Good day, and welcome to today's GCM Grosvenor 2022 Second Quarter Results Call. As a reminder, this call will be recorded. I'd 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 Second Quarter 2022 Earnings Call. Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks; President, Jon Levin; and Chief Financial Officer, Pam Bentley. Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical 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 on the Public Shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are available on the Public Shareholders section of our website. Our goal is to continually improve how we communicate with and engage with our shareholders. And in that spirit, we look forward to your feedback. Thank you again for joining us. And with that, I'll turn the call over to Michael.

Thank you, Stacie. Against the volatile market backdrop, we had another solid quarter in Q2 with continued growth in net income, fee-related revenue, and fee-related earnings. We also enjoyed strong fundraising and added value to client portfolios. In particular, our private markets verticals continue to perform well with another quarter of strong growth. Going forward, we are confident in our growth prospects and our ability to deliver value to shareholders. During the quarter, we grew fee-related revenue by 8% fee-related earnings by 19%, adjusted EBITDA by 15%, and adjusted net income by 14%, all compared to the second quarter of '21. Importantly, our fee-related revenue growth consisted of private markets management fee growth of 19%. We continue to enjoy operating leverage with a fee-related earnings margin of approximately 36% in the quarter, up from the second quarter of last year. Private markets now comprises 67% of our total assets under management and 61% of fee-paying assets under management, up from 59% and 55% just two years ago. Over the two-year period, our private markets business has seen a meaningful mix shift with secondaries and co-investment assets growing as a percentage of private markets AUM from 39% to 47%. Based on the composition of our contracted not yet fee-paying AUM and our fundraising pipeline, we see this trend continuing. Our persistently high separate account re-up rates of 90% are worth noting and are an important indication of the fundamental strength of our business. During the quarter, we raised $2.1 billion, 95% of which was for private market strategies. Our second quarter total fundraising was a step-up from the first quarter and brings our year-to-date fundraising to $3.4 billion with $732 million raised for specialized funds so far this year. Last quarter, we talked about expecting a couple of quarter slowdown in…

Thank you, Michael. Our strong capital formation this quarter, despite the market backdrop, is a testament to the strength of the alternative industry tailwinds generally and GCM Grosvenor's value proposition specifically. As Michael noted, private markets has been a key driver of our growth and now represents 61% of our fee-paying assets under management. So I want to spend some time digging deeper into that area of our business. Private equity represents the largest vertical within our private markets capabilities, representing $28 billion of AUM as of quarter end. Within private equity and the private markets business generally, our growth has been driven by a meaningful mix shift. Over the past decade or so, investor appetite for co-investments and secondaries has grown considerably. Our capabilities around these strategies and in certain areas, direct investing also are well developed and drive a strong value proposition for clients. These investment types now represent $22 billion or 47% of our private markets AUM compared to $13 billion or 39% just two years ago, a 31% compound annual growth rate. In the first half of 2022, co-investments, secondaries, and direct investments represented 66% of private markets' fundraising. The continued shift towards these strategies will provide lift to our revenue and help expand our margins while delivering to clients what they want. To that point, and as illustrated on Slide 11, our private markets fee paying AUM has grown by a 13% CAGR over the past two years, whereas the associated management fees grew by an 18% CAGR. Importantly, this trajectory is also embedded in our contracted not yet fee-paying AUM, where there's considerable secondary and co-investment capital yet to be deployed. Another significant contributor to our growth has been the impressive scaling of our infrastructure business, which now has $10.5 billion of assets under…

Thanks, Jon. Our second quarter results demonstrate the stability of our business. Fee-related revenue increased by 8% over the second quarter of '21 and 9% on a year-to-date basis. Private markets is our key driver of growth with fee-paying AUM growing 16% over the last year. Private markets management fees were $50 million in the quarter, an increase of 19% from the second quarter of '21. This is inclusive of $2.3 million of catch-up management fees from specialized fund closings. Based on our pipeline, we do not expect material catch-up management fees next quarter and instead anticipate a higher amount in Q4. Private markets fee-paying assets under management now comprise 61% of our fee-paying AUM as of quarter end. This capital is long duration, providing a high degree of visibility for our business since management fees are generally charged on commitments or invested capital, which are not impacted by changes in investment valuations. As of quarter end, around 65% of our private markets AUM had a remaining program life of more than 7 years. Private market fee rates have been stable over recent time periods, and we also are experiencing a mix shift towards higher fee rate activities, including co-investments, direct investments, and secondaries. Absolute return strategies management fees were $40 million in the quarter, a 1% decline from Q2 of last year, but a 3% increase on a year-to-date basis. Our ARS quarterly management fees are generally charged on fee-paying assets under management as of the first day of each quarter, meaning ARS fee paying AUM as of the end of the second quarter will drive a relative decrease in third quarter ARS management fees. Incentive fees in the quarter were $10.5 million, primarily from private markets carried interest. As Michael noted, we generally don't control the timing of…

Your first question comes from the line of Chris Kotowski with Oppenheimer.

First of all, I guess, wondering, we're halfway through the third quarter, and the market has rebounded. And I wonder if that has flowed through to the performance in the absolute return strategies.

July was a profitable month for absolute return strategies. It was not profitable to the degree that the market was, but we did make some money in July, and we'll see how the rest of the quarter goes as we move forward.

I'm trying to square the circle a little bit in that we see fundraising of -- in private markets, we see fundraising of around $2 billion, and the fee-paying AUM were up $900 million, and then the contracted, not yet fee-paying AUM was up around $200 million, if I'm doing my math right. And so that means roughly -- it seems like $1 billion in either distributions or outflows and it kind of didn't look like that big on the AUM roll forward table.

Why don't we get those numbers and get them tight and just we'll give them to you when we speak to you one-on-one to sort of tie it out. Those obviously the numbers that we've given of the $2 billion of fundraising are -- that's what that number was, the distributions and the deployment and the change in AUM as a performance component to it. So let us kind of break that out and build a bridge for you.

And don't forget, Chris, when you're pulling down from contracted, not yet -- there's more factors than when you cite because when you're part of your fee paying bridge will be a function of your contracted, not yet to be paying AUM change as you're calling capital. So there's a number of factors there.

All right. I mean the weeds. I'll apologize. And I'll let you go. And then I guess, if you're saying not…

But maybe, Chris, one thing we would say, just in general, on your observation, we did have $2 billion -- just $2 billion of capital raised. We did talk about having the second half of the year. We're looking and seeing that being stronger than the first half of the year in light of the realization environment, which both Pam and Michael mentioned, those were a little bit slower. But generally speaking, from a capital-raising perspective in terms of what you saw in the second quarter, and you mentioned an even more improved market starting in the third quarter. We feel pretty good about the capital raising picture as we enter into the second half of the year.

Next question will come from the line of Ken Worthington with JPMorgan.

That segues well into my first question. You talked about secondaries falling short of expectations. We've seen broadly the challenging fundraising market environment, but secondaries to some extent, seems to be a port in the storm. So maybe if you have any color, what's sort of happening on the secondary side, and you do have a couple of funds with final closes in the first half of '23, I think it's like CIS and MAC, so why are you so confident that you hit targets there given the challenging markets? Help us get confidence here, too.

So a couple of things. And just a couple of comments. First, the secondaries fund that we're in market with now is -- it's already like 30% larger than the last fund, and we're going to continue to raise money for that through the end of the year. So that fund is going to be a success relative to its prior fund, and that franchise is successful and growing, and we feel very good about that. The only reason I mentioned it is because it is the only fund that closes this calendar -- that we're in market with now that closes this calendar year and to the extent that the market environment of '22 created a delay the denominator effect, et cetera, to the extent that, that creates a delay, that's the only fund that doesn't have time in market after the end of the year to catch up as people are getting back to deploying capital at the pace that we expect they will. And so that's why we mentioned that, but I want to be crisp there that, that fund is going to be a successful fund that's significantly larger than the prior fund. As far as the other funds that we're in market with and that we will roll into next year, still in market with those funds, we're optimistic with those -- regard to those funds. We have full pipelines. They have good track records, and we think that demand is there. And that time that we have to raise into next year to make up for a lost a little bit of period of time due to market volatility and market environment in '22 is helpful.

Okay. Fair. And now I guess, good cop. Insurance. So I believe that you broke out at least in one of the charts, insurance explicitly in one of the fundraising tables. So if you could, could you update us on the insurance initiative, how it's progressing? And any update on the outlook there would be great.

We're just very pleased there. And if anything, we're probably seeing better results there faster maybe than we even thought we would. We've further invested in the team. We had 14% of our last 12-month flows come from the channel versus 3% of the AUM. I think that's probably what you're referring to. We included that on a slide in the deck, and it's a very large market with a lot of opportunity, and we have a lot of activity there. So we think that's going to continue to grow and continue to prove to be a very good investment for us.

And your next question comes from the line of Michael Cyprys with Morgan Stanley.

I want to circle back to infrastructure, where you have raised substantial amounts of capital that you alluded to earlier. I was hoping you could maybe elaborate a bit on your approach to infrastructure. It seems like it's a mix of investing with third-party managers and also direct. So I guess, more specifically, with respect to investing with third-party money managers, can you talk about your approach to how you source, identify the best infrastructure managers and funds to be in, what that funnel looks like? And then on the direct investing side for infrastructure, can you talk about your approach to sourcing investments?

Sure. Jon, you want to take that one?

Sure. So I would say a couple of things. And we mentioned some of this in the prepared remarks, Michael, but infrastructure is an interesting asset class and that infrastructure assets are as old as the world, but the infrastructure asset management space and the grand scheme of looking at the different private market strategies is actually still relatively small or relatively new. And so our 20 years of experience there makes us quite experienced in the space. And I think I speak to that experience because it is what creates the global and the deep relationships that enables us to source manager talent. When we're allocating capital to other people's funds, we're doing that globally. We're doing that in some larger funds, but predominantly in middle market funds or smaller funds and predominantly with infrastructure managers that are focused on a specific niche within infrastructure. And our ability to cover that universe in light of the time we've been spending in it is successful and drives, I think, what's been a successful allocate business in that space. As you pointed out, we also are active in co-investing and infrastructure and active in direct investing. The co-investing business is obviously closely related to what you're doing from a primary fund standpoint in that a lot of your co-investments are alongside the partners that you back from a fund perspective. And then our direct business, which I noted a little bit in my remarks, is a bit unique. That's a North America-focused business. That's a business that's predominantly being invested out of our labor impact fund. And it's a business where we believe that we've been able to attract -- generate, I should say, attractive risk-adjusted returns through partnership with skilled organized labor that's helped us both on the sourcing front in terms of unlocking infrastructure assets by partnering closely with all the constituents involved in infrastructure assets as well as on the execution of those or the ownership of those infrastructure assets by making sure that we've got a solid relationship with those constituents that are going to help build the project and operate the project. And so we have a team of professionals that source that is focused on sourcing those direct investments like you would see with any direct infrastructure firm. And as we noted, we will be commencing with our second fundraise in that space towards the end of this year with revenue turning on next year.

Great. And then just a follow-up question on retail, just a smaller portion of your AUM today, though it is -- looks like starting to generate some flows as well. So maybe you could just update us on some of your new product initiatives in the retail space and talk about the build-out of the distribution and sales organization. Where are you along that journey relative to where you'd like that to be?

We're growing faster there, again, similar to insurance that we're seeing more fundraising there than we have historically and then is represented in terms of our AUM. The bulk of that is through the distribution of products with appropriate support on various high net worth platforms, mass affluent platforms at the banks and brokerages, and we see that enabling us to continue to grow within that channel at a faster rate than -- or with more percentage of our funds raised and represented in our AUM as we look forward, where I think we have opportunity is to find the right product for a more broadly distributed RIA effort, and that's something that we're working on, and we hope to be able to succeed at in the future. But for the time being, we're -- the success that we're enjoying there is largely on the bank brokerage platforms and it's essentially more platforms and more products per platform.

And as I'm not showing any further questions, I'd like to turn the call back over to Stacie Selinger for any additional or closing remarks.

Thank you. Thank you all again for joining this quarter. Thank you for the questions and engagement. We really appreciate them. We look forward to connecting after the call, and again, next quarter. Have a nice day.

And that does conclude today's conference. Ladies and gentlemen, thank you for participating. We hope everyone has a great day. You may all disconnect.