GCM Grosvenor Inc.

Good day, ladies and gentlemen, and welcome to the GCM Grotner Fourth Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star, then zero on your touchtone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today's program, Stacey Seliger, Head of Investor Relations. You may begin.

Thank you. Good morning, and welcome to GCM Grosvenor's fourth quarter 2020 earnings call. I'm joined today by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sachs, President John Levin, and Chief Financial Officer, Pam Bentley. Before we discuss this quarter's results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Factors discussed in the risk factor section of our final prospectus filed with the SEC on December 15, 2020, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metrics can be found in the earnings presentation materials made available on the public shareholder section of the GCM Grosvenor website at www.gcmgrover.com slash public shareholders. We also reference our August 2020 merger presentation, which is again available on the public shareholder section of the GCM Grover website. We are a client service oriented firm, and our goal is to try and bring the same ease and transparency to communications with our shareholders that we have brought for five decades to our asset management clients. In that spirit, we look forward to your feedback and will endeavor to continually improve communications and shareholder relations. With that, I'll turn the call over to Michael.

Thank you, Stacey, and thank you to all of you listening to this call. Today, we will focus on our fourth quarter and full year 2020 performance and our 2021 trajectory. For those of you who want to learn more about the fundamentals of our business, We have included a number of slides in our presentation that provide a general overview of GCM Grosvenor. We will not spend time on those slides today other than to emphasize that we believe that by offering the full complement of alternative investment strategies to clients, from private equity and alternative credit to infrastructure to real estate to absolute return strategies, we are best able to drive a superior value proposition for our clients. and to drive growth in the value of our company for shareholders. GCM Grosvenor had a strong fourth quarter and a good year in 2020. On slide four, you will note that we did well across every metric presented. We outperformed the goals we set for ourselves in our merger presentation dated August 3rd, 2020, as well as the goals contained in the revised guidance we provided on October 22, 2020. Importantly, we significantly increased the earnings power of the firm, setting us up nicely to achieve our objectives for 2021. This can be seen through the growth in fee-paying AUM, and in particular, the growth in contracted not-yet-fee-paying AUM. fee-paying AUM grew 4%, contracted not yet fee-paying AUM grew 37% in 2020. Our $7.1 billion of contracted not yet fee-paying AUM now represents more than $34 million of incremental management fees that will turn on over the next few years. And our contracted not yet fee-paying AUM and its attendant revenue number continue to grow at a good rate in the first quarter of 2021. At this time, our base case assumptions regarding the distribution of investment realizations to clients, the timing of revenue realization associated with our fourth quarter ending CNYF, plus the additional contract we have signed this year, represent base case private markets management fee growth of approximately 7% 2021 over 2020 before any additional 2021 fundraisers. In light of our robust pipeline and numerous specialized fund products in market today, and the natural acceleration of growth from commingled fund closings in the back half of the year, we sit in a very comfortable place two months into the new year. Moving to slide five, we raised $7 billion of capital in 2020, of which more than 75% was raised for our private market strategies. Private market strategies now represent 59% of our total AUM. 85% of 2020 fundraising came from our existing clients, with the remaining 15% coming from clients new to the firm. Historically, 50% to 80% of the capital we raise each year comes from existing clients, and we attribute the high 2020 percentage to COVID, where the familiarity of preexisting relationships was beneficial for those like us that had a large pre-COVID client base. We expect those percentages to fall back into their typical range this year. A bright spot in the fourth quarter of 2020 was our absolute return strategies vertical, where our multi-strategy funds, as measured by our multi-strategy composite, earned an approximately 8% net return for the quarter, a 15% net return for the full year 2020. That performance helped drive double-digit growth in adjusted EBITDA and adjusted net income 2020 over 2019. In 2020, we were pleased with our absolute return strategies investment performance each quarter of the year relative to the market and relative to peers. That said, while relative performance and capital preservation was strong in the first quarter of 2020, Absolute performance due to the market drawdown in the first quarter negatively impacted growth in management fee revenue and weighed upon our overall management fee growth in 2020. Importantly, with regard to our absolute return strategies vertical, the fourth quarter of 2020 saw a significant pickup in demand for absolute return strategies and a significant improvement in capital floats. We went from net outflows of approximately $870 million in the third quarter of 2020 to a substantially reduced net outflow of approximately $315 million in the fourth quarter of 2020, and at this time anticipate modest net inflows in the first quarter of 2021. In the wake of our strong 2020 fourth quarter and full year results, our board this week voted to increase our dividends to $0.08 per share, beginning with our quarterly dividend to be paid on June 15, 2021, to shareholders of record as of June 1, 2021. We have stated before that we believe one of the attractive aspects of GCM Grosvenor is our ability to distribute significant cash flow to shareholders. $0.08 per share represents a distribution of cash flow that is less than our expected fee-related earnings, and therefore we believe is a comfortable dividend that we have room to increase over time if fee-related earnings grow as we anticipate. Finally, in addition to our strong operating performance, subsequent to coming public in November, we have paid down approximately $90 million of debt and have amended and extended our term loan, reducing our interest costs going forward and adding three additional years of maturity. From a profitability standpoint, In 2020, we outperformed not only our original guidance from our August 2020 merger presentation, but also our updated guidance issued October 2020. As you will see on slide six, we saw significant year-over-year growth across all profitability metrics, with fee-related earnings increasing 8% and adjusted net income increasing 26% year-over-year. Year-over-year growth in these metrics was driven by a combination of continued strong management fees, significant growth in incentive fees, and reduced costs. Continuing on slide seven, while our adjusted revenues increased 54% in the fourth quarter of 2020 over the third quarter of 2020 due to total incentive fees more than tripling, Our overall growth in adjusted revenue was impacted by the performance-related volatility of absolute return strategies, fee-paying assets under management that I mentioned earlier, and the fact that we were in market with fewer specialized fund offerings in 2020 than we were in 2019 or are in 2021. It is worth noting that even with the strong investment performance and resulting significant performance fees earned in 2020, our business remained highly management-centric. We believe that in 2020, we built considerable momentum that we have carried into 2021. As you can see on slide 8, our assets under management and, importantly, our earnings power have increased. Our contracted not-yet-b-paying AUM has grown at a 75% compound annual growth rate over the last three years, greatly increasing the embedded growth in the private market separate account business. As we have previously noted, this figure reflects binding executed agreements for primarily private market separate account capital. Will the fees turn on with the passage of time or as we invest the capital? A bit under half of our contracted not yet fee-paying AUM is charged on a scheduled ramp-in where we know exactly when the fees will turn on. The remainder turns on as we invest the capital, which we anticipate to be on a similar timing schedule. We estimate that with no further fundraising and base case distribution assumptions for investment realizations and base case assumptions for new investment timing, we already have approximately 7% increase in total private markets management fees and a 10% increase in private markets customized separate account management fees, 21 over 20. While we don't comment on specific clients or on committal fundraisers until final close, we like where we sit today. Our incremental fundraising pipeline is robust and we are optimistic with regard to our goals for 21 and 22. Turning to slide 10, to put a point on that, I want to simply say that we remain comfortable with our target of 15 percent to 20 percent fee-related earnings growth in 21 compared to 2020. We believe we have ample opportunity to achieve that goal and are enthusiastic with regard to our prospects. We do think it is important that our shareholders understand what we expect quarter to quarter. and I want to note that we do not expect and have never modeled achieving our 2021 goals with an equal distribution of quarterly financial performance. As you know, when raising specialized or commingled funds that charge fees on committed capital, have catch-up management fees, and have closings throughout the year, growth and management fee revenue is not equally distributed. In addition, fee-paying assets under management ramp up as we win new mandates and as fees from contracted not yet fee-paying assets under management turn on and new investments are made. Consequently, you should expect to see our management fee revenue ramp quarter to quarter and should not expect an equal distribution of fee-related revenue throughout the year. Finally, there is some modest seasonality to some G&A expenses that we experience in the first quarter. Consequently, we expect first quarter fee-related revenue growth relative to the fourth quarter of 2020, but we do not expect first quarter 21 fee-related earnings growth relative to the fourth quarter of 2020. And we wanted to note that such a result is consistent with us achieving our full year 2021 target of 15% to 20% fee-related earnings growth over 2020. And with that, John, I will turn it over to you.