Rithm Capital Corp.

Good morning and welcome to the Rhythm Capital third quarter 2025 earnings call. All participants will be in 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 a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Emma Hulke, 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 third 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 NIRAS. 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 joining the call this morning. Our company had a great quarter with all of our business lines performing extremely well. Our market-leading business lines that enabled us to get here, New Res, our mortgage company, which is one of the largest mortgage companies in the U.S., Genesis, our construction lender, which is one of the largest non-bank construction lenders in the U.S., and our investment portfolio and team all had a really good quarter. As we look at all the business lines that we built or acquired, this enabled us to generate approximately $300 million in earnings for our shareholders, generating an 18% ROE. We ended the quarter with $2.2 billion of cash and liquidity. During the quarter, we announced two acquisitions, Crestline, which is a credit manager based out of Fort Worth, Texas, and Paramount, which is a large real estate office read here based in New York City. with properties in two of the gateway cities in the US, both New York and San Francisco. So we are clear, we will not be raising equity in the capital markets to fund these acquisitions. We will fund these acquisitions with a combination of balance sheet and third party LPs and partners. The capital created by these business lines help us expand our platform. When we see an opportunity to acquire a company or an asset that helps expand our product offerings to our LPs, we try and take advantage of these types of situations. We are really excited with these acquisitions. Crestline is an $18 to $20 billion asset manager with great people, great investment professionals, offering direct lending, NAV lending, credit products. They also have an insurance business and a reinsurance business. So now we're in the insurance business. The suite of products that we have across our firm at Rhythm and our subsidiaries enable us to offer a wide spectrum of credit and ABF products to our LP base and, quite frankly, put us on the stage to be able to compete against anyone. Our mantra of performance first will enable us to grow our platforms. We are not, to be clear, in an AUM race. More importantly, what we want to do is lead with results. When we meet with LPs, they want fewer managers with more products, and I believe we are in the middle of accomplishing that. During the quarter, as I mentioned, we also announced the acquisition of Paramount. Paramount is a Class A office REIT with a great portfolio of office buildings in New York and San Francisco. There's 13 properties there. We are seeing huge demand for office in both New York City and the recovery in San Francisco has already begun. Acquiring assets for a little under $600 per foot versus replacement costs of $2,500 to $3,000 a foot gets us really excited. In New York, this portfolio is north of 90% leased, and in San Francisco, it's in the low 70s, creating a huge opportunity for us to grow NOI. When you look at the Paramount portfolio, not only will we grow occupancy, we also believe in the ability to drive rents higher, as the average rent is approximately $85 per foot. For example, when we think about the need for office space, Rhythm and our affiliates have a need for 100,000 of new space. It's very, very difficult to find space, and average rents are well above the $85 per foot that I quoted in most markets for a quality office space. During the quarter, Paramount released their earnings last night, and I believe there's a couple other REITs that released earnings. We're seeing some of the highest leasing activity that we've seen, and this goes back to the pre-COVID days. As it relates to Paramount, they have an excellent team of professionals who have been running the company for many, many years, and as well as the operations. I believe there's approximately 300 people between corporate and ops. We're very excited to work with the team, creating what we believe will be a terrific investment return for our LPs and shareholders. So as we look forward, our mission is still the same. Put up solid results quarter after quarter, be able to offer more products for our LPs and partners, and take advantage of opportunistic situations to generate outsized returns and grow the company. I'll now refer to our supplement, which has been posted online. And I'm going to begin on page three. If you look in the upper part of the page, rhythm by the numbers. Balance sheet, $47 billion. Sculptor has $37 billion of AUM. Crestline has $18 billion of AUM. And Paramount has a $7 billion portfolio. So when we think about this, we think about it in the context of having a little north of $100 billion in investable assets. And between the investment teams that work on our balance sheet, as well as putting up great results for our LPs, we're really excited of where we sit today and where we're going. When you think about rhythm, very few companies have $8.5 billion of permanent capital. We're proud of that. We've grown this company in the public markets when we began this company back in 2013 at Fortress. The average investment team or the average age of the investment team, not age, but been working in the investment business has been 31 years. When you look at the bottom part of the, you can see all the portfolio companies, New Res, again, we're one of the top five mortgage companies in the U.S., Sculptor has been around for 30-plus years, great track record. The real estate team is just coming off a very successful capital raise, raising north of $4 billion for their business. Their brand is second to none in the real estate business. Crestline, super excited to work together and help support that organization. Paramount, I mentioned, on the real estate side, Genesis Capital, just to give you on that one, we bought that company from Goldman Sachs in 2022. At that time, it was doing $1.8 billion of production. This year, I think we're going to either approach or do north of $5 billion of production, and EBITDA numbers have gone from $40-odd million to $120 this year, expected. And then we have Rhythm Property Trust, which was the broken REIT we took over last year, which was known as Great Ajax. We're still trying to figure out a way, quite frankly, to grow that and put the right assets there. As we look at financial highlights on page four, a really good quarter, and it's solid. All of our business lines contributing here. Earnings available for distribution, $0.54 per diluted share. This is the 24th consecutive quarter where EAD was greater than our dividends paid. Gap net income, $193.7 or $0.35 per diluted share for return on equity of 11%. Keep in mind that includes all the mark-to-market stuff. Earnings available for distribution, again, $297 million, $0.54 per diluted share or 18% return on equity. Book value, we closed the quarter at $12.83, which is $7.1 billion. Dividend, $0.25. And as I pointed out before, cash and liquidity on balance sheet, $2.2 billion. As you look at page five, quarter and review, once again, we've demonstrated steady growth year over year in all of our segments. During the quarter, as I mentioned earlier, we entered into a definitive agreement to acquire Crestline on September 3rd. We're hoping that deal closes on December 1st. We entered into a definitive agreement to acquire Paramount on September 17th. That'll go out for shareholder vote, and we're hopeful that closes in mid-December. These acquisitions continue, as I pointed out before, to expand the product offerings that we have to... When we sit down with an LP, we have a larger suite of products because LPs want fewer managers. And now with between Sculptor, Rhythm, Crestline, and some of the real estate stuff we're doing, we have a large amount of products that we could offer to our different clients. Fundraising across the platform, we continue to work hard to build that during the quarter. In Q4, we expect to close our first ever green ABF fund on a leading wealth management platform. And then when you look at inflows, Sculptor continues to see some good inflows into their business. Bottom part of the page, Genesis Capital during the quarter originated $1.2 billion of loans. That's a 60% increase year over year. We saw 71 new sponsors in 2020. But I would say on that company, credit first is the mantra. It's not, again, just to grow, but credit first really matters. The mortgage company, Barron will take us through the mortgage company, but Barron and the team continue to do a great job there. And, you know, as the world changes and we think about AI and innovation, we're doing all we can to stay ahead of that. And then on the investment portfolio, during the quarter, we agreed on a forward flow to acquire up to a billion dollars in home improvement loans, that's from Upgrade. We did a securitization for a little under $500 million on non-QM, and we invested $2.6 billion in non-QM loans and residential transition loans, and that's through our Genesis brand. When you look at the... Hello? When you look, I'm on page six now, when you look at our M&A update, what we wanted to do is put a page in here so you could have a sense for our liquidity walk. As I mentioned, cash and liquidity as of the end of Q3 is $2.2 billion. Here it shows, what are we showing here? $1.2 billion. Sorry, why don't you take it?

Sure. So at the end of the quarter, we ended with cash and cash equivalents on balance sheet of $1.6 billion. Then just rolling it forward, we have the Crestline acquisition and the Paramount acquisition. The amounts shown here are the expected cash outlays or uses at close, net of excess cash on the respective balance sheets of both Crestline and Paramount. Then we have our use of cash, which comes from our source of cash, which comes from drawing down on our financing facilities. The expectation is that closed, we will have approximately one billion of financing available to us, bringing us down to 1.3 billion of cash and cash equivalents post, quote, the Crestline and Paramount transactions. And that $1.2 billion is well north of our regulatory requirements as well as working capital and what we hold for margin requirements.

Thanks, Nick. On page seven, as we look at the, you know, again, this is something that we talk about quarter after quarter, the valuation of our company. We try to show the sum of the parts. You know, when you look to the top part of the page, you know, Rhythm gets valued similar to Mortgage REIT peers. We think there's a huge amount of upside for us to be able to unlock value. That is going to be driven by our asset management business as well as by the mortgage company. If you look at most mortgage companies today or if you look at what I would call our peer group, they trade anywhere from one and a half to three times. Right now, Rhythm as a public company is trading, call it something around upper 0.8 to 0.9 times. If you think about the mortgage company getting valued properly, you think about the asset management business, even trading at 10 times, the following slide on page 8 will show you a range of outcomes which we believe we will achieve over time of something between $16 and $23 as we compare ourselves either to different asset management firms or when we look at the valuation of our mortgage company and our Genesis business. With that, I'm going to now flip to page 10. which is the so-called power of our platform, as we pointed out before, a little north of $100 billion in assets. You can see all the different product offerings that we have right now to show out to our LPs and clients and corporate credit. There's really nothing more that we need when we look at corporate credit. We will be exploring over time the energy space, obviously a very important space. Right now, there's nothing for us to do there. At Sculptor, there's the multi-strat fund. Our real estate business continues to grow, and ABF is something that is near and dear to our heart, and that's something that we think is going to be extremely scalable for us as an organization across all of our business lines. As I mentioned earlier, we expect to close one of our first ABF funds here in the fourth quarter, and that's on one of the large wealth platforms, and then we have a couple other things that we're working on there. Page 11, Crestline, just gives you a quick snapshot of that business. Again, $18 billion of AUM acquired in September, was founded in 97, headquartered in Fort Worth, offices in New York, Toronto, London, and Tokyo. Really great brand. The team there, led by Doug Braden and Keith Williams, do a fabulous job. They have a great NAV lending business, a great direct lending business. They're really good in the credit side. And we think from a firm standpoint on the capability between Crestline, Sculptor, Rhythm, the DNA of the firm and what we have to offer should put us really in a very, very good position with our LPs. From an employee standpoint, there's 175 employees. Average experience of the management team is 20 plus years. and there's 700 plus investors across all the strategies. On page 12, this gives you a couple snapshot on the different funds that we have to offer or that Crestline has to offer, the investment professionals associated with them. The thing I mentioned in my opening remarks, we are now in the insurance and reinsurance business. That is a business that we intend to grow over time, obviously very, very competitive. But now that we have a licensed entity, we're super excited about where we could go with that. Page 13, Sculptor. This is our snapshot that we put in each quarter. Results have been great. Team is doing great. Real estate guys and gals recently raised north of $4 billion in their latest fund. very well received brand there in the markets with, again, great results and leading with performance first rather than just AUM growth. Page 15, we talk about the Paramount deal. The rationale for us here is pretty simple. One is, I think we're really good at developing a thesis or a theory around an investment strategy in a dislocated market. If we start with that, then when you have a board that announces a process to to sell a company that usually the way that we believe or we think about it, it creates an opportunity for us to have a hard look at that company. When you look at the job that the Paramount team has done and the portfolio of assets that they have assembled, our belief is the so-called return to office. And you could actually poke holes at that a little bit because when you look at New York, it's 90 plus percent leased up. So you could say, okay, that office, New York has already returned to office. I mentioned here that between Rhythm and our affiliates, we need 100,000 feet. It's really, really hard to find good office at any kind of what I would call reasonable value. So we think about that. San Fran is in the middle of the so-called AI boom. You're seeing you have a new mayor there. You have a lot of folks coming back to the office. That portfolio is about low 70s from a lease up perspective. We think we're going to be able to put in some amenities, put in some TI dollars, and we're going to see some really good lease ups there. And we're seeing that now across all of the leasing activity. When you look at San Francisco, the demand for tenants right now is roughly 7.8 million square feet, which is the highest ever. you know, that we know of. So really excited about this. Buying assets that we think are attractive or acquiring a company at an attractive value with great assets, then being able to raise third-party capital around that and grow our asset management business is really where we want to go with this. Page 16, just a snapshot of the balance sheet, pro forma after we do these transactions. You can have a look at that. I'm not going to spend time on that. Again, that's on page 16. And now let's touch base on Genesys, and then I'll turn it over to Barron, who will talk about Nures. On Genesys, as I mentioned, $1.2 billion, a record third quarter for the business. New originations yielding roughly 10% of funding, 71 new sponsors. When you look at the company year over year, our outstanding commitments have grown by 51%. year over year in the third quarter, funded volume up 60%, sponsor growth up a little less than 50%, and from a delinquency perspective, as I mentioned earlier, credit first, total portfolio has only 4% that are 60 plus days. Just keep in mind, we do service our own assets. I think that is a huge edge, whether it be an ABF or anything else that we do, and for the most part there, we're able to control an outcome and work with borrowers where we have some brand recognition. When you look at page 19, we just talked about a differentiated model versus so-called other peers in the business between construction, bridge, and renovation. The business is led by Clint Arrowsmith. And Clint, his background is really a bank credit guy. And Clint and Joe and the team have done a great job there. So real excited about where we sit. I'm going to turn it over to Barron now, who's going to talk about the mortgage company, and then we'll open it up for Q&A.

Okay. Thank you, Michael. Good morning to everybody. Just turning to slide 21. Another great quarter for our platform as we execute on our 2025 growth strategy. Significant gains in recapture, non-agency originations, expansion of our client franchise, and growth as Michael mentioned, exciting market-leading developments in our Resi AI stack. Our third quarter, 25 pre-tax income, excluding mark-to-market, was approximately $295 million, which is up 7% quarter-over-quarter and 20% year-over-year, and delivered a 20% ROE for the quarter, continuing our steady performance. These results continue to show the power of our platform and our ability to drive consistent earnings with a results-first ethos. On slide 22, we can also continue to deliver growth through our differentiated multi-channel origination strategy that allows us to use capital efficiently and maximize our returns. The table on the left shows our direct origination production up 32% year-over-year, and with the focus on supporting our homeowners and recapture is outperforming the industry. In our correspondent channel, we're able to increase production and materially improved margins quarter over quarter from 43 basis points to 53 basis points through our co-issue MSR acquisition strategy. And our product expansion fueled growth in non-agency assets, which are forecasted to be up approximately 120% year over year. Moving to slide 24, And with the recent drop in rates, our origination business finished the quarter with our biggest month in lock volume since early 2022 and is already surpassed this month in October. But even with increased production, our technology is driving increased underwriting capacity and improved turn times. On margins, our weighted average margins dropped to 114 basis points, which is due to channel mix and a significant increase in government streamlined refinances that have a lower margin. And while our market competition continues to drive margin pressures, our discipline focus remains on profitable growth with an eye for market opportunities. As Michael said, performance first, lead with results. Turning to slide 24, we continue to deepen our connection to our four-plus million customers with digital and brand investments driving our momentum and recapture. We have seen wins in increased digital application leads, better conversions through our ResiChat, and our newest tool, ResiAssist, powering loan officer call automation and coaching. Customer retention remains a top growth strategy for New Res, and we're committed to delivering exceptional customer experience and a broad suite of products that differentiate our platform versus our competition. On slide 25, our servicing business continues to perform well with $260 million of pre-tax income, which is up 11% year-over-year. Our special servicing platform is the best in the business, and we continue to gain market share as shown by increases in our third-party UPV, which is up 4%. We're also excited about a new partnership with Wells Fargo, which validates our non-agency servicing leadership in the industry. Performance across the servicing platform is also driven by our operational efficiency, and our expansion of our Resi AI platform continues to deliver cost leadership at a fully loaded $140 cost per loan. I continue to believe our business is as best positioned as it has ever been, and I look forward to sharing the next chapter of the New Res Growth story with all of you. Thank you. Back to you, Michael.

Thanks, Barron. Just real quick on page 27, then we'll open up for Q&A. When you look at the investment business and the investment portfolio, obviously we always have a lot of things going on here at Rhythm. During the quarter, as I mentioned earlier, we did about $2.6 billion in investing in non-QM loans and RTL loans. These two segments When you think about the so-called ABF world and whether it be us marketing ABF funds and other folks marketing ABF funds, these are two of the hottest products where LPs want to get access to. The fact that we could actually manufacture these products, we service these products, and when you look at the overall yields and returns on these assets, is an area for us that we believe we're going to continue to grow. So I point that out from the Genesis side. I point it out from the New Res side. But overall, you know, investment portfolio, very good quarter. Firm overall had a really good quarter. And with that, I'll turn it back to the operator for Q&A.

We will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are 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 and then two. Our first question comes from Crispin Love with Piper Sandler. Please go ahead.

Thank you. Good morning, everyone. Just first, there's been a pretty wide divergence in share price between you and some of the originator servicer peers out there. It doesn't make a a whole ton of sense when you look at some of the parts that you lay out. So I wonder if you could provide an update on the broader strategic vision and what timelines that could be, whether it's a new RESPIN, DREAD, anything with the asset manager. I'm just curious, what's your focus? And then what are the key hurdles you need to get past to drive some of those changes?

Thanks, Crispin. I mean, what I would say in our share price, and, you know, we say this quarter over quarter, I believe that, you know, fundamentally, when you look at the so-called sum of the parts, that we are extremely attractive from a value standpoint. I think when we announced the Paramount deal and, you know, and we did our Paramount call, I believe the stock traded towards $12.50, and then after that, I think the market thought we were going to come back and we rebooted our ATM, we did a prep offering, and I think the market thought we were gonna raise equity. So when I look at the stock price today in and around $11, and I think it's extremely attractive, but that's just my thoughts. Being that we're really clear we're not raising equity around this transaction for these assets, Nick went through the balance sheet, we'll end up with about a billion three of cash and liquidity To the extent that we funded both of these on balance sheet, it's likely we will, and then we're in a ton of conversations, what I would say, with LPs, and our asset management business continues to grow. We need to drive more, quite frankly, more FRE through our pipes to get revalued. That's something that we're very focused on. We think that the Paramount deal will help towards that a little bit. I mentioned that we have an ABF fund that will close most likely have a first close in the fourth quarter here on one of the wealth management platforms. You know, Crestline, the Crestline addition, that will drive more FRE to the platform. Sculptor is doing well. So I think all these things are going to help contribute. As you think about spins, sells, what have you, you know, the mortgage company alone, when you think about it, if there's, what, $5.5 billion of capital and that trades at one and a half to two times, you have 550 million shares. That gets you to kind of a mid to upper teen stock price alone. So part of our thesis also is as we drive more, as we make more money as an organization, we're in the build mode. And unfortunately, you don't get credit for the build mode than you do for just saying, okay, the mortgage company, we're going to take it public. It's going to trade a one and a half to two times book, and that's a $17 or $18 stock price. I think we need to grow asset management business. We need to grow FRE. Once we do that, we could think about spins or taking the mortgage company public. It's something that we think about all the time. From a REIT perspective, and I've used this example before, when you look at, for example, Blackstone, right? They're C Corp. They've dropped their REIT down below. They have funds, et cetera. We'd like to do something like that, but I think we need to grow a little bit more on the asset management side first. Thus, the two acquisitions in the quarter.

Great. Thanks, Michael. And then just on the Paramount transaction, can you share how much third-party capital you've been able to raise there or just how conversations have been going? I believe you said originally you'd fund it with $300 to $500 million in cash at the Rhythm level, and then the rest from co-investors. So curious on progress there. And then are you not able to bring in capital until after the closing for the deal? I thought I saw something like that in the presentation, but just curious on that update.

So on that deal, we went out to say that we'll put in $300 to $500 of our own equity. I think the way that we expect that to be, I think it's going to be roughly $300 from Rhythm and possibly $50 million from RPT, which is our other externally managed REIT. The other $9.50 or $1 billion were raised from third parties. We can raise all that money prior to close depending upon how much economics we want to give away beforehand. I mean, it's just that simple. The money is there. We've had a number of conversations with folks that want to give us the money now. What we're trying to do is really build our asset management business We did set up from a liquidity standpoint prior to this acquisition and prior to Crestline to make sure that there is enough cash and liquidity on balance sheet. But just to be clear, if we want to fund this thing all with third parties now, we can do that. It's just a question of what do the economics look like for Rhythm and our shareholders.

Great. Thanks, Michael. Appreciate you taking my questions.

Crispin. And the next question comes from Bose George with KBW. Please go ahead.

Hey, guys. Good morning. Actually, a question on the Ginnie Mae Streamline refis where you noted that took the gain-on-sale margin down. Are those loans just cheaper to produce as well? Just, you know, so the economics are similar. It's just that the top-line gain-on-sale margin is different?

Yeah. Yes. The answer to that is yes. They're definitely cheaper to produce. And... But that's the best way. They're also highly competitive as well, but they're cheaper to produce.

Okay, great. And then actually switching to RPT, given where that's trading, can you just discuss some of the options there for potentially growing that business? Could we see sort of an acquisition or a merger? I'm just curious what kinds of things you're thinking about there.

So in RPT, we have earnings tomorrow. So, I mean, here's the way we think about it. It's a capital vehicle. The stock is, again, it trades extremely, you know, trades poorly. While saying that, we've got to give investors a reason to want to own the equity, is what I would say. So when we look at this company... We are going to try to grow it. We're looking at direct lending options and things like that. To the extent that we don't, at some point, we'll likely tender for the shares and just clean up the vehicle. I think for now, we want to give it a good go. This is how BXMT was grown. This is how we've grown things during our fortress days. But to the extent that we can't grow it, because for whatever reasons, we'll likely tender for the shares.

Okay, great. And actually, just going back to the earlier question just on strategic actions, you know, a partial listing of new res as opposed to a spin, but just a small, whatever, 15% listing for a mark-to-market, just given that you could do that sooner versus, you know, the other strategic actions, which probably take time to sort of build out the AUM more. I mean, is that something, you know, worth sort of reconsidering or revisiting?

Yes. We explore that every day. So that is something that we are exploring.

Okay, great. Thanks.

Thanks, both.

And the next question comes from Eric Hagan with BTIG. Please go ahead.

Hey, thanks. Good morning. Fleshing out some of this other conversation here, we're looking at slide six again. Is the expectation to raise the third-party capital for Paramount and pay down that $1.1 billion that you drew on the financing line, or does this pro forma cash position assume that you've raised the third-party capital to fund that?

Yeah, we will not. I mean, once we raise the third point, we haven't drawn on the money yet because the deal hasn't closed yet. You've still got to get shareholder approval. Once we do that, once we do close to the extent that we do draw down, we'll pay that off once we raise the money. There's a ton of money for people that want to be part of this, whether that be LPs and or, as I pointed out to Crispin, LPs and or, you know, what I would call peers and partners in the business. It's just, you know, the question for us is, you know, maximizing economics. But from a brand standpoint, I would tell you that we're having anywhere from five to 10 conversations minimum a day with LPs. So not only doing the deal and not everybody wants to be in office, quite frankly, because a lot of folks have gotten smoked, you know, going in and, you know, right after COVID or just before COVID. But the gist of it is the amount of conversations we're having as an organization with LPs and the amount of capital that's out there and real discussions we've had where we feel really good about where we are on this one.

Got you. That's helpful. Hey, I mean, there's a lot of attention right now on underwriting. even some fraud with these consumer lenders, regional banks and such. I mean, do you see that driving changes in the market? I mean, your entire business effectively is like underwriting focused at this point. I mean, we wouldn't expect any bad underwriting in your portfolio, but do you see that having a spillover effect in any way to the rest of the market?

Yeah, I think it's something that, you know, when we talk about our ABF funds, it is a question we get asked all the time. You know, when you look at first brands or you look at Tricolor or You know, what really happened there? You know, one thing that's different about Rhythm versus other folks, you know, we have, what, 10,000 employees across the firm? You know, the mortgage company has, between employees and consultants, probably 10,000 people alone, quite frankly. You look at Genesis, there's a couple hundred people there. You know, we're underwriting first. And we don't just go out and buy pools of assets unless, like I pointed out, you know, many times where we have the ability to hopefully control an outcome, and that outcome is driven through our underwriting and servicing business. And that makes a big, big difference. While saying that, you know, ABF kind of LPs are, you know, they want to know what happened with First Brand. They want to know what happened with Tricolor. Tricolor was classic fraud, right? You know, they pledged assets twice. You know, you look at first brands, it's a liquidity issue, but I'm sure there's some other stuff that's going on there. And, you know, so but for us, underwriting first, we've seen these kind of events happen. I don't think they're systemic, quite frankly, you know, for the broader world or market. But we have to keep our eyes and ears open here and lead with underwriting first.

Good stuff. One more, if I may. The falloff in interest income from the investment portfolio quarter over quarter looks like it went from $82 million to $52 million. What was the driver of that?

Sure. So, Eric, we held lower agency balances. In addition, we had a retrospective adjustment in interest income that was offset in unrealized gains losses. So when you look at that line, you will see the pickup.

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

And the next question comes from Jason Weaver with Jones Trading. Please go ahead.

Hey, good morning. Thanks for taking my question. For the initial ABF fund you're targeting with the wealth management platform, can you talk about the initial size you're targeting for that as well as the expected life of that vehicle?

I don't think, I mean, here's what I would say. From an asset standpoint, I don't think we can talk about, we can't talk about the marketing of the so-called fund. What I would tell you is we do have a couple things that we're working on. We mentioned that so-called fund. Are we allowed to talk about this? I'm looking at counsel. Okay, so the size is likely going to be upwards of 500, and then the average duration of something like that. Think about the typical products that we produce. I mentioned earlier non-QM and RTL are kind of the in-flavor, as people like the diversified risk there. Those average cash flows think of something in the kind of the three-year area, and then we, you know, You know, I mentioned earlier, and it's not just us, but there's a lot of managers like us that are out there with different ABF funds. And it's, you know, when you think about the product suite there, it could be ABS, it could be mortgage, it could be CLO type, it could be, you know, you'll have aviation finance, all kinds of different things that can go into these different buckets.

All right. Thank you. That's helpful. And then next, as it pertains to the dividend, you've been covering for, I don't know how long, five years. As far back as I can remember, how do you think about the payout policy right now, whether you can see it expanding given some possible capital needs for integrating these acquisitions or building more of a buffer against market headwinds?

What I would say, you know, from obviously it's a board decision, I would say pretty definitively from, you know, the team here inside the walls of Rhythm that we're not going to raise our dividend. You know, quite frankly, if we had our druthers If you think about it, you know, we're paying out something between, you know, call it $600 million a year. If you reinvested that capital at, you know, 20%, we mentioned, you know, the company generated an 18% ROE. If we redeployed the capital there, it's going to be highly accretive from an earnings standpoint, and that would enable the stock to grow. So I would say definitively there's no desire to increase a dividend at this point, you know. If we could go to the other way, we would. All right. I appreciate the color. Thank you. Thank you.

And the next question comes from Trevor Cranston with Citizens JMP. Please go ahead.

Hey, thanks. Another question on the kind of valuation of the company and closing the gap to the sum of the parts level. Can you talk about how you guys think about share buybacks as a tool to sort of help bridge that gap or if the focus is really just more so on kind of continuing to grow and increase the revenue streams to get there? Thanks.

So share buybacks, you know, people talk about share buybacks. I think our path is going to be continued growth as long as we think we can deploy capital at, you know, call it 15% to 20% returns. I would say while we have all kinds of policies in place, whether they be share buybacks, ATMs, et cetera, based on the two acquisitions, I would assume that we're not going to be doing any share buybacks here. I think the question around a potential IPO of the mortgage company is always something that we wrestle with. So at some point, if that's something we do, that would potentially raise a little bit of capital for us. But You know, there's no, I would say right now, and this is, again, my view, we're not going to be doing share buybacks. We're funding, you know, a billion-something acquisition on Paramount and Crestline. And as we continue to grow earnings and grow FRA, I think you're going to see a huge reval of the company. That's what we're all playing for.

Got it. Okay, that's helpful. And then on the sculptor business, you know, you guys had a pretty good year of fundraising. I think the number you gave is $4.6 billion so far this year. Can you give us an outlook on kind of how you're thinking about, you know, fundraising heading into 2026, if you think that kind of pace is sustainable and just generally how you think about the organic growth potential of the asset management side over the next year or so? Thanks.

Um, sure. So when we look at the asset management business, we are going to be making capital investments in, in people, uh, as we continue to grow our, what I would call our capital formation slash strategy group. Um, so there'll be some significant investments there. We have, you know, I'm hopeful over the next kind of 60 days, we have some, you know, big announcements there, uh, around some personnel. Um, when you look at the growth of four and a half billion or so, the sculptor raised a large amount of that was in the real estate business. The underlying performance in like the credit business, the multi-strap business continues to be very, very good. You look at Crestline, their performance continues to be very, very good. You know, when you look at across our firm and you think about Rhythm, Sculpt, or Crestline, you could assume at some point that the capital formation groups come together and things really start to synergize and we're able to raise a lot more capital. So when I look at, you know, a $4.5 billion or $5 billion capital raise for 2018, Do I think that's repeatable in 26? Absolutely. I mean, you look at the bigger, you know, all players, and they've done a fabulous job raising tons and tons of capital. There's no reason why we can't surpass the numbers that have been done in 25.

Got it.

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

Well, thanks for the thoughtful questions. Thanks for listening to us this morning. As I wrap up again, very excited where we sit. From a company perspective, things are going, what I would say, extremely well right now. Earnings The strength of our earnings continues to be robust, driven by, you know, the businesses that we bought or built to get us here. Those very same businesses are going to enable us to continue to grow our platform. Obviously, very focused on the asset management business, very focused on getting the proper reval of the company. The mortgage company is something that we always, you know, we look at and say, you know, do we take it public or not? Quite frankly, it's Sometimes it's easier not to be in the public markets as you think about every asset manager talking about going public to private when you look at assets going even into the wealth channels. But overall, things are clicking on all cylinders here for us, and we look forward to updating it throughout the quarter and into next quarter. So thanks again. Have a great weekend.

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