GCM Grosvenor Inc.

Good day and welcome to the GCM Grosvenor 2023 fourth quarter and full year results call. 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 one on your keypad to join the queue. If anyone requires operator assistance, please press star zero on your telephone keypad. As a reminder, this call will be recorded. I would now like to hand the call over to Stacey Selinger, Head of Investor Relations. You may begin.

Thank you. Good morning and welcome to GCM Grosvenor's fourth quarter and full year 2023 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 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. These refer to the factors in the risk factor section of our 10-K, our other filings with the Securities and Exchange Commission, and our earnings release, all of which are available on the public shareholder section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. Reconciliation of non-GAP metrics to the nearest GAP metric can be found in our earnings presentation and earnings supplement, both of which are available on our website. Our goal is to continually improve how we communicate with and engage with our shareholders, and in that spirit, we look forward to your feedback. Thank you again for joining us, and with that, I'll turn the call over to Michael.

Thank you, Stacey, and thank you all for joining us. We are pleased to report solid results for the fourth quarter and full year 2023, despite the challenging environment for our industry. Importantly, 2023 was another year in which we delivered value to client portfolios, strengthened and expanded our platform, and grew our earnings power and our intrinsic value for shareholders. Our board increased our stock buyback authorization by $25 million, which we intend to use throughout the year, and maintained our dividend rate at 11 cents per share per quarter, which represents a dividend yield of 5% as of Friday's close. Our dividend payments are comfortably serviced by our trailing fee-related earnings. From a financial standpoint, 2023 was a solid year, and we finished the year strong. Fee-related earnings grew 23% over Q4 22 and 9% year over year. Since 2020, we've grown fee-related earnings at a 14% compound annual growth rate. Our fee-related earnings margin grew to 38% for the year compared to 36% in 2022. The high FRE margin in Q4 was the result of tightly managed headcount and final compensation decisions that were reflective of the environment. Our FRE margin has grown by 700 basis points over the last three years, as our business has continued to enjoy considerable operating leverage and scalability. We continue to forecast margin expansion going forward. One of the key drivers of our business over the past three years has been the shift towards private market strategies, which as of year-end comprise 71% of our assets under management and 65% of our fee-paying AUM. In 2023, private markets again experienced consistent growth with management fees excluding catch-up fees increasing by double digits year over year in each quarter. As we discussed throughout the year, 2023 was a tough market environment for fundraising, which was primarily the result of low levels of transaction activity in private market strategies. As we expected, our fundraising momentum did pick up throughout the year, with more capital raised in the second half of 2023. The fundraising environment is continuing to loosen up, which bodes well for 2024. Real assets has continued to perform well. Infrastructure and real estate were the top two contributors to fundraising during 2023, with $3.6 billion raised in aggregate. Taken together, real assets AUM has more than doubled over the past three years to just over $20 billion. and these strategies now represent over 25% of our total AUM. Capital raising from sources outside of the U.S. was strong, comprising 51% of 2023 fundraising compared to 40% of our AUM. As you know, we've invested in business development and geographies outside of the U.S. over the last few years, opening offices in Germany, Canada, and Australia. While expanding in new channels takes time, It's nice to see some early signs of our business development investments working. In 2024, we expect continued strong client re-ups and solid specialized funds fundraising inside of our traditional institutional channels. We are also focused on expanding our efforts in the individual investor channels generally. We see a strong pipeline everywhere and are particularly optimistic with regard to the infrastructure and credit verticals. John will talk a bit more about credit in a moment. I mentioned investment performance earlier, and we were pleased with performance across our strategies this past year. In particular, we were pleased that our absolute return strategies investment performance exceeded our base case assumptions, beating benchmarks and peers. As a result, a significant portion of ARS portfolios are now in a position to earn full performance fees in 2024. delivering more revenue in 2024 than we received in 2023 for the same level of performance. While it's too soon to predict the material shift in ARS flows, we're seeing increased demand from current and prospective clients with fewer currently scheduled future redemptions than we have seen at this time in recent years. Our private market strategies performance was also constructive, And our significant dry powder, which exceeds $9 billion a year end, continues to put us in a good position to deploy capital into an increasingly attractive environment. Importantly, we enter 2024 with strong private markets incentive fee earnings power, which is positioned to deliver significant revenue growth over the coming years as transaction activity returns. This is clearly presented on slide 12. As you can see, in both 2020 and 2021, we realized revenue from carry of more than 15% of our beginning year unrealized carried interest balance, with $59 million and $122 million of gross carry revenue, respectively. Since then, while realizations and therefore gross carry revenue have been muted, our carried earnings power has grown substantially. You'll see our unrealized carried interest has approximately doubled during the last three years. In addition, we've raised 11.6 billion of capital for direct oriented private market strategies over the last three years. Nearly all of that capital is either recently deployed or dry powder yet to be deployed, meaning it is not yet in our unrealized carry balance. We believe the inflection of this revenue line is a when, not an if. And we look forward to that revenue line returning to more normal levels in the future. With the capital markets and M&A environment slowly improving, sponsors seem to be committed to driving to a higher degree of realizations this year. This should lead to more carry revenue and to positive developments with regard to fundraising. Current and prospective client activity has already picked up, and based on our current pipeline, we expect 2024 fundraising to exceed 2023. We continue to believe that we are well set up for continued growth into the future. With regard to management fees and fee-related earnings, our platform breadth provides us with a lot of ways to win. It's as strong as it's ever been, and it's getting stronger. We have continued operating leverage and a solid compound growth rate in our FRE over the next several years, And based on our trajectory, we're confident in our ability to double our fee-related earnings over the next five years. And combined with the built-in growth in our incentive fee line that I discussed, we feel good about our adjusted EBITDA and adjusted net income growth as well. And with that, I'll turn the call over to John.