Good day, and welcome to the GCM Grosvenor Third Quarter 2023 Results Call. Later we will conduct a question-and-answer session. [Operator Instructions] 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 third quarter 2023 earnings call. Today I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks; President, Jon Levin; and Chief Financial Officer, Pam Bentley. Before we discuss this quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. This include statements regarding our current expectations for the business our financial performance and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated by the forward-looking statements on this call. Please refer to the factors in the Risk Factors section of our 10-K, our other filings with the Securities and Exchange Commission and our earnings release, all of which are available on the Public Shareholders section of our website. We'll also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of non-GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement both of which are available on the Public Shareholders section of our website. Our goal is to continually improve how we communicate with and engage with our shareholders. And in that spirit, we look forward to your feedback. Thank you again for joining us. And with that, I'll turn the call over to Michael.

Thank you, Stacie. For those of you that have seen our filing you will notice that we have a new look and feel to our earnings presentation. Stacie spent a lot of time on that. Thanks, Stacie. I want to thank you very much. I think it's an improvement and we look forward to hearing your feedback on it. Our third quarter results were in line with expectations with fee-related earnings increasing 16% year-over-year. Private markets were the primary driver of growth with private markets management fees growing 10% year-over-year. This marks the tenth consecutive quarter of double-digit private markets management fee growth excluding catch-up fees. In the fourth quarter excluding the impact of catch-up fees, we again expect double-digit private markets management fee growth compared to the prior year. Next week is our third anniversary as a public company and we are proud of what we've accomplished over this period. We've seen our management fee-centric business continue to grow, while experiencing a material shift toward revenue coming from highly predictable long duration private markets programs. As of quarter end, private markets capital comprised 65% of our fee-paying AUM up from 54% at the end of 2020. Over the same time period, we have raised approximately $21 billion across our various investment strategies and we have nearly tripled our firm share of carried interest at net asset value to $365 million. That number does not reflect any value for capital recently deployed or dry powder yet to be deployed. While the realization environment in recent quarters has been soft our incentive fee opportunities should drive significant cash flow growth in the future. Turning to this most recent quarter. We raised $1.2 billion. We continue to be confident that total fundraising for the second half of 2023 will exceed first half…

Thank you Michael. The Infrastructure Advantage Fund that Michael mentioned earlier is just one example of the work that GCM Grosvenor is doing around impact investing. Impact investments catalyze positive, measurable outcomes that align with our clients' goals while providing competitive investment returns. Critically our definition of impact investing is non-concessionary, meaning that everything we do starts with seeking competitive risk-adjusted returns. Our experience is that financial returns and impact are complementary rather than competing objectives. Our impact track record such as in health care, education, renewables and energy transition and diverse managers have delivered consistently competitive returns. Importantly the specific targeted outcomes and sometimes even the definition of impact can vary amongst client programs. The money is not ours, it is our clients' and it is our job to deliver competitive outcomes that align with their goals. As a custom account provider for the last three decades, we excel in delivering solutions that meet clients' varied objectives. Client interest in developing impact programs within their alternative allocations is rapidly evolving. Clients are increasingly identifying specific themes they want to address via their investment portfolios. These solutions require not only investment acumen but also robust ancillary services including in particular customized reporting on the relevant objectives. With many institutions looking to not only generate return, but also to promote certain objectives in their investment portfolios, the industry must evolve so it can support impact investing at scale. The opportunity for we are calling customized impact solutions is massive and perfectly suited to scale within our business. We are extending the same flexibility that we have offered for decades to our custom separate account clients to impact programs. The client can opt to invest through co-investments, secondaries, direct investments or through funds or a combination of these implementation styles. We create…

Thanks, Jon. Our results this quarter were consistent with our expectations and once again demonstrated our earnings, quality and scalability of the platform. Assets under management were $76 billion as of quarter end, a 5% increase from a year ago. Total fee-paying AUM also increased 5% year-over-year, inclusive of 11% growth in private market fee-paying AUM. Our private markets business now represents 65% of our fee-paying AUM. And private markets management fees excluding, catch-up fees have grown at a 13% compound annual growth rate over the last three years. Private markets management fees grew 10% in the quarter compared to a year ago. Excluding the impact of catch-up management fees, we once again expect double-digit private market management fee growth in the fourth quarter compared to the prior year. As expected, absolute return strategies management fees were relatively stable in Q3 as compared to last quarter and we expect ARS management fees to again be stable in the fourth quarter. Most importantly, we are pleased with our ARS investment performance. Our multi-strategy composite is up 6% year-to-date on a growth basis, with very little correlation to broad markets. We realized $26 million of incentive fees in the third quarter, the majority from carried interest. As a reminder, the firm retains 50% to 60% of the firm's share of incentive fees. And as of quarter end, we have $778 million in gross unrealized carried interest across 136 programs, the firm share of which is $365 million. Our share of carried has nearly tripled in the last three years creating significant future cash flow potential. Consequently, we believe that when the M&A activity returns, the quality and diversification of our unrealized carried interest will have a significant positive impact on earnings. Our annual performance fees are tied to ARS investment returns and…

Thank you. [Operator Instructions] Our first question comes from Ken Worthington with JPMorgan.

Hi. Good morning, and thanks for taking the question. It looks like expectations in private markets last quarter was for four or so funds to have closes in this quarter including CIS 3, MAC 3, IFA 3 and the new Elevate fund. Did all of those funds actually have closes this quarter? Or did some of the fundraising in 3Q get pushed to 4Q? And then your comments suggested that or you reiterate your comments that the second half fundraising would be better than the first half. Which funds do you expect closes as we look towards the end of the year? So, thanks for that.

So, Ken, it's Michael. Second half fundraising will exceed. We remain confident it will exceed first half fundraising. We -- Jon will give you in a second specifically which funds had closes and did not have closes, but there's no doubt that some of the capital that we had hoped to close on in Q3 pushed to Q4 some of Q4. We're seeing things pick up and we -- our pipeline is full and our activity levels have clearly picked up. There's no question about it. But it's still -- it's not a return to the prior environment transaction levels really have just picked up a little bit. And we've been saying for a while that, where we see that flywheel start turning again is when transaction levels pick up and that has not -- certainly not fully happened yet, although, we do feel like everything that we're seeing is encouraging. Jon, do you want to give the specifics on which ones did and didn't have a close.

Sure. I think we had a small closing on MAC 3. We had closings on CIS 3 and IAF. We did not have a closing on Elevate. I think when you step back Ken and look at it more broadly, I actually think you noted this in your last report, obviously for us a significant part of what we're doing 75% of the capital for customized separate accounts which is providing a tremendous amount of ballast to our fundraising picture, and what gives us the confidence to talk about second half being greater than first half in terms of the visibility of that pipeline. And on the funds in particular, obviously, we put out a release more recently on our infrastructure platform and the success of that franchise more broadly and Michael noted the CAGR of that franchise as a whole not just on the commingled funds in his comments on the script. And so feel good about that. And in terms of Elevate, we closed and put a note out on our first deal for that fund, which we think is an exciting kind of catalyst for that fund and the efficacy of the seeding business. So we feel good about the stuff. It's a little bit hard to predict the exact timing of things as Michael noted. But overall it feels like a picture that's improving with the days.

Awesome. Thank you for that. And then just maybe to follow-up on the insurance channel. Where are assets in your insurance business as of the end of the quarter? Maybe talk about how that business has grown this year. And you highlighted, I think it was some new credit capabilities assuming I interpreted that correctly, how did the new credit capabilities maybe further help you grow? Or are they going to help you sort of build out your insurance business? Thanks for that.

Yeah. So I think I wouldn't necessarily say new capabilities Ken, from a manufacturing standpoint. I think these are capabilities that we have internally manufacturing capability that we have. I think there's clearly more demand for credit and for alternative credit. And that demand is coming. You see demand in the insurance channel for sure We raised more money from the insurance channel. Last quarter, than it represents in our balance sheet maybe Jon or Stacie can get the precise number, but it continues to grow sort of faster than it's pro rata share. But the credit demand is sort of broad-based demand. It's not just in the insurance channel. And we do believe, we -- which is, why we mentioned it that you'll hear more about credit growth from us going forward. And specifically that the type of diversified approach that you've seen be so successful in infrastructure and private equity we're seeing a lot of interest in that type of approach for credit. And we are hopeful that we'll be able to announce wins and growth and good news in that regard going forward. Aside from just last quarter, we remain very -- we remain bullish on the insurance channel. There's a lot of activity there. There is we've been pretty effectively stuffing the pipeline there continuously and we continue to believe that's going to -- will grow and take more and more of a larger percentage of AUM.

Ken, I would just add one point to what Michael said which is really just going deeper on the point he said. When Michael talks about, it's not a new capability, but it's a diversified approach to credit. And we're seeing a lot of interest from clients all different types of channels kind of globally. What we're really talking about there and the similarities that, Michael also referenced between private equity and infrastructure is, the ability to invest in primary funds, co-investments, secondary investments, direct investments. And so when you think about the evolution of the private credit it's kind of subsector of the alternative industry and this has been noted on a number of the calls even this quarter a lot of that has been focused on the sponsor direct lending kind of franchises. And obviously, credit is just a much bigger world then you have sponsor, you have non-sponsor, you have asset backed, you have structured. And so our ability as clients mature in that allocation to help them build out that allocation but also do it on a cost-effective basis by using co-investments in the same way they've been used in other alternative asset classes is something that we're excited about and think we'll have – we'll be resonating nicely in the marketplace.

Great. Thank you.

[Operator Instructions] Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking the question. I just wanted to ask on the absolute return business that you have. If you could maybe speak a little bit to the gross sales environment. It's been a volatile year in public equity markets most stocks down on the year if you look at the S&P Equal Weight Index. I guess what's the scope for greater LP demand within your absolute return business? What strategies are resonating most today with LPs? And how do you see that evolving as you look out over the next 12 months?

So I think that we definitely have activity in that space. I'm actually calling in from Hong Kong, Michael and was with our team here today. They think they're – they see activity specifically talking about ARS. I think our general budgeting approach hasn't changed. I don't think we – think we're in a massive – in a strong net inflow environment but we do think gross inflows will pick up the – was mentioned on the script we're performing there and we're performing relative to expectations. We're performing relative to peers. We're performing relative to indices and so we think that's important. There are a couple of funds inside absolute return that have good numbers that we are actively showing them to the marketplace. And so no change in terms of our net flow base case assumptions but we do see growth in inflows there and it all starts with performance, which is in line with expectations.

Great. And just a follow-up question on secondaries. I was hoping you could speak to the deployment environment there, the discounts that you're seeing how that's evolving as this seems like it'd be a helpful solution for LPs facing liquidity constraints. What's the prospects for that activity in the secondary space to accelerate meaningfully from here?

So would tell you that not a lot of change from where we saw that a quarter ago, which is pretty wide discounts relative to historical discounts. People not – LP-led secondaries not seeing huge volume increases and a little hesitancy to take those discounts and GP-led secondaries kind of continuing to be where most of the activity is. I think in general without being -- without pretending to have any kind of a crystal ball we do think that the pent-up demand for transaction activity, the pent-up demand for liquidity and secondary -- therefore, secondary market activity, we do see that picking up next year. And Jon -- it's something Jon has spoken about and I think may have spoken about publicly. But recently, but we kind of see the -- that spread between where the bid is, where the ask is waiting for kind of to figure out where rates are we just think we're getting closer, I guess it's definitional but to that resolving itself and we see activity levels picking up next year sort of one way or another.

Great. Thank you.

Our next question comes from Chris Kotowski with Oppenheimer. Please go ahead.

Yeah. Good morning. I was wondering you've mentioned in the past that a good deal of your fundraising comes from high net worth individuals and wealth management clients, but it seems like it's been more on the account -- customized kind of accounts. And I'm wondering how high up on your list of priorities is a retail -- a comingled retail fund vehicle?

Thank you, Chris. It's a good question. I think in general the -- what you're referring to I think is the fact that our individual investor fundraising has like insurance exceeded most quarters are its representation in our total AUM. So it's growing as a percentage of our AUM. We very much see that continuing and we want to bring more focus to our individual investor efforts. We want to bring more products to the individual investor channel. We want more internal resources dedicated to the individual investor channel and we look forward to reporting on that over the course of the next four, eight quarters more than once.

Okay. Thank you.

[Operator Instructions] I'm not showing any further questions.

Thank you again for joining us today. Please feel free to reach out with any follow-ups. And if not we look forward to speaking with you again next quarter.

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.