don't think we said in the script, which we often do. So glad that you asked and happy to say it now, our pipeline we've talked in the past how we track pipeline and we have near-term pipeline in a couple of categories and near-term pipeline, et cetera. After raising $10.5 billion through December 31, our pipeline today is larger than it was a year ago. So just to -- and to Jon's point, it's completely diverse on channel, on jurisdiction, geography, et cetera. So that's -- I think we normally mention that, and we didn't this time, I don't believe. So thanks for asking.

Okay. And maybe a follow-up for Pam, maybe a 2-part question. You've been able to really hold the line on expenses year-on-year even as the business continues to scale. What is it that's driving that, the ability to sort of [ temp down, ] particularly on the OpEx side and the comp side? And then as we look ahead, sort of unrelatedly, how are you guys thinking about the realization opportunity on the carry side of the equation and which bucket do you think it comes from?

Appreciate the question, Bill. I think on the OpEx side, I would say, obviously, we're focused on continued expense management, but also just continued investment in scalability and technology. There's a lot of great efforts going on that are enabling us to achieve that scale and including AI, and we spoke a little bit about that at Investor Day as well. And we are also, again, just disciplined in making sure we're still investing in the areas of the business where there's product growth such as in the individual investor space. So we're investing where it makes sense and we're holding the line and reducing expenses where we can through really investments in technology. And I think, Bill, if you can remind me the second part of your question there?

I'll take it, Pam. It was the carry question, where is it going to come from and how good do we feel about it? And what's our -- how do we characterize it? And I think, Bill, where I would start on that is I think the most important piece, and I want to dig in a little is, how we mostly think about it is it's not an if it's a when. And so when matters, time value money matters, absolutely for sure, sooner is better. That said, that asset is appreciating very rapidly. And I encourage everybody to listen to my comments in the script with regard to that asset, look at the appreciation over the year, last year, quarter-over-quarter. That asset is appreciating rapidly.

And what to me is very encouraging about that asset, when you have a carrier asset on your balance sheet. One of the things you worry about is sort of old carry and is the old carrier just kind of stale and sitting there and you're not going to really collect it. If you look at our collections, our old carry has come way, way, way, way down. we've collected most of it, so it's live. It has been a when not an if question, and we have every confidence that carry at 479 firm here now is a when, not an if, and that, that number is going to go up, which we touched on. And there is a ton of carry at work behind doesn't really appear anywhere, right, because it's just carry that's not yet in the money to be counted and carry at NAV, but it's working. We're deploying the capital, and we're creating the investment returns to turn that into carry NAV and there's a ton of we've generated in the last 6 years or so.

And so we're hopeful that the same experience you've seen with our carry asset over the time period that we've been public, where we've tripled 3.5x, whatever it is, the size of the asset while collecting a lot of cash, not saying specific dollar amounts, but that, that same pattern is going to occur again on top of the 479. We think this is not -- like if you look at our carry asset today at 479 , it's a big chunk of our total enterprise value relative to peers. It's worth noticing that. And then you think about the dry powder, the carry that we have behind that, and it's a very significant asset for Grosvenor that we sort of feel and it will start cash flowing to a higher degree, just a question of when. And when we do -- when it does, we think it will be significantly appreciated.

And we'll take a question from Crispin Love with Piper Sandler.

First, on the fundraising outlook broadly, very strong in '25. Just curious on how you're thinking about '26, just given the momentum you have built up, at least that compares to 2025. You said pipeline is stronger than a year ago. Does that mean that we should assume that you expect fundraising in '26 to exceed 2025? Or am I going a little bit too far there?

Our bottom-up granular build coming in from the business development team and the investment teams lands at a number that would exceed last year. Given how good last year's fundraising was given it was a firm record, given the sort of massive increase over 2024, we're not budgeting any -- we're not standing on the call today saying that '26 fundraising will exceed '25. But we've certainly got the pipeline to give -- to give '25 a series run for it's money. And as I said, our teams think we should have a bigger year. But our base budget is in line with last year, and we'll keep updating that as we get through the go through the year and when we're confident that we're going to exceed it, we'll announce that.

Perfect. That makes a ton of sense. And then just performance fee is very strong in the quarter, but my question is a follow-up on the carried interest side, was the softest for carry in '25. First, was that surprise for you. I know third quarters are typically the strongest. So not a major surprise to see a little bit lower in the fourth. But just curious on the absolute level for the fourth quarter, and I do appreciate the difficulty and forecasting these levels ...

It was lower than expected than we expected. That said, carry is not the revenue -- the easiest revenue stream for anyone to predict. And so particularly when your carry is quite -- is a highly diversified carry with lots of different waterfalls. It's not like work on one deal and generate carry. So it's the hardest revenue stream for us to predict. We would love it to the -- we would love the realizations to increase. We've been looking for that to happen since kind of the slowdown in '22, '23, we do see interesting, more activity teed up everywhere public market, private market. And so we are expecting some -- expecting increased revenues there. But that movement in the carry at NAV is super important because you don't know when you're getting that money, but you are going to get it. And so tracking the asset matters a lot. And we -- that asset moved a bunch in Q4 even though we didn't collect a lot of cash.

And at this time, there are no further questions.

Thank you again to everyone for joining us today and taking the time. We appreciate the engagement and the questions. If there are follow-up questions, please feel free to reach out. If not, we look forward to speaking with you next quarter and hope everybody has a wonderful day.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

"

"

"

"

"

" JPMorgan Chase & Co, Research Division

" TD Cowen, Research Division

" William Blair & Company L.L.C., Research Division

Good day, and welcome to the GCM Grosvenor Third Quarter 2025 Results. [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.

Thank you. Good morning, and welcome to GCM Grosvenor's Third Quarter 2025 Earnings Call.

Today, I'm joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks; President, Jonathan Levin; and Chief Financial Officer, Pamela Bentley. Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements.

This includes statements regarding our current expectations for the business, our financial performance and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call.

Please refer to the factors in the Risk Factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release, all of which can be found on the Public Shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are on our website. Thank you again for joining us.

And with that, I'll turn the call over to Michael to discuss our results.

Thank you, Stacie. We are pleased to report another strong quarter for GCM Grosvenor, led by strong investment performance, strong fundraising and financial results that exceeded expectations.

For the quarter, our fee-related earnings, adjusted EBITDA and adjusted net income were up 18%, 16% and 18%, respectively, as compared to the third quarter of 2024, and the results are similarly favorable on a year-to-date comparison. We're also seeing strong momentum sequentially with third quarter fee-related earnings and adjusted net income growth of 13% and 16% over the second quarter of 2025.

Our fee-related earnings margin for the quarter was 45%, which is approximately 350 basis points higher than it was in the third quarter of last year. We ended the quarter with a record $87 billion of Assets Under Management, a 9% increase compared to the end of the third quarter of 2024.

Investment performance remains solid across each of our business verticals. Our Absolute Return Strategies (ARS) has delivered particularly strong performance to clients with our multi-strategy composite generating a 14.2% gross rate of return over the last 12 months. In addition to the strong ARS performance, we also enjoyed year-over-year portfolio appreciation across each of our private market strategies.

Looking ahead, our teams remain focused on investing client capital and deploying our $12 billion of dry powder. On the capital formation side, our positive fundraising momentum continues. Year-to-date, we raised $7.2 billion, higher than our total fundraising for the full year of 2024. Over the last 12 months, we've raised $9.5 billion, the highest trailing 12-month fundraising period on record for Grosvenor.

Infrastructure and Credit led our growth during that period. Jon will cover fundraising drivers and pipeline shortly, but I do want to note that in the quarter, we closed on a $490 million collateralized fund obligations that will be invested in private Credit secondaries. Beyond the management fees that we will receive from this vehicle going forward, we generated $2 million of transaction fees that were recognized in the third quarter.

Importantly, in general, activity levels are high and our pipeline remains quite full. Our gross unrealized carried interest balance stands at an all-time high of $941 million, up $32 million or 4% from the end of the second quarter with approximately 50% of that belonging to the firm.

During the quarter, we realized more than $24 million in carried interest, which is the highest level of quarterly realized carried interest we've seen over the last 2 years. While carry realizations are clearly trending in the right direction, and we're optimistic about 2026, it's worth noting that typically, the third quarter carry realizations are seasonably the highest of any given calendar quarter.

A few weeks ago, we hosted our 2025 Investor Day, and we were thrilled to welcome investors and analysts to hear directly from the leaders who drive our business every day. The goal of the day was to provide a comprehensive look at GCM Grosvenor, who we are, how we've evolved, where we're going. Our team led by Stacy Selinger and August Klatt did a great job putting that day together. The deck and video are available on our website, and I think they're helpful in understanding the company.

That said, I do want to highlight a few of the key themes we covered. First, we made clear that GCM Grosvenor is central to the alternatives ecosystem, bringing more than 5 decades of innovation, execution, growth and relationships to bear across Private Equity, Infrastructure, Credit, Real Estate and Absolute Return Strategies.

Second, we showed that our investment platform is broad, built for performance and importantly, highly scalable. Across the firm, we have the capacity to deploy multiples of our current capital base using our existing investment engine. That scalability, combined with a rigorous and repeatable investment process has produced attractive risk-adjusted returns for clients in each of our verticals.

Third, our growth outlook is compelling across each of our investment strategies. Each of our verticals from Credit to Infrastructure to Real Estate to Private Equity and Absolute Return, has a path to substantial AUM growth over the next 5 years. We highlighted the fact that our team's execution over the last 5 years has translated into earnings growth with fee-related earnings having grown more than 90% since 2020.

Importantly, we spoke about our path to double 2023 fee-related earnings to more than $280 million by 2028 and to drive 2028 adjusted net income per share to more than $1.20 per share. We also announced an increase in our quarterly dividend to $0.12 per share, reflecting continued confidence in our growth trajectory and our strong free cash flow generation.

Finally, the day underscored what truly differentiates GCM Grosvenor, our client-first culture that is rooted in teamwork and alignment and is a key competitive advantage, delivering high re-up rates and significant growth. We hope that for anyone who participated or subsequently dove into the materials, it is clear that we are well positioned strategically, financially, culturally with multiple growth engines, a scalable operating model and a clear line of sight to meaningfully higher earnings and cash flow in the years ahead. We have a high degree of confidence that we can compound value for shareholders over the long term.

And with that, I'll turn the call over to Jon.

Thank you. As Michael noted, I will focus my remarks this quarter on our strong fundraising results and healthy pipeline. We covered this during the Investor Day, but the beauty of our business is in many ways we have to win with all types of clients.

Our business diversification in terms of geography, asset type, client type and implementation style is reflected in the diversification of our fundraising results. Looking at the record fundraising over the last 12 months, there's a few things I'd call out.

First, Infrastructure and Credit together accounted for nearly 2/3 of our capital raised. These strategies are where we're seeing the highest demand in the market. In Infrastructure, we benefit from the market tailwinds generally and our broad platform that offers various strategies and numerous vehicles to meet the unique needs of investors. In Credit, our success is rooted in helping investors access the markets that they don't necessarily have the ability to access on their own, which means strategies outside of traditional direct lending and investment implementation styles outside of regular way fund investments. Our direct-oriented strategies in both Infrastructure and Credit are driving a significant percentage of our growth.

Second, Absolute Return Strategies generated $1.5 billion of fundraising over the last 12 months. As Michael shared, the pipeline here is the best it's been, in years on the heels of very strong investment performance. While we aren't changing our flat net flows budgeting assumption, the backdrop for ARS is increasingly encouraging, and we believe we can compound AUM growth through strong performance.

Finally, Insurance clients accounted for approximately 14% of capital raised over the last 12 months and 40% of Q3 capital raised, driven by the almost $500 million collateralized fund obligation that will be invested in private Credit secondaries.

Looking ahead to our pipeline, I want to emphasize the strength and predictability of our Separate Account business. We are perpetually in the market raising Separate Accounts from existing investors through re-ups and from new investors. If we do our job well taking care of our existing clients, re-ups and cross-selling into new strategies are our best sources of new capital.

As is usually the case, we're also in the market with several specialized funds. We held our first close of our Private Equity Secondary fund, GSF IV. We also held the first close of our inaugural Real Estate fund, REV, which now allows us to offer our real estate investment strategy and specialized fund form, expanding our addressable market for that strategy.

One particular interesting note on REV is that one of the primary anchor investors in the first close is an RIA. We're also preparing to launch the fourth vintage of our diversified Infrastructure fund, Critical Infrastructure Strategies IV, CIS IV, which will hold its first close in the coming months. We're also successfully executing on our growth plans for the individual investor channel. Our distribution joint venture, Grove Lane, is rapidly ramping up with new hires and has already sourced dozens of new relationships for the firm year-to-date, around 40 of which have already contributed to an investment product.

Flows for the Infrastructure interval fund are increasing week-over-week and the traction is very encouraging for what we believe is a highly differentiated product in the market and a significant opportunity for us over the long term. We're also preparing to launch a fund for Private Equity assets in the coming months, which will follow a similar model to CGIF, and we believe also has differentiated positioning given its expected high diversification and middle market focus on co-investments.

So the punchline here is that we have a clear strategic plan, and now it's a matter of executing well. Something we talk about a lot as a team is the importance of relentlessly focusing on execution for our clients as investors and as business owners.

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

Thanks, Jon. We are pleased with our third quarter results, which Michael highlighted, and I will cover in more detail.

Given our strong fundraising and investment performance this quarter, Assets Under Management grew to $87 billion and fee-paying AUM grew to $70 billion, a 9% and 10% increase year-over-year, respectively.

Our contracted not yet fee-paying AUM grew 17% year-over-year to $9.2 billion, providing a foundation for continued organic growth as that capital converts to fee-paying AUM over the next few years.

Private Markets management fees year-to-date and for the quarter grew 10% and 7% year-over-year, respectively, from a combination of solid fundraising and conversion of contracted not yet fee-paying AUM.

Absolute Return Strategies continued its strong investment and business performance. ARS management fees for the quarter grew 6% year-over-year. Our multi-strategy composite returns were a strong 3% in the third quarter, putting year-to-date growth performance above 9%.

Total management fees for the quarter were $101.4 million, an increase of 7% year-over-year. We expect total management fees for the fourth quarter to be approximately $1 million higher than the third quarter. Our year-over-year fee-related revenue in the third quarter grew 9%, driven by strong business performance.

As Michael noted, this quarter's FRR included $2 million of transaction fees related to the Credit collateralized fund obligation. This will not be recurring next quarter. That said, we do expect to launch additional structured solutions in the future.

Turning to expenses. Our compensation philosophy is centered on attracting and retaining top talent by aligning their interest with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation and equity awards. We remain disciplined in managing expenses and third quarter FRE compensation and benefits remained stable at just over $37 million. We expect slightly lower levels of FRE compensation in the fourth quarter.

Non-GAAP general, administrative and other expenses declined from last quarter to $20 million. We expect non-GAAP general administrative and other expenses in the fourth quarter to return to the levels we saw in the first and second quarter this year.

Pulling together these factors, our fee-related earnings for the quarter grew 18% year-over-year, and our third quarter FRE margin expanded to 45%.

Turning to incentive fees. Our gross unrealized carried interest balance increased to an all-time high of over $940 million. And this quarter, we realized $25 million of total incentive fees, including $1 million of performance fees and more than $24 million in carried interest. Given our strong ARS investment performance year-to-date, we have approximately $33 million in unrealized performance fees as of quarter end in addition to the $7 million we've already realized this year. Third quarter carry realizations are generally seasonably higher and the improving realization levels are encouraging as we head into 2026. Our financial position is strong and our decision to raise our already healthy quarterly dividend to $0.12 per share reflects our consistent and growing cash flow generation.

In addition, as of quarter end, we had $86 million remaining in our share buyback authorization. That said, our primary focus remains on strategically investing for long-term growth, and we remain confident in our goals to double our '23 FRE by 2028 and more than double our adjusted net income per share over the same time period.

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

[Operator Instructions] And our first question will come from Ken Worthington with JPMorgan.

I guess I'll try 2. First, on the CFO raise, you mentioned the $2 million of fees upfront. Are there ongoing fees for that product as well? Or is it the way it's structured, the fees just come in that upfront chunk? And then are these CFOs something you might regularly come back to market with more regularly? Or is what we saw really a one-off this quarter?

So thanks for the question, Ken. It's Michael. The CFO is absolutely a regular recurring management fee recurring management fee with some carry building over time, pool of capital. So, it's a $490 million raise, and we'll earn an annual management fee on that. And hopefully, we'll earn some carry on that as well. In addition to the normal fees that would accompany a $500 million raise, there was an upfront fee, and we specifically mentioned it so that when you saw it on the financials, you knew what it was and you knew that, that was not recurring. But we will start next quarter to enjoy management fees from that pool of capital. They will be recurring.

Okay. Great.

And the second question was, yes, we do hope to, and if I didn't say that, I meant to, we do hope from time to time to launch other fund obligations. This is our second as market conditions, investor demand line up and make sense to do it.

Great. And then just on ARS, you mentioned that we see a better turnaround the business, good returns. We saw better flows to start the year. It's been sort of quiet since, and we're going into what I think is typically the seasonally weak 4Q when we see bigger redemptions. So, I guess the question is, if things are going well and things feel good, why isn't this yet being seen in the net flows picture? And I guess, how is 4Q shaping up given it's seasonally a weaker quarter, but the environment feels better and you're doing better? Like how do we sort of add up

Jon, maybe you can talk a bit more about pipeline. But what I would say, Ken, and we talked about this at Investor Day, there is no question that the interest level is higher and the opportunities for us to drive flows are higher. And that's just, that is a fact. So I don't know, Jon, how much; we're not going to make news, but go ahead.

Yes. I would just step back, Ken, and say we've obviously held to the convention from a budgeting, forecasting and guidance standpoint, we've had, frankly, since we went public 5 years ago, and we've been wrong about that in both directions, but kind of not really wrong about that in the aggregate. So if you look at the earnings presentation, for example, where we go through the flows picture and the supplemental information, you can look at 9 months in 2024.

You can look at the 9 months year-to-date today, you can see how that's been an improving picture. If you look at year-to-date Absolute Return Strategies through the first 9 months, when you look at contributions versus withdrawals, distributions are a little bit of an anomaly because those are sometimes self-liquidating vehicles. It's slightly net positive.

I think that the, so the trend and the attitude and the environment because of performance, because of investor interest, all of that is better. I don't know that I would, as Michael said, I don't know that we're changing our Q4 picture. I don't think that there's much, it might be an accident in history. I don't think there's much seasonally that you should actually look into a ton around the ARS business for the vehicles that have liquidity quarterly, that could be any quarter's activity.

But I would say that you heard it, as Michael said, live at the Investor Day. David Richter, who runs that business, is feeling very good about things. And Michael, Pam and I are also feeling good about things, but also waiting to see that picture change before we change how we talk about the forecasting and the guidance around the business.

And our next question will come from Bill Katz with TD Cowen

Just maybe, Michael, just unpack a couple of things on the realization outlook. Forgive me for not knowing this already, but why is the third quarter seasonally so strong? And then as you look into next year, where do you see the greatest opportunity for those realizations? If I look at your disclosure, which is terrific, so thank you for that.

A lot of it sits in funds 2017 forward. So, one of the themes we're hearing from some of your peers is like there's still some vintaging and aging and seasoning that need to go on along the way. So, I'm just trying to triangulate between the very strong realization commentary and what might actually flow through the P&L as we look out to next year or so.

Yes. So, I think the fact that the carry or the average distribution of the carry, if you will, has aged and it's in these 2017-plus buckets is somewhat overwhelmingly a good thing for us. And let me just start with that. So, I think it's a good thing for us. It's a good thing for us because when you have more recent vintages, these are you can, you have some carry that's got some value at a mark from 2008, but it hasn't exited yet, you're sort of skeptical about when it's going to exit, et cetera.

You have carry in that 17-plus bucket that's kind of normal, that's supposed to be there, that's healthy and that's good. You're confident that your marks are appropriate and conservative. And so that's very much kind of live carry. The other reason that's a good thing is we own more of that. And so, we own a higher percentage of that 17 bucket than we do the earlier buckets. And I think those are both good things for us. I don't think we have any ability to generalize about when that carry might be realized or when it might accelerate aggressively.

I think our carry revenue experience is pretty much consistent with what you're seeing and what we're observing from a macro perspective across the industry. And we are so well diversified in our carry on so many different lines that just when that, those realizations pick up, and they have picked up. So, as they continue to pick up and they continue to accelerate, we will participate. But there's nothing like we can't look at one big deal that's going to generate carry and determine the outcome for a year. It's too diversified, which we think is a benefit for the stability and the strength of that carry, but it makes it like harder for us to point to timing.

The last thing is the seasonality of the third quarter is related to when tax carry is paid in the industry in general. So a lot of the carry that you see in the third quarter for most of the sponsors you follow will include tax carry distributions that they're receiving that tend to take place in that quarter to a greater degree than they do the rest of the year. The carry from actual exits is much, I think, more random and spread throughout the year and doesn't necessarily have any predictable seasonality.

Okay. That's helpful. And maybe one for Pam. Just as I think through next year, can you give us a sense of how we should think about both stock-based compensation issuance as well as maybe the direction for share count despite the buyback, it did go up pretty substantially quarter-on-quarter.

Sure. Thanks, Bill, for the question. In terms of our stock-based compensation, we expect it to be at similar levels or slightly higher depending on the stock price at the time we grant any awards generally as part of our year-end compensation cycle. But don't expect any unusual anomalies. What I would say on both share count and how we manage dilution there, we've, from stock-based compensation and from stock-based awards, we've enjoyed less than 3% dilution over the last 5 years cumulatively.

So we're very actively managing dilution, through both buybacks and settlement options to make sure that we're very diligent and careful around the share count. The other item, as you may recall earlier this year in the summer, we had issued about 2% dilution. We raised $50 million in proceeds from a strategic partner that invested in the business from a primary offering. So that was the other, just less than 2% of dilution that you see in our numbers. So we're going to continue to, again, actively, we have $86 million remaining in our buyback. We're going to continue to actively manage dilution through the buyback programs and really don't see any significant changes in the near term.

[Operator Instructions] And we'll go back to Bill Katz with TD Cowen.

So just, Jon, maybe one for you. You ticked off a fair amount of data on or just details on the retail business, and I was trying to keep up with you. Could you maybe unpack a little bit of your disclosure? You mentioned that you're getting on to a number of additional distribution partnerships, I think, and that you're seeing really nice growth week-on-week. Can you provide maybe just level set of where you are in terms of AUM and what products specifically you're in the market for? Just trying to make sure we have a full accounting of the opportunity set in front of us.

Sure. So I think let me just kind of start with level setting on some data. And some of the data, Bill has not obviously changed materially from a couple of weeks ago when we had our Investor Day and had a few slides on this, just in case you want to go back to it after the call. But it's about $4 billion of AUM today, just in general from the individual investor channel.

A pretty significant percentage of that has been capital that's been raised over the past several years. That capital that's been raised over the past several years, most of the past several years has been for separately managed account for institutional 3C7 kind of private closed-end funds, largely across the wire houses. I think what we've highlighted at the Investor Day and what I tried to highlight on the call is if you look and while it's not material yet to our economic profile, and as Michael has kind of gone to pains to mention on many calls in the past, like this is the type of thing that we're super excited about is growing, but it will take time for it to really move our needle.

But if you look over the more recent period of time, what's been exciting for us is the partnership with Grove Lane, which is meant to focus on RIAs, and that partnership is less than a year old, and we have picked up another probably 3, 4 dozen RIA relationships over the past several, couple of quarters, which in a long sales cycle business is tremendous momentum to us even if it's not huge dollars yet.

We are still marketing separately managed accounts, which we think will be a competitive edge for us in the Individual Investor Channel. We're still marketing kind of traditional closed-end private funds in that channel. And as you know, we also launched our Infrastructure interval fund, which goes alongside interval fund product or I should say, registered product that we have in the Absolute Return Strategies space.

That's very early days, but it's raising money every day and raising money through the RIA channels, both from our partnership with our distribution partner as well as through Grove Lane. And then the other point that I think we mentioned at Investor Day or certainly mentioned on the call or mentioned right now is that we expect to also follow on our Infrastructure product with something similar in the private equity space.

And so I just think it's all good. It's all investing more of our time and resources and all just building towards kind of momentum and platform such that we can take advantage of what we see as our role in that ecosystem and the opportunity set in that ecosystem, which is to help individual investors build diversified portfolios across different market cap size, across different implementation styles to complement what they're already doing in kind of the mega cap space.

And the next question will come from Tyler Mulier with William Blair.

The collateralized fund obligation raise from the private Credit raise. It seems like the noninsurance raise would have been a little lighter and there have been notable bankruptcies in the Credit space. Just curious if you've seen any concerns from clients or changes in the landscape there on private Credit.

Did you hear that, Michael?

Yes. I think that the first couple of words, Tyler, that you said didn't come through, but I think you were saying, were you saying excluding the

Yes.

So I guess a couple of things. One is we're not seeing Private Credit slowing down. And we're not seeing that slowing down. There's all this talk about Credit quality. There have been a couple of high-profile Credit issues. I think those were all, or the biggest ones were Credit issues where it wasn't strictly direct origination private. There were plenty of traditional lenders in there, I think, as well.

And that, we're just not seeing those issues. So there's a lot of conversation there, but that the asset class is growing, the allocations are growing. They're going to continue to grow. It's going to continue to be a fast-growing strategy for us. And I would just say that pretty much every strategy goes through cycles where people are questioning its future and questioning what's happening. And these are just very good solid ways to invest, have been over very long periods of time through different cycles, and that's not changing and you're in a kind of a major, I think, uptrend, upswing in the allocations to Private Credit.

There was a significant amount of capital that came from insurers inside that structured product. And so, we are still seeing a productive insurance sector, and we believe that the insurance sector will also will continue to be productive as we go forward. Is that helpful?

And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional remarks. Thank you.

Thank you for joining us again today. We appreciate all of the time and the interest. If you have follow-up questions, please feel free to reach out to our team. If not, we look forward to speaking with you again next quarter. Thank you. Have a good day.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

All right. Good morning. So welcome to GCM Grosvenor's 2025 Investor Day. I'm Stacie Selinger, Head of Investor Relations. And it is my pleasure to welcome all of you in the room. Thank you very much for joining us as well as everybody who is joining us virtually [ viewing ] the webcast. Thank you very much for being here. We appreciate your continued trust and your support and your engagement.

So today, the goal is for you to hear directly from our team about the drivers of our business that have generated strong consistent performance for our clients and then also for our shareholders. We will take you through our growth strategy, our differentiated client value proposition and our investment engine, all of which we believe position us ideally to capture the significant tailwinds that exist in the alternatives industry.

So before we get started, a reminder that all statements made that do not relate to matters of historical fact should be considered forward-looking statements. This includes statements on our current expectations for the business, our financial performance and our projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements in this presentation. Please refer to the Risk Factors section of our 10-K, our other filings with the SEC and our earnings materials, all of which are on our website.

We will also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP measures to the nearest GAAP metric can be found in the back of this presentation as well as in our earnings materials on our website.

Finally, throughout the presentation, we will refer to a variety of terms and terminology and acronyms that are specific to our business and our industry. For convenience, we have included a glossary in the back of the presentation with definitions of those terms. So feel free to reference that as we move throughout.

All right. Now turning to today's agenda. So we will kick off the day with our Chairman and CEO, Michael Sacks, who will talk about the firm, our history, our growth strategy and our long-term trajectory. He'll be followed by our President, Jon Levin, who will discuss our client value proposition, why do we win with our clients as well as the areas of white space that we're most excited about. After Jon, you'll hear from Fred Pollock, our Chief Investment Officer, on our investment origination engine, why it's scalable, why it drives significant strong performance.

After the 3 of them go, we'll break for a short question-and-answer session, and then we'll dive deeper into each of our investment strategies, starting with David Richter on absolute return strategies, then Steve McMillan on credit, Scott Litman on infrastructure, Bernard Yancovich on private equity, and Peter Braffman on real estate. Then Pam Bentley, our Chief Financial Officer, will focus on our financial drivers and long-term financial trajectory. We'll wrap things up with some closing remarks from Michael as well as another Q&A session. So thank you very much again for being with us today. Our business, as you'll hear throughout the day, is built on our belief that the key is creating long-term value for our clients, and we seek to apply the same approach to creating long-term shareholder value.

So now I will turn it over to Michael.

Thank you, Stacie. Good morning, everybody. I'm Michael Sacks, Chairman and CEO of GCM Grosvenor. I want to thank all of you for being here today and all of you who are listening to this on the -- but aren't here with us, thank you. And anybody who pulls this up off the website and watches it in the future, we thank you for doing that, too.

We have a great team and a great business, and we truly appreciate it when you take the time to learn more about us. We're looking forward to sharing a deeper dive into GCM Grosvenor today to introducing you to more of our partners than you've met before and hopefully leaving you with a better understanding of who we are as a firm, the quality of our people, how we add value to our clients and our growth and our prospects for the future and the value that we believe our stock represents for investors today. And as Stacie mentioned, we are going to make a little news today. I think we've probably done that a little bit already.

I'm going to talk about who we are as a firm, where we've been, what we've accomplished and where we're going. But it's good to give a little history first. Grosvenor was founded in 1971. I've been at the firm since the fall of 1990, and I've led the firm since 1994. When I joined the firm, we were pretty small, $225 million to $250 million of AUM, 6 people. When I was recruiting partners to come in the effort to build Grosvenor at that time, I referred to the firm as a 20-year-old startup. The alternatives industry was barely an industry.

We've seen a tremendous, tremendous amount of evolution in that industry and at Grosvenor over that time. And one of the most positive things, I think, that I see today is that 35 years later, despite that massive evolution, hedge funds at a $5 trillion business, despite that massive evolution, our ability to add value to clients and our growth prospects and the opportunities from continued evolution are as great today as they've ever been, and they're actually easier to see today than they've been.

One of, I think, our great strengths and an important factor for you all to sort of understand and internalize is our track record of innovation and evolution. I mentioned that GCM Grosvenor has a history that spans more than 5 decades. 35 years ago at Grosvenor, alternatives meant hedge funds and it meant commingled vehicles. That was all we did. Our view was that there was a lot of value in these fundamental strategies, and that's still our view today. But we felt that if we built the right kind of firm, one that prioritized clients, culture, transparency, compliance and gave the clients what was best for them, we would do well. And that's what we tried to do. That led us to embrace separate accounts for clients, which was actually innovative when we did it.

We really didn't see a lot of people doing this to the mid-2009 or so. But it was -- we embraced that in the early mid-'90s, and it was -- we did it because it was in the best interest of the client, and it was an innovation that really helped us. We oriented our culture to focus on compliance and on alignment of interest. And as time marched on, we saw the private -- the shift towards private markets. And we saw -- and we pursued private markets capabilities. So that's another innovation or evolution of our firm. Originally, we pursued that inorganically through an acquisition that we searched for, for several years, and that's now the biggest part of GCM Grosvenor.

So we saw that while -- continuing going forward, we saw that while our separate account clients in both ARS and Private Markets were a great answer -- our separate accounts were a great answer for many of our large institutional clients. We needed to build out our commingled fund or specialized fund practice. And we focused on that, and we've done that, and we're continuing to grow that out. And that has enjoyed a 35% compound annual growth rate since 2014. So it's just another piece of innovation or evolution, if you will.

And in the last example of that, we've shifted heavily towards direct-oriented strategies such as co-investments and secondaries, which provide terrific value to our clients, better economics to us. And so the point of this is that we have evolved continuously. We've innovated, we've executed, we've grown. We've done it through market cycles through tremendous evolution of the alternative space, and we've stayed relevant and stayed a leader in a changing industry over a long period of time. And I think that's relevant for all of you because you can look at that long history and you can, I think -- and you can see that we've built a great business with a great financial profile through different markets, through different evolutionary periods. And I think you can take some comfort, some measure of comfort anyway, that we will continue to do that as the space and the sector evolves going forward. So that's -- those are, I think, important points.

Most importantly, you'll see today that we have the team, the vision, we have the industry backdrop with tailwinds to continue to do this going forward and continue to evolve and grow.

I think a lot of that starts with our culture. And so I want to dig into that a little bit because in a business with significant human capital element and IP that gets socialized around the industry very quickly, culture is actually an important defensible asset. And we like to say we're a culture-driven firm. So what does that mean? Externally, it means that we have a client-first mindset. You'll hear more about that today. Our success comes only if our clients succeed. We're acutely aware of that. We embrace that. It means that we're focused on excellence across all that we do. And it means that we embrace a strong client service orientation. And with separate accounts, there is a service aspect to what we do. If we do those things, starting with delivering results, our clients win, and we win. And it's pretty much that simple in terms of what do we have to do to keep growing.

Internally, that focus on culture means that we create an environment where that values compliance, it values collaboration, it values humility. We do not operate star systems. And our model depends on alignment. It depends on alignment with our clients, and it depends on alignment with teammates and among teammates and, of course, alignment with our shareholders. In a business like ours, especially with separate accounts where we act as an extension of client teams, culture shows up in every interaction. We're not just producing quarterly statements, having an Annual General Meeting. We're building portfolios. We're solving problems. We're working alongside our clients. Jon is going to focus his remarks on client relationships, but it's safe to say that we wouldn't have the business we have today if we didn't have a culture that embraced and lived these ideals. And so we're going to hang on to nurture and strengthen that culture all the time.

Before we talk about the future, I want to start with a little -- just a quick snapshot of what we look like today. We're an $86 billion firm across 5 core alternative strategies, absolute return, private equity, infrastructure, credit and real estate. We're headquartered in Chicago. We have 9 global offices and 546 employees. We can implement strategies for clients in a variety of ways through primary investments in another sponsor's fund or through a direct-oriented investment. We define direct-oriented investments as a controlled direct investment, a co-investment, a secondary investment or a seed investment. The common thread for direct-oriented investments is that our team is making the investment decision at the asset level. And as I'll discuss in a few minutes, direct-oriented investing now comprises the majority of the funds we are raising and it's transforming the asset and financial profile of our business.

At the program level with separate accounts, we offer our clients significantly more involvement and a higher level of service than they could get in a blind pool fund. More than 70% of our AUM is delivered through customized separate accounts, which are programs where we invest based on clients' unique specifications that we've developed with those clients. That speaks volumes about the level of trust our clients place in us. We are sometimes quite literally an extension of their staff with structures and strategies and governance customized for their objectives. We are often their institutional memory. We're the constant over a 10-, 15-year period of time with regard to a particular asset class for a client. The remaining 30% of our capital is in specialized funds, which provide investors of all sizes with an efficient way to access our investment expertise to access the diversification we provide and the performance we generate. And this is a growing -- as I said earlier, it's a high growth rate over the last 9 years, 10 years, and it's a profitable -- growing and profitable part of our business.

Jon is going to go deeper into our clients and our client base. But as you can see here on this slide, we enjoy very high client satisfaction, very significant loyalty from a diversified global client base. We've grown alongside our clients. 56% of our top clients work with us in more than one strategy, 92% of our top clients have added capital since 2020. And so said simply, we have great clients with great tenure, great loyalty and a lot of room to grow with those clients. Jon is going to show you a slide that looks at the progression of separate account relationships, and he's going to give you a number of real-world examples. And what I'm ask -- I want to ask you to think about when you see that is what does that mean for the capital that we've raised from new clients in the last 3 years because what you -- when you process it, what you realize is when you raise $1 billion from a new client, it's not $1 billion that you've raised. It's $7 billion, it's $10 billion, and it pays off over the next decade. And we hope you kind of come away with that when you see when Jon goes through his presentation.

We manage our clients' capital with a high degree of flexibility in order to be highly aligned with their needs. That and our separate account orientation, which are sort of one and the same, are what make us a solutions provider in industry parlance. But we actually think that the true meaning and the true value to the firm of being a solutions provider is broader than that kind of commonly viewed definition. Our scale, our reach and our history are actually vital for serving all of our partners in the alternatives ecosystem, clients or investors with us, but also the sponsors that we are working with in one or more of the verticals within alternatives. We are serially a solutions provider for the capital of our clients, but we also provide solutions with that capital to the alternatives marketplace. And that virtuous cycle drives a lot of value and opportunity for our firm.

As a provider of capital to funds and companies and assets, often as a cornerstone investor and as a solutions provider for those seeking to deploy capital, our clients, our dual identity is a strategic advantage. It generates broad and diversified flow of opportunity. It generates terrific origination, and it gives us more ways to serve clients, more ways to deliver returns, more ways to win business.

One thing that you'll hear repeatedly from Fred and our investment leadership is that our strong ability to originate opportunities enables us to deploy significantly more capital in the future than we manage today while still generating attractive returns and a high standard of service for our clients. It allows a significant growth with significant operating leverage. And we're going to show you a little bit more about that today, dig into that a little deeper.

Everything I just talked about and everything we do for the most part, we are doing in the middle market, and that's a core driver of the excellent client outcomes that we seek and have delivered. We believe the proposition of -- the value proposition in the middle market opportunity is very good. We know for sure that our clients need more help in accessing and investing in the middle market. So our value add is greater. So we've got, we think, a superior risk/reward profile and the opportunity to add more value to our clients with that middle market focus.

Middle market is more fragmented, less efficient, creates more opportunity for outperformance. And as you can see on the slide here, it has consistently outperformed industry benchmarks across all of the different asset classes. Clients recognize this. They want the return profile. They want to seek it out as a diversifier for their commitments in these verticals and as a premium return generator for their portfolios, and they hire us for the activity specifically because we have the value proposition in this space.

Our relationships across hundreds of sponsors are built on decades of credibility as a partner and a capital provider. You're going to hear that -- as you hear the vertical heads throughout, you're going to hear this sort of symbiotic relationship where we are a real partner to the players and to the participants in that vertical. And because of the fragmentation in the middle market, having size and scale is actually critical and very valuable, and we're able to take advantage of that. We're a leader in that market across all of the investment strategies, and it represents the majority of our capital deployed.

Let me pivot now a little bit to our financial profile, what we've done and then what we're going to do. And we want to do this because at the end of the day, we're not just a great partner for clients, but we think we're a compelling investment for shareholders. We are a capital-light business with expanding margins and strong cash flow. We've built a scalable platform with significant operating leverage. As our assets and revenue grow, we will not need to proportionately increase expenses.

As you can see on this slide, since we've come public, we've delivered growth across the board, fee-paying AUM, fee-related earnings, margin and adjusted net income. We think that we are positioned to drive accelerating growth. So those were decent numbers over the last -- since the end of 2020. We think we're positioned to drive accelerating growth. We see a ton of runway to continue and accelerate the trends of the last 4 years, 5 years. The first is just to simply grow our core business as you know it. As I just discussed, our business has already enjoyed mid-teens earnings growth over the past 5 years, just continuing to convert undeployed capital to fee-paying capital, growing with our existing clients who add capital to their existing programs and adopt -- start to work with us in new programs and raising new capital and doing that every year provides a strong level of future growth for us.

We think, as I mentioned, all of our investment strategies can scale and scale significantly. Fred and the investment leadership is going to speak to the specific opportunities inside each of these strategies. But you see here on this slide that we see very good levels of growth in these -- in the various investment strategies over the next 5 years. We also expect that we will have a continued material shift towards direct-oriented strategies, which is good for our financial profile.

Last, there is white space for us. So we have a good outcome for the firm, for clients and for shareholders just continuing to do what we've done. And we have a lot of room to do that, a lot of demand, a lot of tailwind to do that. But we also have significant white space that can accelerate -- accelerates opportunity and growth. So you will hear today that there is significant demand for alternatives pretty much everywhere. On the institutional side, in addition to the opportunity to cross-sell our existing client base, the opportunity is very significant internationally. It's significant in the insurance channel.

On the individual investor side, it's hard to overstate the demand opportunity, which is really in the early innings. Individual portfolios are starting to look. It's early days but starting to look more like institutional portfolios. I think at a minimum, the people that are delivering the individual investor portfolios are starting to realize the need for those portfolios to look more like institutional portfolios that -- and taking advantage of that, which it's a great opportunity for us, taking advantage of that opportunity as one of our key priorities and building a platform to serve that space with the same diversified exposures that we offer to institutions is an important goal of ours. And as I'll touch on in a minute, investing in these areas of white space is a core pillar of our capital allocation strategy.

So let's talk about capital deployment for a second. We've shown that we can grow at solid rates while remaining capital light while paying a reasonable dividend and managing dilution from stock-based compensation. Hopefully, you come away from today convinced of the high likelihood of us continuing to do that on an even faster scale. The investments we've made and we'll continue to make in distribution, Grove Lane, they support that. But I just want to take 1 minute and touch on inorganic growth and how we approach inorganic growth because we entered the private markets through inorganic activity, and we do have an active team.

As you know, it was an acquisition that got us into the private markets. That was a strategic decision to go look for that. We successfully integrated that business in a one firm, one culture approach, and we've successfully grown all of the verticals that existed at the time of the acquisition. Jon led our strategy team at the time of that acquisition and ran the integration of that business. And it's been a tremendous outcome. Private markets is the biggest part of the business today. Jon now has broader responsibilities -- leadership responsibilities as President of the firm, but we've maintained the strategy function. It's led by a partner of ours, Kevin Buchheit. You're not hearing from Kevin today. But Kevin works closely with me and Jon leading our work on anything that is inorganic or particularly complicated. And that includes looking at strategic and opportunistic M&A possibilities.

As you know, we are large shareholders of the firm. So our interests and our shareholder interests are entirely aligned. And when we look at these opportunities, we are thinking quite literally as if this is our money because a bunch of it is. And that means our bar may be a little bit higher than other management teams who own less of their businesses. But it also means when we do something, it's likely to be pretty good. We have a highly disciplined approach in terms of how we look at inorganic opportunities. We look at them through 3 lenses. Is it good for our clients? Can we tell our clients in the morning why we are a better firm for them? Will it help us grow faster as it can accelerate our growth rate, not just cost synergies, but growth synergies, revenue and growth synergies. And is the risk/reward reasonable? And we think that approach or those lenses keep the firm safe and strong and keep us disciplined.

So we do have an active effort there. You don't swing at most pitches, and it's hard to get deals done, but this is something that we work on, and we think it's important that you understand how we process that.

Looking forward, we've told you for a while now that we see our 2023 fee-related earnings doubling by the end of '28. We have not really spoken before or kind of quantified for you before how we see that translating into ANI. And we see the ANI growth from the end of '23 more than doubling. We see $1.20 a share in 2028 as a comfortable ANI goal. We think it's $1.20 plus but -- $1.20 in adjusted net income per share by '28. That's built on the FRE growth we've already laid out, plus a significant upside from our incentive fee earnings power, which has expanded tremendously in recent years. Pam is going to dig into that a little bit more. We have said that we are capital light. We're going to return capital to shareholders. We're going to manage dilution. We've done that, and we're going to continue to do that.

The combination of management fee growth, expanding margin and high incentive fee earnings power has resulted in a business that is highly cash generative. This is another thing that I think is worth just making sure everybody understands and embraces nearly all of our earnings and cash flow are free cash flow. It enables us to pursue a capital allocation strategy that balances investing in future growth with returning capital to shareholders. And it is our plan to continue to do that.

And so I'm pleased this morning to tell you that our Board has approved an increase in our quarterly dividend from $0.11 to $0.12 a share. That change will take effect for shareholders of record on December 1, 2025. At $0.12 a share between now and year-end '28, investors will collect about $1.56 in dividends. That's with no other dividend increases. They would collect kind of a minimum of $1.56 in dividends.

So you all have to figure out valuation. That's the hard part for you. But as we see it with a reasonable multiple on $1.20 of ANI and $1.56 of dividends in your pocket by the end of 2028, it's easy to see $23 of value, which would be a double in our stock price in the next 3 years, which is a pretty decent rate of return. I don't think that's aggressive, by the way.

As I've said before, while we'd like to see that, what we actually focus on is the business and compounding the free cash flow and our true intrinsic value. That's what we're going to do. We're going to continue to focus on that. You'll all continue to figure out what that's worth. But we're going to focus on that. And you're going to hear more today in depth from all of our people about how we're going to do that.

I just want to close by saying because culture is so critical to us, we put together a small little video that has some of the broader people at the firm talking about our culture. So we're going to play that for you now. And then Jon is going to come up here, and you'll hear about some other aspects of the business. Thank you.

[Presentation]

Hello. Good morning. First, I want to thank our communications team. I watched that video for the first time yesterday, and they were able to tell me something my loved ones weren't. So I worked out last night, and I had a salad for dinner. Clearly, I've been traveling too much, and I appreciate them letting me know in a very subtle way. Good morning. Jon Levin, President of GCM Grosvenor. I joined the firm in 2011 after having spent the prior decade or so in the alternatives space. Michael tells people that I joined GCM Grosvenor because I wanted to move back to Chicago. It's actually not really true. I like New York. I really joined because of the opportunity. I knew Michael and the firm before I joined, long admired the people and the culture. But equally important, if not more important, I had conviction on the opportunity set to join the team and help drive value in the business.

I believe in the alts sector and in the important role of a diversified solutions provider. We've created a ton of value over the past 1.5 decades for our clients and in the business. And as Michael said, and you'll hear more about today, we believe the prospects for the next 15 years are even brighter.

My goal with my time today is simple, illustrate our strong value proposition for clients and how that sets us up for success as a business. Let me say that again, how driving value for our clients drives our success. That order of operations is really important. Clients come first. If they win, we win. We built a platform that meets clients' critical needs and delivers outcomes that are both durable and differentiated.

Before we talk about us specifically, let us spend a minute on the industry. This is something you all hear all the time, I'm sure, from our peers and spending time on the industry, but it's a good one. Alternatives continue to capture a growing share of global assets. Every single alternative asset is a vertical -- vertical is growing, even the ones that may not be catching the best headline on any particular day. Alternatives AUM is projected to grow at double-digit rates over the next 5 years, driven by the compounding of returns and greater share of investors' wallet.

It also continues to be the case, and we get this question a lot, that investors are seeking to build and grow deeper relationships with fewer, larger, more strategic partners. We're a beneficiary of that trend. We're seeing that real time in discussions around the world with our clients across all geographies and type.

Our platform is purpose-built. We made 2 critical decisions as a business. One, we wanted to be able to help investors with any alternative discussion they wanted to have. We wanted to be relevant to them regardless of cycles and trends. And two, we wanted a business model that was able to work with clients with flexibility and scalability. This strategic direction enables us to walk in the room with clients and prospects and do what we do best, listen, understand the problems they're trying to solve, the goals for their alternative programs.

Clients have very specific portfolio goals in terms of verticals, geographies, implementation styles, the ways they want to conduct the business. And the investment solutions must be delivered in the specific structure to suit their unique needs. Our platform covers the key alternative [indiscernible] groups, absolute return strategies, private equity, credit, infrastructure and real estate. And the relevant investment styles, primary investments, co-investments, secondaries, directs and seeds. And as you'll learn throughout the day today, we're able to package those manufacturing capabilities in the optimal wrapper, whether it be a customized separate account, a white label solution, a specialized fund, those structures can be closed-end, evergreen, registered.

Decades of investment, purposeful decision-making, culture and practice have created a platform that's both flexible and scalable. The one thing that makes us pretty unique is the level of capital we have from customized separate accounts. And you've heard a little bit about that from Michael. So let's dive a little bit deeper into that and understand it in more detail.

Customized separate accounts represent 71% of our assets under management. That figure has been north of 2/3 for 30 years, and we played a strong role in pioneering this approach for clients. Interestingly, in the mid-1990s, and I can take no credit for this, I was in high school at the time, the company won a major piece of business. It was a separate account. That client said they wanted to work with us or their partner for 3 years, learn everything they could from their partner and then fire us. There were 3 people competing for that piece of business. I think 2 dropped out on that great news, 2 still competed, we won. They're still a client today. They have almost $1 billion of capital with us, and that's after having returned hundreds of millions of dollars in profits.

We need to provide a value proposition that evolves as the clients' needs evolve. Regardless of structure, everything starts with investment returns. Fred is going to go into that in more detail, and you'll hear about it from the verticals. But our success is also heavily attributable to the partnership and services we provide beyond the investment returns. And the list of these services is vast, tailored reporting, portfolio analytics, risk aggregation, knowledge transfer, training programs, helping clients with their own conferences, helping clients book travel. You could come up with things I guarantee you we've done it for our clients.

We provide administrative services for assets beyond the assets we're managing from an investment perspective. In fact, we don't talk about it much because it's just one of the many services we offer. We actually administer hundreds of billions of dollars of alternative assets on behalf of certain of our clients. I would note that people sometimes assume that solutions providers such as ourselves are only relevant to smaller investors with fewer staff or less investment experience. The reality is that our value proposition is coveted across all investor types. Most of our clients in customized separate accounts, in fact, are some of the largest, most sophisticated clients in the world. We're going to look at a couple of case studies. Remember the key tenets as we go through these. The solution starts with listening to what the client is trying to accomplish. The solution must drive investment returns. The structure of the relationship must be economically efficient, and the solution often incorporates key value-added services.

In the ARS business, we typically serve as the entirety or a core allocation of our clients' programs. In this particular case, the client, a sovereign wealth fund from outside the U.S., was looking to launch an Absolute Return Strategies program from scratch. While focused on returns, of course, they wanted to scale quickly into a diversified portfolio. And this client had their own team but also understood the value of leveraging a partner with more resources. So the first thing we did is we launched a portfolio managed by our team. Alongside that launch, we supported the clients' initiative to build a portfolio managed by their team. They leaned heavily on our team investment insights, knowledge transfer, training and operational lift. So from the clients' perspective, they're getting a lift from a 550-person organization with 55 years of history in the ARS space, and that lift is essential to their overall ARS program.

The 2 portfolios that are managed, 1 by us and 1 by them, they complement each other so that the overall program makes sense. And importantly, this resulting solution is economically efficient. As you can see on the slide, we're earning our normal management fee on a $250 million account, but the client can properly look at our fee as a constructive cost of 13 basis points to them. That's because we pass along the fee savings that are the result of our $25 billion ARS business and deep relationships and provide services to that client managed portfolio as part of the overall relationship. The significant investment and operational value we deliver across their entire program creates a durable moat around the relationship.

In our ARS business, the average length of relationship of our top customized separate account clients is 13 years. That's longer than a contractual private markets fund life. For a business that's considered to have less duration and causes people some concerns due to the underlying contractual terms and the underlying liquidity of securities, that's likely surprising to folks.

Here's another case study. This one is in private markets. This particular case study relates to a co-investment program for a U.S.-based public pension system. This client had a high-quality private equity program with high-quality sponsor relationships skewed towards the larger end of the market, but they lack a co-investment program, and they also lacked exposures to the middle market. Resource, governance and operational issues hampered their ability to take advantage of their deal flow from their relationships such that this very valuable origination asset, the co-investment deal flow is ending up on the cutting room floor.

So we created a program using a dual-sourcing approach to take advantage of both the clients' large-cap deal flow alongside our middle market and small cap deal flow, thus monetizing the clients' otherwise wasted asset and introducing complementary exposures to their PE portfolio. We lead origination, underwriting, execution and portfolio construction and work alongside the clients' internal team on a daily basis. Again, and importantly, the program is also economically efficient, comparing what a client would pay for a private equity program devoid of co-investments and compare that to our fees for a typical co-investment program, and you've cut the program costs in half.

Allocating a significant portion of our private equity allocation to co-investments materially decreases the private markets programs' cost and drives returns. Many investors around the world are similarly constrained from a resource standpoint and need a partner like us to help them implement an institutional quality co-investment program.

Customized separate account wins like the ones I just described are the result of long sales cycles, involving a lot of listening, information sharing and planning. Our clients appropriately spend significant time evaluating their prospective partners. These relationships last longer than the average marriage. The resulting victory is worth the effort. The value proposition and the extent to which we are ingrained in our clients' programs create highly sticky relationships that grow. This is what Michael was referencing earlier.

Our experience is that the relationships grow to multiples of their initial size. This concept is illustrated here in the context of one of our real estate customized separate account relationships. After the initial series was invested, the client added more capital in a second series. This is what we call a re-up. The client has continued to add capital over the last decade in the third series, a fourth series and so on. These re-ups were made at larger amounts because of the trust we built and the clients' balance sheet grew. The result of this is that a decade after the first series after the sale -- the initial sale, the AUM from this client is nearly 10x their initial commitment.

We see this dynamic throughout our business where we enjoy a 90%-plus re-up success rate with a typical average upsize of roughly 25%. Importantly, this case study actually just stays within one vertical, but this next case study illustrates a client relationship built across multiple verticals. We always have to focus on the business we have today as opposed to the business we have tomorrow. That's really, really important. If we start thinking about the re-up or we start thinking about the cross-sell, we've lost our way. What we have to do is focus on driving value today. But the good news is that when we will maintain this mindset, good things follow.

As we build trust with our clients and create value for them, we often get the privilege of managing capital for them and strategies beyond where the relationship started. This particular client is one of the largest alternative investors globally with one of the largest staffs and most sophisticated teams you'll find. But they determined many years ago, they wanted a partner to help them build exposures to the smaller end of the private equity market, utilizing both funds and co-investments. These exposures would be complementary to what they were -- internal team was doing while delivering strong returns and developing a farm team concept for the clients' direct allocations down the road.

Over time, as we provided value, they went on to partner with us in real estate, then infrastructure and most recently, I think the first quarter of this year, maybe second quarter in Absolute Return Strategies. Here, you can see that story play out across 6 different relationships. If we do our job, the separate account model is the best lead generator any sales organization could create. I'm proud to say that we've done our job so far, and expansion with our existing clients has been and will remain a major source of our growth.

Let's turn to specialized funds. Turnkey targeted exposures that leverage the exact same manufacturing infrastructure as our customized separate accounts. These products are used sometimes as part of certain customized separate account programs and also provide stand-alone solutions. Given that we come from a custom account origin, we're pleased with how these funds have been received in the market. We've had a good track record of successfully scaling our different franchises and they've grown at a -- as Michael said, a low mid-30s CAGR over the past decade. That's a lot of growth for a decade.

We believe we have considerable room to scale these fund franchises further, and you'll hear more about that from each of the vertical leaders as they go through. We've talked about our track record of evolution, growth and scaling alongside our existing clients in both customized separate accounts as well as specialized funds and providing exceptional value to our existing clients is obviously essential to everything we do. That said, we're constantly investing in expanded distribution, both in terms of the time spent by our existing resources and investments in new resources. Our approach is to invest strategically in geographies and channels where we're underpenetrated.

And I want to emphasize that we continue to see plenty of growth opportunities in the institutional channels. Don't worry, we'll get to the individual investor in a second but still see tons of growth in the institutional channels.

While it's never easy, our playbook of listening to client needs and leveraging our platform to tailor our offering accordingly positions us very well to win. Since 2020, we've partnered with more than 150 new institutional clients across geographies and client types. Using the prior case studies as our guide, all of these new clients have the potential to be multiples of their current size over the next decade. That represents tens of billions of dollars of opportunity.

Turning to the individual investor channel. Not surprisingly, like many of our peers, we're investing a significant amount of time and resources to capture our share of this very exciting opportunity. Individual investors hold roughly half of global wealth but are massively underallocated to alternatives. This means that we're still, we believe, in the very early innings of a multi-decade tailwind from individual investors building appropriate allocations to alternative investments in their portfolios. We believe that individual investors portfolio should be institutional quality over time, and it will take time.

The offerings available to individuals today are concentrated in a narrow segment of the market of alternatives from a narrower set of providers. Most individual investors' alternative allocations are concentrated in a handful of large mega cap providers. 7 firms accounted for over half of the fundraising from the individual investor channel over the past few years. By the way, there's nothing wrong with those investments as a place to start. But over the past 50 years, institutions, along with their consultants, advisers, partners and various academic studies have all determined that an optimally built alternatives portfolio is going to be diversified across more than 2 or 3 funds. You're going to have exposures to all segments of the market.

Resilient individual investor portfolios will ultimately evolve to [ what ] we think and we hope if we do our job as an industry to encompass the same attributes as institutional portfolios, diversified by strategy, sub-strategy, geography, market cap, implementation type and vintage. As a solutions provider, we're delivering institutional quality diversification to individuals in efficient holistic solutions.

From spending an increasing amount of time on this market personally, it's clear to me that individuals want this value proposition. They need that in their portfolios and the people that are building portfolios need that for differentiation in the marketplace. Individual investors need a partner like us who can provide access to the missing areas of the market as well as operational infrastructure and diversification. We brought our solutions mindset to this channel, meaning that our broad and deep platform as well as our flexible implementation model are just as relevant in the individual investor channel as they are in the institutional channel.

We have almost $4 billion of AUM today from individual investors, the majority of which was raised in the past 5 years. Our strategy is multifaceted. We started with distribution via the wirehouses with a dedicated internal team. Earlier this year, as you know, we launched Grove Lane Partners, a distribution joint venture focused on RIAs and independent broker-dealer market. And we've also entered into third-party distribution partnerships where that makes sense, including, by the way, leveraging our global footprint to have some of these partnerships to -- for individuals outside the United States.

As we move forward, we're going to continue to deploy this multifaceted approach. Importantly, the capital that we've raised today is highly diversified. We've raised $2.7 billion of capital from the individual investor channel for customized separate accounts. I'm sure that is not something that people thought was particularly relevant in that channel, $2.7 billion from individual investors for customized separate accounts. $600 million from nonregistered specialized funds and $600 million of AUM across registered funds all in the past 3, 4 years.

We work with 9 wirehouses and [indiscernible]. And we're in the early days with Grove Lane, as you know, but we already work with 40 RIAs that invest with us.

Each of our verticals has raised capital from the individual investor channel. And we suspect, as you look 4 or 5 years down the road, this channel could easily account for 20% to 25% of our annual fundraising. We're excited about this opportunity.

Let me conclude with a quick update on fundraising. We're pleased to announce that we saw continued strong capital formation in the third quarter, raising $1.9 billion of capital. That brings year-to-date fundraising through the end of September to $7.2 billion, which is greater than our capital raising for the entire year of 2024. You will recall we talked about in '23 that we expected '24 to be better than '23, '25 to be better than '24, and we've seen that. The last 12 months has been $9.5 billion of capital formation, the highest 12-month period in our history.

And importantly, we see a ton of pipeline and momentum behind that. Expect to finish the year strong with Q4 capital formation and feel very good about the years ahead. Clients and shareholders and other people ask a lot when we meet with them as a senior leadership team, what keeps you up at night? For me, the answer is either my kids or jet lag. I don't really worry about the business. At work, we're focused on controlling what we can control. If we wake up every day thinking about our clients, it will be just fine, and the results will be compounding equity value for the business. And with that, I'll turn it over to my partner, Fred. Thank you.

Good morning, everyone. My name is Fred Pollock. I'm GCM Grosvenor's Chief Investment Officer. I'm going to try and do a better job than Jon and Michael as a leader today and lower the bar for all the investment verticals you're going to hear from later. So that's going to come afterwards. I'm also going to try not to steal all their thunder in terms of what they're going to go into more detail and cover a few different areas.

I've been at Grosvenor for a little over 10 years. Before that, I was a direct investor working principally in the infrastructure space. When I joined Grosvenor, I was part of being able to build on the huge strengths we already had in all of our core verticals, and then we've expanded into a number of logical adjacencies to help enable and just foster growth.

My plan for today, I want to talk about the broad investment platform that we have. First, kind of 3 key aspects: one, it's scalable and its flexibility; two, our experienced people and strong repeatable process; and three, I want to talk about our performance. Second, I'm going to provide a few perspectives on our investment verticals. And without, as I said, trying to steal the thunder of the individuals that are going to come after us this afternoon.

First, our investment platform. Each year, we source a little over 3,000 high-quality investment opportunities. These are coming from top decile and top quartile alternatives managers across the entire alternatives ecosystem. Obviously, some of what we do every day is build new relationships. Most of what we do every day is direct-oriented deals. So if you looked -- and you came and joined Grosvenor, [ you were ] sitting around, you'd see 80% or 90% of our activity every day is working on deals.

Our sourcing capacity is far greater still. We could fund many more investments in the 3,000 we have, and we continue to kind of grow that pipeline and origination capability every day. We're broad and deep in every area of relevance to the alternative investor universe. We've got 177 investment professionals operating across private equity, credit, infrastructure, real estate and absolute return strategies.

I think one of the key sources of our performance is selectivity. We only invest in 5% to 10% of the 3,000 opportunities that we see every day.

Our long history of compelling investment performance comes from combining, one, broad origination and seeing everything in the market; two, our quality professional team; and three, a disciplined and repeatable process. As I said, most of what we do today are deals. It's trading securities. It's executing on co-investments. It's doing direct deals and control transactions. Our edge, I believe, comes from our relationships with the best investment professionals across the entire alternatives landscape. The market intelligence that comes from that is just uniquely valuable. It's a lot easier to evaluate things on a relative basis in terms of picking through 3 or 4 extremely high-quality opportunities from the best minds in the investment space than to create a new opportunity de novo.

I'll give you an example, [ First Brands ]. In the news, topical, you'd see it this morning, people are actively debating it. We were net short First Brands if you looked across our platform. Is that because we were geniuses? No. It's because we work with extremely skilled practitioners in the private credit space. They had identified it as a negative situation potentially. And net looking at our exposure, we had the appropriate positioning. And then that informs our activity in other areas of the firm, and then we're able to benefit from it.

We're more than an allocator. Our relationships are long and deep. I wanted to provide a couple of examples here just across each of the verticals to give you a sense of what that really means. So in the absolute return strategies on the left, Woodline, a firm many of you would know, a market-leading multi-manager, multi-strat hedge fund. It was created as a spin-out from Citadel. We invested in Citadel back in 1995, have been one of their largest outside investors. We knew this team very well. We track them. We were early capital, and we essentially helped seed the fund for it to spin out and become a unique and stand-alone platform, much to our own benefit and our clients' benefit.

Similar in credit, Kennedy Lewis, 2 practitioners who are existing credit firms, we help seed that firm. We've worked with them in multiple different strategies, and we've done a number of different co-investment deals alongside of them. In infrastructure, we actually anchored KKR's first infrastructure fund, and then we went on to anchor Asterion, which is the Euro-focused KKR spinout and done a number of different transactions with them. I'm not going to cover the private equity TSG example because it's going to steal Bernard's thunder, and I don't want to do that later. But I will tell you, we have the largest small and emerging manager franchise on earth. We plant a lot of seeds in the private equity space with managers when they need capital, and that comes back to our benefit later when those relationships are truly valued.

And finally, in real estate, Brasa was a group that we seeded, we helped anchor and expand into a number of new strategies. The real point of this, we're a key driver of the alts ecosystem. We're reliable and creative as a partner.

This is going to be the most important thing I say today, especially just for investors and shareholders trying to understand what we're doing. You would have heard from Michael, you would have heard from Jon, they think we have a scalable platform. This is the data that I think that backs that up.

So today, if you look at what we do, 3,000 investments, a 5% to 10% average selection rate across those investments, $50 million to $100 million allocations per investment. That would be about $10 billion to $20 billion of annual capacity. We're actually deploying $5 billion to $8 billion, right? What is going on? We have latent ability to scale and originate without changing anything. Just in the existing transactions that we're doing, we could just write bigger tickets. Of course, we could expand the sourcing. Of course, we could even broaden the funnel in terms of selectivity. There's a lot of investments we don't do not because we don't think they're good, but because we don't have the capital to do them. We're long origination and we're short capital, right? I'll say it again, we are long origination and short capital.

If you talk to all of our teams and later, the different vertical heads are going to talk, this is what you would hear everyone talk about every day. How can we get more money to run through the pipes? How can we invest in more deals that we want to do and deliver for our clients?

Doing that 2 to 3x in terms of volume that we would do, it's not going to require a significant investment in people or significant incremental cost from an investment perspective. Why is that? Because we already invested in the talent, technology and processes to support the scale deployment. So I'm going to repeat this one. I'm going to beat it over the head because I think it's probably the most important point I'm going to make. We can scale efficiently to the benefit of all our stakeholders, our investors, our people as well as our shareholders pretty simply within the investment verticals. It's uniformly true across all of them.

What powers this? It's our people. We have great people. I think Michael said this earlier, I think we absolutely do, but everybody has great people, right? Everyone in the alts ecosystem, it's a prerequisite to have success to have great people across your franchise. Our differentiator, I believe, is our culture. It's truly open architecture. There's shared success. Our investments are shared across the different verticals. We have overlapping investment committee membership. I sit on all the investment committees. Jon sits on most of the investment committees. There's true knowledge transfer across all the different areas. And many of our investment professionals have what I call major miners. They work in multiple areas of the firm to make sure that information changes.

We have no star system. As a shareholder, I think it's an incredibly important concept, right? When we go and build areas of activity and foster growth, we don't take shortcuts. It would be very, very easy for us to grow a little bit faster in the investment space by doing things that could maybe jeopardize client relationships or would be built a little bit on weak foundations in the sense of being too reliant on individuals. We rely on process, and we rely on teams.

Importantly, incentives matter. Our carry pools are shared across all of the programs. I think it's better culture. I think there's more alignment. I think you drive collaboration, and I think it creates diversification for our people. You will not find periods of time where our employees are not in the carry, right? So if you work in a single fund out in a private equity shop, there's 5-year periods where you may not be in carry, maybe because of the macro environment, maybe because of bad performance and a couple of investments you didn't even work on. And it affects your decision-making. It affects your -- the idea that you would stay with the firm. We don't have that. We award carry annually. That annual carry is highly diversified across huge areas of activity. It's more valuable to our employees. It creates less turnover, which is very, very useful for our clients as well as for the firm.

I want to give you a little bit of a sense of process. It's disciplined. It's orderly. We check and recheck everything. We don't need any specific deal, right? One of the beauties of the platform, there are so many different transactions coming in every day in each of the verticals. We don't feel pressure to do any single investment. What's really special, how does it work? We see everything, right? We just see everything, better market intelligence, relative value analysis rather than ever to create transactions from scratch and do absolute value analysis. It's just easier. If I take smart people and I put them in our platform, successful investors. They will be more successful in their area of activity inside our platform than a stand-alone enterprise.

Here, I want to talk a little bit about AI and data. One of the questions I get very frequently is, how is it affecting what we're doing? How is it affecting what managers are doing? We did a survey actually recently, a number of different managers across the platform. What you saw 1 to 10? Everyone scored about a 4 to 5 saying that they're trying to implement it. It's important and they're working on it. They only scored a 1 to 2 in terms of is it having an effect on investment outcomes, right? So everyone's toying with it. It's not really affecting people in terms of huge investment outcomes and change in investment outcomes.

I think we're a little bit different. We've been using the data across the entire firm for a very long time. If you think about what we do, we receive a lot of reporting from a lot of different sources. You have to coalesce that material. You have to mine that data, and we've been doing that for a very long time very successfully. So I think we're a little bit ahead of the curve. We're tracking what everyone else is doing. There's obviously also the efficiency side. We've done a lot of A/B testing in the investment side where you have teams work on a transaction, one with AI, one without AI. And you know what happens. People can do things in hours that used to take days, and we're seeing that across the board.

And so I think there'll be some efficiency. It lets our investment people scale, and it lets them focus on things that add more value to clients and do things a little bit faster.

Risk management, I think, is absolutely essential. We port the best practices across each of the verticals to all of the verticals, right? So if something is really good in the hedge fund space, and it works really well, and it can be applied to the illiquid space, we've done that. I don't think everyone has done that.

One of the key features of what we do, we are able to flexibly size positions. So when you're in the co-investment frame, Jon and Michael both spent a [ bunch ] of time talking about the value of co-investment. One of the values as an investor is that I can size my positions better than the sponsor funds, right? So the sponsor funds typically, 10 to 12 positions, highly concentrated, work for years on each position, put them into a portfolio. That's the level of diversification you're going to get. We see thousands of things. We curate for certain characteristics of those from a risk management frame. And then we're having portfolios of 25 to 35 positions typically across the board. It's more diversified. They're better constructed portfolios, and they compare extremely well to kind of one fund offerings.

I actually think this makes it the perfect building block for the individual investor, right? If I wanted to create and start and to build my portfolio in the alternative space, I don't want to do it with rifle shot on niche things. I want to build it with the core. And I want to make sure I get the outcome of the asset class in a high-quality way efficiently implemented, and I think this does that.

Our returns. I won't belabor these. Michael talked about it earlier in terms of our returns, both versus benchmarks and peers obviously doing very well. I think ultimately, we're judged by the marketplace. Every single one of these verticals is forming capital. Every one of them is highly attractive and salable in the markets in each of their categories, which I think is the ultimate test. We're proud of the consistency. We're proud of our culture and the process that helped us avoid I think, major pitfalls. I think it's often misunderstood in our space, which is it's not about the upside. It's not about the one deal that everyone likes to talk about that drove return. It's about avoiding pitfalls in each of these categories. And I think we do a good job of that. I think the sharing of information across the verticals helps us do that job.

And as I mentioned earlier, it's all about quality growth for us. We -- as I said, we don't take shortcuts, right? There's things we could do that I think would help us raise more capital and deploy capital, but it would be potentially nonaccretive to our relationships with our clients, right? We could do single-asset things. We could do programs around very niche opportunity sets that potentially are faddish. We don't do any of that. Everything is core to their programs. Everything is sticky. Everything is done with a notion that over a 5- or 10-year period, the relationship is going to be stronger, we're going to perform and then we're going to have more opportunities to do more things for those clients.

We're going to hear from each of our leaders, so I don't want to steal their thunder, as I said. Across all of them, I think there's a real clear path to materially higher AUM. I think we could do it in a scalable fashion that I addressed because we're long ideas and origination and we're short capital. First, in the Absolute Return Strategies business, $25 billion of AUM. I think the environment is just more conducive than it was 5 years ago for the Absolute Return Strategies business. The 0 rate environment that exists from 2009 to roughly 5 years ago, we produced alpha. If you looked at the numbers, it was a high-quality return stream at that point in time. It was just a 5% or 6% net return stream. It didn't hit a target that was satisfactory for most clients. At the end of the day, they want to make 8% or more. That's what they're targeting typically.

And if you looked at an efficient portfolio, hedge funds might have fallen out. And so people disengage to a certain extent from that marketplace. We did pretty well. We held our capital base during that period. Performance was pretty good, but it didn't matter. It just wasn't going to be the area of activity where people wanted to produce and find incremental return. Now we're back to a normal environment. Rates are not 0. The absolute returns are more like 8% or 9% net, and its liquid. That is highly desirable. And you're back to the place that you were in the '90s and the 2000s in terms of the ability to do that.

The other thing that happened, obviously, during that period where it was difficult, the barriers to entry went up. There's just less competition. So as people reenter the market, it's difficult for them to form high-quality portfolios, and I think we're in a very good position to help them do that.

Credit, $16 billion AUM business. Our unique heritage here, having come from both the liquid side as well as the illiquid side and everything in between is differentiated. Every form of credit, we are a participant in the marketplace, and we can deliver all of that on a relative basis to clients. I think that's a real differentiated offering. I also believe we're early innovators in the co-investment and secondary space, which Steve will talk about later. It's very unique. It's very powerful and it's growing very fast.

Infrastructure, almost a $17 billion AUM business. It just passed every test. You could have screwed up in COVID with demand destruction. We could have messed up when there was inflation spike, right, and not provided what people expect from the asset class, which is an ability to pass through inflation. We passed every test. It's a maturing market. There's fewer players. We're obviously one of the clear leaders with fantastic returns. And so I think the future is pretty bright there.

Private equity, it's just been a challenging period recently. We have $32 billion of AUM. I think it's slowly improving, but I wouldn't want to call that. I think it's sort of the market is getting better every day. We've had a better realization profile than the industry, and we grew through all of it. I think that's really important. The market determines whether we're successful or not. And the market has helped provide us additional capital even during this different period, difficult period. And I think as the market gets better, hopefully, we will do better alongside it.

And then finally, real estate, almost a $7 billion AUM business. It's truly unique and differentiated. It's a unique platform approach, also avoided the major pitfalls that you could have stepped into in the real estate asset class over the last 5 to 7 years. We're supported by the most skeptical and cynical and demanding investors from an institutional perspective on earth, and Peter will tell you a little bit about that. We're just now broadening the aperture from a capital perspective to broaden that to other types of capital providers. And I think it only gets easier at that point in time.

What are the key takeaways that I want to leave you with? One, we have scalable origination. It's valuable. It's impossible to replicate that deal flow, and we can grow in multiple scale of our available capital. Second, we've got a proven repeatable investment process. It's selective, it's disciplined. And third, we've got great performance and track records in every vertical. That's what allows us to continue to form capital and grow our asset base. I think if you put all this together, it's why I have confidence we can continue to deliver for all our stakeholders, our clients, our people and our shareholders.

Thank you very much. And I know now we're going to take some questions.

Thank you, Fred. We're going to welcome Jon and Michael back to the stage also. If you have a question, raise your hand, and we will run a microphone to you. So just please wait until the microphone arrives so that we can hear the question and the people on the webcast can hear the question. Chris?

While we're waiting a microphone, I got to congratulate Chris. He put out 5 research notes while we were speaking. I just noticed on the e-mail.

Yes, that's the importance of having them seen, right? Michael, you highlighted inorganic opportunities for the first time that I remember, and I was hoping that you could flush that out a bit. And just to put some context around that, I guess, it's -- since you went public in 2021 or 2020...

'21...

Yes, at that time, I would have thought there'd be half a dozen more publicly traded alternative companies, and they just haven't been coming. So I mean a lot of people want to stay private and does that create opportunities? And how do you feel about being a public company after all these years? And nobody else seems to want to structure there...

So let me take the last part of the question first, how do we feel about being public? People think I'm nuts when I say this, but I actually like it. I think it makes us sharper. I think it makes us sort of tighter. I think it makes it easier for us to attract people and easier for us to retain people. And so as far as I'm concerned, despite the fact that I don't love the total return of the stock price since January 1, 2020, I actually like being public. I think it's good and healthy for our business. I think we have -- and it will -- we will have a better business because of it.

We have, as I mentioned -- we've talked a couple of times about the -- hang on a second here the screen kicked off, we've talked a couple of times about the lenses for inorganic activity. And we've just talked about it so that people understand how we think about that and how we process that. We have looked -- it's a group that works hard. I did mention that, that group also does anything kind of complex and complicated. So a lot of our structured financings that we've done, our CFOs, that's all coming out of that strategy team out of Kevin's group. So the group has been busy and has been successful and has generated revenue, but we have not had like a successful inorganic M&A effort. We have gone deep on a couple of things. But as you know, it's tough to get deals done and it's tough to win.

I mentioned it only because we talk a lot about being capital light, and I don't think -- I don't see anything changing the idea that we're capital light. I think that would be very -- almost like impossible to do. But I don't want to never mention that, and we have done it before. You'll see those lenses in prior presentations or quarterlies or something. And I just felt like in an Investor Day, we're going deep everywhere, it was warranted to kind of reiterate that because if we ever did something, I don't want people to what, you never talked about this before. So we've kind of -- but there's nothing at all that's like that is imminent, but it is a constant effort and we're always looking.

I think that there have been -- there's been some private market activity. There have been some private market transactions that have happened. Not many in our space, I think, really since we came public only one that came public. I'm not sure how many there are that have -- that firm is about half our market cap. I don't know how many there are that have that scale to go public. So we'll see. But certainly, there are some big private equity firms, and there's been more of those that have come public and conversations about more coming. There's big secondary firms that have the size and scale to be public companies. It's been a slow period since mid-'22 for that private equity space. So that may not -- realizations haven't been high, and it may not be the best time.

I don't -- you probably have a better view, frankly, on pipeline on that sort of -- like IPO activity. But I think there will be further consolidation in the alt space, I think that BlackRock is a heck of a firm and you kind of look at the moves they've made in the last couple -- 1.5 years. And it alts are -- the growth space for the entirety of asset management. So one way or another, I think you're just going to see more people engaging there.

Bill?

Bill Katz, TD Cowen. A couple of questions if I could just lump them together. Just staying on the capital return discussion for a moment. If you're positive that your earnings are going to double over the next several years, you sort of have the dividend sort of steady for the illustrative example there. How should we think about capital return because the share count is somewhat thin, buying back stock is a little more complicated. It doesn't seem like you can do a lot of deals. So what's the -- is it just a yield opportunity?

And then as you think about -- and maybe we'll get to it in a later part of the presentation, can you talk a little bit about your plans to get into the retirement market and the 401(k) opportunity as that potentially opens up?

Sure. I think on capital, your -- you point out 2 things that are -- that we think about a lot. And to be clear, we feel sometimes a little stuck in the middle. Absent inorganic activity, there's no significant impetus for share count to increase and certainly not at low prices because we own what's not floating today, and we're not sellers at low prices. And so we use stock comp and we manage dilution from stock comp and we generate free cash flow and we pay a dividend. And there's some balance in there. There's balance in there. We've essentially committed to being capital light for the foreseeable future. You've heard us say that. So that means money is going to get returned to shareholders. It means dilution will be managed, in particular, dilution from stock-based comp will be managed.

And it means likely our free cash flow and our balance sheet continues to strengthen. And I think that's how we think about it. Should we find the right inorganic opportunity? That has the potential to increase share count and to change that liquidity profile, which I think is a factor in kind of who owns our stock and how the degree to which our stock is or isn't depreciated and the discount to peers that it trades at.

I would just add one point. I mean, Bill, from a modeling convention to your point, obviously, to what Mike was saying in the absence of an inorganic activity, which may or may not happen in the absence of other ways we can think to drive strategic capital investments to drive FRR, if you didn't increase the dividend or you didn't increase the buyback, that illustrative model would end up with a bunch of cash on the balance sheet. That's why it's illustrative. We're either going to use cash and capital to drive shareholder return. We are going to use cash and capital to drive shareholder return, and that will either happen through returning it or using it.

On the retirement market, it's clearly part of obviously the evolution of our investments in the individual investor space. The marginal investment we are making today or the incremental investment we're making in distribution is pretty much almost exclusively in the individual investor channel. We still see plenty of opportunity in institutions, but the individual investor channels where you're seeing that extra distribution resources across all channels. And you're going to -- and I think the point I've made in my remarks regarding the multifaceted approach is important, and you've seen this in some of the news out of our sector. You're going to see situations where it's your own distribution. You're going to see situations where it's Grove Lane, which is our JV. You're going to see situations of third-party distribution. You're going to see situations of strategic partners, whether those be traditional asset managers or business of other kind to access the massive opportunity. And I think we're just in the early innings there.

And as I mentioned, it's $4 billion of capital today, which is pretty much all created over the last 5 years, and we expect it to be 20% to 25% of fundraising 4 or 5 years down the road. So if you just looked at the last 12 months of roughly $10 billion of capital formation, assuming no growth in there, you're talking about that being $2 billion to $2.5 billion of capital formation, it's going to be from all those channels. I think the most important point maybe there, Bill, is the one Fred made, which is I think our manufacturing sets us up very well to have success in the individual investor market.

Crispin Love, Piper Sandler. Jon, you've been talking about this, but in the individual investor channel, definitely early days, plenty of run rate. But can you discuss just how you plan to directly compete with the largest alternatives in that channel, the Blackstones, KKRs, they're grabbing all the kind of the headlines there of being large there, but what Grosvenor tends to do and why Grosvenor can win there?

So I would start by saying we don't intend to compete with them, meaning just like we do in the institutional channel. When I talked in my remarks about people going to fewer strategic partners with larger, deeper relationships, we're a net beneficiary of that trend, meaning they have relationships with Blackstone, KKR, Apollo, pick your name, Ares, Blue Owl, and they also have big relationships with solutions providers, including us. And we provide a level -- a differentiated manufacturing profile. And we provide a different wrapper, and we provide a different customized experience, whether that be in an actual custom account or in a different form of vehicle.

And so I think the real answer is if we are all, as an industry, acting the way we say we're acting, which is we want the individuals to have the institutional experience, I would hope that as we fast forward 5, 10 years down the road, the individual investor portfolios actually look more like institutional portfolios. And that means they're going to have more than 3 or 4 line items. And so I expect that it's not a competition. It's a rising tide, what is it lifts all ships or things. So -- and that there's going to be many beneficiaries from that trend. And I think we will see those portfolios evolve so that we sit right alongside those and those portfolios are better off for it.

It's a big space, early days, and you're competing against yourself as much as you're competing against any other provider.

Samir Parikh from GiantLeap Capital. Fred, I think you said something really interesting in your dialogue, which is your long origination and short capital. From my investing experience across the alts, KKR, Apollo, they would say exactly the opposite, which is their short origination and long capital. I don't know if there's a real question here, but how do you think about that as it relates to your strategy as a firm?

You just try to put pressure on the sales team, that's all.

I think, look, when we observe a single sponsor or a single firm, we see the same phenomenon, right, which is they do a certain number of deals. If they scale up those deals, they push themselves out of their comfort zone, right? You get style drift, you get degradation of performance. The reason we don't see that is we're really -- if you think about it, we're assembling a collection of relationships with the best minds in each of these individual verticals. That evolves, right? We move to the opportunity set and it scales because what they're doing typically scales in each of these categories and then we can figure out who's good in each of the categories and scale amongst them.

So we just have many, many more tools than they have to be able to deliver that and kind of implement it than they do is the real truth. And so we're harsh judges of those firms. When they scale beyond their means, I think we're just in a much better place than they are in terms of what we're doing. So that speaks to the manufacturing. And then yes, I'd like to pressure everyone in terms of selling. As you saw from the point, all the teams want to talk about is get us more money, right, then we can deploy it successfully.

The other piece to that, though, which is something that Jon and I talk about a lot, and there's nothing happening here. This is not for anybody to get kind of carried away on. But I think that speaks to the strategic value of our firm. And it's not just to the firms you mentioned, but there are whole other sectors of asset management. There are sectors of kind of the consulting industry. There are sovereigns that have -- that are short origination and long capital. And I think we are a potential very valuable strategic partner from a business perspective to some of them.

And again, it's not something we're spending time looking for, but it is something that we are aware of. It is something that to a degree, we'd love more capital. We'd love to have less imbalance there. But the -- to a degree, we've purpose-built the firm for equity value for a long time. So we wanted to have a management fee-centric profit center. Like just -- and this is something that we pay attention to, and we're aware of our value to those that have lots of capital in significant form because they generate liabilities every year through insurance operations, and they have a tremendous demand to put capital to work, we're a great answer for a lot of those people that are long capital.

I mean that point that Michael just made, Samir, you and I've been talking about the alt sector for 20 years is a really critical point. Nothing -- those are fantastic businesses, but that conversation around origination and capital fundamentally changed when their liability and their capital base changed.

Sanjeev Math, Baron Capital. You all highlighted today that you've had really tremendous growth in the specialized funds business. And I guess, set against that, the customized separate account is still 71% of AUM. So maybe as you think forward like 5 or 10 years, do you expect that balance to sort of even out? And kind of where could that shake out? And I guess, ultimately, is that an opportunity for you to kind of remix private -- the average sort of private market fees higher with time?

So I think to that last part of your question, for me, that everybody should give their own view. The piece that I think I'm the most certain of is that over the next 5 to 10 years, the individual investor channel will grow faster, likely grow faster than the institutional channel. And that channel has the potential for growth or there is the potential for that growth to be at somewhat significantly accretive fee levels. A little bit to Bill's earlier question, there's a little bit of a different fee structure in different parts of that individual investor channel. And so how you position yourself matters.

There are people that are in that channel raising a lot of money today in retirement, for example, at very, very small fees. Then there are people that have relatively smaller amounts of money in a more product sort of oriented approach with very significant fees. Our interval fund in the infrastructure space that we've talked about publicly before is a fee accretive product to our entire infrastructure business. If that grows as fast or faster or almost as fast as our total institutional infrastructure business, it will be fee accretive because it's just a better level of fee.

Yes. I mean some of it just comes down to math. The separate account business is a great business. So as we talked about and gave those examples, when you have clients that you acquire and they become multiples of their size, your pie chart and you have long-duration assets, your pie chart doesn't move that quickly. That being said, if you go back 10 years ago, the private markets business was probably 95% customized separate accounts. So it does move -- now you're talking about the whole firm being at roughly 70%. I don't know exactly private market split, but it's definitely less than 95%. So it does move, but we're a little bit there in terms of how much that moves a victim of your own success in the sense that the separate account business is just a great business.

Embarrassment of riches. It's like that point that Jon made where he showed the growth, if you think about how much money we raised each of the last few years from new clients, and then you think that you're going to do kind of the average X, whatever that average X is 7, 5, 8 in terms of growth, that's a ton of growth in the firm now, not reflected anywhere that we're going to enjoy. So we think that our successor commingled fund products will close, final close at a higher level than the prior series. But you're talking about a lot of growth still in that core institutional business.

Jonathan?

[ Jonathan McKay from Penn Capital ]. I wanted to go back to the sort of imbalance of sourcing versus available capital to deploy. If the pipes today can handle 2 to 3x the current volume, I would envision in 5 to 10 years that they could handle 4 to 5x or 20 or 30 versus the 10 to 20. And if I think about the fees associated with that future fundraising, what are some of the things you would consider to maybe turbocharge the fundraising side of things? I understand there's a lot of maybe ground-up building that the firm is focused on and doing things thoughtfully. There's Grove Lane. There's Japan. There's insurance. But what other avenues are they to sort of really invest heavily today to capture that 10 to 20 that can become 30 or 40 in 5 to 10 years?

Yes. Look, I think if you look at the fundraising horsepower of the business today, it's better than it was the year before and better than it was the year before that. So it's a constant area of investment in your existing channels and your new channels and you spend everyone else. And so we've looked at some -- and so I think the best way to do it is just to keep investing in the business. You just named 3 things, all of which we did in the last 18 months and have already produced a tremendous amount of returns. We had no insurance company clients for the most part to speak of 2, 3 years ago, and we have dozens now. We didn't have barely any RIA relationships in March, and we have 40 now.

Japan has been a great market for us for 30 years, but I think there's tremendous growth there. So I do think that ground-up effort is the most -- is the best foundation to continue to build it, but there's a lot of strategic initiatives that you bolt on alongside of it, 3 of which you've mentioned in the last -- that we've done in the last couple of years.

And I think you'll find more of those types of opportunities. We've looked at some inorganic -- back to the point Michael was making inorganic opportunities that were, in some ways, had kind of what I would call distribution synergies or distribution avenues. That can't be like the lead reason. You got to make sure that the manufacturing you're buying and all that makes sense first and that it's a good answer for clients, but that will also be part of the lens we always look at for inorganic activity, too.

We'll take one more.

Stephanie Ma, Morgan Stanley. Just going back to your solutions provider mindset and bringing that to the individual investor channel. How do you scale that without having the mega funds? And then how does your portfolio solutions approach differ or complement private market model portfolios that we also see emerging?

Yes. So I think the -- maybe I'll make the point. So scalability without the mega funds, I think is a kind of a nonissue in the sense that all the manufacturing we're doing today is in the middle market. And as we just were talking about on the last conversation, we're long origination short capital. So the ability to build portfolios on our existing manufacturing capacity is a great ability and a great strength of what we have today.

I think that the comment I was making to the question earlier from the mega funds in terms of it not being competitive, if you look at an individual investor portfolio today, they have 3 or 4 line items from 3 or 4 mega cap providers. That's not what 50 years of experience has suggested the optimal end-state model portfolio should be. The model portfolio should have diversification on every attribute you should come up with. You don't need 600 line items like some institutional investors found they had after doing this for 30 or 40 years, but you need more than 4.

And I think the role that we can play inside of that ecosystem is to help use the manufacturing that's already in place. No new manufacturing needed to build those portfolios. I think on the scalability point, obviously, when you're investing in commingled vehicles, those are easier from a scalability perspective. Customized separate accounts require a little bit more of investment, but we've become very good at it over decades and decades of practice. We have hundreds of them today. So we have figured out how to institutionalize and process orient the separate account delivery model. And for certain minimums, and you're not going to do $1 million separate account, but for certain minimums, you're more than happy to do that. And that's a great segue into model portfolios, which is you can create a white label or custom solution for a model portfolio. So that, that model portfolio doesn't need to just buy 3 or 4 off-the-shelf registered funds, maybe it can do that, too. But next to that, it can have a complementary exposure that's built custom to meet the needs of that particular portfolio. And I think that we can bring that to your point, it's a mindset more than getting into the technical wrapper because the wrappers can be all different depending on the channel. But that mindset of helping make sure those portfolios ultimately look like the portfolios that you find kind of on the efficient frontier is where we think we can play a meaningful role.

All right. We are going to take a 10-minute break for those in the room. So for folks on the webcast, we will rejoin in 10 minutes. So thank you very much.

That's 9:50. Is that or am I doing that wrong? Yes, 9:50, we'll get going.

[Break]

Welcome back, everyone. So in the next session and for really most of the remainder of the morning, we're going to pick up on many of the themes that Michael and Jon and Fred spoke about and really carry them through and apply them at the investment strategy by strategy level. So we're going to start with David Richter on Absolute Return Strategies, and then move on to credit, infrastructure, private equity and real estate.

So now it's my pleasure to welcome David to the stage.

Thanks, Stacie. Good morning, everyone. I'm David Richter. I lead our Absolute Return Strategies business. I've been at GCM for 31 years, and I feel fortunate to have helped build our ARS platform into one of the largest and most respected investors in the industry globally. We enjoy a strong reputation, both in the client and manager community.

Before I begin, I'd like to summarize 2 key takeaways. First, Absolute Return Strategies, often referred to as hedge funds or liquid alternatives, is a thriving industry, whose AUM has been growing and is currently at an all-time high of USD 4.7 trillion. ARS strategies are important diversifiers in today's environment and industry growth is expected to accelerate.

And number two, our firm is well positioned for this tailwind. We've already seen increased inflows and client and prospect interest. Fred touched on some key differentiators. Fred, you didn't steal my thunder, I think you created some thunder for me, so I like it. So thank you.

When I speak to clients, I distill our value proposition into 3 areas. The first is performance. Ours has been attractive, both in absolute and risk-adjusted terms. And importantly, our portfolios have done their job as diversifiers, having displayed downside protection and market declines.

Second, and you can see these here on this slide. Second is the benefit of our industry position and scale. This enables access to top-tier managers and, in many cases, favorable investment terms. Our platform of 190 approved funds includes many of the world's top decile managers, some of which are closed to new clients or capacity constrained.

And third, we've talked about this today already, high-touch client partnership. We offer a unique and boutique style of service. It may be we've used the term a bunch today, the extension of client staff, but it is really important and accurate. And this leads to 2-way mutually beneficial long-term relationships. This is why we continue to win new business in ARS and why we have such high client retention. In fact, 100% of our top 25 ARS customized separate account clients in 2020 are still clients with us today.

And finally, as shown by Jon's earlier slide, our ARS inflows more than doubled from 2023 to 2024 and over the trailing 12 months through September 30, our ARS fundraising has been the highest it's been since 2021.

Okay. Now drilling down to our business growth. Our ARS platform dates back to 1971. And Jon's walking in, though, Jon, even I wasn't here that long ago. But this makes us one of the longest tenured managers in the space. On this slide, you could see that today, we manage $25 billion of assets in ARS, and we serve over 225 institutional clients, many of whom we've partnered with for decades. We also manage $2.5 billion of capital from hundreds of individual investors. This has translated into financial success. ARS has generated over $1 billion in revenue since 2020. We currently have $32 million in run rate performance fees, which represents significant embedded earnings potential.

And I'd like to highlight that while not every year results in performance fees at this level, in 3 of the past 5 years, we've well exceeded our run rate, generating more than $50 million of annual performance fees, and we're experiencing an improved opportunity set in ARS.

ARS is a cash-generative business, and our returns add to our assets under management and compound over time. It is also a business built on experience, relationships and selectivity.

Now this slide shows our performance and our role in clients' portfolios. I showed you the first pillar of our client pitch is excellent performance. And here, you can see it through 2020 -- since 2020 through the end of June, we've produced 53% cumulative gross return, which translates to an 8.9% annualized return. And we've done it with a low correlation. 0.16 beta to the MSCI World Index is low correlation and 3% there that 0.03 means 3% down market capture ratio, I'm particularly proud of that. That's a real sleep at night profile what you're looking at right there. The combination of absolute returns, low correlation of protection in down markets. This is precisely why ARS plays a foundational role in client portfolios. And in today's environment, with elevated macroeconomic risks and liquid assets trading at all-time highs, this return and downside protection profile is an important diversifier. Investors believe now is the time for a hedged approach.

Okay. So here, we get into our investment process. And this slide, in my view, is more important than it looks. Why? Because this data drives our process and it is not commercially available data. Of the global universe of over 9,000 ARS funds, the 3,390 that you see here in this chart, it's a peer universe of institutionally credible funds that is curated and maintained by our global ARS team of 53 investment professionals. And this information, it allows us to use our predictive data analytics to screen score and rank managers in all strategies and sub-strategies. These analytics and our other ARS tools are proprietary. We built this IP over decades. And in recent years, we've been able to enhance it significantly because of improved transparency in the industry.

I'll give you an example. We have tools that can analyze a manager's track record and distinguish between skill and luck. In other words, we can ascertain whether the performance -- the management performance has been driven by more sustainable alpha drivers like security selection skills versus less sustainable ones like market timing. And this highly selective quant-driven approach ensures that we invest with only high-conviction managers who have demonstrated alpha. We believe this process is a key competitive advantage for us. It would be very difficult for clients or competitors to replicate our relationships, our coverage footprint and our evaluation tools.

A quick example here. Our network and manager relationships enable us to monitor spin-offs and new launches before they occur. And we use our tools to focus on the most promising ones. About 5 years ago, we identified a spin-off and developed a strong relationship with the manager prelaunch. We were 1 of the 2 anchor partners, and we secured favorable fees and capacity with the manager. That manager has been an exceptional performer and is now one of the most sought-after firms in the world. However, they're closed to new clients, but we maintain our favorable terms and have built a sizable investment for our portfolios.

And on that note, I'd like to highlight that we have a robust emerging manager business as well. This allows us to identify the next-gen managers, who we believe can graduate into world-class status. And this has happened in a number of cases.

I mentioned earlier that because of our scale and history, we can provide clients with beneficial terms that many clients or competitors cannot replicate. Shown here on this slide, over 90% of our capital was invested through these preferential structures, meaning these are benefits clients achieve through investing with us that they would not get if they invested in the managers directly themselves. First, closed or capacity-constrained managers. While capacity in the liquid alts industry is plentiful, that is not the case with certain top decile managers. Our advantage, we have deep relationships and access to capacity with these firms in many cases. And this doesn't just apply to the household names, because some of the next-gen managers I just referred to are also persistently in the top decile.

The second area is fee savings. Our size and scale and position in the industry enables us to negotiate lower fees in many cases. We pass these savings directly through our clients, which helps them offset our fees and reduces their overall program costs.

And third is customized mandates. We have arrangements with many managers where we negotiate a customized vehicle that can capture a sub-strategy or a theme or a sector, and it often enables us to secure favorable terms such as liquidity protections or hurdle rates.

Here is the many ways we work with clients in ARS. You heard this from Michael, Jon and Fred, but a key strength of our business model is that we can work with clients either in a customized basis or a turnkey specialized fund. In ARS, you can see on the left that our turnkey portfolios like our flagship fund GIP, $4.7 billion, 25-year track record or Belmont Harbor, our $900 million multi-PM, long-short equity strategy. These offer instant diversification and access and have strong records of performance.

And then on the right is our customized separate accounts, our CSAs. Michael spoke about how we pioneered tailored programs for our clients. This is a reliable and stable business with high client retention. You can see on this chart, I'll reiterate the lower left that 100% of our top 25 clients in 2020 are still with us today with an average tenure of 13 years and an average relationship size of $700 million.

In either case, whether CSAs or turnkey flagship funds, our ARS programs serve as clients' core allocations. We often manage the majority or the entirety of their ARS exposure and to accomplish this diversification needed for them to manage risk and generate strong returns, we structured our team, our research team to cover all the strategies in the ARS universe. Here are the 6 primary ones. These are the components clients need, especially today, we have strong offerings in each of these. And although many of our programs are multi-strat in nature, they can vary significantly.

I'll give you 2 examples from this year. First, we won a mandate earlier this year that is focused on emerging managers in ARS. This is an important area for clients, as I mentioned, but it's very difficult for clients to execute on this, even for large sophisticated investors. Our client, in this case, is a large U.S. institution. They saw high value in our team's knowledge, coverage of the space and our track record of generating alpha in emerging managers. And so we designed a custom program for them.

Another -- second example was another recent win with one of the world's largest and most sophisticated sovereign wealth funds. They wanted to expand their exposure within Asia. But with limited resources, they found it difficult to do so. We have people on the ground in the region. We have a strong roster of Asia funds approved on our platform. So we worked with them. We developed a custom portfolio that met their goals and objectives.

And now just pivoting a little bit off of just pure investments because we not only serve as a core investment allocation in clients' portfolios, but we provide high-touch operational and service lift. We -- as we mentioned, we really are a crucial extension of their staff. We provide support for their investments, for their operations and importantly, for their risk management as well. So we're not just an investment manager for our clients, we're a comprehensive partner. We communicate with them regularly as if we were members of their team. This creates a high moat for us and said simply, our clients find value in our expertise and service and find it difficult to remove us or replace us as their ARS partner.

So now looking ahead, we see compelling reasons that ARS can continue to compound. First, on the left, you could see market drivers. Fred talked about this a little bit. Non-zero interest rates, greater equity and bond market dispersion, meaning winners and losers in the marketplace, elevated uncertainty, periods of heightened volatility, these are the conditions that have historically and currently been a tailwind and create fertile grounds for a hedged approach. And then there's business drivers. We're among the best positioned firms to take advantage of this improved backdrop. We have a core offering with a terrific track record of performance, where our value proposition is market-leading and we're continuing to expand our offerings for clients.

So what does it all mean? Well, you can see here on the right. Our growth from compounding performance alone would drive ARS to achieve more than $35 billion in AUM over the next 5 years. And if recent performance continues, given these tailwinds as the leader of this business, I'd be quite surprised if we didn't exceed our net flow assumption and achieve a much higher AUM.

So in closing, I'll just add, our ARS platform has delivered for clients for over 5 decades through market booms, busts and everything in between. It is a highly cash-generative business, foundational and properly constructive investment portfolios and well positioned for growth. Now is the time for ARS.

So thank you all for your participation and interest in our ARS business and in our firm. And I'll turn it over to Steve.

Thanks, David. Good morning, everybody. Pleasure to be with you all today. My name is Steve McMillan, and I lead the Credit Business here at Grosvenor. I joined the firm just about 5 years ago, and I spent my full 18-year career in credit investing.

I'd like to spend our time today expanding on some of the themes that Fred spoke about within credit, trends we're seeing in the market today, what we're hearing from clients, how client allocations are evolving. And ultimately, how we think we're positioned to be a winner or maybe more actually continuing to win and what's still a rapidly growing and evolving market backdrop.

Before we get into some of the more substance, 4 key messages that wanted to hit on upfront. Firstly, and I think Fred, Jon and Michael touched on this, we've just been doing credit for a long time and bring more than 35 years of experience across the entire credit landscape. I think as everyone in this room and on the line knows, credit is a very broad asset class covering public and private markets, hedged and directional opportunities and dozens and dozens of sub-strategies. And we've got relationships and experience to curate, originate and underwrite the full breadth of market opportunities.

Secondly, we solely focus on areas of high value add for our clients, areas that are typically much more difficult for them to access themselves. Private credit, opportunistic credit, co-investment, secondaries, emerging managers. We want to be at the intersection of what clients want access to and what they're able to do themselves.

Thirdly, the market has come and frankly, it continues to come our way as it relates to investors not earning, continuing to increase credit allocations more broadly, but looking to diversify and increase portfolios into these aforementioned areas of higher value add.

And lastly, ultimately, what does it mean for our business today, not only are we seeing great top line growth, we're seeing a huge product shift into more direct orientated strategies, very similar to what we've seen in the other asset classes. It's absolutely transformational for our business and our proposition. I think one of the things the firm did excellently like long before I joined is take a decision to build market-leading capabilities and credit card investments and secondaries, I'm really in anticipation that at some point they form meaningful parts of private credit allocations in the same way as we've seen in private equity, real estate and infrastructure. In short, the firm kind of knew the playbook. And that's really now coming to fruition and positions us not only to generate more attractive returns and excess performance for our clients, but clearly, these are high-margin products and allows us to capture more economics.

So where do we stand today? We're a team of 18 dedicated credit investment professionals. I'll touch a little bit later about how we lever and collaborate with the rest of the firm, which is important in credit. We're managing $16.1 billion on behalf of more than 100 clients. I think, as you can see on the chart, growth has been strong. I expect that to continue and accelerate, frankly, in the last 12 months through the end of September. This year, we've raised a record $2.3 billion in credit, and that's by far the highest we've raised on a rolling 12-month basis.

I think one other point to draw people's attention to is just the shift between public and private credit. I think what you can see on the right-hand side here is we stand today, about 60% of our assets in private credit. If we were to rewind and we don't show this on the slide back to 2018, that was closer to 30%. So whilst it's obviously very pleasing for us that both parts of our business are growing well in our all-time highs, and we are seeing the stronger growth in private credit, which is clearly encouraging.

So I'd like to spend a couple of minutes today really discussing where we are in the evolution of private credit, sort of what we're hearing from clients, how those allocations are changing and ultimately, where we're positioned. I think as everyone knows, and it's probably absolutely sick to death of hearing, private credit and direct lending has been a spectacular success story over the last 15 years. This secular trends that we're seeing with lending migrating primarily from banks to private capital continues to provide just a fantastic opportunity and tailwind for institutions and individuals to generate very attractive risk-adjusted returns.

So while we will talk about some of the challenges investors are facing today, didn't want to bury the lead. This continues to be a fantastic sort of environment for credit investing and that really driving allocations to increase to credit across the board.

But that said, it does feel like we're entering the next phase of the maturation of the private credit markets, where investors are looking to build out and diversify existing portfolios, and that's absolutely excellent for our business as it plays right to our value proposition. What we show on the left-hand side of this chart really is just simply how broad and diverse the addressable private credit market is and how relatively small part direct lending is. Direct lending is undoubtedly one of the biggest success stories, frankly, in the history of sort of financial markets, really is just the tip of an iceberg and what we believe is a multi-decade opportunity for us as a manager for investors to generate good attractive returns.

So more specifically, I think investors are looking to build out and diversify sort of portfolios along 3 dimensions. Firstly, exposure to smaller and emerging general partners. Secondly, exposure to strategies outside of corporate direct lending, so namely sort of asset-based lending and specialty finance. And lastly, exposure to different implementation types, co-investments and secondaries. And this is all incredibly natural and follows a very similar pattern that we've seen in other private assets.

I think the issue that investors have is each of these is just frankly a lot more challenging to prosecute. And the credit markets, as you all know, is extremely fragmented. And you need significant resources and relationships as well as expertise to appropriately originate and underwrite in these areas. We've built what we believe is market-leading sort of teams and expertise across all of these domains, emerging managers, co-investments, asset-based finance, esoteric strategies, credit secondaries, the list goes on.

It's been a huge investment for the firm, frankly -- or by the firm over the last 10 years, but one that's paying massive dividends in today's market. And maybe just as a data point there, more than 40% of the capital we raised since 2020 has been in these small direct orientated high-margin strategies, and the year-to-date number this year is actually above 50%.

So what we show in this slide is simply a sort of typical portfolio that we would look to sort of build for clients. And as you can see, it's highly diversified across a high number of parameters, geography, implementation type, asset class, sub-asset class. And if we were to drill a layer deeper, you'd see further diversification along macro risk factors, sponsors, vintage sectors, fund structures, the list goes on. It's clearly sort of a very sort of like compelling and desirable sort of portfolio. And if we were to compare that to a typical sort of existing sort of portfolio that we see the clients have, this is a very attractive sort of destination. Higher expected returns, more diversification, more resilient, more fee efficient and more highly invested through time.

And I think the nice thing for us is when we discuss this with investors, this is not like a hard sell or a tough pitch. The conversation is not really about the what, but the how, what can they do themselves, what can't they, where do they have a bunch of existing relationships and ultimately, how can we be accretive to them.

So how do we actually do this in practice? I mentioned we have a large dedicated team. But for me, I think the secret source is we originate across the full breadth of GCM's platform. I think Fred alluded to this earlier, but credit is a pretty unique asset class and as far as it's not distinct from the other ones. You have real estate, credit, infrastructure debt, credit financing fee transactions, hedge funds doing opportunistic transactions, private equity funds doing structured capital trades and obviously hundreds and hundreds of classic private credit funds. I think the luxury for me and my team is that we have access to all of this. And frankly, it was one of the reasons why I wanted to join Grosvenor 5 years ago. We just see everything. I think Fred mentioned this, funds, deals, we have full market coverage, and it's a massive competitive advantage as it relates to our ability to deploy capital.

I think the implications are threefold. One, Fred touched on this, the bar for investing is just extremely high. We transact on a very small fraction of opportunities that we look at. Secondly, it allows for great relative value through time. We're really just guided by the platform, and we're able to dynamically allocate capital to the best prevailing opportunities, which I'll touch on in the next slide.

And lastly, from a business perspective, we've got huge operational leverage. And I think Michael, Jon and Fred will touch on this, but I'll make it sort of 4 for 4. We could significantly increase our deployment of very attractive margins and the platform that we've built and we manage is extremely scalable.

So as kind of discussed, we primarily want to do 2 pretty straightforward things for our clients, build diversified value-add portfolios and deploy into the most attractive opportunities at any one time. And what we show on this chart is that second point. And you can just see how dynamic it's been. As everyone knows, each credit had 2 pretty significant drawdowns in 2020 and 2022. We were very active in more dislocated opportunities on the back of that. As a second example, we've actually been more active recently in pockets of the U.S. real estate debt markets after being pretty cautious on that space for the last 10 to 15 years.

Performance has been excellent. I won't go through the numbers, but I think what's most pleasing for us sort of in the business is not just the high-level numbers, but really the quality of underlying performance. As mentioned, it's been a relatively volatile 5 years, including 2 pretty big drawdowns. We made money in both 2020 and 2022. Of the 125 clients we manage capital for, we've made money for every one of them, which we're extremely proud of.

So before I wrap, I wanted to expand on what Jon spoke about earlier regarding how clients can access us and making that flexibility as straightforward for them. We have customized separate accounts for investors that have unique goals and constraints. One thing that we do find is everyone at a slightly different point on their sort of private credit journey as it were. So whether it be co-investments, secondary emerging managers, direct lending only, everything other than direct lending, as mentioned, we really just want to be at the intersection of what clients want and what clients can't do themselves.

One of the big focuses for us over the last couple of years has been curating the right suite of specialized funds. We now have funds that are diversified and we have funds dedicated to each of co-investments and secondaries. And it's been very pleasing that we've raised more than $1 billion to these new specialized funds over the last 18 months.

We've also been innovating around structured products. We actually launched a collateralized fund obligation earlier this year, which gives primarily the insurance community a capital-efficient way to access our credit secondaries capabilities. I'm happy to report that we actually did a first close on that a few weeks ago to the tune of $490 million, and we expect to do more in this space shortly.

Maybe just to sort of bring it to life with a case study. This is one of our separately managed accounts that launched a couple of years ago, a very large U.S. public pension plan that was looking to make its first dedicated sort of private credit allocation. They had pretty limited resources like much of their peers, very limited sort of ability to evaluate and prosecute co-investments and secondaries and in general, fell a little bit late to the private credit party. The firm had a very long-standing and trusted relationship with this organization across a number of other asset classes. So when they reached out to us, we're obviously more than happy to help collaborate with them in designing and implementing a diversified dynamic program.

What that culminated in them doing was making 2 allocations, the firstly to a large direct lending firm, someone coincidentally, we know very well and have our own strategic partnership with and a second allocation to us, where we manage a completion portfolio across primaries, secondaries and co-investments, spanning all asset classes. I think what was -- yes, one of the reasons we wanted to use this sort of case study is really emblematic of what we want to do, meet clients where they are in their journey and help them evolve into sort of top tier private credit allocators. These guys effectively went from 0 to market leading in the space of a couple of years and are currently in the process of considering increasing the size of that program.

So what are our goals over the next 5 years? I'm super optimistic. I think it's really sort of in our hands to execute. As discussed, the market tailwinds are extremely strong. Private credit allocations are growing top line and sort of under the hood, investors are looking to evolve and diversify existing portfolios. We've got decades and decades of experience. We've got a differentiated investment engine to allow and help them do that. And we've got a very, very strong track record of making money for our clients. So as mentioned, we stand just north of $16 billion today in the business. We think we can double that over the next 5 years, and triple the direct strategies from $3 billion to $9 billion.

I'm British right, so I'm pretty reserved, but I'm actually sort of super optimistic that we can achieve and exceed that. I'm glad they've got a couple left. So with that, thank you very much for your time. And up next is Scott to talk about infrastructure.

Good morning. I'm Scott Litman, I've been with GCM now for 6 years and have spent really the entirety of my career investing in the infrastructure space. Today, I lead GCM's Infrastructure practice alongside what I believe is one of the best teams in the sector. For the next 15 minutes, I hope to demonstrate to you all how we take advantage of being one of the most tenured and experienced practices in the asset class.

At its base, our goal is to pair our 20-plus year track record with some of the most flexible capital in the market to generate one of the broadest sourcing engines anywhere. From these opportunities, our skilled team is able to employ a truly unique data set to analyze and select investments that fit the varied mandates of our clients. The results, we believe, speak for themselves.

Before I turn to the platform, I want to address the broader opportunity. Everyone has heard the stats about infrastructure. The capital required to support global infrastructure needs is estimated at over $100 trillion between now and 2040. Growing populations require new infrastructure and improvements to aging infrastructure. Innovations like cell phones and AI require the build-out of supporting infrastructure, technological advances and climate change require infrastructure innovation. It's no wonder the capital need is massive. But hasn't much of this always been true, why is infrastructure attracting so much interest now?

In addition to the massive capital needs structural change in the approach to funding is driving this opportunity. Specifically reduced availability of public funding has opened the door wide for private capital. As a result, it's not surprising that more than 90% of investors plan to maintain or increase their allocations to infrastructure.

What are these investors seeing? What's so appealing about infrastructure as an asset class? Infrastructure assets are essential. Our cities, our country and every country worldwide relies on infrastructure to support day-to-day life. Local and global economies also rely on infrastructure. Imagine a world without power or water or highways or airports or worse yet cell phones. The very definition of infrastructure tells you how immediately important it is. This essential nature of infrastructure drives revenue and ultimately, return characteristics that are truly unique.

Consistent usage is highly shielded from inflationary pressures. Predictable growing usage supports predictable growing revenues and high barriers to entries and regulatory moats limit competition. These features drive lower correlations to other parts of the market, lower risk of capital loss, inflation mitigation, reduced volatility and ultimately, at scale, meaningful distributable cash in the form of yield.

With that backdrop, let's talk about the business. And to do that, I'd like to start with growth. In the 5 years since the COVID pandemic, we've raised almost $14 billion in our infrastructure vertical and nearly tripled our AUM from $6 billion to $17 billion today, compounding growth at 26%. We now enjoy relationships with over 150 clients in infrastructure and have more than $4 billion in dry powder to deploy today.

Why are we growing? We believe that our growth comes from a unique approach to the market. We are, as we like to call it, entry point agnostic. What is entry point agnostic? It means our capital is available for the best opportunities no matter where they come from. We'll look at everything. Core asset, great. Value-add asset, great. Control investment, joint venture, co-investment, secondary, minority investment, pref, all terrific. That's what entry point agnostic means.

How does it work? Well, first, we source from everywhere, sponsors, fundless sponsors, management teams, placement agents, investment banks, clients, LPs, everywhere. That drives one of the broadest opportunity sets in the market. So why do all of these partners call? They call because very simply, they need our capital. They need it for bid capital, growth capital, price setting, diversification limits, liquidity, tax planning, regulatory considerations, reducing syndication risk, warehousing, just a few of the reasons that we might get a phone call. And that's additive to all of the deals we see contractually by being in funds.

In the last year alone, we invested as little as $9 million in a single opportunity. And as much as $350 million in a single opportunity. The ability to flex our capital up and down and be a partner to all make sure we're a first call. The ability to provide size and scale creates negotiating leverage, driving down costs and fees, a feature that we like to call structural alpha, and also creating unique governance features and exit rights.

Our 23-person dedicated team brings asset level expertise and a unique information advantage to every deal we do. Nearly every member of our team has controlled investing experience and the ability to dissect financial models and business plans. This depth of experience is underscored by our team's pedigree and its continued ability to recruit and grow.

Our information edge is equally important and it comes from the collection of data on thousands of consummated deals that we've seen over our long tenured history. It allows us to compare entry multiples, capital structures, growth assumptions, refinancing expectations and exit strategies. Very simply, what we're doing is taking all of the information from some of the best managers in the space and using it to compare opportunities. It's important to note none of these sponsors share information with each other. They all share it with us. This information in the hands of a team with our underwriting capability drives what we call selection alpha. Our ability to outperform. We can very quickly, with this information in hand, avoid higher-risk deals focusing on the best relative value, driving down loss ratios in our portfolio and consistently generating outperformance.

The results of our unique approach are on this slide, which is one of my favorites that we put in a lot of our material. One of the most highly diversified portfolios anywhere in the market. When you look at our portfolios, you see diversification by every metric. The asset class infrastructure typically sees significant concentration. Our most recent fund has more than 40 positions and very deliberately avoids concentration by any of these metrics. Our portfolios are diversified by geography, sector, sponsor and risk profile.

With regard to geography, we have a slight lean towards North America. We see some outperformance from North American assets and a little bit more of an opportunity for bilateral trade. Sectors, we start with 3 legs of a stool, energy, digital and transportation, and we very importantly consider kind of catchalls like infra adjacencies and, of course, supply chain. Sponsors, really important. You heard this earlier in the day as well. Our focus tends to be on lower middle market and middle market sponsors that allows us to be a complement to the mega funds that so many are investing with already.

And then with regard to risk profile, we kind of think of the whole sector as a bell curve. We want our focus to be in the core plus and value-add middle of the curve. But obviously, as I mentioned earlier, we'll look at everything. Most manager selection -- so what you're seeing here is something that we'll call the greatest hits of infrastructure. Most manager selection is a bet that a single manager sourcing all of its own deals can consistently outperform the market, all while demanding the highest fees and carry the market will bear in exchange for their expertise.

GCM's approach turns that thesis on its head. We believe that working with all of the top managers and being in a position to select from among their top deals creates the best outcome. 1 or 2 deals from 20 to 25 top managers is what drives our greatest hits approach. And as a bonus, it also drives more rapid deployment and J-curve mitigation. So then the obvious question is, does it work? Based on the returns on this page, we believe the answer is a resounding, yes.

Across our entire platform, our direct investments have produced 15% -- or excuse me, yes, 15% realized IRRs. And on a realized and unrealized basis, we're looking at about 12.5%. In our flagship diversified fund, returns are similarly strong. We've produced a 15% net IRR over the last 10 years. Given our ability to create compelling diversified portfolios, we've seen our clients shift dollars towards direct-oriented strategies where we believe we can continue to outperform.

Fred spoke earlier about this across the business at large, but this shift has been particularly pronounced in the infrastructure vertical where direct-oriented capital has represented almost 2/3 of our fundraising for the last 10 years and an even greater percentage in '24 and '25. So can we continue this trend? We think the answer to that question is also yes. As we could have -- and you've heard this kind of in some of the other presentations as well, we could have comfortably deployed 2x our current annual invested capital without making a single new investment.

So the deals that we sourced would have allowed for us to have doubled the capital deployed in each of the last 3 to 4 years. That's a pretty powerful platform. It's a pretty powerful opportunity, and that's where the capital growth comes in. We actually think that the opportunity is as much as 3 to 4x given the size and scale of some of these infrastructure deals. Earlier, we talked about how we have grown. Here, we want to talk about how we work with the clients. Our clients are much more than passive participants in our products. They're often thought leaders and collaborators as we bring new structures and ideas to the market.

Recent examples of client-driven products include geography-focused accounts, tax-advantaged accounts, emerging manager accounts. In addition, our clients are supporting our commingled funds, Critical Infrastructure Solutions and IAF each closed their last vintage with over $1 billion in capital commitments. And what's even more exciting is the consistency of our client relationships. Our top 25 clients are now averaging $600 million per account, and every single one of them has added capital since 2018. We're very proud of this statistic because we believe it illustrates the health of our relationships. Our clients value not only our performance, but also our collaborative approach.

In that manner, clients have also helped create new products with the most recent example being our registered infrastructure fund, a semi-liquid product built to serve wealth channels launched in January of this year under the ticker CGISX. Clients are also supporting our most recent benchmarking and index fund efforts being built in collaboration with Wilshire Indexes with a targeted launch later this year or very early next.

Given the repeated success of these collaborations, we expect that working with our clients will drive the next wave of innovation for GCM Grosvenor's infrastructure platform with many of those concepts already in development. So as we look ahead, we think the outlook is really exciting. The market opportunity is in the early innings, and we expect it to continue to grow. The asset class should continue to deliver compelling returns with lower volatility and lower risk of capital loss. And our approach and our team, we think, can do the rest. We believe that the combination of our flexible critical capital, our unique product creation capabilities, our strong and growing team and our unparalleled information advantage will continue to drive strong performance and a tremendous opportunity to grow AUM.

Taking advantage of all these features, we see the practice comfortably scaling another 2.5x in the next 5 years, and we think we can be at $40 billion plus. Hopefully, you enjoyed the deeper dive into the infrastructure platform, and we hope that you're as excited as we are about the trajectory and the tailwinds we're seeing across the business. So thanks for listening. We're going to take a short break now for those attending in person. And for those on the webcast, we expect to come back in about 10 minutes. Thank you.

[Break]

Good morning, everyone. I'm Bernard Yancovich. I'm one of the leaders of the private equity business here at GCM Grosvenor, and I'll be talking to you about that part of the business today. So I joined the business in 1999. On my script up there, it says I have to make one reference about John Levin. Apparently, John Levin was in high school at the time. So that's when I joined the business. When I joined the business, we had -- we had literally one private equity client. So hopefully, if nothing else, I can do a good job here of conveying to you how much we've grown and how excited we are for the future with the business. We certainly have come far, but there's a lot more, I think, we can do over the years.

Our leadership, as you've heard, I'm going to make it a clean sweep here. Our leadership in the market really is underpinned by our presence in the mid-market and with emerging managers as well. Our advantages are threefold. First of all, we've got decades now of experience in the mid-market and with emerging managers where we've got that leading position. We've got access to differentiated, often oversubscribed investments. This is one area where in my quarter century in the business, we've seen a lot of change. When I started in the early days, it was pretty easy to get access to any manager, any sponsor, any type of investment, whether it was a co-investment or a secondary, that has changed dramatically. We're staffed up. We're prepared to make sure we're seeing as much as we can out there in the market.

Again, I'm going to make it a clean sweep. We have significant untapped origination capacity and scalability. We saw a long time ago the trends, and we staffed up accordingly. And we think, as I'll tell you, not only in primaries, but also in co-investments and in secondaries, there's a lot more volume we could be manufacturing and putting through the system. Let's take a look here at some of the metrics around the business. So as I said, we launched in 1999. When we launched the business, we did that in a manner that really was consistent with the GCM Grosvenor ethos, which was to provide superior customized specialized investment solutions for sophisticated institutional clients. We are looking to give them access to differentiated product, and I think we've done a great job of that. As you see here today, we've grown to over 265 institutional clients. We've got just a hair under $32 billion in assets under management, and we've got $5 billion in dry powder.

Now, as you would imagine, in a long-term asset class like private equity, our goal is not necessarily to time markets. We like to be tactical at times. But we do feel that this $5 billion of dry powder given current market conditions is a significant asset and a really, really nice way for us to create value for clients over the next little while. You can see here going back to 2020, our CAGR in terms of growth has been 8%. We view this as a floor and are extremely optimistic about what we can do in the years to come beyond that growth rate.

So one of the messages I'd really, really like to leave you with today is that we really do play a highly central role in the private equity ecosystem. So what does that mean? What's the ecosystem? Today, there are over 4,000 private equity managers operating. They're executing literally thousands of transactions every year. The majority of the funds raised are actually by dollars at the large end of the market. Contrast that where we've got an environment where 87% of private companies are in the mid-market. Clearly, there is a need for our capital and for that of our clients. That, we think, if nothing else, makes us really, really vital parts or a vital component of the mid-market.

What's our approach here? First, to identify strong emerging managers early to provide significant primary capital commitments. In doing that, we're able to lock up our allocation, get access to co-investments, get access to those secondary transactions as well. An important part of the co-investments and secondaries is building trust with sponsors. We want to be responsive. We want to be quick by doing that and executing the way we know we can, they will come back over time and keep giving us more and more deal flow.

Finally, we want to anchor and see the next generations of sponsors. In the process, we secure valuable future deal flow and other sorts of economic benefits for our clients. In simplest terms, we are a core capital provider to the private equity ecosystem. Our scale and reputation open doors to investment opportunities that others simply can't access. So our clients range from the most sophisticated institutional investors to newer entrants to the asset class, whether they are institutional or retail in nature.

Let me spend a few minutes here on why we're essential to all types of clients. In my mind, really, it comes down to 3 factors. The first one is access. Being early with sponsors and being a scaled player gives us unique access. In today's market, as I said, where it's much more competitive than it used to be, this is a huge, huge advantage for our clients. As a new investor in private equity, whether you're an institutional investor or a retail investor, trying to get access to those best investments from the start -- from a standing start is really, really difficult. So I would pause it that we're absolutely needed in this part of the market or for this reason.

Diversification. Well, there was a good Q&A earlier, a good discussion around the mega funds. Do we compete? Do we not compete? John addressed it from the perspective of diversification. We like to have diversification in portfolios along the lines of size, geography, other things. So I buy all that. I would also tell you that there's a second, I believe, really strong, if not stronger argument as to why we belong or the mid-market belongs in a portfolio beside the mega funds. If you look at third-party independently reported data for the last 15, 20, 25 years, you would see unequivocally that over this long period of time, middle market leveraged buyout managers have outperformed mega fund managers.

If that doesn't make the argument, I really don't know what would for you. Structural Alpha is our last key advantage here. So Scott talked about this. I would say that private equity was probably one of the first areas to recognize the benefits of Structural Alpha. This middle pie chart, had you looked at this 10 years ago, you probably would have seen 80% in primaries, 20% other strategies. Today, it's more something along the lines of 40% to 50% co-investment secondaries, those direct-oriented strategies. And in a lot of cases, it's actually even higher than that. So really, really significant shift. We saw this shift coming. We started and built our secondaries business starting in 2014.

Around that same time, we invested significant resources as well in our co-investment team. So as John mentioned, the shift to direct-oriented strategies has supported our management fees and has provided material upside from carried interest as well. So client offerings. similarly to what you saw with some of the other subsectors, CSAs, this is how we started the business. Once again, our first institutional private equity client was a 1999 client. What makes us particularly proud about this client relationship is that they are still a client today.

Over the years, they've added capital several times over, which is nice. It's also particularly nice to be able to tell you they have added capital in a variety of different strategies. I hope that this really speaks to the stickiness, number one, of client relationships; and number two, to the depth of resources that we possess as a partner to our clients.

Specialized funds. Another thing here that has changed quite a bit over the last 10 years. We would not have had this column on the page, frankly, 10 years ago. So the franchises that you see here, secondaries, co-investments, the Elevate franchise, Advance, have all been started in the last 10 years, and they are all designed to focus on a specific part of the market.

Finally, registered funds. As you heard from John, we see massive opportunity. You've heard from a few people in the individual investor market. We've already seen success raising capital through the wirehouses. Since 2020, we've raised over $1 billion of private equity capital from individual investors. Looking forward now, we're in the midst of developing a registered product that will be focused on private equity co-investments. We're very, very excited to be able to bring that opportunity to the market. So what I'm going to do now in the next few minutes is spend a little bit of time in the sub strategies within private equity.

Let's start first with primaries. Primary funds really are foundational to our private equity business. I'm pretty confident in saying that we're regarded as a market leader, not only in the mid-market, but also with emerging managers. Our scale is simply well beyond what most others do. We've committed $28 billion over the course of our history to over 845 primary funds. We average about 65 commitments a year, only ultimately commit to about 5% to 7% of what we see.

So we're very, very selective, yet there's a lot of volume. So that selectivity and the volume really speaks to the amount of sourcing we do and the strength of that particular engine. Being an early scale investor also gives us outsized control and influence on funds. About half of our relationships have advisory board participation. Having advisory board participation makes it such that we're close to those managers. So not only again, can we get influence, have a lot of insight on what they're doing, but it allows us to nurture those relationships, hopefully source things like secondaries and potentially co-investments as well.

Turning now to co-investments. One of our transformations really over the past decade has been using our position, our position with sponsors to unlock sourcing in new areas, not only secondaries, but co-investments and increasingly, credit, as you heard from Steve not too long ago. Private equity co-investments has become a scaled business. Today, we manage over $9 billion in PE co-investments. Our success in this market, as I alluded to before, hinges to that value that we bring to the sponsor. Our team is really, really nicely developed. We've got an ability to react quickly when needed. Oftentimes, there may be situations where we may need to respond to a sponsor with a yes or a no in as little as 3 weeks. If we didn't have the strength of team, we wouldn't be able to do that. But being able to do that is what keeps them coming to us with opportunities.

Performance, as you see here, has been really excellent. We're very, very proud of it. And then like the rest of the private equity business and frankly, the infrastructure business, as you heard as well and others, a lot of what we do, again, is squarely in the mid-market. We do retain the right opportunistically to do things that may be a little bit bigger, a little bit smaller if we see value, but 70% of what we have done on the co-investment side has been in the mid-market. As John took you through earlier, co-investing provides a high degree of Structural Alpha, economic benefits to our clients. The vast, vast majority are no fee, no carry. Those economic benefits flow directly through to clients.

Let's turn to secondaries now. So the overall secondaries market from 2018 to 2024 grew at a CAGR of about 18%. We see no reason why that growth rate should not persist in the years to come. From the perspective of our clients, secondaries help mitigate the J-curve, they give them diversification. They accelerate deployment and they help them to access assets at attractive discounts as well. We launched our secondaries business in 2014 through the GSF franchise. We also execute secondaries through a selection of our separate accounts.

Importantly here, and I alluded to this earlier, we benefit a lot on the secondary side from our scale in the primaries business. It helps inform our deal flow, it helps get more deal flow, and it also allows us to be smarter when we're pricing transactions. Again, the focus is on the mid-market. It's a segment that the large secondary players don't operate in. We love the dynamics in this area of the market. There's greater entry discounts, more value creation opportunities for the sponsors and the underlying portfolio companies. And therefore, we think attractive returns generation opportunities overall.

From a sourcing perspective, excuse me, this is a more fragmented area of the market. So we see a lot of deal flow. Over the last 5 years, our teams reviewed over 1,200 transactions and invested in less than 10% of those. 88% of closed transactions were limited or no competition transactions. We also frequently have an information edge and access edge from our sponsor relationships. For example, in today's market, there are some sponsors who have relatively closed lists. They will not approve a secondary transaction to just anybody. Being on list of approved buyers gives us a unique access point in the market.

Let me turn now to our seeding strategy. So our role in both co-investments and secondaries is emblematic of how we play a critical role as a capital provider within the private equity ecosystem. This dynamic results in strong risk-adjusted returns for clients. Similarly, our seeding business serves a critical role by providing capital to the next generation of managers. We leverage our deep relationships throughout the private equity market by identifying excellent PE investors who already have decades of success in some cases. We back them early as key anchor investors and working capital providers as they start new franchises. In the process, we secure capacity rights, co-investment opportunities and potentially other economic benefits for our clients.

Through the support we provide sponsors, we're able to generate somewhere between 30% and 45% of our returns from management company participation. Last year, we closed our inaugural Elevate fund with just short of $800 million in commitments. We're very excited that we'll probably start the fundraising for the next fund within the next year or 2. So you've heard a few case studies today. Those case studies were, by and large, focused on client relationships. We thought here we'd take a little bit of a different angle. I want to give you a case study around a sponsor. So the sponsor here is a group called TSG Consumer.

As the name implies, they focus on buying and building consumer products companies in the U.S. and to a lesser extent, in Western Europe as well. The fund manager, as you can see, has been around for about 40 years, started in 1986. We started committing capital to them in 2002. And in fact, we are one of the only institutional investors who has stayed with them consistently through that time.

Being a consistent partner to a manager like this has been really, really effective for our clients. First, based on their track record and their success, there have been times where the funds were either allocation constrained or in some cases, frankly, impossible for new investors to get in. We haven't had the same degree of difficulty keeping and growing our allocation to this manager over time.

Secondly, we have developed into a preferred co-investment partner. We've done 8 co-investments with them, over $350 million invested. And here, the thing that excites me most is that we've done not only equity co-investments, but Steph and team also have some credit exposure through this manager. Again, we're showing them as a partner, the entirety of what we can do and how we can be helpful to them as they help our clients. So pulling this all together, when I think about the opportunities that we have across the private equity platform, one of the greatest is simply opening the spigot on the sourcing we have coming off our primaries platform, similar to what we've done with TSG Consumer and so many other managers over time.

Notice again, the way direct-oriented strategies have grown as a share of our private equity AUM. We believe all of our co-investments, secondaries and seeding businesses can be many multiples of their current size. Our private equity platform combines scale, relationships and expertise in middle market PE where inefficiencies create real alpha-generating opportunities for our clients.

The result is performance that consistently exceeds benchmarks, sticky client relationships and a clear runway for growth. We've had solid growth despite a less active private equity market over recent years. But as that market reignites and shifts towards direct-oriented activities such as co-investments, secondaries and seeding, we're ideally positioned to benefit. Given that, while today, about 40% of our AUM is direct oriented, in approximately 5 years, we believe that figure can easily surpass $20 billion. Well, I hope I've done a good job of conveying the excitement we've got for the platform over the next several years. There's a lot we can do. And now I'll turn it over to Peter Braffman, my partner to talk about Real Estate. Thank you.

[Break]

Hi, everyone. My name is Peter Braffman. I hope you're having a great day. Yes, I head the real estate practice here. You're going to hear from me a lot of similar themes to what you've just heard today, but with a slightly different twist. And that's because when I joined the firm in 2010, we all decided that whatever we created real estate needed to be something unique, something different. And that's in part because of what happened in the real estate market. So my career has spanned -- I'm definitely aging myself from the '80s until today, it's happily.

And by 2010, the real estate market had matured greatly. What do I mean by the word mature? A lot of fund managers, a lot of them doing similar strategies, a lot of them producing commoditized returns, a lot of them doing the same things. And during that time, quite frankly, institutional LLPs were getting much more sophisticated. They wanted something different. They were going a little bit more direct. They were trying to claw back some of the value that they've created. So the industry was ripe for something different, probably some consolidation. So we decided to get ahead of that trend.

So what do we do? At our core, from a real estate perspective, we are a value-add investor. We focus like Grosvenor does in the middle market, particularly in what we call niche asset classes. These are asset classes that we think have less commoditized returns, generate greater alpha. We do that by accessing operating partners that we establish platform partnerships with. These are scalable businesses. They're local on the ground, they are operators and developers, and we leverage their origination.

Now, that all sounds pretty standard, but what's unique is how we work with them. We establish ourselves as a strategic partner to them in their growth of their business. In exchange for that, we secure all their deal flow, but we also secure participation in their upside. Along the lines of what Bernard said, what Scott said, Structural Alpha, this is our Structural Alpha. We are absolutely a private equity real estate business. As a result, our investors get and our clients get returns both at the real estate level, but also at the enterprise level, the GP economics that our sponsors generate.

All right. So a little bit more about the platform. Since we started, we've raised $8 billion. Today, we manage about $6.6 billion. We've had great growth over the past -- since 2020, 17% CAGR. A lot of that's over the last 3 years. The beautiful thing about that is that it produced about $2 billion of truly dry powder that we can deploy in a market right now, which I know you all know, has significantly repriced. So it's a great moment for us to be investing in real estate. It's a great moment to have that kind of dry powder. In terms of how we're able to raise that money, we had -- as I said, change our business model, change kind of what we're doing and what honestly, we think the rest of the market will probably one day try to be doing as well.

So what did we do? We transitioned from a fund-to-fund business, fund-to-funds co-invest business to something where we had much greater control. We incorporated about a decade ago an open architecture model where we could invest directly in assets alongside our partners as opposed to passively with them. You could see this in the chart. You could see the gray lines, that's more of the fund business and how that moved to today where it's almost exclusively a direct investment business.

Very importantly, our clients supported us in that transition. We couldn't have done it without it. And as we prove the business model, more capital came. So let's overlay the capital raise over the transition time period, boom. You can see just how the capital growth occurred as we changed our business model. So it's directly correlated. And quite frankly, this is something that Michael touched on before, that kind of culture of innovation and evolution. We needed to evolve, and we did it and the capital came along with that.

Let's talk a little bit more about some of the words that you've heard in other sectors today with a real estate lens. We talk about the middle market. What does that mean in real estate? In real estate, the middle market are assets traditionally $50 million or less in total enterprise value. Just so you know in our portfolio, $30 million or less. So we focus on even lower, the lower middle market. But at $50 million or less, that's 97% of all transaction activity, sometimes it's even more. So it's the vast majority of the market.

But from a capital perspective, only 60% of capital goes to the middle market. Why is that? A lot of the things we talked about before, Michael brought this up, the middle market in all asset classes tend to be more fragmented, harder to access -- and as capital gets bigger and bigger, and we have had 40 years of capital aggregation in the institutional markets, you know what, capital goes to where it's efficiently deployed, and that's going to be into larger assets. So what does that create a real pricing differential. And you can see that in the chart. If you look, there's a 100 basis point differential in yield going in yield for middle market assets versus larger assets. What does that mean? Your unlevered return at day 1 buying these assets is 100 basis points more. That's tremendous lift. So just by being in that part of the market, you'll get a better return. In addition, though, we focus on what we call the niche subsectors.

Real estate is kind of cool. It houses our economy. How we live? Residential. How we work? Office. How we get stuff, industrial, retail, right? Those are the traditional asset classes. But within them, there are all these niches. So you think about industrial, big box industrial, what about cold storage? What about small bay industrial? How about self-storage? How about parking? These are all industrial applications that are nichier, smaller. Sometimes these assets are $2 million or $3 million in size, very different return potential. Same thing in residential, big apartment buildings. Well, how about student housing or senior housing?

You could just imagine manufactured housing, single-family rental. We actually have categorized in our own portfolio of 57 different asset types. So there's a lot of these niches out there. But the beautiful thing about them, they draft off to the same fundamentals that the larger asset classes draft off. But if you look at the lower right, you'll see from an NOI growth perspective, an operational performance perspective, 2x the growth. And so by focusing on the middle market, by focusing on niche, we could buy better and we could operate better and deliver better returns before we even get to the Structural Alpha.

All right. So now let's talk about how we'll get to the Structural Alpha, and we'll talk particularly about our platform partnerships. So if you're going to scale a real estate business, you think about real estate, it's truly liquid assets, not like a stock. I mean there are REITs, but we're talking about private real estate, buying assets. You need to be on the ground, you need to be local. So to build a scaled business, you're going to need platform partners, operating partners in local markets to find assets, to execute assets to perform with you.

By the way, the whole industry is built like this. All the big fund managers do this. They work with local operators, and they partner with them in some way. They either on a single asset basis, on a joint venture programmatic basis. Sometimes they'll just buy them. But whatever it is, you're going to need to leverage these groups. So that's how the industry is organized, and we do it as well. And again, these are operators, these are developers. Our difference, and I think this comes from our emerging manager kind of DNA, is we really focus on entrepreneurial teams.

We look at teams that have very seasoned track records. They've been doing this for decades. They spin out, they start their own firms, and we're there early with them. And we launch them, we scale them, we see them, we stake them. And in return, we share in their enterprise value. And the competition is fair enough. It's an industry standard to lock them up for their flow. We want to work with them and we want them to grow their third-party business, and we want to leverage then not just their origination, which is wonderful, but also the broader enterprise lift from their business.

We think that will generate up to another 20% of returns to our clients. So let's talk about the -- how we originate origination comes from these platform partnerships, and you'll see the scalability of it. So this is kind of a cool chart. I like it. Platform partners, these are all the different operating partners. We'll form some kind of partnership with them. Typically, it's a joint venture. It's usually a $50 million, $75 million, $100 million to start, and we'll go from there. in exchange for that certainty of capital that we give them, we're going to get from them a piece of their business. We're going to get all the exclusive capacity rights and an economic package that usually lasts in perpetuity.

Number two, they're going to show us all their deals, not just their episodic co-investments, all their deal flow. And we get to choose whatever we want. We have full discretion. And then number three, we choose what we want to invest in and where we have major decision rights throughout the value creation. All along the way, we're trying to encourage the scaling of their business. So this -- you can just see, this provides tremendous origination lift for us. We see all their deal flow. If we want to launch new strategies with them, we can. We've done that all the time. If we want to bring on new partners, we can all the time. In fact, let's turn to that.

So if you look at the next page, you'll see, all right, today, we have 29 such active partners. We have done just executed over the past 5 years, 1,100 different deals. These are acquisitions, these are loans, more than 50 different asset types that we purchased. And this is something that Fred said is the most important point. We have a tremendous origination pipeline that we've identified with them, over $5 billion of capacity that's undercapitalized. So we don't need to build anything else to execute. What we have to do is continue to raise capital.

Other things just to consider from what we actually have done, about 2/3 of our business, a little bit more is we buy assets, but the rest, we're a lender from a geography perspective, mostly in the U.S., but increasingly in Europe. And from a property type perspective, a bit of everything. But you know what, 75% in residential or industrial. There's a reason for that. Those are the most, I think, assets that are most insulated from dislocations in the capital markets. And that's important. We've really minimized our office exposure, and we focus on what we call capital-efficient assets. And that's why the returns are what they are. We're generating really strong returns well beating the benchmarks in a market where interest rates have greatly affected real estate overall.

All right. So let's talk a little bit about our clients. Like the rest of Grosvenor and like the way we approach or work with our platform partners, we look at our clients as our strategic partners. And that's been particularly true in real estate. We are highly concentrated with some of the biggest investors in the world. We started with one, literally seeded us. Both Joan and Michael referenced them before. They're probably one of the largest and most sophisticated investors in the world. They don't need us to find real estate. They can find any kind of real estate they want. But there are certain things they couldn't do, and they turn to us to do that. And we started with them and then we've built -- as we prove the business, we brought others in.

So now 4 of the top 10 largest institutional investors in the country are our investors. And what we do is they all share through separate accounts, pro rata in what we -- in the business that we have built. So that's a diversified business. One thing that comes from this, as we all know, is you could build a business with a bunch of these investors, but other businesses could come out of that, other ideas. So 2 that just came up, honestly, this year, and now we're already in deployment mode. One is a middle market investing program. fund investing program with one of our investors who's just said, you know what, they're missing this part of the market. They don't have it. And so we developed a program with it. We started deploying it, and we're going to continue to scale it. The other one, the same group that backed us before, this client wanted to take advantage of the consolidation in the industry. So we're out there now acquiring real estate businesses with them. It's a tremendously scalable business. We buy platforms and we can deploy capital in assets. And so we expect this to grow tremendously.

But the last thing I think this has done for us is that now that we've built out the strategy, we've built out the -- quite frankly, the pipeline, we are now joining the rest of Grosvenor in launching a commingled product that will sit alongside a diversified business and will capture all the flow or a piece of the flow that we have. So it's being launched and it will -- it's being anchored by one of our existing LPs and importantly, by a wealth management channel as well, an RIA that's also going to anchor this fund.

And so we think this product will just open up tremendous channels for us to bring in new capital to our business. When I think we originally conceived at this, I was thinking, oh, it's just going to be open to the smaller institutions that are out there. That's true. They will be. But from a RIA perspective, the wealth management perspective, this gives them something, and I think Bernard mentioned this already as well. This gives them something that they really are looking for.

So the reception has been great, and we continue -- we will grow. And as well -- look, we're going to grow as well with other new SMAs. We added 5 since 2020, and we have a tremendous re-up rate. All right. So I will finish on this point. I think it would put us into an excellent position not only to maintain the growth of the last 5 years, but to exceed it. We have a product that's demonstrated with demand with some of the most sophisticated investors in the country.

And our strategy captures parts of the market that are not easily accessed. So this led to a huge re-up rate and new partners joining and in the process, we've built a huge and undercapitalized pipeline. So I feel very comfortable that we'll more than double the size of our practice in the next 5 years. Thank you very much.

And now our friend, Pam, is going to join, our CFO, to finish it up.

Good morning, everyone. I'm Pam Bentley. As Peter said, the Chief Financial Officer. I'm happy to be here today to translate everything you just heard from everyone into how this translates into our financial performance and our outlook. I joined the firm 5 years ago after 15 years with the Carlyle Group. And really what drew me here and what drew me to take Michael and Jon's phone call was the firm's outstanding reputation.

And then as I met the team, it was truly impressive. Hopefully, you've seen some of that today, and it goes deeper than what you saw today. It's a truly impressive collaborative, performance-driven culture. I was able to see and continue to see a distinguished very long-term list of clients, a very long-term proven track record. And from all of us, really a clear vision for expansion, fueled by industry tailwinds, but really fueled by the team itself.

Jumping in, we've built a high-quality recurring fee-based business that is compounding over time. It's scalable across market cycles. Our embedded operating leverage enabled us to expand margins and profitability as we deploy and raise additional capital. Our balance sheet is strong. The firm is highly cash generative, providing flexibility to reinvest in the business, return capital to shareholders. Over the past decade, shareholder distributions have exceeded $1 billion, and we continue to build cash, investments and over $900 million of unrealized carry, all while maintaining conservative leverage.

So looking ahead, where are we going? As you've heard throughout the day, we are growing across each of our investment businesses with opportunities to extend our reach, both geographically and through the individual investor channels. We'll continue to see margin expansion. Our investment origination platform capabilities provide meaningful upside. We're leveraging our teams and technology to scale while delivering consistent investment performance and providing top quality value-added services to our clients.

There's also significant upside from incentive fees with a high level of accrued carry and an increasing amount of AUM eligible for incentive fees, we are well positioned for accelerated earnings growth. With this, we expect higher cash flow generation, enabling us to invest in accretive opportunities while also returning capital to shareholders. Over the last 5 years, we've consistently delivered strong financial performance.

Adjusted EBITDA increased more than 55%, FRE almost doubled and adjusted net income is up nearly 70%. But what's important here is not the numbers, it's all of our drivers. We've raised $44 billion of capital since 2020, and our pipeline remains robust. Our private markets business is expanding where long-term management fee arrangements are less exposed to short-term market movements. And within private markets, we are growing in higher fee direct strategies and enjoying positive operating leverage.

A few things are at the heart of our financial performance. We're highly management fee-centric. 80% to 90% of our revenues come from management fees, and this creates predictability with revenue streams diverse across many products and clients. We have embedded management fee growth with $8.7 billion of capital raised but not yet generating fees, which represents future revenue already secured. We're just awaiting to deploy the capital and turn on the fees.

Our platform is scalable. FRE margin has steadily increased to 44%, and we can deploy more capital without significant additional resources. There's also incentive fee upside. 72% of our AUM is incentive fee eligible with unrealized carryover $900 million, more than double 5 years ago, but this will continue to accelerate. Turning a little bit to our infrastructure and our technology investments. We combine proprietary systems with external data to enable best-in-class investing capabilities as well as client operations.

We invest significantly in data management, advanced analytics and proprietary systems that support investment decision-making and risk management. As you heard from David today, an example of our capabilities in ARS and how we generate strong investment performance through mining information from a universe of management -- managers to invest client portfolios. We're also testing and expanding the use of artificial intelligence across the platform.

We use it in software development and operations, and we're using it in client relationship management, due diligence, communications, research, document automation and much more. We've given the tools to our teams to innovate, and we are excited for the future. It's one of my favorite things to do every day actually. Technology is also the backbone of our client service. We provide clients with accelerated and customized reporting and data-driven investment insights.

It's a big differentiator for us to win business and critical to our continued expansion into the individual investor space, where we recently enabled availability of real-time information for items such as direct private asset valuations, which have historically in the industry have been done quarterly. So you can imagine the lift to do that daily. Every dollar we're investing today allows us to further scale tomorrow and is freeing up capacity to focus on client and product expansion.

Turning to the numbers to demonstrate our operating leverage. While management fees have grown steadily over the last 5 years, our FRE margin has expanded by 13 points. Over the next several years, we expect to achieve a 50% FRE margin level, not only given our origination capacity, as Fred liked to mention a few times, but also through those technology investments, but continuing to actively manage our operating expenses. Despite actively managing those operating expenses, we are investing in our #1 thing, our people and our culture.

We're attracting and retaining top talent with competitive compensation programs based on investment and firm performance and aligned with delivering strong returns to our clients and shareholders. Another important trend we're enjoying is a shift in our asset mix towards private markets, which gives us a higher percentage of predictable fee revenues through periods of market volatility. Private markets AUM and management fees have increased more than 65% since 2020.

For today, private markets accounts for 71% of our AUM and 63% of our management fees, but that share will continue to grow, and we expect that, that could easily represent over 80% of our AUM in the coming years. That dynamic is beneficial as private markets programs are long duration and fees are earned on committed or invested amounts, not on fluctuating asset values. And within private markets, capital is flowing towards direct strategies such as co-investments, secondaries and direct investment portfolios that are commanding higher fees and more incentive fee earning potential.

Fundraising is obviously essential, but what matters most from a financial standpoint is how our fundraising translates into fee-paying AUM. To help demonstrate that conversion mechanism, I'm going to walk through this quick example. Over the last 12 months, we raised over $9 billion of new capital, $4 billion of that went into fee-paying AUM, meaning those fees turned on immediately, and the remaining $5 billion went into contracted not yet fee-paying AUM. Fees on this capital is turning on as it's invested or on a schedule that well agreed with our clients.

Historically, 35% to 40% of that capital commitment converts into fee-paying AUM each year, driving steady and predictable revenue growth. So several factors give us our confidence in our sustained fee-related revenue growth. First, an average of 75% to 85% of our fundraising is coming from existing clients, and the commitments are effectively perpetual in nature, as Jon explained, and they're increasing at an average of over 25% on renewal or re-up. We are also able to successfully broaden our relationships into multiple investment strategies. We are proud of our over 90% re-up rate, reflecting the deep integration we have with our clients.

In addition, we're continuously winning new clients, and we're expanding our investment capabilities, our recent collateralized fund obligation in credit that Steve mentioned and our infrastructure interval fund that Scott mentioned are really good examples of this. Second, our $8.7 billion of already contracted not yet fee-paying AUM actually represents about $45 million of annual run rate revenue upon activation over the next several years. And third, our ARS performance compounds that fee base and each 1% of performance translates into approximately $1.5 million of annual revenue a year.

As Michael promised, turning to our incentive fees, we'll dive a little bit deeper. The 72% of our AUM that's incentive fee eligible today is very diversified by investment type, account, vintage year spread across 140 programs. This diversification means our incentive fee potential is not tied to the outcome of one fund or cycle. Our unrealized carry has grown to over $900 million. And after our contractual carry compensation, approximately 50% of this balance or $450 million is retained by the firm.

Importantly, this figure is -- excludes over $14 billion of carry eligible AUM that will move into a carry position as those funds are invested and mature. That potential carried interest represents over $1 billion of incremental earnings based on consistent historical investment returns. And that's earnings, meaning that $1 billion is in addition to the $450 million of the firm's share that we already have in an accrued position.

In addition to carry our annual performance fees in ARS, have a $32 million annual run rate. We've earned more than $150 million of cumulative performance fees over the last 5 years. And as our ARS AUM compounds, so will these performance fees. Taken all together, as our incentive fees are realized, they will provide earnings upside on top of our already strong FRE base. Looking forward, we see a clear path to doubling our FRE from 2023 to 2028 to $280 million.

Our incentive fee earnings power gives us confidence in our plan to more than double adjusted net income per share to $1.20 by 2028. And there's upside behind these -- beyond these objectives from new products, geographic expansion, individual investor solutions, opportunistic M&A and specialized fund scaling and everything you've heard here today. As we grow, we will continue to return capital to shareholders through dividends and buybacks while funding strategic expansion.

We have $57 million left in our buyback authorization. And with our quarterly dividend increase announced today, our dividend yield is now over 4%. Our client-first focus alongside innovation, disciplined capital allocation is how we expect to build long-term value. Thank you for your interest today.

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

This will work, yes. So I'm going to quickly close, and then we're going to go on to more Q&A. And I again, want to thank you all for being here today. It's a lot of time that you gave us, and it means it's -- we appreciate it. It means a lot to us. Just in closing, to hit on a few of the key points we tried to drive. The client-first piece and the culture piece are real and they're important. They help us win. They protect our downside and they matter. We have tremendous ability to grow and to do it with margin. The backdrop for the industry is great.

Our teams are great, and you got to meet our -- different people today and hear from people you haven't heard from before. Our core business has built-in growth. That core existing business has built-in growth. We have white space, especially in the individual investor channel. Importantly, as you heard Fred spend time on and then the vertical heads spend time on, our investment engine is incredibly scalable and our vertical heads are dialed in and they see the opportunity. The value proposition for our clients is strong.

And just as we sit here today with 25- and 30-year-old relationships, we think we'll be sitting here in a decade with 35- and 40-year-old client relationships that will be bigger than they are today. We're going to continue to keep deepening our partnerships with existing clients, bringing more ideas, more co-investment flow and more operational lift to the firm. We will continue to scale, continue to invest in people and technology and continue to stay disciplined and aligned with shareholders as we go forward in the future.

I want to just give a few thank yous before we open up to Q&A. To our clients, thank you for your trust and for pushing us to be better partners every year. Our colleagues, thank you for the work that doesn't always show up on a slide, but always shows up in the outcomes. To our Board and shareholders, thank you for your guidance and support. We're proud of what we've built. We're more excited about what's ahead, and we're committed to delivering the same way we always have by listening carefully, executing rigorously and staying aligned with clients and shareholders.

So thank you all again for being here today, and now we're going to open it up for questions.

[ Bill ].

Thank you again. I appreciate you taking the time out today. A great update. Maybe big picture down, I certainly appreciate the opportunity set in front of you. So maybe a 2 disparate part of the question. First, can you talk a little bit about maybe from the product heads, what you're hearing from institutional allocations? It does seem like there's a lot of flux in the marketplace, whether it be U.S., non-U.S. back to real estate, where are we in terms of PE, et cetera?

And even on the ARS side, you're seeing allocations come back into the liquid side of the business. And then one of the sub themes of the whole day was the ability to put a lot more capital to work. So what's the holdback what's the limitation to driving a little more of that volumes through the platform a little more quickly?

So I think maybe we'll -- you guys are going to have to pass the microphone back and forth. But I think we've been consistent, I think, pretty much every quarter through some volatility, right? So -- and back half of '22, [ ball ] of '23, which is tough for private equity. It was fundraising stretched out, didn't go away -- demand didn't go away, but cycle stretched out. It took longer to get things closed. You had a denominator effect for a period of time. You've had not a great realization environment. It's perking up.

Throughout all of that, we have been very consistent in saying that we see no backup in demand. Our pipelines pretty much by vertical are full and strong, and it's something we monitor month-to-month, certainly quarter-to-quarter. And so the backdrop for this whole industry, you saw it on some of the unique vertical presentations is a bigger percentage of clients either adding capital and growing their exposures or maintaining capital than reducing exposures. And you have -- we think you have growth, and that's before you get to that sort of crazy white space in the individual investor channel. So I think that's the backdrop. We've been consistent there. I don't know if any of the specific guys want to...

The only other thing and Bernard -- is this working? Yes. Bernard made this point. We're all going to experience the secular trends, right? So infrastructure has been growing faster than private equity or in credit -- private credit has been a great growth area. We're all going to experience the individual investor. We are reasonably, given the role we play in clients' portfolios, we will have a dampened effect on our business from the cyclical factors.

I don't know how much people paid attention to it before they came today or what they took away from today, but our private equity business grew, what was it, 8% -- an 8% CAGR through a difficult time for private equity. I'd be really happy to own a business that grows at 8% during a difficult time. And so I think the role that we play as the core provider, as a central cog in the ecosystem of our clients' portfolios and in the marketplace generally doesn't mean we're immune from all cyclical factors, but it does dampen the impact of some of that and enables us to kind of have pretty good stability and visibility and growth through markets. We'll still see some -- again, those secular factors, but the cyclical matters a little less.

To the last part of your question, which -- what's the -- what is the issue with -- why don't you just soak up all that capacity, all that excess origination now? That would be -- to truly do that would be an exponential move in fundraising. So we're on a $9 billion, $9.2 billion trailing 12 months. We're hoping for a good solid fourth quarter, and we're looking to keep growing that annual fundraising into next year.

To eliminate that gap in origination versus capital, you'd be talking about doubling -- more than doubling that. So we hope to get there and hope to get there over time, but it would -- it's really a very significant amount of capital. There's a balance between doing anything you can do to soak that up and maintaining the integrity and the fee level and the opportunity in your business. So to go cut a deal with a massive capital source at a super low fee just to soak that up is not necessarily the smartest thing for us to do. And so you have to be disciplined and kind of grow and compound over time as opposed to think you're solving that in the morning.

Yes, Ken.

Hi, Ken Worthington from JPMorgan. So the guidance on the absolute return business has been for net neutral flows, I think, since your -- the IPO and the [ SPACing ]. During the presentation, you mentioned that clients are engaging. We're in an attractive interest rate environment. You're seeing dispersion of equity returns. So it seems like I don't know, does it get much better for the absolute return market? At what point do you start to feel comfortable about that business generating positive net new flows or even more consistent net new flows?

So I'll start, David, and you jump in. I think what you heard is that David, who leads the business would take the over, okay? And that Jon and Pam and I, who budget and who have to report out quarterly and provide guidance have a -- we believe, a conservatively -- a properly conservative budget convention. I think that the answer to your question from our perspective is we're going to -- we're not changing that convention easily.

If we've been wrong for a while and we're clearly in a net inflow environment, we will come around and make an adjustment in our budgeting at some point in time. But we're not going to -- I want to see that -- I want to see some consistency in the market on a net inflow environment, not a good quarter than a flat quarter, then a little down quarter or whatever, I want to see a consistent thing.

Everything David said is right and his gut is right just because of where performance has been, where the markets are, where liquidity premiums are just all of the above gives him -- he's been in business a long time, reason to feel essentially what I heard him say is I would take the over, but we're not changing our budgeting convention so fast.

I think that's well said, Michael. We've seen -- the resurgence we've seen is really from the U.S., Asia and Europe in our ARS business. Clients really want the diversifier, attractive returns with downside protection, but it's difficult. It's difficult for them to do it themselves. Like other areas, the dispersion between the top quartile hedge fund manager and the median is very large. With 9,000 funds out there, it's hard to pick the best ones. We have a great platform.

So they really want our help and our access to the best funds in the world and our partnership in helping them achieve that and building the program with us. So we've seen great -- much greater interest. And so I do take the over, yes.

Do you think it's inflected -- do you personally think this is...

I do think it's inflected. I think that the normalization of the markets, meaning rates -- largely rates, dispersion, periods of volatility, overall uncertainty, high quality -- a bit of consolidation in the industry because you had a lot of funds out there and now you've got -- you still have a lot of funds out there, but we have really concentrated into the top quartile on our platform.

And I think a lot of the institutions that had gone direct in prior years realized their returns underperformed the high-quality firms like ours because manager selection matters more in ARS than strategy allocation, it always has. And so I think that's where we really add a lot of value.

I don't want to add one thing to that. I think the market inflected 5 years ago in the way that David is talking about it, right? So alpha dispersion, value to the clients, net returns, we have an 8.9% net CAGR for 5 years in the absolute return strategies business. So that part inflected 5 years ago. I think the question, when does the client response function happen? There was a lot of fatigue from a decade of generating 5% and 6% high quality, but 5% and 6% returns.

And you really have to have that fatigue come off to see the client demand come back. And I think what Michael said, well, you'd want to see it, like prove it before you declare victory on that front. I think the value has inflected. I think we need to see the client response function at this point.

Chris?

Yes. A question for Steve McMillan, I guess. And that's that -- obviously, we had a big correction in the whole group, your own stock included in recent weeks. And the only approximate cause I could find for it is concern about private credit. And so -- and I guess the question is, is there, in your mind, any evidence that private credit has outgrown the broadly syndicated and high-yield markets in recent years by weakening its standards and is thus more prone to credit losses? Is I guess that's part number one of the question.

And then part number two, for the credit managers, other than having customers not re-up for their funds, which would, of course, not be good, are there any other direct and immediate consequences for the credit managers?

Well, easy question, right? I mean I think if you would look at the -- and you know better than me, the sort of stock prices are really only where they were 3 or 4 months ago. So there has been a bit of short-term volatility, but in the context of very positive long-term trend for the large direct lenders. I think our view is that it's never been a no loss asset class. Never should have been, never has been and never will be. So what we have seen, obviously, a couple of high-profile sort of like defaults in recent weeks.

It's just kind of natural and it's always going to be part of a functioning market. And really, it's the 10-year period of effectively artificially like sort of low and suppressed sort of defaults, which is more abnormal. And this is now just a return to a more sort of functioning market. It's a $3 trillion market. I think in leveraged finance, you'll know -- people used to use a 1% rule of thumb of sort of losses, $30 billion in that sort of $3 trillion is not anywhere sort of close to what we've been seeing, even inclusive of some recent headlines.

So yes, I think I don't see a lot of evidence that we're going to see a huge wave of sort of correlated defaults to akin to a bubble. But yes, I think what it has reminded everyone, if they needed reminding is diversification matters and underwriting matters. And that's very sort of, I think, advantageous for us.

And I mentioned earlier in the presentation, people are pretty concentrated in the direct lending sort of within the private credit portfolios and are looking to do more, do more with smaller managers, do more with other asset classes and do more on sort of secondaries and co-investments.

So that's a great answer, Steve. And today, Chris, the question is credit -- private credit because that's where the headlines have been and we have Blue Owl and Jamie -- and JPMorgan kind of squaring off on the front pages of Bloomberg this morning. And -- but I just -- for some perspective to step back, 35, 40 years in alternatives, there's always some aspect of that space that's kind of under attack. There is a level of cynicism.

There's a level of questioning that is -- and I don't know if it's because of the success of the people in the space, the traditional syndicated loan business and these private credit businesses seemingly grow very, very fast and they have high fees and the people are doing well. But there's always hedge -- you can find -- hedge funds are going away articles from the early 1970s. You can find -- it's the end of PE. PE is going to be growing under the weight of no exits.

Private credit is -- cockroaches are going to be -- watch out for the cockroaches. There's a lot there. There's always something there. And the reality is none of these strategies on a stand-alone basis are particularly risky when practiced well with good security analysis and good capital structure portfolio management. And inside a business like Grosvenor, where we have all of them, they're complementary towards each other.

So opportunistic real estate has been in the center of the bull's eye at some point in time. Every one of these strategies has been questioned, none of them are going away. We think they're all growing over the next 5 to 10 years. And -- but they'll have a little different periods of time where the flows to infrastructure have been bigger than the flows any place else and credit after that. And one day, we'll have a period of time where the ARS flows will be huge or the private equity flows will be huge. And I just think that's the reality of the space.

Crispin?

Crispin Love, Piper Sandler. Just looking at your $1.20 plus target in adjusted earnings by 2028, can you share what you're assuming on the FRE side versus performance fees breakout? Unrealized carry is a meaningful opportunity for you. But just are you taking a stance on different years in the near term, just given the environment, a potential pickup in deal activity and there?

So we're not breaking that out publicly by year. We had given you a '28 FRE number. And I think that the $1.20 a share, if you've got about $50-ish million net from the incentive fee line on top of the FRE with a little bit of friction in there for some -- and then taxes gets you that $1.20 plus. And you can look at our historical incentive fee net firm share generation in the past and figure out what kind of stretch you think that is with $450 million of carried NAV, $1 billion behind it and growing incentive fee pool that's done $50 million on average over the last 5 years, but it's not a big stretch.

You got -- that's good, yes.

Stephanie?

Stephanie Ma from Morgan Stanley. I wanted to ask about your index partnership with Wilshire. You've also seen a number of players move similarly, whether it's BlackRock, Preqin, also this morning with S&P acquisition. So just curious your thoughts on product evolution. What's the path to launch investable products with these indices? And then second, on the competitive landscape, how do you see that evolving as these large-scale like public index providers move into private markets?

I'll make maybe one high-level point and then Scott, who's been close to that project can comment specific to infrastructure. I think, in general, one of the evolutions you've seen in the private markets as people continue to build out those portfolios and those portfolios mature is looking for proper benchmarks. And there's usually more than one. But there really hasn't been a great one that has existed in the infrastructure space.

And so -- and Scott can talk about that in more detail. I think that from the standpoint of who's in the best position or what types of firms are in the best position to be part of the solution to those problems are the people that have the most open architecture, broadest global portfolios with the most information. And as Scott mentioned in his presentation, people don't share with each other, but they all share with us.

And so our ability to provide that kind of manufacturing investment acumen in combination with a Wilshire, who's obviously good on the index side, leveraging all of that data and technology and years of experience we have, I think, is something that's not just unique to infrastructure, but a concept in general as a solutions provider and the value of the data and the place we have in the market.

Yes. I think that's exactly right. Maybe I'll pick up first on the benchmark, right? So as with everything we do, the starting point is, is there a need? Is there a client need? And this was a product that was basically built out of a discussion with a particular client. And that was what made it particularly interesting for us. What we see when we look to benchmark our own products in the infrastructure space is, there is no single benchmark, as Jon said.

So you've got some people using MSCI world. You've got some people using a Burgiss benchmark. You have a number of people that are using CPI plus 3, plus 4 and plus 5. It's different for everybody. And then others even using a Bloomberg benchmark. So there's a real challenge. And one of the things we hear all the time in the space is there is nothing in infrastructure that really reflects the market.

So what's interesting, I think, is as you've seen the proliferation of the open-ended funds in the space, you are starting to see some more consistent, some more homogenized return in the market. And with diversification, with the application that we typically have here, that creates the ability to again reduce volatility and create something that's more kind of systematic as a benchmark. And so -- that was the starting point. The benchmark was first.

And then to your point, how do you make it investable? Well, there's a map in the market for that, right? I mean I think real estate has been doing this for a very long time, right? And so NCREIF produces the ODCE benchmark, and there's a fund that tracks that benchmark. So we're not necessarily creating anything that's never been created. We're just doing it in a part of the market where it hasn't existed previously.

Really importantly, what's, I think, most exciting about the product side of this and what again kind of goes back to where we're seeing information, where we're seeing sourcing, all of the constituent funds have agreed to participate, right? So there are a lot of products coming to market. To my knowledge, there's none other than ours with Wilshire that can say that all of the constituent funds have contractually agreed to provide information. And I think that puts us in a really strong position as we get ready to launch.

Yes, Michael just reminded me something, I should clarify. So the thing that launched on 6/30 was the index itself. Scott put in his presentation, the investable product expected to launch either late this year or early next year. That is -- the index itself is good for branding, good for our role.

The product itself is the thing that would be revenue generating where we have lined up seed capital from one of our institutional investors. And we just happen to think from a pure investment manufacturing perspective that if you're going to be in the core open-end part of the infrastructure market, you're better off doing that in an index that's more liquid and more diversified than picking the funds yourself.

Jeff?

Jeff Schmitt with William Blair. On the individual investor business, what's your sort of time line, I think, to ramp that? And I know earlier, you talked about maybe over the longer term, that can become 20% to 25% of total fundraising. But what should we expect maybe over the medium term, 3 to 5 years? Or is it going to take longer than that even to become more meaningful?

Yes, it is ramping. So the short answer is, it's ramping now, and it's ramping on 2 levels. One is fundraising, the amount of money that's coming from that channel on a regular basis now. And the second is resources dedicated to driving that distribution and making that distribution successful. And I guess I'd throw in a third place that it's ramping, which you heard today, which is product -- offerings in that space. You heard, they've bought a real estate product, you've bought a private equity product.

And all of those require seed capital and getting that seed capital in place takes time. So it is ramping. It's a very real focus. The only thing that we've been careful about is putting out dollar targets just because we believe it actually takes time to ramp. So we think like a real ramp to a very consistent level of impressive monthly flows is kind of a 3-year build. And so when we looked at Grove Lane -- and when we looked at this Grove Lane joint venture, our view was this was a 3- to 5-year investment to build this profitable distribution arm that we see 3 to 5 years out.

I said on the last quarter's call, and I'll say it again today, there will be a time when we think it makes sense to start breaking out -- we already -- we tell you now how much capital comes from the individual investor channel. And so we've always broken that out, how much versus what's in our NAV, if you will, our total AUM, how much is from individuals and how much over the last period of time.

We told you that today. And as this continues to build and continues to ramp, we will, like everything we've done in the last 5 years, provide more information in more detail. But it's early now, and my concern has been that nobody gets carried away with thinking that it ramps the minute you drop a product. It does take time to build.

[ Bill ].

I got one more. So thank you for the added guidance both for 2028 and then sort of the outlook to 5 years. So if we were to fast forward to 5 years, how should we think about the FRE margin in 2030 relative to the 50% post you think you can get to in '28?

It clearly has the ability to keep growing and to keep growing at a strong rate. I don't see anything for taking away our operating leverage. I just don't. And I'm not being cavalier in saying that I can't -- it's hard for me to imagine that 5 years from now, we won't feel like we have operating leverage. And some of that, not all of it, by the way, but some of that is, is productivity and technology and the support that we get from those gains, which accelerate over time.

But it's just very hard to imagine -- to not have operating leverage, the level of growth would need to be much, much higher than what we're showing you than what we're talking about. So the times when I've seen a firm like not have operating leverage goes through a massive -- not a double in 5 years, but a lot more than that, you could grow so fast that then you have to backfill invest because it was so nuts.

But the level of growth that we're talking about, I -- my view is we have operating leverage 5 years from now. And -- and I think that, that 5-year period -- and I think that the next 5-year period because of what we've done in this last 5-year period and the new investors that are going to be -- start to be increasing the relationships, just like all the ones Jon showed you, it feels very good for us. You have a question?

First off, thank you for this. It's really, really helpful. Next time, 160 pages would be great, not 157. But no, congrats. I think one thing that's obvious hearing from David and others is that you guys have created products and businesses that are real alpha generators in this market, which is sometimes rare and increasingly rare where we live in a world of beta basically. So congrats to all of you for that.

So related to that, there's always this kind of narrative of pricing pressure and extending out duration. Is that a narrative that you guys are seeing within your business? Like do you -- I mean, obviously, there's pricing pressure across financial services, but is maintaining price kind of a win? Or do you see pricing leverage relative to your client base and the ability to extend duration? So that's question number one.

And then going to the question on retail, I think one of -- well, Jon's predecessor firm made a big splash a couple of years ago with a partnership with a big retail company or firm. Is there something along those lines that accelerates on top of [ Grove Lane ], kind of some of the strategy thinking as it relates to retail?

Yes. So let me take pricing. The bottom line is our pricing feels very solid to us. It is not a -- like -- there have been periods of time where you felt pricing pressure after '08, after the crash, you felt pricing pressure. I go back a long way in the industry, prices were too high in the late '80s and early '90s.

At a point in time, you sort of felt pricing pressure when you became really institutional, you felt a different conversation than you felt from ultra-high net worth investors that made up the bulk of the capital in 1990, the late '80s. We are not seeing that pricing pressure today. We -- and I do think we have -- our shift to direct has supported -- so where there's been pricing pressure is only really in primaries. What if someone going to pay you to allocate capital to other people?

We talked about being middle market. It's harder. You're not going to get paid a lot to allocate to KKR, to Hellman & Friedman. But you say you have better value add in the middle market, and that's the place where there's been pressure and the shift to direct has supported our pricing thus far. I can't remember who said that in their remarks, but it's supported our pricing. There is absolutely a possibility that the continued shift to direct and the growth of individual investors increases your pricing over time.

Our infrastructure interval fund has better management fee pricing than our institutional business. So that grows and that starts to get bigger. And there is a very real possibility that you cross over from supporting consistent and solid and don't worry pricing levels to actually growing the pricing levels. The one thing that I will tell you that is hard is to go to an existing client with an existing strategy set and an existing kind of agreed level of pricing and say, we really think you need to pay more.

We've had to do that a few times, either pay more or solve it on volume, but that's a -- that's -- I don't think that's going to happen. But we do -- we're solid on price, and we probably have upside on the pricing.

I think on the second part of your question, [ Samir ], I tend to think that the individual investor opportunity set generally and how you approach it is more similar to the institutional market evolution than maybe others, meaning when you think about institutional distribution, you sell direct to them, sometimes they have their own staff. Sometimes you sell to a consultant who has relationships. Sometimes you sell to -- there's institutional outsourced CIOs who buy on behalf of many institutes and it's multifaceted.

Sometimes you work with placement agents, sometimes you have your own team. I think those same dynamics are true in the individual investor channel. We have our own team that leverages wirehouse distribution. We now have a JV for broker-dealers and RIAs. We have a partner on the infrastructure interval fund. We have a partner -- 2 different partners, frankly, in Australia that sell product. We have a different partner in Europe that sells. I think that your distribution will always be a combination of "your own resources and partners."

And I look at the partnership that you referenced and others like that as a little bit manufacturing partnerships to solve liquidity, needs of certain registered products, but I view them as much as manufacturing plus distribution partnerships to help people that have certain kinds of manufacturing and reach different times of distribution. And as you fast forward for us, we've employed all these tools, ramping -- and Michael was acknowledged it that ramping is a tough work.

So on one hand, you're saying it's not there yet. We've already had over the last 5 years, a business that basically didn't exist before $1 billion of capital and dozens of investors from a new channel. And I think that as you look forward, you'll continue to see many different avenues to that, including the types of partnerships that you referenced.

One thing specifically to your question, I think we are open-minded, and we fully respect the heft and the power of some of the large traditional asset managers that have distribution and just thousands and thousands of -- tens of thousands of relationships. We respect that. If you look at like the GSAMs and MSAMs and JPMorgan Asset Management, those firms coming out of kind of the wirehouses have been good at distributing alts product. They have penetrated alts product.

If you look at the traditional long-only kind of mutual fund and retirement firms, they've had a harder time getting their sales force to become kind of crack machines on selling [indiscernible]. And so we would -- if there's a conversation we had, we are open to it. We want to have it. We want to figure it out. But I think we have a little -- we view the capability sets a little differently, and it hasn't yet totally proven out that a traditional firm that's like a long-only equity firm, famous for that or whatever, can kind of crush it on alts distribution. It just -- it should be able to work theoretically, but it hasn't really played out yet.

All right. Sorry, go ahead.

Yes. Thank you, everyone. For those who have joined us virtually, thank you very much, and we will now drop the webcast.

Thank you all very much for being here. We really appreciate that.