Good afternoon. My name is Rocco, and I will be your conference operator today. At this time, I would like to welcome everyone to the ALTi Tiedemann Global Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I'd like to advise all parties that this conference call is being recorded, and a replay of the webcast is available on ALTi Tiedemann Global's Investor Relations website. I will now turn the call over to Lily Arteaga, Head of Investor Relations for ALTi Tiedemann Global. Please go ahead.

Good afternoon to everyone on the call today. Joining me this afternoon are Michael Tiedemann, our CEO; and Steve Yarad, our CFO. We invite you to visit the Investor Relations section of our website at www.alti-global.com for our earnings materials, including our updated investor presentation. I would like to remind everyone that certain statements made during the call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as anticipate, believe, continue, estimate, expect, future, intend, may, plan and will or similar words. Because these forward-looking statements involve both known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. ALTi assumes no obligation or responsibility to update any forward-looking statements. During this call, some comments may include references to non-GAAP financial measures. Full GAAP reconciliations can be found in our earnings presentation and related SEC filings. With that, I'll turn the call over to Mike.

Good afternoon, everyone, and thank you for joining us today for our third quarter 2023 earnings call. In the quarter, we continued to make progress on our strategic initiatives to set ourselves up for a strong 2024 and beyond. Some of these initiatives, particularly the work to restructure and reposition certain businesses have impacted our GAAP earnings this quarter, but are consistent with our stated 2023 goal of simplifying the business with a focus on recurring revenues. We've continued to rightsize the organization, simplify our business lines and initiate processes to reduce the number of regulated entities. We've done this while securing important client wins and adding key revenue-generating talent. Since the listing, we reported healthy AUM, AUA growth amidst a pressured market environment particularly in the third quarter. We firmly believe that the combination of Wealth Management and Asset Management differentiates us from pure-play firms in both sectors and provides a growing base of recurring diversified revenues. On a trailing 12-month basis, total assets under management and advisement increased 13%. And within Wealth Management, these have grown 23% in the last year, validating the attractiveness of our global holistic wealth proposition in the eyes of our target clients. In speaking about Wealth Management, I'd be remiss not to mention our first ALTi Family Retreat held in Lisbon at the end of September. The event was attended by nearly 50 clients and prospects from 11 countries. This demonstrates our unique ability to build connections and a global community amongst our families and to provide differentiated cross-border services in the process. What our clients appreciate is that we are a global platform with sophisticated institutional quality solutions that operates for the attention, care and customization of a specialized boutique family office. Turning now to our Q3 performance. ALTi generated revenues of…

Thank you, Mike. This is an exciting time at ALTi, and I couldn't be more enthusiastic to hit the ground running as we execute against our strategy. Before we review the results, I want to note that the results of their regulatory filings are presented as a comparison between predecessor and successor company as required by the accounting guidelines. In our case, Tiedemann Wealth Management Holdings is the predecessor company and ALTi is lead successor. As such, the year-over-year results are not directly comparable, and my comments will be focused on quarterly performance. As Mike discussed, underlying business fundamentals remain strong as ALTi executes against its strategic priorities to achieve top line growth and organizational efficiencies, both of which will accelerate our path to margin expansion and enduring shareholder value. We are executing various initiatives that we expect will reflect the platform's growth potential going forward. ALTi generated revenues of $49 million in the third quarter, and we are pleased to report that 97% of our revenue was generated from recurring fees. Revenues in our Wealth Management segment, which consists entirely of management and advisory fees were $35 million in the third quarter. This represents a 2% increase compared to the second quarter. In Asset Management, revenue was $15 million. 90% of this top line performance is from recurring management and advisory fees including the distributions from our alternatives platform. Sequentially, Asset Management revenues reflected lower asset levels consistent with macro environment pressures impacting the real estate sector generally and redemptions in the alternatives platform, resulting in lower management fees. This impact was particularly evident in our REIT business as management fees, which are calculated based on average market capitalization, declined 7% quarter-over-quarter. Incentive fees were higher, reflecting the crystallization of fees related to redemptions in the event-driven strategy in…

[Operator Instructions]. Today's first question comes from Wilma Burdis with Raymond James.

The first question, could you go into just a little bit more detail on the impairment? I know you went into some detail, but maybe just help us understand what it relates to specifically.

Sure. Thanks, Wilma. This is Steve Yarad. I'd like to talk to you. So the impairment was the result of a review that we were required to do as a result of some strategic decisions we made at the end of the second quarter. So we went through and did an exercise to review the re-forecasted cash flows for the reportable segment for Asset Management. And as you -- as we discussed on the call, we did exit a couple of businesses within that segment, and we scaled down and repositioned and rightsized another one of those businesses. So specifically, our private real estate business, we made some adjustments to the scaling and size of that business. And there were 2 other businesses that were effectively exited. So as you can imagine, the reported cash flows were different than what we originally forecasted when we did the combination back at the beginning of the year. And as a result of that, the updated valuation of the -- effectively the market value of the segment was lower than it was at the time we did the combination, and that's what's driving the real impairment.

I guess can you talk about how much of it's related to the specific divestitures versus just the kind of ongoing piece that's really -- that makes sense. But maybe just if you could quantify it a little bit.

Sure. So I don't have the specific attribution in front of me, but the -- probably about 70% of it relates to the exited businesses and the -- maybe the remaining 30% of it relates to the rescaling of the private real estate business. So that -- I think it's $153 million charge, probably -- these numbers are just sort of directional. About 70% was related to exited businesses and the remaining 30% related to private -- the private real estate business.

And Wilma, importantly, it's consistent with our strategy to really orient the business towards recurring revenues. And so the 2 businesses were more transaction-oriented in nature. So in our strategic review, that was that plus cost initiatives were the overwhelming deciding factor in making a decision.

Got you. Is there going to be any, I guess, cash component of -- for those pieces of business -- they were sold? Or how should we think about that?

So the businesses that were exited effectively wound down, they weren't sold.

Okay, got it. Great. And then how should we think about the run rate expenses? So I think $73 million, that was about $10 million higher than we modeled. We're kind of expecting the mid-40% range by mid-2024. So is that how we should think about that trajectory?

So we wanted to get -- go through that with you a bit offline. When you're looking at $73 million, are you looking at GAAP or modified or normalized?

Maybe, I guess, maybe just comment on where expenses came in where you expected versus what you had expected? And then how should we think about it going forward?

Sure. No, actually, I'm looking at our income statement, I can see where you get in the $73 million number. So look, I think overall, the trend line in many of the expenses was actually pretty good in the second quarter. So as far as professional fees goes, you saw a decrease there. And you can't see this from the face of our income statement, but the actual underlying salary compensation expenses were down relative to the prior quarter. What you're seeing though there quarter-over-quarter in compensation is the impact of a nonrecurring sort of compensation charge which is more of a purchase accounting adjustment related to a prior acquisition. And so that's increasing that expense in this quarter compared to the run rate. And across the board, you're also seeing the other G&A and other expenses in that section, they were inflated by about $4.5 million in the quarter due to this FX charge. So when you adjust for some of these items, the more normalized -- what we consider normalized expenses, as we talked about in the call, backs out the FX and the other, what we consider nonrecurring adjustments and some other items, that's about $48 million. And that's closer to what we think our longer-term run rate would be. And then as we move forward from there, as I mentioned in my remarks, we're really getting into the 2024 budgeting process right now, and we see some significant opportunity to work on certain expense items, in particular, professional fees. And so as we work through that process over the next few months, we'll be setting the baseline for 2024. But as we move away from the listing and all the expenses associated with the listing and sort of get to a more normal maturity as a public company, we see -- we definitely see opportunities for the professional fee spend in particular to decrease.

I guess just maybe -- I think your prior guidance or what you guys were indicating was implying around like I said, mid-40s toward the end of 2024, and that also included about $16 million of annual cost saves, I think. Is that -- I mean is this kind of wind down of the business? Does that have any impact? Does that improve the run rate? Or how should we think about that?

Yes. I'd say once we get through -- we talked about that $16 million, the full impact of that won't be fully recognized in our results until the second quarter of 2024. So once we get to that point and we also are working on sort of the next round of I guess, rationalization and things like professional fees, I think that's when you're really looking at the sort of mid-40s run rate as a realistic goal.

Got you. And it doesn't -- it's not going to be -- have any benefits from the wind down or...

Yes, that's included in that. And to -- some of our things relate to severance costs and the like and just because of the way severance employment all works in certain jurisdictions, it's not like it comes off your books straight away. So it takes a little bit of time for some of those things to come through. In addition, we have benefits coming through from facilities changes and changing the footprint of our facilities. And so that takes a little bit of time to come through and there's some trailing expenses associated with that in the third quarter, and there'll be a little bit of that in the fourth quarter as well. But once we get into beginning of 2024, we'll start to see the benefits of those changes come through as well.

Got you. Could you talk a little bit about the global real estate market? It seems like the AUM was down a little bit on interest rates. Any areas or any regions you're concerned on or, I guess, on the other side of that coin, any places where there's opportunities?

Yes, that's a great question. And I'll start with the real estate -- private real estate and equity side, i.e., equity investments into private real estate. For starters, the market was, for the better part of the year, very challenged, frozen. And so there was a pricing gap between sellers and buyers. That has begun to unlock. We -- in the fourth quarter, just did really, we think an excellent transaction in London by our team. That was the first transaction we've done in quite some time. There is more interest and capital now freeing up and assets are getting to clear. So you're also seeing that reflected in this quarter, not Q3, but in Q4, you're beginning to see inflationary pressures globally abate. And you're starting to see the publicly listed REITs, in particular, the one that we own recover quite quickly. So the underlying fundamentals of these REITs and underlying fundamentals of these yielding assets and the assets themselves, the mark-to-market value has been all over the place, and there was obviously immediate pricing in the public markets and a pricing gap in private markets that now has really begun to close. But in general, directionally, it is positive and capital flows are beginning to really pick up in a meaningful way in our view.

Got you. And then just maybe give a little bit more color into the Wealth Management pipeline. It seems like there's been a few really nice wins in the last couple of quarters. Anything in the pipeline? Or are there attractive deals there?

Yes. So the -- I'll answer that organically, which is client pipeline because the client pipeline is terrific. We have a really robust and collaborative team working across the jurisdictions across offices and it is really bearing fruit. In terms of how we're presenting ourselves the ways in which we can engage with families and foundations, what have you. So on the organic side, we're very optimistic about our future and really feel we have a very competitive model. On the inorganic side, there, we are a destination, as we mentioned. We're a firm that has a unique platform, our global footprint, our range of services. These are in the industry, it is a unique structure with breadth that most do not have. So when a firm that deals with the ultra high net worth client is evaluating, making a strategic decision, we are a very credible counterparty because as they evaluate that, the first thing they're going to think about is will my clients be well served merging into or being acquired by this firm. And ultimately, the determination more often than not is yes, with our firm. So we have a -- we do have a pipeline. There are less firms, it's not a high volume opportunity set, but there are some high, high-quality firms that have been competitors of ours for years that are willing to engage and see us as a viable long-term option for them.

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Michael Tiedemann for any closing remarks.

Okay. Thank you, operator. We invite you to contact us with any questions you have or schedule follow-up calls. As mentioned on the call, we are positioning the ALTi platform for the long term, and we see a lot of exciting opportunities in both Wealth and Asset Management as we close 2023 and enter 2024. I'm immensely proud of our team where all fellow shareholders are working diligently to execute our strategic priorities. Our talent is what make -- our talent is what will make ALTi the leading platform across Wealth and Asset Management in the years to come. We look forward to connecting with you in the new year and wish you all a happy, healthy holiday season. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.