GCM Grosvenor Inc. Q4 FY2023 Earnings Call

Good day, and welcome to the GCM Grosvenor 2023 Fourth Quarter and Full Year Results Call. Later, we will conduct a question-and-answer session. As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Selinger, Head of Investor Relations. You may begin.

Thank you. Good morning and welcome to GCM Grosvenor's fourth quarter and full year 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 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 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 shareholder 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 earning supplement, both of which are available on 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, Stacie, and thank you all for joining us. We are pleased to report solid results for the fourth quarter and full year 2023, despite the challenging environment for our industry. Importantly, 2023 was another year in which we delivered value to client portfolios, strengthened and expanded our platform, and grew our earnings power and our intrinsic value for shareholders. Our Board increased our stock buyback authorization by $25 million, which we intend to use throughout the year, and maintained our dividend rate at $0.11 per share per quarter, which represents a dividend yield of 5% as of Friday's close. Our dividend payments are comfortably serviced by our trailing fee-related earnings. From a financial standpoint, 2023 was a solid year, and we finished the year strong. Fee-related earnings grew 23% over Q4 '22 and 9% year-over-year. Since 2020, we've grown fee-related earnings at a 14% compound annual growth rate. Our fee-related earnings margin grew to 38% for the year compared to 36% in 2022. The high FRE margin in Q4 was the result of tightly managed headcount and final compensation decisions that were reflective of the environment. Our FRE margin has grown by 700 basis points over the last three years as our business has continued to enjoy considerable operating leverage and scalability. We continue to forecast margin expansion going forward. One of the key drivers of our business over the past three years has been the shift towards private market strategies, which as of year-end comprise 71% of our assets under management and 65% of our fee-paying AUM. In 2023, private markets again experienced consistent growth with management fees, excluding catch-up fees, increasing by double digits year-over-year in each quarter. As we discussed, throughout the year, 2023 was a tough market environment for fundraising, which was primarily the result of low levels of transaction activity in private market strategies. As we expected, our fundraising momentum did pick up throughout the year, with more capital raised in the second half of 2023. The fundraising environment is continuing to loosen up, which bodes well for 2024. Real assets has continued to perform well. Infrastructure and real estate were the top two contributors to fundraising during 2023, with $3.6 billion raised in aggregate. Taken together, real assets AUM has more than doubled over the past three years to just over $20 billion, and these strategies now represent over 25% of our total AUM. Capital raising from sources outside of the US was strong, comprising 51% of 2023 fundraising compared to 40% of our AUM. As you know, we've invested in business development in geographies outside of the US over the last few years, opening offices in Germany, Canada, and Australia. While expanding in new channels takes time, it's nice to see some early signs of our business development investments working. In 2024, we expect continued strong client re-ups and solid specialized funds fundraising inside of our traditional institutional channels. We are also focused on expanding our efforts in the individual investor channels generally. We see a strong pipeline everywhere and are particularly optimistic with regard to the infrastructure and credit verticals. Jon will talk a bit more about credit in a moment. Mentioned investment performance earlier, and we were pleased with performance across our strategies this past year. In particular, we were pleased that our absolute return strategies investment performance exceeded our base case assumptions, beating benchmarks and peers. As a result, a significant portion of ARS portfolios are now in a position to earn full performance fees in 2024, delivering more revenue in 2024 than we received in 2023 for the same level of performance. While it's too soon to predict a material shift in ARS flows, we're seeing increased demand from current and prospective clients, with fewer currently scheduled future redemptions than we have seen at this time in recent years. Our private market strategy's performance was also constructive, and our significant dry powder, which exceeds $9 billion at year-end, continues to put us in a good position to deploy capital into an increasingly attractive environment. Importantly, we enter 2024 with strong private markets incentive fee earnings power, which is positioned to deliver significant revenue growth over the coming years as transaction activity returns. This is clearly presented on Slide 12. As you can see, in both 2020 and 2021, we realized revenue from carry of more than 15% of our beginning year unrealized carried interest balance with $59 million and $122 million of gross carry revenue, respectively. Since then, while realizations and therefore gross carry revenue have been muted, our carried earnings power has grown substantially. You'll see our unrealized carried interest has approximately doubled during the last three years. In addition, we've raised $11.6 billion of capital for direct-oriented private market strategies over the last three years. Nearly all of that capital is either recently deployed or dry powder yet to be deployed, meaning, it is not yet in our unrealized carry balance. We believe the inflection of this revenue line is a when, not an if, and we look forward to that revenue line returning to more normal levels in the future. With the capital markets and M&A environment slowly improving, sponsors seem to be committed to driving to a higher degree of realizations this year. This should lead to more carry revenue and to positive developments with regard to fundraising. Current and prospective client activity has already picked up and based on our current pipeline, we expect 2024 fundraising to exceed 2023. We continue to believe that we are well set up for continued growth into the future. With regard to management fees and fee-related earnings, our platform breadth provides us with a lot of ways to win. It's as strong as it's ever been, and it's getting stronger. We have continued operating leverage and a solid compound growth rate in our FRE over the next several years, and based on our trajectory, we're confident in our ability to double our fee-related earnings over the next five years. When combined with the built-in growth in our incentive fee line that I discussed, we feel good about our adjusted EBITDA and adjusted net income growth as well. And with that, I'll turn the call over to Jon.

Thank you, Michael. As Michael noted, our confidence in our long-term trajectory is rooted in the strength of our platform, the significant opportunity from new but adjacent initiatives, and embedded operating leverage in the business. The programmatic nature of our private markets client relationships, which experience re-ups every three years to four years at approximately 90% re-up rates, often at larger sizes than predecessor programs, sets a foundation for growth and stability in the business. Beyond re-ups, we have a proven track record of expanding our client relationships into new areas. As of year-end, 50% of our top 50 clients work with us in multiple verticals, and 60% of our top clients work with us in both separate account and specialized fund form. We believe key macro trends and our associated positioning will drive business growth over the next three to five years. Those trends include the high demand for infrastructure, the persistent proliferation of sustainable and impact investing, the continued growth of the alternative credit category, and the democratization of alternatives through the emergence of the individual investor. We have addressed infrastructure and impact investing on recent earnings calls and believe both of these areas have potential to grow substantially in size and revenue over the coming years. Today, I will dive a bit deeper into the private credit category. Private credit has already grown tremendously as an asset class, more than doubling in the past five years, from approximately $720 billion to an estimated $1.6 trillion at the end of 2023. Non-bank lenders now account for three-quarters of the market, and there have been over 500 funds dedicated to private credit that have raised capital in the past two years. Disruptions in the banking sector last year, some of which continue today, create an even more urgent need for more sources of capital, further accelerating the sector's momentum. Against this backdrop, limited partners are rapidly evolving their approach to investing in private credit. While historically LPs have invested in private credit as part of a fixed income or a private equity or a broader private markets allocation, increasingly, investors of all sizes are creating a discrete private credit allocation. Accordingly, we believe the future of credit will be similar to how we've seen the evolution in private equity and more recently in infrastructure. As investors grow and evolve their allocation to the asset class, solutions providers like GCM Grosvenor are well-suited partners. We are able to build a single point of access that is diversified across implementation type funds, co-investments, secondaries, and direct investments as well as across areas of focus, type of credit market, cap size, sector, and region. Even for investors that started their allocation by investing directly in some of the large well-known funds, solutions providers serve as a diversifier through our broader network of primary funds and execution of co-investments and secondary investments. Our open architecture sourcing engine is a key differentiator when it comes to private credit, and we see more than 500 credit investment opportunities annually. Our presence in liquid and illiquid alternatives offer a massive funnel for the origination of credit investment opportunities, and we benefit from being able to offer these capabilities through both custom accounts as well as commingled funds. Our opportunistic credit fund, SCF II, had its first closing during the fourth quarter. As of year-end, we have $13 billion of credit assets under management, and we look forward to providing you with further updates on our success in this area as we move forward. And with that, I'll turn the call over to Pam.

Thanks, Jon. Our results for the quarter and year were consistent with our expectations and once again demonstrated our earnings quality and scalability of the platform. Assets under management were $77 billion as of year-end, a 4% increase from a year ago, and fee-paying AUM increased 5% year-over-year. Private markets continues to be a key growth driver with private markets AUM and fee-paying AUM growing by 7% and 9% year-over-year, respectively. As of year-end, our private markets business represents 71% of total AUM and 65% of our fee-paying AUM. Private markets management fees, excluding catch-up fees in the quarter grew by 11% year-over-year, achieving a double-digit growth rate once again in line with our expectations. We have enjoyed a 13% compound annual growth rate in private markets management fees since 2020. Turning to '24, in the first quarter, we anticipate private markets management fees, excluding catch-up fees, will grow in the mid-to-high single digits over the prior year. For the full year '24, we once again expect double-digit private markets management fee growth, excluding catch-up fees. Absolute return strategies management fees were relatively stable in Q4 as compared to the last quarter, and we expect first-quarter ARS management fees to again be stable on a sequential basis. Most importantly, we are pleased with our ARS investment performance for the year, which is expected to have positive ramifications in '24 and beyond. We realized $20 million of incentive fees in the quarter and $65 million in the year. Michael spoke earlier about our significant earnings potential from carried interest. While it's difficult to predict timing of carry realizations, the high diversification of our carry makes it especially valuable given its limited single-asset exposure. As of year-end, we have $776 million in gross unrealized carried interest across 137 programs, the firm's share of which is $373 million. Our share of carry has nearly tripled in the last three years. Our annual performance fees are tied to ARS investment returns and typically crystallize in the fourth quarter each year. Entering '24, our run rate annual performance fees are $28 million, assuming normalized returns of 8% for multi-strategy and 10% for opportunistic investments. Turning to our expenses. Our compensation strategy is rooted in fostering alignment between our employees, clients, and shareholders. FRE compensation was $33 million in the quarter and $149 million in the year. Importantly, we look at FRE compensation on a full-year basis, and consequently, the amount of compensation on a quarter-to-quarter basis can fluctuate. As a result, it is most appropriate to look at the 2023 average quarterly FRE compensation as a baseline for the first quarter of 2024. Non-GAAP general and administrative and other expenses were $19.5 million in the quarter. We continue to be disciplined around expenses and expect this figure to remain stable in the first quarter. Pulling together these factors on a year-over-year basis, fee-related earnings grew a healthy 23% in the quarter and 9% for the year. Adjusted net income grew 48% and 9% in the quarter and year, respectively. Our FRE margin grew from 36% in 2022 to 38% in 2023, and we expect further FRE margin expansion in 2024 as we continue to harness the scalability of our business. We are maintaining a healthy quarterly dividend of $0.11 per share or a yield of 5% as of last Friday, and there is room for future dividend growth. In the case of share buybacks, we repurchased nearly 4 million shares in 2023, and we ended the year with 187 million shares outstanding. We continue to believe that our current stock price is at an attractive level relative to market value, and our Board has recently authorized an additional $25 million per share buybacks, leaving us with $65 million remaining in our share buyback authorization as of today. Reiterating our view on 2024, we feel confident in our plans to achieve continued double-digit growth in private market management fees, stabilization of ARS management fees, expanded FRE margin, and significant growth potential in our incentive fee revenues. Looking further into the future, we are focused on doubling our fee-related earnings in the next five years with continued fee-related earnings margin expansion. We look forward to the opportunities ahead to deliver value to our clients and shareholders. Thank you again for joining us, and we're now happy to take your questions.

Thank you. Our first question is coming from Crispin Love with Piper Sandler.

Thanks. Good morning everyone. Appreciate you taking my questions. Just first on fundraising, you saw a stronger second half of the year than the first, as you expected. But can you just drill a little bit deeper into your expectations for 2024? Do you expect the momentum from the fourth quarter to continue, and what are the areas that you're most excited about for fundraising? And is there anything to call out as it relates to cadence for the year based on what you know today?

Sure. Thanks for the question. We're feeling good about fundraising. Our pipeline is quite full across re-ups, separate accounts, and specialized funds, and we're seeing stronger activity in ARS than we've experienced in a while. We're optimistic that the progress we made last year from the first quarter through the end of the year will carry on. As I noted earlier, we anticipate that infrastructure and credit will experience healthy fund flows this year, and we're excited about that. We're also aiming to engage more with individual investors this year, which presents a long-term opportunity for us. Generally, the environment for flows has improved, and our pipeline has expanded, so we hope to maintain that momentum. We believe that fundraising in 2024 will surpass the levels we reached in 2023 over the entire year. As always, we will gradually adjust as the year progresses and expect more fundraising activity in the second half, provided the environment remains supportive.

Thank you, Michael. Appreciate the color there. And then just on FRE margins, you had a really nice acceleration in the quarter. I think it was a record level for you. But just looking at 2024 FRE margins and if there was anything one time in the fourth quarter that drove the cash-based employee comp cost to be lower than your initial guide for the quarter. Just curious what changed between your last call and kind of through the quarter. You did mention the tightening headcount, but just curious what that means for 2024 as you move through the year for FRE margins.

We talked about carefully managing our headcount and finalizing compensation decisions in light of the current environment. Pam noted that considering the average FRE quarterly compensation for 2023 is a good way to think about FRE compensation expense for the first quarter of 2024. The key point regarding our FRE compensation and FRE overall is that we have consistently mentioned our belief in operating leverage in our FRE line as we grow, and we can continue to increase our FRE margins with this growth, without needing to follow some peers' practices with their carry. We believe there is still operating leverage available in our FRE line and that we will be able to enhance FRE margins in 2024. We provided a clear perspective on how to approach the first-quarter FRE compensation in your models.

Thanks, Michael. That's it for me. I appreciate you taking my questions.

Thank you.

Our next question is coming from Bill Katz with TD Cowen.

Okay. Thank you very much for the commentary and the guidance. Maybe a couple of big picture questions for today. Jon, thank you so much for the update on the credit platform. What product specifically do you see the opportunity setting into 2024? And then maybe even a bigger-picture discussion. You mentioned that sort of the emergence of the allocation. Where is that coming from? Does it come from private equity and real estate? Does it come from sort of public market, equity, fixed income, just sort of sense? What are your clients telling you in terms of where they're reallocating from?

Sure, Bill, happy to take that. I would probably start with the second part of the question first. It really depends on the client. For many, the allocation to private credit typically comes from the fixed income category. For some clients, it might come from a more liquid alternatives category, or even from private equity, or a combination of these sources. Generally speaking, the key idea is that private credit is a distinct allocation that requires a program designed for long-term persistence and continuity. I think it's important to focus less on a specific product. Instead, we should view it as a holistic solution that can be provided either through a commingled fund or a separate account. Within this holistic solution, we can assist clients in accessing specific funds as primary fund investors, which they might not be able to pursue independently. Many clients have established well-developed sponsor-backed direct lending businesses in both the middle and larger markets, but there may be other credit opportunities in smaller markets, asset-backed credit, securitized credit, or other areas where they might need assistance finding funds. One of the most exciting opportunities is as the credit market develops, similar to private equity and infrastructure, to help build co-investment programs and secondary allocations. We envision this as an open architecture approach with flexible implementation and delivery models for clients, similar to what we've seen in other asset classes.

Thank you for that. As a follow-up, I would like to ask a two-part question. When you mentioned your expectations for better asset gathering in 2024 compared to 2023, I was curious if you think this year will resemble 2022, or if it might return to a more elevated level like 2021. Additionally, regarding capital allocation, you noted that you received Board authorization, which I believe represents about 4% of your market cap. How do you approach the timing of the buyback while balancing the perceived value of the stock and the liquidity situation? Thank you.

It's Michael. In response to the first question, our internal assessments and our collaboration with the business development team suggest that our fundraising prospects for this year are significantly better than 2023, although not as strong as 2021. This aligns with the data presented in the bar charts on Page 9. However, the key considerations are the specifics of the fundraising, such as the purposes for which funds are being raised, the fee structures, and the timing of fee activation. We believe that, with appropriate fundraising aligned with our budget and pipeline for several funds that activate fees immediately, we can leverage previous fundraising levels. Although we still have progress to make, we are optimistic about the momentum we experienced in the latter part of last year, particularly in the fourth quarter, and we expect that to persist. Regarding capital allocation, we recognize that our limited float is not among our strongest assets, and we are mindful of this. At the same time, we see value in our stock. Consequently, our strategy is to limit the dilution caused by stock-based compensation while carefully managing this process. The timing of our actions is influenced by the vesting schedules of stock-based compensation and we take advantage of opportunities when we perceive strong value. Overall, we aim to avoid excessively shrinking our float, as we believe that contributes to our limitations. Therefore, we intend to manage our approach to avoid excessive dilution while also using our resources to buy back shares.

Thanks so much.

Our next question is coming from Chris Kotowski with Oppenheimer & Company.

Good morning and thank you. I want to clarify something based on Pam's guidance regarding the free comp and carry comp or incentive comp for the full year. I'm aware of the recent changes made by Carlyle and KKR to their compensation models, which shifts more of the compensation burden towards carry and incentives instead of base management fees. Did I understand correctly that this is not the case for us, and that we are simply maintaining our current approach? Or should we anticipate a shift in that direction?

Correct. You heard that correctly, and we are careful to express that we believe we have the potential for expanding FRE margin through growth without pursuing that opportunity. However, what we've discussed does not depend on us capitalizing on that opportunity at all. At this time, we have no plans to do so. We believe we can enhance our FRE margins without it. If I may compliment you, I think your analysis aligns with our perspective, which is that it isn't entirely clear how it comes together in a trade, but when considering the difference in multiples between the two revenue lines, it ultimately benefits the shareholders. We view it similarly, and we likely own a larger percentage of the company than most. Thus, we will explore all of those alternatives and options over time, but our outlook on FRE margin and the guidance Pam provided regarding FRE comp expense does not include any major changes like that.

Okay. Great. Just wanted to clarify that. That's it for me. Thank you.

Our next question is coming from Ken Worthington with J.P. Morgan.

Hi. Good morning. Thanks for taking the question. So I may be crazy here. I hate to do this on a public call, but I thought the guidance was for private market fundraising to be greater in the second half than the first, and that 3Q was sort of lighter and we were expecting sort of a bigger pop in 4Q. It looks to me, and maybe my numbers are wrong, but that to get there, you needed about $1.2 billion of additional fundraising than you got in 4Q kind of hit that guidance. Am I completely off base here, or did fundraising get pushed from 4Q to 1Q?

I think that we have always talked, Ken, about raising more money in the second half than in the first half, and we did that, and we also talked about kind of the growth rates of private markets management fees, and we were pleased with the growth there and how that's gone over the last several years. And so I think we did do what we said we would do in terms of second-half fundraising exceeding first-half fundraising. That said, always your fundraising total comes down to whether a couple of things that you're trying to get closed by the end of the quarter get closed or slip. And I do think we came into the first quarter with a few things that could have closed in the fourth quarter. And that's probably part of where our confidence comes from, that our momentum is going to continue that in our pipeline.

Ken, I want to add to what Michael mentioned. We can certainly connect with you after the call. If you look at the total fundraising, the combined amounts in the third and fourth quarters were greater than those in the first and second quarters.

Great.

And that was what we had in Q2 and Q3 on our calls. We were confident that would be the case.

Okay. Great. And then 2023 was a much better year for the absolute return business. It underperformed equity markets as you would expect, but yields on cash remain elevated. How do you see sort of the yield environment and the strong equity environment sort of impacting demand? So you sort of called out that absolute return performance was good. It seems to me like the risk-free returns are also quite good and the equity markets were substantially better. Is that sort of weighing on how your investors are looking at absolute return and their willingness to sort of contribute new dollars here or the number?

I believe when we discuss strong performance, we focus on two key aspects. First, we assess our performance compared to our peers, and we performed well last year. Second, we evaluate our performance against benchmarks, which reflect client expectations, and we performed well in that regard as well. Currently, our client base appears positive in light of the returns from 2023. Additionally, I noted two important facts: the scheduled redemptions for the remainder of the year are lower than they have been at this time in previous years, which is encouraging, and our pipeline is significantly larger than it was a year ago. Overall, we are in a better position today, coming off a solid year with fewer scheduled redemptions and a much larger pipeline compared to a year ago, when our performance was not as strong and we faced more scheduled redemptions along with a smaller pipeline.

Great. Thank you very much.

Our next question is coming from Adam Beatty with UBS.

Thank you and good morning. Just another one on fundraising. Appreciate the schedule of the specialized funds out in market with the vintages. Just wondering if you could help us kind of size or get a handle on how far along those fundraises are, either individually or maybe collectively as a group? And also how the size or expected size of those funds compares with the prior vintage? Thanks very much.

Sure, Adam. This is Jon. You can find most of this information on Page 17 of the earnings presentation. When you examine the funds currently in the market, they are listed in order of their development on the lower half of the page. The MAC III fund has had its final close, although we are still in talks with some investors who missed the deadline due to their own timing and budgeting issues about possibly adding capital in a parallel vehicle. This is more towards the end of the process. The co-invest is at a mid to late stage, elevate is in the middle stage, infrastructure is also in the middle, and credit and advance are in the early stages. Generally, with the exception of MAC, any fund that has reached its final close has been larger than its predecessor. As Michael mentioned, we believe this will be a productive year for fundraising after a more challenging year, which includes the various specialized funds in the market.

Thank you, Jon, for addressing those points. I have one more question regarding the opportunity in private credit. There's conversation around general partners entering that market due to high demand. I'm curious about your observations on selecting general partners and how you might adjust for what could be a gold rush situation in that sector. Thank you.

There's considerable discussion and demand for private credit right now. This trend has been developing over a long period, particularly since the great financial crisis, where a larger share of credit capital formation across all markets has shifted towards private credit instead of traditional bank-led or traded credit. Some of this trend is cyclical, as higher absolute interest rates tend to make credit instruments more appealing compared to other financial options. However, the long-term trend is significant. When strong secular trends emerge in an industry, it typically leads to new business and capital formation. I don't see this as a substantial risk for our firm. We have the ability to evaluate hundreds of investment opportunities and choose the ones that pass through our rigorous selection process. While there may be occasional errors, I don't perceive that we are at a high risk based on the concerns you mentioned. The key aspect for our platform is to provide a comprehensive and interesting credit solution through an open architecture that caters to sophisticated investors with their programs, who might still need complementary support. There are also clients looking to consolidate their credit allocations in a manner that is appealing, especially compared to managing it independently. Ultimately, the real asset we have is our origination capacity. The emergence of new funds is beneficial for enhancing the fund component of any solution, but we also experience significant direct credit deal flow, whether it involves co-investments, direct deals, or secondary opportunities, as we operate across the alternative markets utilized by real estate, infrastructure, and private equity firms. Our ability to leverage this origination network and tailor solutions based on specific client needs is a powerful advantage as the market continues to evolve.

Yeah. That makes sense. You highlighted the direct capability in the past. Cool. Thanks very much, Jon. Appreciate it.

Sure.

And our next question is coming from Michael Cyprys with Morgan Stanley.

Hi. Good morning. Thanks for taking the question. Just wanted to ask about new clients. You guys continue to have high re-up rates with existing, but just on the new clients, maybe you could talk a little bit about the environment for bringing new clients to GCMG today versus six months or 12 months ago? And how you expect that to trend in '24? Hear you on the fundraising backdrop to be better, but just on new customers, maybe talk about some of the steps you're taking to broaden out the client footprint as well. Thank you.

Jon, do you want me to take a first crack at that?

Sure. Go ahead.

So, Michael, I want to highlight that we are acquiring new clients, including both large separate accounts and first-time clients investing in commingled funds. Most of the growth in commingled fund clients is coming from North America, though there are clients from other regions as well. The separate accounts are being sourced globally, and we are experiencing growth in both areas and across various strategies, particularly with real assets attracting the most capital. Significant growth has come through separate accounts, while our specialized infrastructure fund has also been gaining new clients, a trend we expect to continue this year. Overall, our pipeline is robust and filled with opportunities, including both renewals and new client acquisitions. Additionally, last year we raised a substantial amount of capital from existing clients who were not just renewing but also engaging with us in new strategies. This accounted for about twenty percent of the capital we raised last year, and it’s a positive trend we aim to maintain moving forward.

Great. And just to follow up on that point, with the new client growth for separate accounts, how much would you say is new customers that are moving into the privates for the first time versus share gains from competitors versus moving from an insource to an outsource solution? And just how do you think about the sizing of the broader market opportunity for separate accounts?

I could take that one, Michael. Go ahead.

I want to emphasize that we've mentioned this in previous calls, and it's an important point. None of our business models, including those of our peers, are significantly dependent on gaining market share. Our re-up rates exceeding 90% indicate that this is not a major factor. However, it is possible that you might encounter a client who collaborates with a competitor in some capacity while you assist them in another area. For instance, they may engage with someone in private equity while you support them in infrastructure. The reality is that, globally, while a few exceptions exist regarding individual investors, most people are committed to private markets, though they may be at different stages of that journey. Not everyone has exposure to all asset classes yet; they might only invest in funds without joining co-investments or secondaries. Each situation is unique when you dive into the specifics, but you're stepping in to support them on their journey with aspects of their private markets program that are either underdeveloped or undergoing change. When we reflect on our pipeline or historical capital raising, quantifying that can be challenging. The scale of private markets is enormous, and the figures would be astonishing. We do not anticipate any macro trends altering people's commitment to expanding their alternative investments, especially in private markets. At this point, I want to emphasize that while there aren't many large balance sheets lacking alternative investments, there are certainly significant balance sheets that do not have a complete range of alternative strategies or implementation methods. This highlights how existing clients are adopting new strategies with us. It also aligns with the shift we've noted, where clients are increasingly using co-investments and secondaries alongside their primary private equity allocations. This is central to what Jon referred to regarding credit opportunities. Overall, this remains a positive backdrop, suggesting that the industry has considerable potential for growth. Last year saw slow fundraising, heavily influenced by transaction levels, which is evident in the carry line. We believe that this situation is beginning to improve. We're noticing a stronger commitment to transactions from sponsors, among other factors. Therefore, the fundamental environment remains solid and unchanged. As transaction activity increases and the wheel starts to turn, we expect fund flows to rise as well, which we are already observing in our pipeline.

Great. Thank you.

I am not showing any further questions. I will now turn it back to Stacie Selinger for our closing remarks.

We just want to say thank you again to everyone for joining us today. We appreciate the interest and feel free to reach out if you have any other questions. If not, we look forward to speaking with you next quarter and have a wonderful day.

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