Please stand by. Good day everyone and welcome to the GCM Grosvenor November Webcast. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Stacie Selinger. Please go ahead

Thank you. Good morning and welcome to GCM Grosvenor's Third Quarter 2021 Earnings Calls. Today I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks, President, Jon Levin; and Chief Financial Officer Pam Bentley. Before we discuss 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, performance, or achievements to be materially different from any of our expectations of future results. Please refer to the factors discussed in the risk factors section of our 10-K for the fiscal year ended December 31st, 2020, our other filings with the Securities and Exchange Commission, and our earnings release available on the Public Shareholder section of our website. These factors could cause actual results to differ materially from those indicated by the forward-looking statements on this call. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are available on the Public Shareholder section of our website. Our goal is to continually improve how we communicate with and engage with our shareholders. 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, Stacie and thank you to all of you listening for your time and interest. The third quarter of 2021 was a strong one for GCM Grosvenor. We enjoyed good investment results, fundraising, and business performance. As a result, our outlook with regards to the remainder of 2021 and 2022 is constructive and our Board has increased our quarterly dividend 11% from $0.09 per share to $0.10 per share. The dividend is payable on December 15th, 2021 to shareholders of record on December 1st, 2021. Our assets under management, fee-paying assets under management, and contracted not yet fee-paying assets under management increased 20%, 13%, and 19% respectively as compared to the third quarter of 2020. Our fee-related revenue and fee-related earnings grew by 11% and 21% respectively, as compared to the third quarter of 2020 and 10% and 22% in comparison to the nine-month period ended September 30th, 2020. Our fee-related earnings margin for the third quarter of 2021 was 36% compared to 33% in the same quarter a year ago. For the fourth quarter of 2021, we anticipate that growth in our fee-related revenue will approximate 5% compared to the third quarter of 2021 with resulting 2021 full year fee-related earnings coming in moderately above the high end of our 15% to 20% expected range. With regard to 2022 and our fee-related revenue and fee-related earnings, we expect growth in fee-related revenue of 12 to 15% as compared to 2021 and growth in fee-related earnings of 20% to 25% as compared to 2021. To achieve that results, we need to close 2021 in accordance with our current plan, experience flat net flows for Absolute Return Strategies in 2022, with 2022 Absolute Return Strategies performance in line with our normal run rate performance assumptions. In addition, we are assuming…

Thank you, Michael. I’ll begin my remarks on slide six. We’ve experienced persistent and strong growth in our assets under management, fee-paying assets under management, and contracted but not yet fee-paying AUM. As you know, these are the metrics that in combination with stable fee rates and expanding margins fuel our earnings-powered growth. Our total AUM has grown at a 10% compound annual growth rate since 2018 and the combination of our FPAUM and CNYFPAUM has compounded at a similar figure. As you are all well aware it’s been a healthy environment for private market alternatives over the past few years, and our business has benefitted from that backdrop. We’ve had a 16% compound annual growth rate in private market AUMs since 2018 with growth occurring in each of our private market sub-strategies. From a composition standpoint, it’s worth noting that private markets represents 62% of our firm assets under management as of the end of the quarter as compared to 54% at the end of 2018. Michael already spent time on Absolute Return Strategies where the earnings power has likewise increased from growth in both fee-paying AUM, which drives managements fees, and AUM eligible for annual performance fees. We continue to believe that having expertise across the full alternatives landscape better positions us to serve our clients and win mandates. Reflective of this value proposition, the new capital raised this quarter and this year has been highly diversified across channel, geography, investment vertical, nvestment implementation style, and fee rate. Notably, more than 50% of our assets raised this quarter came from clients outside of the United States. And as we’ve discussed our recent hires in Canada and Europe, along with our already strong presence across Asia, set us up well for continued future success internationally. As you will see…

Thank you, Jon. Turning to slide 10, we continue to execute on our plan and deliver a strong value proposition, generating asset growth at attractive fee levels and enjoying continued fee-related revenue growth. In addition, our earnings expansion outpaced our revenue growth as we unlock our embedded operating leverage and scale. Michael and Jon covered our asset growth in detail, so I won't address that other than to say we're very pleased with both the pace and trajectory of capital formation. With regards to our fees, our fee rates have continued to be very stable across the business, a sign of our value proposition resonating in the market. We continue to experience a mix shift towards higher fee activities such as co-investments, direct investments, and secondaries. Consequently, we are seeing an accelerating positive trend in our management fee earnings power. Our fee-related revenue this quarter increased by 11% over the third quarter of 2020. Part of this was driven by catch-up management fees from our private market specialized funds, which were $1.7 million in the third quarter. Based on our current pipeline, we expect catch-up management fees to be higher in the fourth quarter. As Michael mentioned, we expect growth in fee-related revenue in the fourth quarter inclusive of catch-up management fees to be about 5%. Moving to incentive fees, we realized $29 million in carried interest this quarter. And as we noted last quarter, while carried interest is realized throughout the year, we typically earn the majority of our annual performance fees in the fourth quarter. The earnings power of our incentive fees continues to increase, providing us with significant upside and flexibility which I will address in a moment. Taking fee-related revenue and incentive fees together, the firm's adjusted revenue increased 16% compared to the third quarter of…

Thank you. [Operator Instructions] And we'll first hear from Chris Kotowski of Oppenheimer.

Yes, good morning. Thanks for taking my question. I wonder if you could start on the -- flesh out a bit more the $500 million alternative strategies fund that are a vehicle that you were able to raise? Is it -- can you just kind of describe as it kind of normal fee structure? And what should we expect the life of that to be? When does it get turned on? And also, I guess, just in general, is it replacing other vehicles that used to -- that insurance companies used to invest in with GCM, or is this completely new and incremental?

Thanks Chris. It's Michael. I'll try to take that. So, first, it's not replacing anything, it's new. It's an effort that was led by GCM Grosvenor Insurance Solutions and our strategy and investment teams and to me, it represents a quick start out of the gate in terms of the future of GCM Grosvenor Insurance Solutions and it's reassuring to me in terms of the prospects for that effort that we announced and just really began. And it's probably a faster start than I would have thought it is full fee capital, largely private markets. It is long-term and it's probably easiest to think about it as a -- any type of a structured approach like a collateralized fund obligation or something, just to kind of what does it look like in terms of duration. And -- but that is the capital, it's new. And frankly, from my perspective, the most constructive thing about it, these will start to turn on as early as early as this quarter and remain the fourth quarter, but what I really like about it is it's got us working with a good significant number of new insurance company, partners, clients, already so and then that doesn't mention those who kind of looked at it, but couldn't get themselves together enough time to be there for this one, but are interested in working together in the future. So, we feel really good about it and view it is just the positive development.

Okay, great. And then maybe you said it, and I just missed it. But were there catch up fees this quarter? And I think Pam said, we expected some -- you expected some in the fourth quarter, and I was wondering, is that what is the primary driver of the expected roughly 5 fee revenue growth in the fourth quarter is primarily the catch-up fees or is kind of underlying fee?

Pam can -- you can take that, Pam, but I would say that fourth quarter growth is obvious -- it's a combination of fundraising and specialized fund closes in Q4 that do have catch-up fees, but it's also just solid compounding on higher fee-paying AUM at the beginning of the quarter, the relative to the beginning of the prior quarter, and positive performance in ARS as well. But Pam, I don't know if you want to go back to the script comments.

Hi, Chris. Thanks for the question. As the fees -- catch-up fees in the third quarter were $1.7 million and as I indicated, they'll be slightly higher in the fourth quarter, and are part of that 5% expected growth number that we mentioned.

Okay, great. That's it for me. Thank you.

Thank you, Chris.

And next we'll hear from Jeff Smith [ph] of William Blair.

Hi, good morning, just touching on the $500 million Structured Alternative Solution, obviously, a great start for this new unit. What type of additional demand are you seeing out there from insurance companies? Do have some initial thoughts on sort of where that unit might go from a fundraising perspective? I mean, it's early, but just if you have to kind of initial thoughts, but knowing that--

Yes, it's early. I think Jon Levin addressed our aspirations for this unit in the last quarter, when he said he thought it could be a very significant part of our business going forward. And so I think everything we've seen so far, reinforces our decision to invest in this space. And you saw earlier in the week we announced another hire inside a GCM Grosvenor Insurance Solutions, senior hire, we're thrilled about that. We intend to continue to invest in that effort. It is -- we think there's real opportunity there. And as I said, not sure we thought we'd get out -- you know we'd always talk about seeing this contribute next year and it's obviously started to contribute faster than that. And we're engaging with that channel in ways that we never have before. And we are seeing various types of opportunity. Frankly, well beyond Structured Solution, so just normal custom account solutions opportunities, and we are we are enthusiastic.

Okay, great. And then the -- just looking at the private market fee-paying AUM funding, I think it stands at around $31 billion. Can you discuss how much of that is specialized funds now? I think you'd mentioned $2.2 billion has been raised in this sort of newer tranche of funds. So, does that brings a total to around $7 billion or $8 billion. And I'm just thinking how does that compare from the beginning of the year? And how much the higher fee rate did that come in just in terms of the mix there?

Sure, I know Stacie or Pam, if you have the AUM or FLAUM number for the specialized funds, obviously, the number that we cited was the fundraising number this year. It's the first time we've done that and we've heard the requests to do that. We've wanted to stay away from specific fund reporting until the funds are closed. But we did want to be responsive to the question set on how fundraising for the in-market funds are going and I don't know Stacie or Pam, if you have the FPAUM number for private markets specialized funds compared to private markets?

Hi, it's Pam. We do not publicly disclose the breakout of our private markets fee-paying AUM between the specialized funds or the separate accounts is something we are considering for the future. But at this point, we have not done that today. But the $2.2 billion number that Michael referenced in his comments is the fundraising for this year.

Okay. And then just one last time on G&A, I think you'd said, it was down a little bit on the quarter due to low travel activity that should sort of move back up in Q4. What type of magnitude should we expect there, I mean, with the Delta variant going on, I mean, travel seems to be still down. So, was that just kind of a modest increase? And any guidance you can give on 2022 for G&A as well would be helpful?

Sure. Yes, just a modest increase we would expect in the fourth quarter given continued lack of travel. But that is baked into our guidance that Michael mentioned that we expect to end the year slightly above our 15% to 20% FRE growth range. So, our expense growth is kind of baked into that number. Similarly, for next year, certainly expecting some return to travel and higher travel in 2022, absent any further issues with the pandemic. So, certainly expect that next year and that's also kind of baked into our guidance for next year the 20% to 25%.

Got it. Okay, that's helpful. Thank you.

Thank you.

And next we'll hear from Ken Worthington of JPMorgan.

Hi, good morning. Thanks for taking my questions. So, appreciate the additional information on the private market side. I'm going to keep pressing here. You're in market, I think, was four funds, I think the $2.2 billion was just the funds raised this year on the four -- I know Jon mentioned six, as we look out over the next couple of years. Where are those funds right now in terms of assets, relative to their collective targets? Are we getting to the point where those funds are pretty much done? Is there a lot of runway left in terms of fundraising those funds, but I don't know, if we're 40% of the way to target 99% of the way to target. If you could just help us there in terms of those products and how close we are? And you don't like to do it individually, but maybe you would do it collectively. So, -- and then

you -- sorry Ken, go ahead.

Yes. And then the pie in the sky is the fundraising environment is fabulous. So, if you had targets, is it possible that the fundraising environment is so good and you've got some really niche products in this set of four that the targets -- the stated targets are conservative and maybe we should think of things being closer to the hard cap. So, any color on that element? But the first part, I think, is the more important one of us to get?

Sure. So, what I was going to say was you push us on this, and we appreciate it truly and you can tell we're responsive and I wish we would have connected prior because I think we could probably figure out a way to talk about the first question that you asked. So, have the funds in-market now, the four in-market now, only one of them will have a final close this year, the rest of them -- the remaining three will be in-market for a while longer, and you have room to go in terms of achieving fundraising. And then there are additional funds that come on into market next year. And throughout the year, next year, and even, I think of those six that we've shown, they are all turned on by next year or very early and in 2023. The -- and I think we probably can try to work out some metrics, so that you can understand how much time is left and things like that. We don't have a good math way to tell you that now, other than to say that we are -- we -- three of the four will stay in market, will report out on the one that has a final close in Q4, in our next call, three of the four will stay in market -- the funds in market. It is, in general, a time where there's a tailwind in their strong pipeline, the funds in market in particular, in our multi-asset class fund are enjoying predecessor funds extremely good results and so we're optimistic there. But I think that the best way to think about what we've said today, I think really relates to our fee-related revenue and our fee-related earnings views with regard to next year. And as we said, we achieved those rates of growth without a increase in fundraising relative to this year. So, I know this is not as precise as you would like. But we did say that was similar levels of fundraising to this year, that's kind of -- a couple of some other assumptions, but similar levels of fundraising, we get the growth. And we are, as you correctly point out in a good fundraising environment with a strong third quarter that we certainly will do everything we can to continue to roll forward.

Okay, great. And then I'm trying to kind of do the post mortem on Mosaic and Pamela, I'm not sure if this related to your comments. Incentive fee-related compensation was up this quarter, assuming I plugged the models and numbers in the model correctly, looked like $3.4 million. Incentive fees themselves, were just $300,000, again, assuming you're plugged in correctly. Is this related to how Grosvenor is treating the incremental earnings that are resulting from the repurchase of Mosaic? And was there a compensation payout this quarter on that earning stream that was previously directed to Mosaic?

Yes, the -- what you see in the quarter, the majority of our incentive fees are related to carried interest that was a result of unwinding the Mosaic structure. And we are including in that $3.4 million, a portion of that relates to the carried interest realized in the quarter. In the fourth quarter, as I mentioned, we expect that to predominantly be incentive fees related to the ARS performance fees that are expected to be realized. And we'll see that related incentive fee comp in the fourth quarter primarily relate to those performance fees. So, you should see expect a similar level in the fourth quarter.

Okay. And so just one follow-up here. How should we think about this payout on what was formerly going to Mosaic? What is the rationale of paying employees rather than letting all of that incremental earnings on what was essentially a financing fall to the bottom-line. And then in 1Q 2021, you presented a slide on the value of the purchase of Mosaic. The carry relative to the purchase price so like a valuation of six times, did that slide incorporate a payout on these Mosaic earnings? Again, trying to reconcile everything and I sort of assumed that this would fall to the bottom-line and it appears to not be. So, I'm trying to do this post mortem. Thank you.

So, -- and I think that we've always accrued a discretionary cash bonus pool, relative to firm share of incentive fees both carry, some of which was at Mosaic, and is not now and performances. And we accrue that as we go through the year, and we pay it out when we pay bonuses at the end of the year. And we have -- so to a -- the extent that we didn't -- we probably ate margin, rather than dinged people, when we did Mosaic, and we are able to get that those Mosaic revenues back, but also get some of the FRE margin back and realign comp through that. And we're encouraged is that the firm share of carries, so not only are the performance fees in the ARS business growing, but the firm share of carry grows over -- as we look out over the next several years, we're still kind of burning off low -- firm share of carry. So, that picture in general, with a bonus pool there will -- it was a good positive picture as we look forward. And if you want some help on your modeling, we'll -- we will happily do that with you. But in general, I think we've got growing firm share, growing -- therefore, growing EBITDA, on top of growing FRE, and we've got a greater alignment of interest with our people, and the actual performance and receipts of the firm.

Great. Thank you very much.

[Operator Instructions] We'll hear from Peter [indiscernible] of Morgan Stanley.

Hey, thanks for taking my question. You mentioned 10% of capital raised year-to-date is from non-institutional clients, what products are driving those inflows? And what new products can make sense for that customer set? And also just a quick follow-up, I think you mentioned you're on six platforms? How do you think about building out distribution teams to support that growth in that non-institutional customer set? Thank you.

So -- go ahead Jon. you take it.

Sure, I'm happy to take that one. So, I think that the in general the when you ask when you ask about what the type of interest that you're seeing in the non-institutional channel, I would say that it's similar thematically to what you're seeing in the institutional channel. And I think part of the whole thesis of trying to drive alternative solutions to non-institutions is to allow those investors to have the same set of experiences and allow them to build portfolios that are similar to what institutions can access. So clearly, you're seeing the interest being largely in favor of private market type strategies. But I would say it's a similar mix private markets, more liquid alternatives to what you're seeing for the broader business. I think in terms of building out the distribution and the coverage there, definitely it's an area where making some incremental investment we think would have positive return on capital. We have people that cover those channels, both in terms of what we would call an external sales perspective, as well as an internal sales perspective. And as we continue to see the assets that we raised there, take up a greater share of AUM. So, we talked about 5% of AUM to 10% of flows will continue to make smart investment from a distribution standpoint.

And was there anything further Mr. [indiscernible]?

No, that's it. Thank you.

[Operator Instructions] It appears there are no further questions at this time.

Great, thank you all for joining the call. We appreciate the questions and the interest and we'll talk to you again soon.

Thank you very much.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.