Rithm Capital Corp.

Good day and welcome to the Rhythm Capital first quarter 2025 earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Emma Paula, Associate General Counsel. Please go ahead.

Thank you and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's first quarter 2025 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, Nick Santoro, Chief Financial Officer of Rhythm Capital, and Barron Silverstein, President of NewRest. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone, and thanks for jumping on the line this morning. Another good quarter for the company, despite all the market volatility we're seeing play out. All of our business lines performed extremely well, and when I think about us, the market volatility plays well into the strengths and disciplines of our organization. Our investment teams have many years of experience, and in markets like these, you want to make sure your capital is managed by investment professionals who know how to protect the fort, as well as seek opportunistic investments to grow the business. As you will hear us speak about the growth of Rhythm, I want to be clear, the number one message is our desire to earn the trust of LPs and investors, and the one thing that matters is performance. Performance matters first, and we will never sacrifice performance in lieu of growing our platform. When I think about our business, I like to say, why us? And this goes back to a little bit of our comments from last quarter's earnings. Results first. We must have performance to grow our business. Two, we have the ability to manufacture assets through our different operating businesses. We underwrite, originate, and service the assets from beginning to end. Servicing matters. Our mortgage company is the third largest servicer of mortgages in the United States. Our asset management business continues to put up great results, and we look forward to growing our business in private funds. We are seeing inflows across all of our products and all of our funds. Sculptor's Real Estate Fund 5 now has commitments up to $3.2 billion so far, and this is the largest real estate fund in Sculptor's history, building on their 20-year track record in opportunistic real estate investing. When you look at our company from top to bottom, we now have funds in the following, real estate, credit, energy, infrastructure, And we have cash flow-based funds such as ABF, which is the new old buzzword of the day. This quarter, we'll be rolling out MSR funds as well. As you hear about the term ABF, which many of our peers are marketing today, this is nothing new, and we've been doing this our entire career. Where can you get diversified risk with teams' returns and current cash flow? ABF. So we're seeing huge demand for that product. So our value prop is the following. Results first, again. Our investment professionals and teams are best in class. Across all of our investment businesses, we have over 400 individuals and our operating business lines have approximately 7,000 people. When I look at our company and how we trade in the public markets, our equity is severely undervalued. We continue to work on our capital structure and look forward to unlocking shareholder value. And finally, our manufacturing engine for assets differentiates us from others. we can differentiate our product offerings again from others. So now I'll refer to the supplement which has been posted online. I'm going to start on page three. Similar slide to what we put up. Again, number three, mortgage servicer in the US. Number five, mortgage originator in the US. Little under $8 billion of permanent capital. Between assets managed at both on the private side as well as the public side, there's over $80 billion of assets under management. When you look to the right side of the page, our family of operating companies, again, one of the largest mortgage companies in the U.S., Nures, Sculptor, obviously our asset management business, Genesis Capital, one of the largest RTL lenders, again, in the U.S., non-bank RTL lenders in the U.S. Rhythm Property Trust was the business that we took over, which we rebranded from Great Ajax, and now we're on a very good path with that business. And then finally, Adore, which is our single-family rental business. Financial results, page four. Again, very stable, very solid quarter. Earnings available for distribution, $0.52 per diluted share. That represents an 8% year-over-year growth. This is the 22nd consecutive quarter where EAD was greater than common dividends paid. Gap net income, $36.5 million, or $0.07 per diluted share. 2% return on equity. Obviously, you're going to have some mark-to-market volatility around the MSR business. Earnings available for distribution, $275 million. As I pointed out, $0.52 per diluted share, or 17% return on equity. Our business overall should continue to do something between 15% and 20% on an annual basis. Book value, $6.6 billion. At the end of the quarter, we were trading at $12. I'm sorry, our book value is $12.39. When you look at where we trade, I think we closed last night at $10.40. Again, I firmly believe that our equity is severely undervalued, and we will be taking measures to hopefully unlock that and get true value out of our business. Common stock dividend, 8.7% dividend yield, $0.25 per common share in dividends paid, and cash and liquidity at the end of Q1 of $1.9 billion. Looking at the quarter in review, pretty active is what I would say. On the Genesis Capital side, a little under $1 billion in production, 7% increase year over year. That business will continue to grow for us. We have 33 new sponsors in the quarter. Clint Arrowsmith, who runs that business, does a great job for us. And again, we're excited about the growth prospects there. On the asset management side, Sculptor, $35 billion of AUM, continued fundraising momentum with $1.4 billion of gross inflows across the platform in both real estate and credit. Good performance for the first quarter. And then finally, we priced the SPAC in the first quarter, which gives us some our ability to generate more fees for shareholders and do some off-balance sheet, a potential acquisition that would be off-balance sheet. On the investment portfolio, we did three securitizations in the first quarter, totaling roughly $1.5 billion. We did a $900 million securitization on our MSR business, and we also invested roughly $1.5 billion in the quarter in non-QM loans, residential transitional loans, and both RMBS and ABS loans. Again, with the thought process there that diversified risk with teens' returns will benefit both our shareholders and LPs. On the New Res side, again, top three servicer, top five originator, servicing portfolio roughly $850 billion. That includes our third-party servicing, which will continue to grow. Obviously, Cooper and Rocket did a deal in the quarter, and I'm sure there'll be some questions on that. First quarter funded volume, a little under $12 billion, and then we generate $270 million of pre-tax income. Ex-mark to market is up 14% year over year. When page six, our foundation for growth, I feel like sometimes we're beating a dead horse here, but the ABF space is, what I would say, alive and well. Us and other folks in the marketplace, this is kind of the the brand du jour of the day. And as I pointed out in my opening remarks, this is something we've been doing, quite frankly, for my whole career. And our investment teams here have been doing it their whole career. So I feel like we have a real good edge there to create real value for LPs as we continue to roll out funds in that space. Where are we going? Next stage of growth, grow off balance sheet capital. What does that mean? Grow origination businesses, grow funds, and take origination and put that in funds and grow our LP base, which will enable us to not grow our balance sheet and get higher valuations on our overall company. Expand investment verticals. I mentioned Rhythm Property Trust, which was the old great Ajax business. Rhythm Acquisition Corp is our SPAC. Asset-based finance, we're in the markets now with funds. Energy transition, infrastructure, we currently have those funds up and going as well. So, and then the main theme, you know, what I would say as you think about growth in the asset management business, it's really you need partnerships. You know, the traditional way of raising capital in our opinion of just going out and raising a fund is great and we'll continue to do that, but having real partnerships with LPs who are part of your life is something that I think is really gonna be the key for us as we go forward. Page seven, when you look at how we trade, We trade roughly at 83% of book value. We got to get away from the so-called book value metric. We should be trading, in my opinion, on a multiple of earnings. And if you look at where we trade relative to others, again, I think there's a ton of value here. So if you look at the sum of the parts on the right side of the page, we have a low estimate where we think we should be of $13.69. A high estimate of roughly $23. And these numbers are not made up. These are real numbers relative to peers in the marketplace where we think we should trade. So I would encourage you to have a look at that because, again, I do believe our equity is severely undervalued because we get lumped into, quite frankly, with other other, you know, no disrespect with other REITs and other mortgage companies, and as we continue our growth into the asset management world, we'd like to make sure that we get proper valuations, and I think that's going to help us grow overall. Page 8, this is, you know, a slide we put in. It just shows our growth over the years since 21, $6.9 billion of capital deployed, earnings growth at 53%, with a CAGR of 11%. Page 9, We wanted to put this in there because a lot of the volatility has occurred over the past few weeks. And a lot of this, again, plays into the strength of who we are as we think about risk and risk disciplines, as well as opportunistic investing. We've been doing this for a very, very long time. And here's just a slide talking about where spreads are. You can see how high yield has blown out. You can see different movements in both gold, Bitcoin, and oil. And then if you look on the left side of the page in equities, you could have a good snapshot of what's going on there. None of this is a surprise to anybody, but we do believe wholeheartedly in the so-called growth of our ABF business. And that's something that, again, we feel like we have an edge and we have expertise in. I'll spend a few minutes on a couple of our operating businesses, then I'll turn over the mortgage company stuff to Barron. On the Genesys side, again, a very, very solid quarter. If you look to the right side of the page here, 46% growth year over year from a commitment perspective, 7% growth from funded volume. Delinquencies, which are truly the core to what, you know, I think to what we do here, remain extremely low. And a lot of that is due to our underwriting and our servicing, and those teams do a great job. And then when you look at sponsor growth, it's up 37% year over year. Page 12, you could just have a quick look. This is just the portfolio detail. 58% is construction, 32% is bridge, and 10% is renovation. We are going to be looking to grow our multifamily presence. We think there's going to be opportunities, whether that be acquirer companies, but we want to grow our origination in multifamily, as we believe that sector Obviously, it's got hit pretty hard, no different than the single-family rental space. But what we need to see is the economics make sense relative to a number of the other strategies that we do here. A couple of minutes on asset management. Sculptor business continues to perform well during the quarter. As I pointed out, $1.4 billion of inflows. $870 was due to the real estate business. That brings that to $3.2. When you look at the credit fund, just last week there was an announcement on the close of $900 million in AUM on Stacks. That's the Sculptor Tactical Credit Fund. Great performance there. And we also closed a CLO in the quarter in Europe for $420 million. Business is performing extremely well. Returns are very good. And overall, when I look at our asset management business, very, very excited where we're going. On the Rhythm Property Trust, We're doing earnings on Monday on this business. We took this where it was really an RPO business in the single-family space, turned it into an opportunistic commercial REIT. It was losing money. Now it's breakeven. We raised $50 million of a PREP in the quarter. That business is sitting on a little under $100 million in cash. We have $300 million of equity there. We're going to look to grow that. And as you think about asset management, there's an asset management fee there of 1.5%. And then there's promote. All of that will lead into what we hope is going to be higher FRE for asset management, business, and just more earnings overall. And then finally for me on page 16, just our SPAC, $230 million SPAC. This correlates to a target of something between probably a billion and a billion and a half. I think we believe today the SPAC market is vastly different than it was back in 21 slash 22 from a value standpoint. So we're excited as we continue to look at plenty of targets in that space. With that, I'll skip the investment portfolio side and I'm going to turn it over to Barron who's going to talk about new risk.

All right. Thank you, Michael. Good morning, everybody. Starting on slide 20, as Michael mentioned, just another great quarter as we continue to execute on our 25 strategy. focused on recapture, technology, our AI initiatives, and growing our third-party businesses. Q1 pre-tax income, excluding mark-to-market, was approximately $270 million, up 14% year-over-year, and delivering a 19% ROE for the quarter. And with New Res being the number three-ranked servicer and the number five-ranked originator, these results continue to show the power of the platform. Turning to slide 21, Our performance over the last few years demonstrating really the strong momentum we've had on both sides of the business, and as we continue to take advantage of opportunities to generate these consistent returns. And in 25, right, our focus on building a best-in-class platform, focused on our homeowners, innovation through process efficiency and AI, and market opportunities, whether organically or externally, that will continue to drive our returns overall. Moving to slide 22, our origination business continued also to perform well. Michael mentioned 11.8 billion in funded volume and 65 million in pre-tax income. And while the MBA forecasted Q1 volumes to be flat to last year, we're up 9% in funded volume, 7% in locked volume, and 54% in pre-tax income when compared to the first quarter in 24. However, with expected overall lower origination volume, we saw increased competition and in turn margin compression. And given these conditions, we did not chase market share, remained disciplined in our pricing with a focus on our ROE. And at these origination levels, our multi-channel strategy allows us to optimize opportunities in all market environments, and all of our channels were made profitable in the first quarter. Turning to slide 23, one of our top priorities and significant growth opportunities, our ability to retain our customers. with or without a rate rally. Amplifying our brand and building great digital experience is key to our success in connecting with our 3.7 million homeowners. Our recapture investments are focused on delivering great experiences to our homeowners, including seamless, easy to close refinances, fantastic white glove service for home purchases, and a digital home equity offering with closing as fast as three days. Moving to slide 24, Our servicing business also performing very well. $242 million of pre-tax income, up 7% quarter over quarter, which is driven by our servicing portfolio of $845 billion, which is $509 billion of owned MSRs and $254 billion of third party servicing. Our third party servicing franchise also continuing last year's growth by adding four new clients in the first quarter alone. But one of our top part is the expansion of our Resi AI initiatives, which continue to empower employees with real-time tools that deliver a superior customer experience. In addition to the gains from our Resi AI technology, our focus on operational excellence, process efficiency, and scale continue to drive our cost leadership, as evidenced by our $140 cost of service that significantly outperforms the industry. Turning to slide 25, you see our owned MSR performance, which not surprisingly is reflected of current market conditions, including higher interest rates, low speeds, and strong consumer performance. Delinquencies and associated advance balances also improved, with 60-day delinquencies down 30 basis points to 3.1%, reflecting the high quality of our overall portfolio. Lastly, on slide 26, we have an incredible third-party servicing client franchise. Our platform advantages allow us to deliver a differentiated value prop to our partner's success. And we've been doing this a long time. We have over 100 clients, right? And our capabilities have enabled us to retain 98% of the customers we have done business with since 2015. I believe our business is the best position it has ever been. We're well positioned to grow market share in our third-party servicing. whether through wallet share with our existing customers, adding new clients, or taking advantage of ongoing servicing dislocations. So I look forward to telling the New Res growth story throughout 2025. Thank you. Back to you, Michael.

Thanks, Barron. Why don't we turn it back to the operator for some Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you were using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Bose George with KBW. Please go ahead.

Hey, everyone. Good morning. Actually, first, let me start off with a question on the Cooper Rocket transaction. Now, given that, any changes in how you see the opportunities or the growth at New Res? And then the related question, does that change anything in terms of potential listing or other ways you're looking to show the value of New Res a little better? Thanks.

Hello? I'm sorry, Bose. But I would say on the New Res side, it's going to be business as usual as we go forward. While saying that, I do think as a result of the Cooper Rocket deal, there'll be an opportunity to pick up some subservicing as a result of the sheer size of the combination of those platforms. If you look where, what, 850, and I think Cooper is, you know, I think the combination is, what, something about a trillion and a half or so?

Is it true?

Yeah. So there'll be some stuff to do and add there. The main thing for us is how do we, you know, and Barron, I think, hit the nail on the head. We don't want to just buy market share for the sake of market share to get bigger. What we really want to do is figure out a way to grow earnings, and I think we're on the right path with the company. As it relates to listing, what I would say is we, you know, when I look at how we trade and if you look at the sum of the parts page on page seven, and these are real numbers, right? I mean, there's a print. You know, Cooper Rocket did this deal at two times a buck. So if you really look at the right side of the page on page seven, we need to figure out a way to unlock value, whether that's taking the company public, whether that's externalizing rhythm, whether that's C-Corp. There's a number of different things that we look at daily. And what I would think is I'm hopeful that we'll have some kind of capital action by the end of 25 that unlocks a lot of value here. Because I do think the equity is extremely undervalued. And we're excited to actually get it to the right place, which if you take the mid-range of call it 14 and 23, there's no reason we shouldn't be able to get to something like that.

Okay, great. That's helpful. Thanks. And then could we just get an update on book value quarter to date, just given all the volatility?

Yes, probably. I think it's in and around 1260. So it's up a bit from the end of Q1 is what I would say. In the bond markets, when you look at where we are in rate right now, I think tenure rate is give or take 430. The front end is in and around 375. We are as close to home as we've probably been in many, many years. So And, you know, I think our belief is if the economy does slow down, we should be in a really good place. If it doesn't slow down, we'll be in a good place as well. You know, risk discipline right now is something that I think we're very good at. Okay, great.

Our next question comes from Doug Hardell with UBS. Please go ahead.

Thanks. Michael, how are you thinking about, you know, potential acquisition opportunities, whether that's, you know, at the rhythm level or rhythm acquisition corp? And, you know, is the dislocation we've seen in April, you know, kind of enough to shake loose some opportunities at more attractive prices?

Yeah. What I would say, you know, the hope is yes. Our M&A pipeline is extremely active. And that could be whether it be in the mortgage space or in the asset management space. What I would say is valuations, when you look at what's happened with the equity markets, valuations overall are lower. When you look at, again, the asset management business, I've been pretty vocal that I believe we're underscaled in credit, and we need to get bigger in credit. So that's an area that we're very much focused on. Again, when I look at the asset management space, now that we have an energy and infrastructure business, we're really excited about that. And hopefully at some point in this quarter, we'll come out with some news on that business. But I expect us to be active on the M&A front. And this is not just to do deals. This is to figure out how we play on a much broader and bigger scale. Because I do think you need to be bigger to compete with some of the very best asset management firms out there. So I think a long-winded short answer is that we need to be, we're going to be more active, or we are active, and we hope to get a couple of deals done here in the near future.

Got it. And, you know, it was a solid fundraising in the first quarter. You know, any early sense as to, you know, kind of LP appetite for, you know, continuing to invest into this volatility? Is there a pause? You know, how should we think about, you know, fundraising activity given recent volatility?

I would say across the platform, we are all extremely active. I believe our brand is very good and resonates with folks. As you know, before we internalized here at what we now know as Rhythm, all of our capital is raised in the public markets, and it's a must that we raise our money in the private markets. And again, I think the key to success for us is going to be to have partnerships and relationships with LPs who are part of our life and not just fund investors, and we look forward to that as well. I would tell you that we're extremely fired up and really excited on the prospects of where we're going with our company. And if we could turn where we trade like whatever, five, six times EBITDA to where we should trade, which is a double-digit multiple, I feel like we're going to be off to the races. So very excited.

Thank you, Michael.

Thanks, Doug. Sorry, go ahead.

Nope, we're good.

Thank you. The next question comes from Rick Hagen with BTIG. Please go ahead.

Hey, thanks. Good morning. Can you guys maybe share some of the performance that you've seen develop at Sculptor and where you've seen maybe the strongest returns? where you expect to maybe attract the most AUM from this point forward and even the segments within Sculptor where you expect the AUM to be the stickiest from this point. Thank you, guys.

Thanks, Eric. Performance has been good. I mean, you know, across the board. Obviously, the credit business is doing well. You know, when you think about the multi-strat business and you look what's happened to the equity markets, they're so positive on the quarter. So what I would say is, you know, things are going well. When you look at the real estate business, I mentioned before, $3.2 billion of commitments. Steve Orbach and Nick Hecker and their team have done a great job over the past 20 years, great brand. Quite frankly, I don't think it's easy for any real estate firm to go out and raise $3.2 billion. And there's really very little to no legacy assets, opportunistic investing with a great track record. We're really excited about that, and it's long-dated money. When you look across the so-called ABF space, I do believe there's going to be a fair amount of capital that's going to come into that part of the world. And across the platforms, we have ABF funds that we're working on. And then when I look at the opportunity in the so-called energy and infrastructure space, with our new teams that we've added here at Rhythm, I'm excited where that business is going to go. So what I would say in general, very focused on, again, relationships, partnerships, and where we're going with the business. And I think returns overall have been very good.

Great to hear. Good stuff. I think you mentioned rolling out third-party MSR funds. Can you maybe share some of the fees that you expect to earn on that capital or those assets and What's the total return that investors are maybe expecting from that vehicle? And finally, I mean, are some of the LPs in that vehicle also contributing to other sources of AUM at Sculptor?

What I would say on the MSR funds, not out yet. We'll be out with them. They'll be typically, you know, there will be team's returns is the way that we're viewing that business. It's an effort and an opportunity to get more stuff off balance sheet into what I would call longer dated funds. I think there's a lot of demand in the marketplace for those types of funds. As it relates to fees, I think it's TBD right now.

Got you. If I could just ask one more here. I mean, it looks like almost $400 million of valuation changes for the MSR in the period. How does that maybe align with your expectations? And is the hedging offset coming from the investment portfolio? Or what's the best way to... Think about how that $400 million was maybe offset with hedging.

The net number, I believe, was about $185 overall. And that's offset with hedges, whether we're long mortgages, treasuries. We have swap receivers on. And as I pointed out earlier, we are as close to home as we've been in many, many years. So the market volatility really, while looking at screens is not always fun, I do believe that... that we're in a very good place, you know, no matter what direction the market goes right now.

Yep. Thank you, guys. Appreciate you. Thanks, Eric.

The next question comes from Jason Weaver with Jones Trading. Please go ahead. Hey, good morning.

Thanks for taking my question. First, I was wondering if you could comment broadly on any credit events or, sorry, credit projects possible deterioration that you've seen within the Genesis portfolio into the first quarter?

No, I mean, performance is, you know, we could, here's what I would say about that business. We could chase market share and grow that business pretty significantly. We've seen others do that, and as a result, you know, their delinquency numbers are up pretty significantly. When you look at our business, overall performance has been very, very steady. If you look at, I forgot what slide it is, but delinquency numbers are in and around 2% for the portfolio. So things are good there. Keep in mind, we also go to a different type of, what I would say, sponsor relative to others in that marketplace.

Fair enough, thank you. And then as a follow-up to that, maybe just comment broadly on what we think the implications are for the securitization bid here, given the amount of market volatility out there?

You know, there's a lot of deals getting done. I mean, values right now are great, I mean, if you're a buyer. You know, you look at, for example, in some of the single-family non-QM space, where there's a lot of demand both on the fund side and from the money manager side, AAAs with a couple turns of leverage are in right now somewhere around 13% to 15% IRR. So I think one is the markets, while there's a lot of volatility are open, not everybody will like the spreads that you execute at. We've actually done a couple of deals here recently in this space. But in general, they're open. Wider spreads, and wider spreads create opportunity for folks with capital. And we've been doing some buying ourselves for our portfolios on, you know, a variety of what I would call ABF type assets. That includes non-QM. That includes RTL. That includes we just did some home improvement loans. So we're very active right now in acquiring assets. All right. Thank you. Appreciate the time. Thank you.

The next question is from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, thanks for taking my question. Just one on the Sculptor asset management side. I wonder if you could just give us a sense of overall targeted fundraising levels for this year, or perhaps give us a little bit more color around any of the sizes of the previous or predecessor funds that are undergoing fundraising now.

Thanks. You know, I don't know the exact number of funds that are in the marketplace now. What I would say there, there's many, and that includes both credit, that includes real estate, that includes ABF, both at the sculptor level and at the rhythm level right now. So, you know, what are the targets? You know, you need to, and one of the things when you think about raising capital for funds, you need to be able to execute on the back end. And our story, and we're going to stick to that knitting, is performance first. So it's not just raising a fund, but it's actually how do we deploy capital and earn the trust and respect of LPs on that capital that they're allocating to us as a fiduciary. So while we want to raise a lot of money in our funds business and have strategic partnerships, we've got to execute on the back end. I'm very, very confident that we could do that. But we'll be out with multiple funds as long as we believe that we could raise the capital to be able to deploy it and deploy it at the proper returns. I'll give you an example. Going back to when I was at Fortress and we were running MSR funds at Fortress, we'd raised $1.6 billion for MSR funds with a specific targeted return. And when we took a look at it and I looked at this, I said, OK, we're not going to be able to deploy the capital at those returns, so I gave $1 billion back. The point is, I believe we're going to raise a lot of money, but we want to make sure that we earn the returns that we're going out to market with. So I think some is going to be market conditions, but you'll see credit, you'll see ABF, you'll see real estate, and you'll see energy and infrastructure. I think those are the main funds from us now. Gotcha.

Very helpful there. And one follow-up, if I may, just on the SPAC vehicle, the Rhythm Acquisition Corp., Wondering what was the motivation behind raising it using such a vehicle? Were there other options that were considered? And you mentioned it's a slightly different market than what it was back in the early 2020s. Maybe just further expand upon that. Thanks.

It gives us the ability, one, to generate asset management fees for the house. It gives us the ability to generate an off-balance sheet vehicle. And quite frankly, it if we could help make shareholders more money, that's really the logic around that. I don't think it's anything more complicated than that. It's, you know, you have two years to deploy the money. It's a relatively low-cost option in our opinion. And from a valuation point, you know, if you look back to, again, 21 or 22 when the SPAC market was in this and we looked at a ton of deals when we were at Fortress, and we actually gave them our SPAC money back because there was no deal that made any sense whatsoever. If you look at valuations today, there are actually some reasonable valuations on things we're looking at, and again, whether that be either in the energy and infrastructure space or whether that be in the so-called financial services space. So we're excited about being able to deploy that and create more asset management fees And ultimately, you know, there could be something that's synergistic to our business, or it could be something that's just an off-balance sheet, you know, a great investment for, you know, for that vehicle.

Great. Thank you very much.

The next question comes from Giuliano Bologna with CompassPoint. Please go ahead.

Good morning. Another recorder. One thing I'm curious about is when you think about the topic of capital actions or the discussion around essentially listing a mortgage company, is there any kind of trigger event that you think would move you closer to moving forward with the plan, whether it's externalizing the manager or trying to do a partial IPO of New Res, or is there anything that would move that process along Or is it really just market conditions and perceived value from the different initiatives?

Yeah. What's going to move it along? We're moving it along. I mean, quite frankly, like I said, it's a little bit frustrating to see how our equity trades and the results that we continue to put up. I would also say that part of this is we want to grow the so-called FRE and our asset management business. That is one of the keys. And that's kind of held us back a little bit from where we are right now to moving forward with a different capital plan. But while saying that, I think we're at a point where we're hopeful something's going to happen in 25.

That sounds good. And then I realize you kind of touched on roughly where your hedging position is. But I'm curious, do you have any kind of target in the near term or intentions to run around a certain hedge kind of ratio? or that's still somewhat flexible where you might, it will still be opportunistic around market conditions?

I would say we are home. We're not taking a lot of what I would call duration risk right now just because I don't believe we have an edge. The one thing I will say is we've had a steepener on, which has worked extremely well. where you've seen the front end rally, the curve steepened out, I think, what, 20 or 25 basis points, I think it is, since the end of last quarter. So we're going to continue with the steepener, with the belief that if the economy does slow down, the Fed's going to cut rates. Front ends will benefit. And I'm not sure the long end rates actually go down. They potentially could go up, because it could be inflationary. So the way that we're viewing it is against the mortgage servicing right, we have mortgages and kind of long-dated receivers against the MSR book. And we have virtually no shorts on against the front end. So we feel like we're set up extremely well here.

That's helpful. Maybe one last quick one. On the mortgage side of the platform, obviously there's been commentary around subservicing because of the Mr. Cooper deal. I'm curious if you've seen any opportunities in the market for large subservicing wins. Obviously, there's a limited number of large-scale subservices out there, and it seems like that could spur some movement around the industry. I'm curious if you're seeing anything from an activity perspective out there in the market.

Yeah, I mean, the answer is yes. There's no question about it. There continues to be a fair amount of movement, and, you know, our pipeline is active, I would say, overall. You know, certainly the Cooper announcement, they had a lot of subservicing, and it's a matter of, you know, those clients are obviously evaluating their alternatives and options as well.

That sounds good. I appreciate it, and I'll jump back in the queue.

Thank you.

Our next question is from Randy Binner with B. Riley FBR. Please go ahead.

Oh, hey, thanks. I have a couple. You know, I guess the first is following up on other questions around kind of measures to unlock value, you know, the potential spin of new residence cover. But are there any other structural changes that you might consider in that kind of closing the gap between where the value is now and some of the parts that's laid out?

The answer is yes. I mean, it's like, you know, this is something that's kind of a thorn in our side. We continue to look at all options. You know, we have views. We've been working with some of our different investment banking friends at different firms, and we're confident that we're going to do something. You know, we're hopefully going to get something done here in 2025.

Okay. And so, I mean, maybe it's a little bit of an obvious question or observation, but being a REIT is not, would that be, would changing that be on the table?

I mean, it could be. I mean, if you look, some of the success you've seen in some of the financial services firms have been where they've changed. It doesn't mean we would give up our total REIT, but, you know, there's the possibility you could create a C-Corp. You could drop things down. Like, for example, the REIT gets smaller down below. You know, that's probably the most likely path. You know, the one thing that's great about our business is if you take a step back and say, okay, what is Rhythm? Rhythm has $8 billion of permanent capital, give or take. It's got $80 billion of assets under management between the asset management business and the balance sheet. It makes $1 billion a year. So start with those three things, and then you turn around and say, well, you trade at $5.5 or $6 billion of market cap, or whatever that number is, it's pretty shitty, to be honest. So then the question is, how do we extract value? The one thing that's very important, I think, is all the earnings that continue to come in the company, there's a ton of cash flow. That enables us to grow our business. So part of it's a patience thing, which, quite frankly, I don't have any. But the other part is, how do we get there? So I think the bones are there. We need to grow our FRE or grow our asset management business. Then you're going to get a true valuation on the asset management business. And it's kind of no different than what some of the bigger and larger asset managers have done over the course of the past three to five years. And we want to get there as well. I do know one thing. You can't compete on the global stage unless you grow. But as I pointed out before, we need to perform before we grow. And we do perform. And if you look at our returns over the course of our life, when we started this company at Fortress in 2013, the returns have been great. That's the only thing we care about. We don't need another dollar unless we're going to make people a lot of money. And that's the most important thing in having those relationships. So I think you'll see us unlock value this year. And it's very frustrating the way that we trade. And we've got to figure this out.

All right. That's very helpful. And then if I may, just because I think I've laid enough in the order here to just throw another one in. Just the GSE reform, it came up in the prior call. And, you know, meanwhile, I mean, meaning your last quarterly call, and then there's been quite a bit of activity from FHFA around personnel changes and de-risking and just commentary that privatization efforts will most likely come forward. So is there any Any update on your side of kind of what you're looking for there and what any potential impacts to the business might be, assuming that the administration and Pulte move forward?

It plays extremely well to our strengths. If there is a privatization, I'm not sure how much that really affects the market, but to the extent there's the ability for us to deploy capital and For example, you go more what I would say non-government guaranteed type paper. I think that plays really, really well. And again, that feeds out the so-called ABF story as well even more. So where we sit in that ecosystem, I think we're extremely excited. I don't think it's something that's going to happen right away. I think obviously there's probably a lot of talk there. Barron and I are off next week to have a bunch of meetings. We'll see what happens. I think it's something that's going to probably take a little bit of time, but it's something that my guess is that they want to focus on.

Yep, I agree. Okay, thank you. Appreciate it. Thank you.

The next question is from Crispin Love with Piper Sandler. Please go ahead.

Thank you. Good morning. First, with the asset management business, Michael, you talked about adding partnerships. Can you just dig a little bit deeper there? What kind of partnerships are you looking to add over time, and just how is that progressing in this environment?

So what I would say is the past couple years, we've done what I would say is a lot of brand building without selling anything. And I think that resonates extremely well with people. It's no different than dating or developing a relationship with somebody. So, for example, if there is a large transaction or something that we'd want to do, I think it's highly likely, which is different today than going back in time, that we would look to bring in partners for those types of transactions. The same thing on the fund side. When you look at traditional fundraising, there's direct fundraising into funds, but there's also folks that want to partner with you and help grow your business. So we are... extremely keen to develop more partnerships and bring people into our world. A good example, and this was announced yesterday publicly, Mubadala owns 70% of Fortress. Mubadala made an announcement yesterday. They were putting, I think, a billion dollars, I believe, into funds. Those are the kind of transactions or relationships that we want, and I'm hopeful that that will materialize over the course of as we continue to grow here.

Great. Thanks, Michael. That's all helpful there. And then just one second question for me on new res. How are you seeing residential volumes trend in April, just considering the significant rate fall that we've seen and just expectations as you look throughout 2025, especially with rates elevated here but with some potential volatility ahead and exotic moves?

I mean, certainly it's You're seeing the spring buying coming in, so you're definitely seeing some pickup in production versus what we saw in the beginning of the first quarter. But as I mentioned, we remain opportunistic. It's still very competitive, but we definitely are seeing a pickup in volume overall, certainly in the month of April, and our expectation is going into second quarter overall. Great. Thank you.

Thank you.

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Michael Nirenberg for any closing remarks.

Well, thanks for all the thoughtful questions this morning. Appreciate the support. Any follow-ups, we're here. And have a good spring. Have a good weekend. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.