GCM Grosvenor Inc. (GCMG) Q1 2023 Earnings Report, Transcript and Summary

Welcome to the GCM Grosvenor 2023 First Quarter Results Call. [Operator Instructions] As a reminder, this call can be recorded. I would now like to hand the call over to Stacie Selinger, Head Investor – Head of Investor Relations. You may begin.

Thank you. Good morning, and welcome to GCM Grosvenor’s first quarter 2023 earnings call. 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 facts should be considered forward-looking statements. This includes statements regarding our current expectations for the business, our financial performance and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release, all of which are available on the Public Shareholders section of our website. 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 Shareholders section of our website. Our goal is to continually improve how we communicate with and engage with our shareholders. And in that spirit, we look forward to your feedback. Thank you again for joining us. And with that, I’ll turn the call over to Michael.

Thank you, Stacy. The first quarter of 2023 marked the fourth consecutive year with significant first quarter volatility and market dislocation. From COVID to meme stocks, the war in Ukraine, the Silicon Valley Bank and Credit Suisse, the first quarter of each of the last 4 years has been tough for investors. Through each of these periods, GCM Grosvenor has enjoyed relative stability in our portfolios for clients and in our business for team members and shareholders. The strength of the alternative asset management strategies generally and the strength of GCM Grosvenor’s broad-based, diversified solutions approach specifically shines during volatile times. As such, our confidence in the value proposition we bring to clients, and in the value of our firm for shareholders remains strong. In the first quarter, we performed in line with the guidance we provided on our last earnings call. We raised just under $1 billion in a tough fundraising environment. Importantly, our private markets verticals continue to grow at double-digit top line rates, with private markets management fees, excluding catch-up fees, growing 13% year-over-year. Private market strategies now comprise roughly 70% of our total AUM. Due to the impact of 2022 on absolute return strategy fee-paying AUM, overall fee-related revenue was roughly flat in Q1 compared to a year ago. As we expected, fee-related earnings and fee-related earnings margins were both slightly lower than a year ago. Our recent ARS performance has been competitive with regard to peers and relevant industries, and delivered the best first quarter we’ve had in some time. Capital markets and transaction activity levels continue to be depressed, which we believe is a significant driver of the overall alternative space right now. In the first quarter, less than 1% of our beginning quarter private markets fee-paying AUM was distributed to clients. That compares to an average of almost twice that rate for the previous 9 quarters. As a result, incentive fees were low, which was an important factor in year-over-year adjusted EBITDA and adjusted net income levels. Across the industry, the low levels of transaction activity result in less capital being returned to LPs. That’s putting pressure on investor liquidity and slows the timing of new commitments. We believe the flywheel will improve when transaction levels pick back up. Looking forward, for the second quarter, we anticipate private markets management fees, excluding catch-up fees, will grow in the high single digits year-over-year. And absolute return strategies management fees will be roughly flat compared to Q1 ‘23. The result will be a Q2 FRE that’s pretty similar to Q1 ‘23. For the full year compared to 2022, we continue to expect double-digit fee-related earnings growth with expanded FRE margins. While sales cycles have been stretched somewhat, our fundraising pipeline remains strong. As we saw in ‘22 and ‘21, we expect back half fundraising will exceed first half fundraising this year. Our unrealized carry continues to represent significant upside to recent revenue levels although we make no prediction as to the timing of realizations. We remain set up well for the intermediate and long term. For 2024, we continue to see solid double-digit fee-related earnings growth on reasonable fundraising assumptions with some continued FRE margin expansion. Perhaps more than anything, we’re excited about deploying our approximately $10 billion of dry powder in what we believe will be a more advantageous investment environment than we have seen in a while. Although the macro environment remains challenging, we feel fortunate that we enjoy great client relationships, are adding value to client portfolios, are growing, generating cash, paying a healthy, safe dividend and buying back shares. It’s a pretty good picture in a tough environment, and it’s a direct result of the efforts our team and our broadly diversified client-first solutions approach bring. We have a strong business with significant opportunity and upside, and we look forward to generating returns for all of our constituents going forward. And with that, I’ll turn it over to Jon.

Thank you, Michael. I will spend a few minutes going into a bit more detail on our capital formation results and strategy. The breadth, depth and flexibility of our platform enables us to credibly compete for nearly any mandate available to an alternative solutions provider, which makes for a very large total addressable market. As Michael noted, the environment at this particular moment in time is challenging, but we do not see the secular tailwinds behind long-term demand for alternatives abating. If anything, the relative outperformance of alternatives compared to other asset classes has only heightened long-term investor demand. In fact, mature investors to alternatives are employing creative and flexible strategies around their target asset allocations to ensure that they are able to continue deploying capital in this market. History has proven that remaining committed to a programmatic approach to alternative investing adds value over time. In addition, there continues to be an attractive opportunity set to grow with newer allocators to alternatives, such as insurance companies and retail investors. Against that backdrop, we continue to be bullish on the long-term demand for alternatives. Now to our fundraising. Over the last 2 years, our fundraising has been characterized by 3 main themes: first, the double mix shift in our business toward private markets and fee-accretive strategies; second, the success with which we’ve expanded our existing client relationships into new areas; and third, increasing momentum in new geographies and channels where we’ve made investments. We have talked about the double mix shift on many of these calls, but it’s one of the most important things to understand about our business. 87% of the capital that we’ve raised over the last 2 years was for private markets. And of that, 50% was raised in fee-accretive strategies, which we define as co-investments, direct investments and secondaries. This has had a material impact on our business composition. As of the end of the first quarter, private markets now comprises approximately 70% of our total AUM, which is a significant increase from 59% of our total AUM at the end of 2020. Within private markets, infrastructure has been the most significant growth driver. Over the last 2 years, we’ve raised more than $5 billion for infrastructure programs as investors continue to appreciate the strategy of cash yield generation, long-dated capital appreciation and inflation protection. Our significant and broad experience in the infrastructure space positions us well to pick up further market share in this area. Turning to the second driver of our fundraising, we have very successfully expanded our existing client relationships through re-ups and extending those relationships into new strategies. Over the past 2 years, 21% of our fundraising has been cross-selling to our existing clients. Approximately 50% of our top 50 clients work with us in multiple strategies and approximately one-third of our top 50 clients have programs in both absolute return strategies and private markets. Interestingly, while the majority of our fundraising over the past few years has typically come from our existing clients, 63% of our first quarter fundraising came from new clients, which brings me to the third fundraising driver. As you know, we’ve been investing in new channels and geographies over the past few years, which we believe will drive significant future growth. Most recently, we announced the opening of a new office in Sydney, Australia. While it takes time for any new efforts to scale and reach their full potential, we’re encouraged by the early signs of the investments that we’ve been making. Similarly, over the last few years, the insurance in non-institutional or retail channels began to demonstrate their potential as strong contributors to fundraising. Nearly 20% of our flows over the last 2 years came from these channels combined, and given each represent very large total addressable markets, we expect these channels to be meaningful contributors to our fundraising going forward. Our deep and broad manufacturing platform, strong existing client relationships and focus on growing channels provide us with ample opportunities to deliver stability and growth as we move forward. With that, I’ll turn the call over to Pam.

Thanks, Jon. We are well positioned as a management fee-driven, balance sheet-light business, and our strength, stability and scalability have continued to serve us well amidst challenging markets. Assets under management increased to $75 billion in the quarter, a 5% increase from a year ago and a 2% increase from the fourth quarter. Fee-paying AUM increased 3% from a year ago and 2% from the fourth quarter. Private markets continue to be the primary driver of fee-paying AUM growth, increasing 12% from a year ago from a combination of fundraising and deployment. Nearly $1 billion of contracted, not yet fee-paying AUM became fee paying in the quarter. Although fee-related revenue was effectively flat on a year-over-year basis, private markets management fees experienced healthy growth of 11% year-over-year, which was offset by ‘22 market impacts on absolute return strategies management fees. Excluding catch-up fees, private markets management fees increased 13% from the first quarter of ‘22, which was on the high end of our guidance. In the second quarter, we anticipate modest specialized fund closings, and we do not expect any material catch-up fees. Therefore, second quarter private markets management fees, absent catch-up fees, are expected to grow in the high single digits as compared to the same quarter a year ago. As we foreshadowed on our last call, absolute return strategies management fees declined slightly this quarter versus the fourth quarter of ‘22. Given absolute return strategies fee-paying AUM was relatively flat in Q1, we expect second quarter ARS management fees to be roughly the same as this quarter. We realized $5.8 million of incentive fees in Q1, the majority from carried interest. As Michael mentioned, the realization environment continues to be challenging, and until market inflation and interest rates settle out, M&A volume is likely to be muted. That said, our carried interest earnings power continues to improve. As of quarter end, we have $804 million in growth unrealized carried interest across 135 programs, the firm share of which is $376 million. The firm share of unrealized carry has been steadily increasing. And when transaction volumes return, we believe carry will contribute meaningfully to our earnings. Our annual performance fees are tied to absolute return strategies investment returns and typically crystallize in the fourth quarter each year. Given the impact of ‘22 performance on high watermarks, combined with solid performance in Q1, our ‘23 performance fee earnings potential is approximately $16 million, assuming an annualized 8% gross rate of return for multi-strategy and 10% growth rate of return for opportunistic investments for the remainder of ‘23. This compares to $29 million of performance fee earnings potential if all portfolios were at high watermark. Turning to our expenses, our compensation strategy is rooted in fostering alignment between our employees, clients and shareholders. Fee-related earnings compensation in the quarter was approximately $40 million, down slightly compared to the first quarter of ‘22. As a reminder, FRE compensation is typically elevated in the first quarter, so we do expect it to marginally decline in subsequent quarters. As we disclosed last quarter, in ‘22, we granted 4.5 million restricted shares to employees, of which 3.2 million vested in the first quarter, resulting in stock compensation expense of $26 million. Importantly, we have and will continue to buy back shares to minimize dilution from stock-based compensation. This quarter, we repurchased approximately 2.9 million shares or $23 million of stock, and have approximately $23 million remaining in our stock buyback authorization, which we continue to put to work. We expect stock compensation expense in the second quarter to return to normalized levels coming in below what we saw in the fourth quarter of last year. As expected, non-GAAP general administrative and other expenses increased sequentially from the fourth quarter to $19.7 million. We continue to tightly manage expenses despite inflationary pressures and expect this figure to remain stable in the second quarter. From a capitalization standpoint, we continue to be balance-sheet light, and our cash generation is comfortably in excess of our current dividend. As we have said in the past, we anticipate growing our dividend over time as our fee-related earnings increase. To that point, I will end by reiterating our confidence in achieving our long-term growth objectives. We remain focused on unlocking the full potential embedded in our platform to generate long-term value for our clients and shareholders. Thank you again for joining us, and we’re now happy to take your questions.

[Operator Instructions] And we’ll now take our first question from Bill Katz from Credit Suisse.

Okay, thank you very much for the question and the company callout. So Michael maybe a question for you or Jon, thanks for the updated guidance. So if I just sort of look at the guidance year-on-year of fee-related earnings growth of sort of teens, let’s say, 15%, something in that ballpark, it would impute to a pretty significant second half of the year ramp, given what you said and mentioned about the second quarter. So can you just sort of help walk us through the ins and outs as you sort of think about the second half of the your FRE trajectory?

Sure. Thanks for the question. So we said on this call, FRE growth for the year, double digits. I think we had said, last quarter, mid-teens. So double digits is a bit more conservative than mid-teens, reflecting the environment we’re in. But we – when we build these numbers and we talk to you about them we are doing a granular bottom-up build with visibility into our pipeline. Sales cycle is a little longer now, which we’ve talked about, but we continue to believe second half fundraising will exceed first half fundraising. And we think that the timing of specialized fund closes and some catch-up fees and such will get us to that double-digit FRE growth this year.

Okay. And just maybe a quick follow-up for me, Jon, you mentioned sort of the three different areas of opportunity to grow. I was wondering if you could maybe double-click into the insurance and the retail, just sort of talk a little bit about what you might be doing incrementally to accelerate opportunity into either insurance or the retail?

Sure, Bill. Nice to talk to you this morning. I think what it comes down to, fundamentally, as I noted on the call, is you have investors that are more mature allocators to alternatives, and they’re likely at or near or slightly exceeding their asset allocation and, therefore, they’re employing these creative strategies to slowing down a little bit, whatever it might be, but to make sure that they can remain committed to their alts programs, because maintaining that programmatic approach as opposed to taking years off or taking vintages off has never kind of proven to be a good idea, historically. And then you have a different category of investors, where insurance companies might be an example, where retail investors might be example, where particular idiosyncratic balance sheets around the world might be an example that are still below asset allocation in terms of where they want to be from a goals perspective for their alternatives program and this is a great time to be building an alternatives program in light of what I think is going to be an interesting investing environment. And so what we’ve done is just made sure that we have the resources necessary to cover those channels. We’ve made an investment in a number of people as well as, I would call, some technical expertise a few years ago to cover the insurance segment, where people tend to be below where they’d like to be long-term from an alternatives perspective. Similarly, made sure that our coverage of the wire house channels, in particular, is up to speed with what we think the opportunity set there will be over time. And so really, it’s about people at the end of the day and just making sure that you have the focus and the product design and the technical expertise to cover the different channels, where they’re under allocated and also want to be building it secularly over time.

Yes, Bill, it’s Michael. Just echoing Jon’s comments, I don’t think we see a channel and I don’t think we see a geography where people are moving away from alts at all. So we think given where those channels are in our total AUM, we’re going to have growth that is going to see that those channels grow those investors, that you ask about, grow as a percent of our total. But all the channels are – remain committed to alts. They remain pretty appreciative of alts over the last 1.5 years or so in terms of how things have shook out. And we don’t see any change to kind of the intermediate term or long-term demand really anywhere. And I think that’s an important point to make sure everybody hears.

Thank you both.

Thank you. We will take our next question from Chris Kotowski from Oppenheimer. Please go ahead.

Yes. Excuse me. I was wondering if you can comment a bit on the trends we see in equity-based comp. I mean it looked like an outsized step-up in the first quarter, and I’m kind of wondering what your expectation for the full year is and what the dynamic underlying that was?

Thanks, Chris. Pam touched on that in her comments. We expect that will come back in line for the remainder of the year. And in general, we – when we came public, we had an LTIP. It was one of the ability to have a stock-based comp pool to align the interests of our team and our investors. Shareholders was something that we were enthusiastic about. And we want to use that LTIP. And frankly, I think that our net use of those LTIP shares has probably been below what we would have thought it would be at the time of coming public, in the sense that I think we still have quite a large number of shares in that LTIP. So I think we’ll continue to use those, and we’ll continue to focus on managing dilution from that LTIP. And so far, we’re doing a pretty – I think we’re doing a quite good job of that and we’re able to use the LTIP, but to minimize dilution for shareholders, which is what we like. We do have some capital left in our share buyback in – but at some point, we will probably need to increase our authorization there in the future so we can continue to buy in shares and minimize dilution.

Yes. I guess related to that, I was kind of wondering – I mean, I realize it’s only $0.01, but the dividend was $0.01 above your adjusted net income for the quarter. And it just seems like the dividend speaks for an awful lot of your kind of base level of cash flow. And would some of that be better allocated to incremental share buybacks or is the dividend kind of [indiscernible]?

Well, there’s pretty good room in our dividend relative to our base level of cash flow now, and we have been buying back shares. And I do think at these levels, we like buying back shares. And as I said, we’re likely to increase our authorization there and make sure we’re directing significant capital to buying back shares and to managing the – any dilution from stock-based comp and from the issuance of those LTIP shares, both short-term and longer-term. And – but we do – we have a room in that dividend and we’ve emphasized the safety of that dividend, and we continue to emphasize the safety of that dividend.

Okay. And then last question from me is, I’m curious, was there – just in terms of the fundraising kind of tone of conversations, was there a change after the collapse of Silicon Valley? Or do people kind of hold that off as something that’s separate from these kinds of allocation decisions and that’s something happening over in the banking system and doesn’t really affect us or did that have an impact?

I don’t think we’ve seen an impact that’s directly related to Silicon Valley Bank or to Credit Suisse. I think in general – and we did this obviously intentionally to highlight the levels of volatility that we’ve seen in the first quarter of each of the last 4 years. And I think in general, when we see that type of volatility and we see the change in rates that we saw over the last 12, 15 months, you just – and importantly, importantly, the lower levels of transaction activity, so the lower levels of distributions which we touched on in our prepared remarks, that just general volatility, when are rates going to kind of peak out, where are we on inflation, is liquidity – are transaction levels going to return to kind of more normal levels and distribution is going to pick up again. Those are definitely having a bigger impact on the sales cycle – the timing of the sales cycle. I think that any specific volatility events like an SVB. And – but importantly, we don’t see any change in investor plans over reasonable time periods. So I hope that answers your question, but I don’t think it’s an SVB thing. And I don’t know that – I just – it doesn’t help in terms of people just high volatility, but it’s not a direct correlation. And as we said, the transaction levels and the distribution levels are as significant as anything.

Okay. Great, thanks. That’s it for me.

Thank you. We will take our next question from Adam Beatty from UBS.

Thank you. Good morning. Just wanted to ask about the outlook for deployment given kind of the challenging backdrop right now? And specifically, there’s a pretty big chunk of AUM not yet paying fees, that will start building on deployment. So I just wanted to get your thoughts on the deployment opportunities you’re seeing across various asset classes and how maybe that lines up with the undeployed AUM that you have? Thank you.

Sure. Distribution levels were down, deployment was actually pretty healthy. And as we’ve mentioned, people are – both our team, our investment teams, they’re enthusiastic about the opportunities they’re seeing now and the opportunities they think are coming to deploy capital at good rates of return, deploy capital in the credit space at good rates of return. And so they’re enthusiastic with regard to what’s coming there. And I do think in terms of these general sort of sales cycle conversations, I think there’s a fairly acute awareness on the part of investors that the opportunity set in terms of putting money to work is better than it was 1.5 years ago and that they don’t want to miss these vintages. So they may come in on the back end of a fund raise or something like that. But in – the sales cycle stretch, I think, for sure, but people want these vintages and people are excited about putting money to work, and that was our comment on the $10 billion of dry powder.

And Adam, I would just add to what Michael said. I think one thing to remember about our business is a lot of what we do are separate accounts, as you know, 75% of our assets under management. And in those separate accounts, often what we’re doing is helping institutions with a programmatic approach to their alternatives, so that they are diversified by vintage, they’re diversified by geography or diversified by company or asset type, etcetera. And so one of the great value propositions that we bring is just making sure that we are a consistent deployer to the alternative space and of course, as Michael said, on the margin, the ability to deploy more in an environment where the opportunity set is even more interesting is certainly something that we’re seeing right now, and you’re hearing a lot of folks in the industry talk about.

Makes sense. Thanks for adding that, Jon. And then turning back to retail a little bit, I think in the past, you’ve talked about how institutional appliance really appreciate the distinctive feature of Grosvenor in having the absolute return and the private market strategies. Just wondering how that plays in the retail space in terms of gatekeepers and folks deciding what to put on the shelf, whether you’ve had positive feedback as to being able to offer those two differentiated strategies. Thank you.

We do have some – in all of our verticals, including absolute return, there are a number of different approaches and a number of different funds. And we do have some ARS funds that we think have appeal in that retail channel and appeal to retail investors, and that we are working pretty hard on and we think have some opportunity for us going forward. I think in general, in the absolute return space, you’re probably – it’s a little bit more of a market share conversation than it is an overall growth conversation. That said, there’s pretty good penetration. And so if you have good product with good track record, which we do, we think we have opportunity.

Perfect. Thanks, Michael. Much appreciate it.

Thank you. We will next go to Kenneth Worthington from JPMorgan. Please go ahead.

Hi, this is Alex Bernstein on for Ken. Thanks for taking my questions. Good morning. Maybe I just wanted to double-click on the fundraising and really the mix this quarter. You spoke about this a bit on the call and it’s also in your release. And the numbers are pretty dramatic in terms of the change. If you look at total AUM, for example, being 61% from the Americas. Yet if we look at it from this quarter, it was really only 25%, and looks like EMEA was a big driver. Just going through earnings more broadly in the space, we’ve definitely seen and heard that it sounds like some other geographies, specifically the Middle East and Asia, it looks like from an institutional LP perspective, there may be more capital to deploy there. I just wanted to maybe double-click on that topic and get a better understanding of what you’re seeing. And what’s the big driver of that number coming in from India this quarter, which seems different than what we’ve seen in some other places?

Sure. Thanks for the question. I think as we’ve said, we really see the demand and the appreciation and interest in alts strong everywhere. I think when you have a separate account business, like we do, that has a large separate account relationships, fundraising can be lumpy. And so I would think that the phenomenon that you’re asking about for the first quarter is more – it isn’t really related to demand or long-term attractiveness or opportunity set or pipeline, it’s a bit more random relating to just timing. And that said, there are certain areas of the world that are – markets in Asia, markets in the Middle East, as you point out, that are strong and so we would anticipate continuing to raise significant capital globally in all those markets.

Helpful. Thank you. And just as you think about continuing to sort of build out the platform, you mentioned an office in Sydney. Is there anything we should be thinking about on the expense side of the equation as relating to that? Like have most of those investments already been made? Are those folks already sort of up and running? Just trying to think about the potential additions they can add to the top line relative to when the investment was made and how much more investment we expect may be required? Thanks, again.

Well, we can always make good investments that we think are related to top line and to generating revenues. I think when Pam talks about what we see for the rest of the year, we’re baking in a granular bottom-up build with regard to where we think we will be or won’t be investing for the rest of the year. Our ‘24 – when we touch on what we see for ‘24, it’s the same thing. And in terms of baking that in bottoms-up granular, including investment spend for people to help us grow. And so I feel like we’re being smart about that, careful about that. I think we’re managing headcount and cost well in this environment. And we spent an awful lot of time talking about that in this environment. So you should assume that that’s – that we’re paying close attention there, and that’s kind of baked into our numbers, so to speak.

Understood. Appreciate the responses.

Thank you. [Operator Instructions] we will take our next question from Michael Cyprys from Morgan Stanley.

Hey, good morning. Thanks for taking the question. I wanted to come back to your commentary on the sales cycles extending. Maybe you could just elaborate a bit on which types of strategies and customer sets are you seeing that with more now versus last? How that’s different versus maybe 3 or 6 months ago? And are there any particular areas where you’re not seeing as much pressure on the sales cycle extending?

I don’t think that there is a significant difference from 3 months ago, maybe a little bit from 6 months ago. And again, importantly, we think it’s a cycle timing difference and not an absolute demand difference. Clearly, as Jon touched on, infrastructure is seen a lot of flows and we think continues to see a lot of – there is a lot of pipeline there and a lot of opportunity in the infrastructure space. And there’s an awful lot of conversation around credit. We have $12 billion deployed in the credit space. We have ability to capture credit flows to the extent that credit is a place that people are leaning forward. The issue, I think, Michael, is less about specific strategy. So looking forward, we say credit would see flows and infrastructural will see flows. But it’s really about just the level of flows and really about the timing of those flows and people kind of wanting to, as I said, come in at a later close as opposed to an earlier close and that sort of thing. And I think the conversation will capture the breadth of our platform enables us to raise capital really for whatever the investors are wanting to deploy capital for. And I think it’s one of the great strengths of Grosvenor. So if it’s credit and infrastructure, we will capture flows. If it’s private equity or ARS, we will capture flows. If it’s secondaries, we will capture flows. And I think it’s – so we feel very good about that. We feel like the breadth of the platform is – the value of the breadth of the platform becomes clear, we feel very good about our ability to capture the flows that are out there. And I just think the volatility and the liquidity have kind of stretched the timing writ large.

Great. And just a follow-up question, you mentioned the re-up customers. Just to dig in there a little bit. As customers are coming back into your funds and renewing their separate accounts, what do those re-up rates look like today versus the past couple of years? And how much are customers increasing the size of their investment? How is that trending versus the past couple of years?

They’ve been strong. Re-ups have been and always are strong for us. Re-up rates have not diminished or not changed. And frankly, the re-up levels really haven’t diminished or changed. Maybe there’s a little bit of a slowdown there as the cycle has gotten stretched a bit. But people want to invest, they want to re-up. The important part of our separate account business that we try to hammer 74% of AUM is these are programs that the investors are committed to, they’re kind of the base or the cornerstone of what they do in a lot of the strategies. Generally, they do other things on top of them or on the side of them, and our feeling is that they may – they’re more likely to sort of trim around some of the other stuff that they do as opposed to their base or their core separate account activity. So we feel that the re-ups are a great feature for us. And when we look forward and we look at re-up timing, that feels very good to us. It’s nice to know, frankly, that you’ve got that in terms of your ability to grow looking out 1, 2, 3 more years. And so that’s a very nice aspect of our business. As Jon mentioned, it was nice in the first quarter to see a lot of our fundraising come from new investors. So in general, we’re – we certainly hope you’re hearing that we are confident and optimistic and feel good. But it has been a volatile period of time with significant change in just general market and economic activity levels, and we do think that transaction level is – and distributions are the important factor driving the market today.

Great. Thank you.

Thank you. We will take our next question from Jeff Schmitt from William Blair.

Hi, this is Tyler Mulier on for Jeff. I wanted to circle back to credit that you were just talking about. Given the move in interest rates over the past year, Fed funds rate at the highest level since 2007, could you give us some comments maybe on how we should think about the impact on client portfolios? Or would the sort of the benefit be offset by higher hurdle rates, presuming increasing demand maybe for specific strategies like distressed?

We feel that the improvement in the opportunity set has compensated – more than compensated for higher rates and for the ability to provide good opportunity for clients going forward. And so we don’t see any issues there at all. As I said, people don’t want to miss these vintages. They understand that this is a good time to be investing and are excited about it. It may be that credit gets more focus and more attention, and that is in part a function of some of the things that have taken place in the banking sector. And the need for alternative credit, private credit, going forward as the banking system adjusts to what’s going on, what went on in the first quarter and has continued a little bit here into the second quarter as well, and so that’s all actually pretty positive for us. And really, the question is just the speed of commitments and the overall level of commitments as opposed to – and again, I’m hammering this, but it is – we think that liquidity more than denominator effect, which is a little bit what you’re getting at, liquidity is probably a bigger issue than denominator effect in the timing of commitments.

Great. Thank you.

Thank you. And I’m not showing any further questions.

Well, thank you again for joining us today. We welcome your follow-up questions, and we look forward to speaking with you again next quarter.

Thank you.

Thank you, ladies and gentlemen, and thank you for participating in today’s conference. This concludes today’s program. We hope everyone has a great day. You may all disconnect.