DigitalBridge Group, Inc. Q3 FY2024 Earnings Call

Greetings and welcome to the DigitalBridge Group, Inc. Third Quarter 2024 Earnings Call. At this time, all participants are in the listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Severin White, Managing Director, Head of Public Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to DigitalBridge's third quarter 2024 earnings conference call. Speaking on the call today from the company is Marc Ganzi, our CEO, and Tom Mayrhofer, our CFO. I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. All information discussed on this call is as of today, November 1, 2024, and DigitalBridge does not intend and undertakes no duty to update it for future events or circumstances. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC for the year ending December 31, 2023, and our Form 10-Q to be filed with the SEC for the quarter ending September 30, 2024. With that, let's get started. And I'll turn the call over to Marc Ganzi, our CEO. Marc?

Thanks, Severin. And welcome, everyone, to our third quarter 2024 business update. We appreciate you joining us on the call and look forward to answering your questions during the Q&A session. So let's get started with the first item today, financial performance. This quarter, DigitalBridge continued to deliver peer-leading growth in fee revenues and fee-related earnings as our investment platform continues to scale. We delivered another quarter of mid-teens fee revenue growth combined with expanding margins as revenues continue to grow faster than expenses. Fee-related earnings were up 42% year-on-year and fee-related earnings margins were up 500 basis points at 34%. Persistent revenue growth and expanding margins are central to the DigitalBridge investment thesis, and we've continued to deliver here. Second, probably the most important part of this quarter was capital formation. We are well positioned to exceed our $7 billion annual fundraising target with $6.1 billion already raised to date. We'll talk a bit more about this in a minute, but it's important to note that the timing and composition of those commitments will shift some of the reoccurring fee-related earnings impact into 2025, and Tom will walk you through that and how it impacts out-in period fee-related earnings for 2024 a little bit later in the call. Third, capital deployment. We're seeing the best opportunities to put that capital to work today. In this period, it's been in both our existing platforms and new opportunities in the data center and tower verticals. We're putting more capital behind growth at DataBank and Vertical Bridge, as well as new portfolio companies like Yondr and JTOWER. It was an exceptionally busy quarter in deploying capital, and we're seeing really good opportunities in this market environment today. Let's start by discussing the uptick we're seeing in capital formation and how that sets us up for the end of the year. The headline says it all. I'm pleased to report that we have $6.1 billion in capital formation year-to-date. This has been a tremendous quarter. And again, I want to reconfirm with you, DigitalBridge is set to exceed our $7 billion capital formation target. Last quarter, we were in line with the prior year at the same point, and today we're tracking 13% ahead of last year. The momentum has picked up, and as you can see, we've raised $1.9 billion in just the last 30 days alone and have less than $1 billion to go with two months left in the calendar year to exceed our budget and our targets, which we have strong conviction around. Since our last report, fundraising has been dominated by our co-investment around DataBank, with some smaller transactions and steady commitments to our DigitalBridge Partners three flagship strategy. We have a very surgical approach to closing out another 30 to 40 logos on a global basis through the end of the year, positioning us to meet and again exceed our $7 billion target. One of the natural topics that's dominated this past year with investors has been the broader fundraising environment. Investors want to understand how heightened interest in AI and digital infrastructure squares with some of the forces impacting private markets. You've heard it; there are realizations, DPI, as well as the changing and shifting macro conditions around the globe today. As you can see, we're starting to see a noticeable uptick in fundraising commitments and our pipeline continues to grow as investors respond to the growing demand for new data centers and network capacity. At the same time, we're beginning to see the private markets thawing. The process of educating limited partners about the implications of AI and digital infrastructure is beginning to bear fruit. Simply put, their growing intent is matching up with an expanding capability. As our growing limited partner base dedicates more capacity to owning the picks and shovels of AI, we think the best way to play AI is to focus on the digital infrastructure that's required to power that AI economy. This is resonating with limited partners around the globe today. We've been building momentum every quarter in new capital formation and we expect our fourth quarter to be the best this year with $3 billion or more of fresh capital. We've raised almost two-thirds of that, $1.9 billion, in the first month. We have high confidence again that we're going to beat our targets for the year as our capital formation process has been accelerating and will continue to accelerate from now to the end of the year. When that new fee-earning equity under management is achieved, it generates recurring fees that drive our growth in future periods, which in turn will accelerate our fee-related earnings growth. Ultimately, the capital formation is driven by an increasingly global platform with a growing investor base. Our capital formation team of over 30 professionals on a global basis is operating at scale and is now pitching our multi-strategy approach. As you can see, that $3 billion in Q4 capital formation is coming from around the world and across our different investment solutions. This is the key point of inflection for DigitalBridge, the fact that we can raise capital globally and across different products. This quarter, here in the fourth quarter, we expect our fundraising to be dominated by North America and Asia in particular, as we close out some important commitments by the end of the year. One other thing to note about capital formation has been our strong renewals, as well as a growing contribution from new commitments at the same time. This is not only a great validation from our existing investors, but adding new limited partners is a big long-term priority for us, and we're making progress on both fronts. We've seen early success with the data center sidecar vehicle we discussed last quarter, and we expect that by the end of the year we'll have raised over $1 billion from the private wealth vertical channel for that product. That was $1 billion that we did not have factored into our business plan for 2024. Andrew and his team are already designing new products and investment solutions that fit the demand for this channel. So stay tuned. We're excited about this. We're excited about the depth of our pipeline of accounts that are looking at our existing products that we plan to close between now and the end of the year, and we're excited about our ability to scale our private wealth channel and continue to add new capital from new verticals. This is part of the plan in terms of scaling and getting DigitalBridge to operate at the next level. I want to finish with some perspective on a few recent transactions that highlight our continued investment activity across the AI infrastructure ecosystem. This includes backing two of our most trusted and successful platforms with over $5 billion in fresh capital, as well as launching new platforms that will be the source of future returns in the coming years. First, Vertical Bridge, our flagship private North American tower company, recently signed a $3.3 billion deal with Verizon to purchase its remaining tower portfolio of over 6,300 macro sites, increasing Vertical Bridge's macro footprint by over 50%, while reinforcing their profile as the largest private cell tower operator in the United States operating at scale. The next transaction I want to highlight is DataBank, where we brought in our partners from Australia Super to lead a $2 billion equity raise to fuel the growth of three new campuses that will add almost 800 megawatts of edge compute power, tripling the company's footprint today. Raul and his team are hitting on all cylinders and now they're incredibly well capitalized to build out the next phase of their growth as they address the key market of edge compute workloads. We're really excited about what's happening at DataBank and now Raul's got the capital to go execute on that vision. Next up, we also established two new platforms earlier this month. First, JTOWER, the largest independent tower company operating in Japan today. We're honored to be the controlling shareholder of this business in partnership with management. As some of you know, Japan is historically a relatively closed market. Our successful bid highlights the trust our carrier partners have in our experience in operating mission-critical infrastructure globally. Owning and operating eight tower platforms on a global basis was incredibly relevant here. So was our approach to the Japanese market and the years of time we put in building trust with those customers and the management of JTOWER and its shareholders. That was not an easy process, but at DigitalBridge, we're playing for the long haul. Some transactions take years to cultivate, like our relationships with Verizon. It manifested through years of hard work. These are difficult transactions to execute, and we do it through our relationships and perseverance. Finally, we recently reached an agreement to acquire Yondr, a global hyperscale data center platform operating in nine markets across North America, Europe, and Asia. Yondr has over 420 megawatts of lease capacity today and the potential capacity to grow to over a gigawatt. We're excited to be supporting their continued growth in what is one of the most attractive segments of the data center ecosystem today, leveraging our key customer relationships and our operating experience as builders of successful businesses in the data center sector. With that, I'll turn the call over to Tom to cover the financial section. Tom?

Thanks, Marc, and good morning, everyone. As a reminder, this earnings presentation is available within the shareholders section of our website. Today, I'll start with our quarterly financial highlights, followed by an update on our 2024 guidance informed by the pace and composition of our fundraising progress, and finish by covering our non-GAAP metrics and balance sheet profile. Starting with our third quarter results, we recorded $77 million in fee revenue and $26 million in fee-related earnings, both up substantially over the prior year period on a higher capital base. Additionally, we formed $1.8 billion of new capital during the quarter. As of September 30, our fee-earning equity under management stood at $34 billion, which represents a $4.2 billion or 14% increase over the same period in 2023. As Marc mentioned earlier, we've continued to raise capital through October and have a strong pipeline and visibility on fundraising through the end of the year and into 2025. In the third quarter, we generated approximately $11 million in distributable earnings, largely from recurring asset management operations and contributions from principal investments, benefiting from reduced interest expense after extinguishing our 2025 senior notes. Moving to the next page, we believe that the year-to-date capital raising and investment activity has positioned us well for 2025 and beyond. We've raised $4.2 billion of new capital during the first three quarters of the year and are close to $6 billion year-to-date, giving us confidence in hitting our $7 billion target. We're also progressing towards our target on fee-earning equity under management. Although we're likely to end the year near the lower end of our original range of $36 billion to $38 billion based on realizations and other offsets to new capital raised, we have revised the target downward slightly to $35 billion to $37 billion. From a revenue and fee-related earnings perspective, we continue to generate healthy year-over-year growth and believe that the fundraising activity this year will pay dividends going forward. However, the capital we've raised this year has skewed more than expected towards co-invest capital and funds that charge fees on invested capital rather than on committed capital that generate catch-up fees, which will result in lower fee revenue in calendar year 2024 from the capital we've raised. We're at $303 million in fee revenue on a trailing twelve-month basis and are likely to come in between $305 million and $320 million in fee revenue for the calendar year 2024. This will be short of our range of $335 million to $360 million, but still represent a meaningful increase of between 14% and 20% over the $267 million reported in 2023. With respect to fee-related earnings, we're at $72 million year-to-date and $98 million on a trailing twelve-month basis. We expect to end 2024 with between $100 million and $110 million in fee-related earnings, representing greater than a 20% growth versus 2023. A significant driver of the shortfall versus guidance relates to the composition and timing of capital raised this year. As mentioned, we've had a larger contribution from co-invest than we originally budgeted, which has a lower fee structure than fund commitments and more importantly for 2024 does not generate catch-up fees the way that commitments to our flagship strategy do. We believe that this is largely a timing and pace issue and not an indicator of the absolute amount of capital that we will ultimately raise in our fund products. We're confident that all of our funds currently in the market will complete their capital raises successfully, but some of this will roll over into 2025. On the next few slides, I'll give you a sense of our conviction behind the company's growth prospects, despite the shortfall in our 2024 revenue and fee-related earnings in comparison to our original guidance. The $1.8 billion of new capital formation in the quarter translated into a $1.4 billion net increase in our fee-earning equity under management, from $32.7 billion at the end of the second quarter to $34.1 billion at the end of the third quarter. This growth is driven by capital formation in the DigitalBridge Partners series, co-investments, and credit strategies. As of September 30, we've raised $4.2 billion of fee-paying commitments in 2024. We already started the fourth quarter with a strong fundraising pipeline and are looking forward to the rest of the year and the start of 2025. Moving to the next page, which summarizes our non-GAAP financial results, the company reported $77 million in fee revenue in the third quarter, marking a 16% increase from the same period last year. The $26 million in fee-related earnings generated in the third quarter represents a 42% increase over the comparable period in the prior year, while the trailing twelve-month fee-related earnings increased to $98 million, the highest reported over any 12-month period. We also continue to see steady and consistent improvement in operating margins as revenue growth exceeds compensation and administrative expense growth. Our margin increased from 28% to 34% when compared to the third quarter of 2023. We expect this trend to continue as we raise additional capital over the next several quarters. Turning to the next page, which summarizes our carried interest and principal investment income. We reported a gross carried interest reversal of $15.8 million in the third quarter, which after associated compensation expense and non-controlling interest resulted in a net carried interest reversal of $7.7 million for the quarter. As a reminder, the company accrues carried interest based on quarterly changes in fair value of the investments held across our portfolio funds and does not represent a cash realization unless classified under realized carried interest. On our balance sheet, we've accrued gross carried interest of approximately $940 million, with net of compensation and controlling interest representing $181 million of net accrued carried interest to DigitalBridge shareholders. Principal investment income, primarily earned on the capital invested alongside our limited partners, was $6.5 million in the third quarter. Moving to the next page, this chart highlights the stability and consistency and growth, both in revenues and margin as we present those here on a trailing twelve-month basis. Trailing twelve-month margin has ticked up from 31% to 32% as of the third quarter. Based on our fundraising outlook, I expect this chart to continue showing steady and consistent growth in trailing twelve-month fee revenues, fee-related earnings, and margin over the coming quarters. The third quarter saw $1.6 billion of inflows, primarily capital raised in DigitalBridge Partners funds and co-investments, slightly offset by $300 million of outflows. Turning to the final page of the financial section, you'll see that the company continues to maintain a strong balance sheet with $1.4 billion of capital invested alongside our limited partners and ample liquidity. We continue to evaluate the appropriate capital structure for the business, including our preferred stock obligations. Available corporate cash as of September 30 was $127 million, with total current liquidity of $427 million. With that, I'll wrap up the financial section of our presentation, and we'll turn it back to Marc for his final remarks.

Thanks, Tom. I'd like to wrap up our third quarter report by covering the progress we've made on the second half of 2024 priorities that I outlined last quarter, as well as putting into context where we are focused on the longer term. First, continuing to deliver peer-leading management fee revenue growth and operating margin expansion, we checked the box here. Fee revenues were up over 16%. Fee-related earnings growth was up 42%, and we expanded fee-related earnings margins to over 34%. As I noted earlier, delivering here is central to the DigitalBridge thesis. We've got to grow fee-related earnings, we've got to grow our margins, and at the same time, we've got to continue to generate new revenues. Second, successfully forming $7 billion in new fee-earning equity under management. Here, we're clearly on track to deliver, in fact, we're set to exceed with over $6.1 billion of committed capital as of today. We're well ahead of last year, with under $1 billion remaining to go with just over two months of fundraising left in the year. Third, we are going to accelerate fee-related earnings growth into the back half of 2024, on the back of new equity commitments. As Tom noted, the timing of capital formation is happening later in the year than expected, and the composition of that fundraising with more co-invest and less DigitalBridge Partners 3, which generates catch-up fees, has impacted our ability to deliver the end period fee-related earnings that we'd expected. The silver lining is that as new capital formation is activated, like we've just done here in this quarter, those recurring fees will benefit future periods. We remain convicted in our ability to execute our business plan. Number four, continue to maintain a strong balance sheet and liquidity position. Here, we can check the box again. With cash in our balance sheet remaining stable and consistent with the prior quarter. The last item, number five, centers around corporate M&A as we evaluate accretive acquisitions of adjacent asset managers. We haven't closed anything this year, but we continue to have a compelling pipeline and expect to be active this year. Finally, before I turn the call over to Q&A, I want to highlight management's key long-term priorities that underpin both our investment thesis and our strategic focus. While delivering results in 2024 is super important, we want to ensure that every investor understands that we remain committed to delivering our long-term fee revenue and fee-related earnings targets, doubling the fee-earning equity under management in the next five years with margins expanding from the 30s to the mid-40s. Make no mistake, we will deliver on this plan. Secondly, continue to create value at our portfolio companies by leveraging our heritage as business builders. This drives investment results, which in turn drive carried interests for you, our shareholders, and the next cycle of capital formation that you're beginning to see here in the third quarter. Finally, on capital allocation, this is about redeploying the free cash flow that our business is now generating into high return on invested capital uses. This includes compounding capital alongside our limited partners, taking advantage of strategic accretive and tuck-in M&A, and continuing to optimize our capital structure when it makes sense at the right price. These three priorities remain at the center of our roadmap and inform the decisions we make about how we form and deploy capital across the AI infrastructure ecosystem to the benefit of our limited partners and, of course, to the benefit of you, our shareholders. With that, I want to thank you for your ongoing interest in DigitalBridge. I look forward to updating you next quarter on our progress as we close out 2024. Operator, please open up the call to Q&A.

Thank you. We will now be conducting a question-and-answer session. The first question is from Jade Rahmani from KBW. Please go ahead.

Thank you very much. I think you should address at the outset the disconnect that exists between the positive industry backdrop for digital infrastructure, which we're all familiar with, positive news flow about specific deals, and yet the disappointing results. It does seem like the mix shift in fundraising is toward co-invest. So the question is whether DigitalBridge is best suited as a merchant bank type of entity rather than, you know, running the flagship funds. So I guess if you could just ask about investor concerns as it relates to the fundraising outlook?

Yes, good morning. Thanks, Jade. First of all, co-invest is a part of what we do, right? It's our heritage and where we started. Everything we're doing in co-invest links up to the flagship funds. The ability to scale and create outsized outcomes relies greatly on co-invest. You have to remember when we're raising primary or secondary capital like we did this quarter, it's being deployed immediately into growing the physical plant which is generating net operating income and earnings before interest, taxes, depreciation, and amortization across the 40 plus businesses that we own. It's a powerful force multiplier, and at the same time, it creates more scale and more carried interest on the investments inside those funds. So it is vital, and given the amount of capital expenditure that our customers are spending right now, you need a big co-invest program to have the capability to secure larger bookings. I'll give you a case study on that, which is Switch. We raised over $2 billion of co-investments in Switch, and we've continued to add capital to Switch. Since we've taken that business private, we've almost tripled the earnings there in a short period of time, two years. How do you do that? You do that by having what I call ready-aim-fire capital. Vantage has it, DataBank has it, and so do our big hyper-scale data center platforms worldwide, allowing us to perform at a level where other data center operators cannot. Second, our fund products are working—whether it's our credit strategy, flagship strategy, or our private wealth channel. This quarter, given the velocity and acceleration in fundraising, I have total conviction around all of these products working and working simultaneously. A year ago, Jade, we were just a one-product shop. Today, we have credit, private wealth, flagship, and co-investments. All of those products this quarter are working, and they're performing. That's the key takeaway from this quarter, not that we're a merchant bank. We are a global alternative asset manager with multiple strategies, and all those strategies are winning and performing. While I understand your frustration regarding fee-related earnings, given the slow velocity of fundraising in Q1 and Q2 and the beginning of Q3, it affected our performance for the calendar year. Again, we are very convicted about where we are going next year and remain completely on track with our five-year vision of where this business is headed. Much of this is timing, but we're quite pleased with the fundraisers. Not pleased with the fee-related earnings results, but extremely pleased with where we are in fundraising. The pipeline for the remainder of the fourth quarter is incredibly strong. We've got over 40 dedicated accounts that aggregate over $3 billion in possible opportunity, and the fundraising pipeline is strong between now and the end of the year. These are high-probability accounts committing to flagship, credit, co-invest, and private wealth. All of those products are operational, and we're a multi-strategy global asset manager—that's who we are, not merely a merchant bank.

Can you discuss what drove the carried interest reversal? That was also a surprise.

There wasn't anything really significant in that. It was sort of portfolio evaluations that were appreciating roughly in line with our preferred returns. So, there was a little bit of an up and a little bit of a down across various funds and products. But there was no individual significant driver.

Thank you.

Thanks. Good morning, guys.

Good morning, Ric.

A couple of questions. Marc, I think where we were off on ours was composition. You guys have hit on that a couple of times. The composition, the fundraising panel was coming in line when we were back-end loaded. But the composition is the big key. Maybe you guys can walk us through how much of the catch-up fees that you were thinking would come in ‘24 have moved out into ‘25 first? Just give us kind of a magnitude of what happened with composition and how much catch-up fees moved out into ’25?

Yes, I'll let Tom start and I can backfill behind him, but we have pretty good clarity on that. Go ahead, Tom.

Sure, Ric. So year-to-date, at September 30, we've had about $10 million of catch-up fees. Those tend to accelerate as the longer a fund is in the market. So I wouldn't be surprised if we have between $5 million and $10 million in the fourth quarter. In our original guidance for the year, we targeted $40 million. So roughly speaking, I wouldn't be surprised if we ended up with half of that in ‘24, and the other half rolls into ‘25, something on that order of magnitude.

Okay.

And just to add to that, Ric, timing is key regarding when fees activate. Co-investment fees, for example, activate once we close on an investment. When that investment closes and the capital is invested, the fees kick in at that point. So when you get a significant primary commitment of capital like Aus Super and DataBank, we're deploying that capital over the next 12 to 18 months. Those fees activate as we commit and invest capital, not just on committed capital. So co-investment fees kick in based on invested capital. Additionally, our credit strategy also operates on invested capital rather than committed capital. Our credit funds don't generate fee revenue on committed capital. On the credit strategy, that continues to operate well, with separately managed accounts, which we've found to be the preferred route for large credit investors. They will often commit incremental capital to their fund strategy, as separate managed accounts allow us discretion. They'll commit capital based on deals they like, and once that loan closes, those fees are activated. So there's a timing lag in how we get paid in credit. Co-invest and credit operate on a different cadence than flagship and our private wealth channel, which is based on committed capital, mirroring our flagship product. As we scale our private wealth product, our target was $600 million, and we’ll exceed that significantly within this quarter. The private wealth product is indeed working incredibly well, and as Tom previously indicated, those fees will catch up in the first quarter of next year. I hope that's helpful, Ric?

It is, and timing is obviously important. What on the flagship side, where are we at on Fund 3 and what is the hard cap for Fund 3? How should we think about that one since that does drive earlier recognition of catch-up fees?

Yes, so we're performing quite well on flagship. I don't think we're at liberty to disclose the specific number as of today, but commitments are coming in daily. Our target for the third strategy is $8 billion. We haven't set a hard cap on it yet. We've had some conversations with our top limited partners. We feel good about hitting $8 billion in Q1 of next year. That's the plan. We have a robust pipeline with over 130 accounts in the data room working on that fund. So we could exceed that, but we aim to hit the target and deliver it in Q1 next year. Again, our team has strong conviction that we're going to reach that target and we're well north of 50% of the way there with a clear path outlined.

Okay, and last one for me is obviously carried interest is a large component of what the value of the stock could be. Recognition of carried interest is important. Like Jade said, there was some accounting items this time on mark-to-market or fair valuations. But there's been a lot of news out there, a lot of rumors about some of the portfolio companies. Can't ask you to address rumors, but just as we think about carried interest performance, how should we think about the timing of that and the recognition of that? It feels like there's some prioritization on getting some of that realized in the not-so-distant future, but anything you could elaborate on would really help?

Yes, thanks, Ric. Carried interest is a significant part of our value proposition. When we laid out the sum of parts analysis on DigitalBridge last year, we targeted about $1.4 billion to $1.5 billion off our balance sheet, another $700 million to $800 million off of carried interest, and the asset manager based on some multiple of fee-related earnings, giving us the total valuation for DigitalBridge. We’ve always been clear about what we do in selling our portfolio companies. We have excellent assets—super valuable ones, and many rumors circulate about our assets. However, we do not address those rumors directly. Interested parties inquire about purchasing our platforms, and if we see compelling value—30% to 40% premium to net asset value—we consider selling. We tend to be very conservative in how we mark our book. Tom will walk you through the reversals and carry during this quarter. The independence of mark evaluation is crucial; I do not participate in valuing our assets. We generally tend to mark conservatively, relying on third-party validations. The rumors you're hearing come from the fact that we have very attractive businesses. Whether relations are rumored to involve an IPO, sale, or acquisition, we want to highlight that we are increasing distributions. Some of the DataBank transactions involve some DPI, and the moves at Vantage set us up for success, providing further opportunities to create those outcomes, either rumor or fact. We'll be actively reviewing assets in Fund 1 to generate carried interest next year. Not to reiterate too much, but we place a strong emphasis on DPI; however, we must ensure conditions are right regarding interest rates and multiples. We recognize the platforms we are building are unparalleled globally, so we won't rush to sell at artificial prices; when compelling value arises, we will act.

Great. Thanks, guys.

Thank you.

Hi. I just wanted to follow-up on the capital formation environment. You're saying it's accelerating, but I think as some of the questions earlier pointed out regarding DBP 3 and kind of the later close, as we go into next year, is this expected to culminate with DBP 3 closing in the first quarter? Just trying to understand where you see things headed over the next six to 12 months.

I don't see it culminating. In fact, I think this is the normal cadence we're trying to develop here at DigitalBridge. That movement away from being a one-product shop toward being a multi-strategy firm is evident this quarter. As I said earlier, all products are performing well. This continues into the fourth quarter, providing even further validation of our efforts in credit, flagship, private wealth, and co-investments. All these products are gaining momentum. Next year, we will introduce new products and strategies. We are on track to finish the flagship product and our credit strategy will continue to secure capital next year. We're looking at further ideas for private wealth products, slated for early Q1 next year, and we'll be assessing our core fund performance. The key here is not to be dependent solely on our flagship product. If you take away one highlight from this call, the transition from being a single product firm to a multi-strategy firm is now clear. The strong fundraising we achieved is a testament to this validation.

And regarding the data center sidecar for private wealth, you said the expectation is up from $600 million to $1 billion, but do you assume that this will be an ongoing product, potentially providing a consistent channel from that asset class?

Yes, we're very excited about it. Andrew has demonstrated at Goldman and KKR the ability not just to build one product but to create multiple products. His focus has historically raised billions of dollars annually. What we discovered with the AI data center sidecar vehicle is that we could get private wealth clients access to premier companies very quickly. Investors were enthusiastic about this concept. The possibilities are abundant. There are further AI opportunities, geographies, and other verticals like fiber, towers, and digital real estate we can explore across the private wealth platform. Additionally, we can integrate our private wealth channel into our large co-investment product, allowing them to capture a portion of that co-investment, which generates fees immediately. So we anticipate accelerated growth for our private wealth group and have new products ready for the market for next year.

Great, appreciate you taking the question. You know, Marc, you guys have been more active recently with some M&A, the Vertical Bridge and Verizon deal you highlighted, and other large deals like AirTrunk within the data center sector. So where do you see M&A activity in terms of finding value through acquisitions, and what does the pipeline look like?

Yes, thanks Eric. We're actively investing through the third flagship strategy, which is going very well. Yondr is a prime example of that. We didn't disclose the multiple, but it represented good value—much lower than AirTrunk’s lofty evaluation. We discovered significant value with Yondr because many investors were focused on AirTrunk. Our second team was working on Yondr while we pursued AirTrunk. I’m pleased with that outcome as it's a rewarding asset with a great footprint, and on a relative basis, we offered an appealing bid compared to AirTrunk’s high valuation. Additionally, the JTOWER transaction took two years to finalize. The Japanese tower market is now uniting as carriers are sharing infrastructure, paving the way for substantial growth. We're extremely optimistic about being the first foreign owner/operator in Japan through JTOWER, which provides exciting prospects. The Vertical Bridge deal continues our long-standing collaboration with Verizon; we started 30 years ago building sites for them on the Bell Atlantic network and are thrilled with the outcome. Raising co-investment around this idea has drawn numerous investors, which strengthens our position. If you possess top-notch assets in a market, including Verizon towers, investors line up for opportunities, which is when co-invest effectively operates for us. We face a sturdy pipeline with over 20 projects and $10 billion worth of new opportunities in our flagship fund. So overall, from an M&A perspective, we're finding value. It’s challenging to secure attractive data center deals and tower investments as well, and while small adjustments in multiples have occurred, premium assets often remain at consistent valuations. However, we believe there's significant value in fiber investments.

Thanks for that, Marc. You mentioned earlier that you expected to close on some asset manager acquisitions in the fourth quarter, if I understood correctly. Could you elaborate a bit on that? What are you looking for in these acquisitions? Are you aiming for access to additional products, perhaps traditional private equity, energy expertise, or new limited partners?

You just answered my question, Eric. We want it all! So, first and foremost, M&A must align with our financial profile. We aim for at least a 2.5 times return on our investment. When utilizing our balance sheet, I seek private equity returns—20% or higher—rather than standard infrastructure returns. As Tom and I supervise the balance sheet, we remain cautious in our search for the right pockets of value and ideal managers. We’ve expressed a desire to bolster our credit platform and have promising ideas currently underway to achieve that. It’s crucial for us that potential acquisitions yield immediate returns for our shareholders. We are eager to deepen our presence in the credit sector and evaluate targets that align with our strategic approach, including private equity avenues related to telcos and spectrum. It will take time to develop lasting relationships within that sphere. Additionally, we've been building out our energy capabilities, looking at various energy transition GPs for potential M&A opportunities, providing us with strategic input on various energy projects. While our focus remains on credit, private equity, and energy transitions are also high on our agenda. Ultimately, these acquisitions must be accretive from day one, and we target IRRs above 20% and returns beyond 2.5 times initial investments. These are vital considerations in how we utilize the balance sheet.

Thanks for taking my question. You previously mentioned that DigitalBridge's GP interests and minority stakes in some of your data center companies have been undervalued by the marketplace. I wonder if you have any updates on monetizing those assets, and if so, what would you use the funds for?

Regarding our balance sheet, we maintain two pillars of value—positions in DataBank and Vantage, along with GP stakes. Currently, we're holding DataBank and Vantage SDC at $675 million, DigitalBridge Partner Series at $340 million, and the remaining GP stakes at $362 million. As I mentioned, we are raising over $2 billion for DataBank, involving some secondaries. This secondary closing will occur later this quarter or in early Q1 next year. We plan to return some capital from DataBank, with discussions between Tom and myself about the amount of secondary we want to pursue. Given the market in which we raised funds with our Super investment, we are optimistic because this validates our hard work. Tom, do you want to elaborate?

Yes, there are two components at play here. The GP investments in the funds, the DBP series will have a continual churn, and realizations from those will fund our commitments in the upcoming fund. But if an opportunity arises to transact a meaningful amount associated with a large balance sheet position, that will be pronounced. We see these two aspects differently. GP investments continually generate churn while singular investments like DataBank and Vantage SDC will have unique uses in potential transactions.

I believe Vantage SDC is proving to be a unique asset. As for DataBank, we’re creating significant value. Both assets are consistently generating strong organic growth and returns. For our balance sheet, this diversity is advantageous. Given our confidence in these investments, we’re inclined to maximize their value before setting any monetization plans. Our secondary strategy will focus on extracting value from DataBank, especially with competitive pricing in the current market.

Thank you. One final question on the fiber investments. There's been increasing AI-driven demand for fiber and expanding new routes, I suppose primarily concerning Zayo. What’s your perspective on the trends driving fiber investments?

On fiber, substantial changes are occurring in various regions, each presenting distinct challenges and opportunities. I won't delve into granular specifics, but Europe is likely experiencing a shakeout. Many alternative network providers are unable to meet debt commitments, which may lead to restructuring. In terms of fiber to the home in Europe, success is evident in France, while other countries may face difficulties. Our performance on enterprise fiber seems positive. Companies such as Zayo, EU Networks, Eurofiber, and Colt are observing solid results. Their performance correlates with the demand for data center connectivity, especially for long-haul routes. These routes—like the Dublin to Slough connection—are especially lucrative for hyperscalers. We're optimistic about our prospects in Europe, Asia, and North America regarding data center connectivity, but we exercise caution concerning residential fiber due to competition with legacy telcos and cable operators in certain regions. The fiber market is competitive, promoting a prudent selection of geographical areas for investment. However, recent significant trades like T-Mobile's involvement with KKR and Verizon’s Frontier trade is encouraging, representing value creation. The fiber M&A market is expected to remain active.

Thank you.

Thanks.

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