Good day, and welcome to the GCM Grosvenor Second Quarter 2025 Results Webcast. [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 Second Quarter 2025 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 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 our website. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results.

Thank you, Stacie. We are pleased to report another strong quarter for GCM Grosvenor, led by strong investment performance, strong fundraising, financial results in line with expectations and positive business developments that will benefit us in the long run. For the quarter, our fee-related earnings, adjusted EBITDA and adjusted net income were up 6%, 9% and 9%, respectively, as compared to the second quarter of 2024. Year-to-date fee-related earnings, adjusted EBITDA and adjusted net income were up 14%, 17% and 19% as compared to the first half of 2024. Our fee-related earnings margin for the quarter was 42%, which is 200 basis points higher than the second quarter of last year. We ended the quarter with $86 billion of total assets under management, a 5% increase compared to the end of the first quarter of 2025. Our AUM growth was led by excellent ARS performance, moderate ARS inflows and another strong fundraising quarter for private market strategies. In total, we raised $2.4 billion in the quarter, bringing our first half of the year fundraising to $5.3 billion, a 52% increase from the first half of 2024 and our highest first half fundraising total on record. There continues to be a tremendous amount of activity with a very visible full fundraising pipeline. Given the strong fundraising thus far and our significant pipeline, our goal of 2025 fundraising exceeding 2024 fundraising is highly likely. The only question is by how much we exceed last year's total. We expect second half fundraising to be weighted towards the fourth quarter. Demand activity levels and pipeline are strong for alternatives generally, and our investment performance has been solid. There are 3 areas of recent particular strength around the firm worth noting. The first is infrastructure, which accounted for $1.9 billion of fundraising in the first…

Thank you, and good morning. As Michael noted, the focus of my remarks this quarter is our infrastructure platform. That business has been a key growth driver for us. And more broadly, the infrastructure platform is emblematic of the firm's value proposition to clients, our competitive advantages and our growth opportunities across the platform and the different verticals. Let's first briefly touch on the attractiveness of infrastructure as an asset class. Investors are drawn to infrastructure's predictable cash flows, long duration and inflation hedging properties. Core plus and value-add infrastructure assets, which is our focus, tend to be less correlated to traditional equity and fixed income markets, offering resiliency amidst market volatility. The global need for infrastructure capital is massive and global demand for infrastructure's properties as a risk asset has major tailwinds. Fueled by aging systems, urbanization, energy transition and digital innovation, some estimates put the need for infrastructure capital in excess of $100 trillion over the coming 15 years. While infrastructure assets are as old as the world, infrastructure as an investable asset class is still relatively new. Many investors are still underallocated to infrastructure relative to asset allocation plans. Recent studies suggest that over 90% of investors plan to either maintain or grow their infrastructure allocations over the future periods. As the asset class matures, we're seeing the same type of evolution we saw in the private equity markets, but it's happening much faster. We see thoughtful diversification across market capitalizations, subsectors and geographies. And we're seeing the development of robust secondaries and co-investment markets. Our infrastructure platform is ideally positioned to capitalize on these trends. With over 2 decades of experience, our platform is among the most tenured in the industry. It's global by design with investment professionals across the U.S., Canada, Europe and Asia. What…

Thanks, Jon. We are pleased with our second quarter results, which highlight the multiple avenues we have to achieve success and drive growth. Given our strong fundraising and investment performance this quarter, assets under management grew to $86 billion and fee-paying AUM grew to $69 billion, a 9% increase year-over-year, respectively. Our contracted not yet fee-paying AUM grew 19% year-over-year to $8.7 billion, providing a foundation for continued organic growth as that capital converts to fee-paying AUM over the next few years. Year-to-date private markets management fees grew 11% year-over-year from a combination of solid fundraising and conversion of contracted not yet fee-paying AUM. We expect third quarter private markets management fees to increase in the low single digits on a sequential quarter basis. As a reminder, we are not expecting material catch-up fees in the back half of the year. Absolute return strategies had a strong first half of the year, both from investment performance and flows. We anticipate that ARS management fees in the third quarter will increase slightly from this quarter. Turning to expenses. Our compensation philosophy is centered on attracting and retaining top talent by aligning their interest with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation and equity awards. We remain disciplined in managing expenses and second quarter FRE compensation slightly declined from the first quarter to $37 million. Non-GAAP general, administrative and other expenses were stable at $21 million. We expect FRE compensation and our non-GAAP general administrative and other expenses to remain stable in the third quarter. Pulling together these factors, on a year-to-date basis, our fee-related earnings grew 14% year-over- year, resulting in expansion of our FRE margin to 43%. Turning to incentive fees. We realized $16…

[Operator Instructions] And we'll now take your first question coming from Chris Kotowski with Oppenheimer & Company.

You talked a bit about the evergreen retail vehicle, which was seeded with $300 million of institutional money. And I'm wondering if you could talk a bit about the retail uptake on that and the strategy for building that out and also the status on the private equity vehicle.

Sure. And thanks for the question, Chris. As you know, we have a distribution partner for that infrastructure interval fund. They have a full team of salespeople that are out in the market every day. We also have the Grove Lane team helping with that. And that team, as we mentioned, is building. And I said in my remarks, we're very confident in the future of that channel for us and broadly and specifically with regard to this product, we think it's a relatively early mover in the infrastructure space, which has, we think, strong demand. We're seeing that product generate modest sales on a daily basis, and we're seeing those modest sales on a daily basis or weekly basis build. And we're -- we're very enthusiastic about that. It seems to be a lot of receptivity, a lot of interest in taking meetings and in learning and demonstrable slowly building uptake. I think, as I mentioned, my -- our biggest concern there is that nobody gets too carried away in terms of the speed. We think it is a multiyear build, but we're certainly encouraged by everything that we see.

Okay.

And Chris, on the private equity side, you're probably mentioning something we had talked about a bit ago, it was probably last year, the year before, which is really different from our kind of core individual investor strategy, which we noted at the time. That was a situation where we were not the manager of a registered fund. We were just like a sub-adviser to somebody else's vehicle, almost like think of it as a separate account, Chris. And our view on that was if they raise money, great. And if they don't, we would always be in the business of making sure we have our own private equity product just like we do in the infrastructure space. And so what you should expect from us in terms of what we're talking about in private equity, and again, as Michael just said, these things take time, is our goal would be, and we work on it every day that at some point in time, you see something from us in private equity and hopefully not too long of a period of time that's similar to infrastructure in the sense that it would be our product that we manage that may or may not have a distribution partner. Certainly, Grove Lane would work on it that would be seeded by one of our clients or one of our relationships that would have assets in it sourced out of our portfolio, which was one of the great attributes of the infrastructure product. And that's where our focus will be. And obviously, we'll communicate that in due course.

[Operator Instructions] Your next question is coming from the line of Ken Worthington with JPMorgan.

So absolute returns, your absolute return business had better returns, better gross sales, solid gross redemption levels. Does it seem like 2Q is a one-off? Or do you feel like the business has kind of really turned the corner here and not that we would expect positive flows forever here, but like have we sort of reached a tipping point for that business given this combination of better market conditions, better performance and so on?

Thanks, Ken, for the question. As I said in my remarks, we have not changed our internal forecasting with regard to flat flows. That said, the performance this year, the performance of the last couple of years and the performance rebound in the second quarter, no doubt help. And typically, when you have good performance, your pipeline builds in the wake of that performance. And so we're not moving off that internal assumption set, but it's clearly a better -- we're clearly in a better position, a better environment with a better outlook for ARS than we've been in for a while, and we've seen that in the last 6 months.

Okay. And then still absolute return. The fee rate, which had been so resilient, fell a couple of basis points this quarter. Maybe talk about the influences of the fee rate this quarter? Was it flows? Or how is the mix adjusting to drive the fee rate numbers that we see in the deck?

Yes, it came out…

Jon, go ahead. Sorry, Jon, go ahead. You go ahead, Jon.

Yes, I was just going to say it's idiosyncratic, Ken. It could be in any given quarter, it could be one portfolio that might have the smaller investor that performs a little bit better than a large investor portfolio that might have a different fee. It could be a little bit about the flows in that particular quarter. I think the most important thing I would say is as we go out to price business and have conversations with clients, and as Michael was just talking about, we're not calling for a sea change, but I'll tell you from my perspective, spending an incredible amount of time on the road with clients, it is a more relevant topic of conversation than it's been in any time in the recent past. There's no -- the fee picture there is stable in terms of how that business is getting priced.

Okay, excellent.

Yes. The demand is more relevant to Jon's point than it's been in a while, quite a while. But there's not -- we're not experiencing significant conversation around fee and feel the fee is stable.

Okay. [ That always ] makes sense.

You can't really see this in the number but -- you can't really see this in the numbers necessary, but it's probably just interesting to you in terms of how people are thinking about that business. And don't hold me to the exact numbers because I don't quite remember, but there was a period of time around Liberation Day where you had probably a market drawdown in the low double-digit type of range. And that's a period of time where we can capture performance and see what that looks like. And you had something like a 1% -- sorry, a 10% capture of that drawdown, which is a very good period of time for protective capital. And often when you come out of an environment like that, the challenge becomes, do you participate in the rebound and sometimes you don't. And in this period of time, you saw some nice capture on the rebound as well. And I think that period of time and that period of time of volatility has been something that I think is opening the eyes of some in the investor community.

Your next question is coming from the line of Jeff Schmitt with William Blair.

How have re-ups been in this kind of volatile environment versus a typical year? Have you seen any pauses at all? Or how is that, I guess, percentage of total fundraising been trending?

So the -- Jon, you have some specifics on fundraising re-ups, new investors, things like that, and it's probably worth sharing that. But in general, the re-ups are fantastically -- they remain very, very strong, and we remain kind of a super high re-up business. And our client tenure and re-ups are continuing to be a very strong positive feature of the business with no degradation there whatsoever.

Okay.

Yes. And then…

Go ahead.

I was just going to say to follow up on Michael's point, what you saw during a period of time maybe in '23, which was obviously like a weaker period of time of capital formation for the industry for us is you saw the elongation of re-up periods. You didn't see people not re-upping. You just saw people slowing down programs because of denominator effect, market uncertainty and things of that nature. We always said '24 would be better than '23. That happened. We always said '25 is going to be better than '24. As Michael said in his remarks, we feel good about '25 being better than '24. And part of that is just a function of kind of re-up cycles getting back to probably more normalized time frames. And one of the things that we really like in our business in particular is if you look at capital raising over long periods of time, in any given year, you get about 70% or 80% of that capital raising coming from your existing clients. And of that, you have about half of that being people that are just re-upping with you to do the same thing they've always done. About half of that is an existing client doing something new with you, which is just a great example of the power of the cross-sell, the power of the value proposition to clients as you can deepen those relationships and then obviously, you're picking up new clients every year as well.

Okay. And then are you seeing any fee pressures in private markets in this environment? I mean, I know some of the specialized funds are coming on at higher fees, but the overall fee rate in private markets is down a little bit. But just curious if there's any pressures in specific verticals.

No. The fee -- the fee conversations have been constructive everywhere, and we're not -- it's not a period of significant focus on fee.

Your next question is coming from the line of Bill Katz with TD Cowen.

So maybe just tapping into, Jon, your conversation on the infrastructure side. I was wondering if you could step back a little bit. I know you had an Investor Day on this a little while ago, but maybe just remind us on just sort of the differentiated origination capabilities, if you will? And then relatedly, I was wondering if you could just speak to the fact that you feel pretty good about the sales opportunity in the second half of the year and where you sort of see that across the verticals, whether it be the SMA side or on the specialized side.

I'll take the first part of the question on infrastructure and let Michael comment on the back half of the year flows picture. On the infrastructure side, and I think one of the things I would say before diving deep here is I could give you a pretty similar answer to this question, Bill, for private equity. I could give it to you similar for private credit, the other verticals, et cetera. And it's the idea of the flexible investment model or you can call it the open architecture investment model. And what that means is, as you know, as a solutions provider, our ability to deploy capital is in other people's funds, which is the allocative nature of the business, which in our infrastructure practice is actually pretty small. It's probably 20% to 30% of what we do. And then we can deploy capital on a co- investment basis. And in infrastructure, the co-investment market is still a little bit immature and early. So co-invests aren't just necessarily like, hey, here's the SPV, you got 3 weeks to do the deal, which is some of what you see in private equity, but it could be a consortium deal. You could be a co-lead on the deal. We could be larger than the sponsor on the deal. There's a lot of different ways that can look. You've got a very active becoming, I should say, more active secondaries market. I actually think -- and we actually think that market in infrastructure is more interesting on the single asset secondary side because you have people that own assets for a very long period of time, may want to get out when other people don't and you can buy into individual assets at interesting points. And then we also have our infrastructure…

Thanks, Bill, for the questions. With regard to fundraising, we obviously had a very, very strong first half. And we have said we're going to -- we're going to raise more capital. We're going to have higher fundraising this year than we did last year. And I said in my remarks, the only question is by how much. We have a very full pipeline. We have a lot of opportunity that is in the late stages of the pipeline. And so we're confident with regard to fundraising for the second half and frankly, into the first quarter or so of next year. The -- we did say and I did say that the second half fundraising will be weighted towards the fourth quarter just by looking at that large pipeline and looking at the timing of expected signings and closings, things like that. It will be weighted towards Q4. And how big it will be in second half and how much will -- whether any of these big chunky pieces that we see will spill into Q1, we don't -- it's -- that's hard to pinpoint precisely. Something gets pushed a few weeks, and it's a different quarter. And obviously, a fourth quarter gets pushed a few weeks, it's a different year. But it's a very good picture on fundraising, and it's been -- and we've been saying that for a little while. It's been proven out by the results. One thing that I do want to mention is we don't have a lot of -- we don't have catch-up fee product in the market to a significant degree. So we're not expecting to see big numbers there at all in the second half. And so all of this fundraising, which we think will be substantial, isn't going to really drive the needle much, isn't going to move the needle much on actual '25 revenue. And so the guidance that Pam gave for Q3 is pretty good guidance. And even though we do anticipate a very healthy Q3 and a healthier Q4 on fundraising, we're going to start to see that kick in on revenue as we move into the next year.

Okay. Super helpful. And if I could ask may one follow-up. Normally, I wouldn't ask this kind of question on a call here, but I'm sort of intrigued that you sort of proffered it up in your prepared remarks. Can you talk a little bit about the AI opportunity maybe at either the portfolio level or at the operational level and how we should think about maybe modeling that through from an earnings perspective?

So let me give one couple of sentences and then Jon maybe jump in because Jon has been spending a tremendous amount of time on this. But we are focused on this opportunity pretty much everywhere. And so we -- when I said somewhere in the firm every day, there are -- there's an AI conversation. That means each investment vertical and on the investment side and how does it help us to be more efficient investors? How does it help us from a margin and workload perspective? How does it help us ultimately to make better investment decisions. And then from an operational perspective, everywhere in the firm as well. So outside of the investment teams, how does it help our client group efforts on multiple levels? How does it help us inside our legal and finance teams on multiple levels. And it is just a -- I was -- I joke, it can't -- we can't have a Q2 '25 call without mentioning it. It really is kind of an everyday thing somewhere in the firm that's got a lot of senior management focus, attention and time and has, I think, a lot of promise, and it's actually something that is very constructive with regard to sleeping at night on long-term margin and efficiency. Jon?

Yes. I would just add, I wouldn't obviously do anything specific in your model, Bill, only in the sense that what we've told you is we've got operating leverage in the business. We've shown continued margin improvement, something on the order of, I don't know, 1,200 basis points or something since 5 years ago, and we've told you we think there's still margin to go. And I think it's all kind of captured in this. So I wouldn't -- it's not like to me a unique modeling exercise, but it's facilitating obviously, that scalability. I think that without offending all of my other wonderful 550 colleagues, my favorite meeting of the month that we have is with me and our Chief Technology Officer, we meet with our top 5 users of Enterprise ChatGPT every single month. And we do that to understand what they're using it for, what's been successful so that we can then have best practices spread out throughout the firm because to Michael's point, it's happening every day and everywhere at the firm and what our job as a leadership team is to make sure that we can figure out then how to scale those best practices across the organization without dampening that entrepreneurial spirit and without dampening that curiosity that we're seeing across the employee base. I could give you numerous examples of it, and none of them would really make any like big sense to you, but they're all little wins. I'll give you a small one for fun. Our tax team just recently built a Custom GPT that enables them to read tax returns and automatically enter data that was used to be manual. As you know, in the industry in private markets, a lot of that no longer done by facts, but still a lot of PDFs and the ability to take PDF information, whether it's on a report on a portfolio company or whether it's a financial statement that used to be manually entered somewhere, but now have that be automatically read and input it into our data lake. All of those things are fascinating usages, the first draft of a marketing deck you might create for a client that can come out of a GPT and your ability then to obviously make it appropriate for your organization, make it accurate because we all know it can hallucinate. There's just exciting use cases kind of all over the place, and we encourage people to think about it not only as a productivity and an efficiency tool, but also think of it as a thought partner and a creative partner and not limit the power of its intellect for lack of a better word. So I just think you're seeing that all across the world, Bill, all across the industry, and it's just obviously such early days.

Your next question is coming from the line of Crispin Love with Piper Sandler.

First on fundraising, do you expect a first close for GSF IV in the second half? And then are there any other meaningful closes we should be looking out for in the second half that are currently in market?

We had -- you don't see it in this because it happened subsequent to the quarter, but we had a first close for GSF in July. And so we'll talk more about that next quarter. And the other product that we would expect to have a first close on towards the end of this year is our CIS IV infrastructure product.

Great, Jon. I appreciate that. And then just one last modeling question. Is your 5% to 8% private markets management fee growth for the year unchanged? I just don't think I heard any color on that in the prepared remarks.

Yes, unchanged.

And it appears there are no additional questions at this time. I'll now turn the call back to you for any closing remarks.

Thank you. Thank you, everyone, for joining us today. We appreciate the interest and the questions, and we look forward to speaking with you again next quarter, if not sooner. Have a great 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.