Good day, and welcome to the GCM Grosvenor Fourth Quarter and Full Year 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 Fourth Quarter and Full Year 2025 Earnings Call. Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sachs; President, Jon Levin and Chief Financial Officer, Pam Bentley. Before we discuss our 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 can be found 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 measures to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are 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. 2025 was a great year for GCM Grosvenor. Most importantly, we drove value for clients as our investment results, the cornerstone of our value proposition, we're strong across the board. Absolute return strategies performance was excellent with our multi-strategy composite generating a 15% gross rate of return in 2025. Infrastructure, our fastest-growing strategy of late, returned approximately 11% for the year. All of our other verticals in aggregate were positive and competitive as well. We think the investment opportunity set remains strong, and we're pleased to have approximately $12 billion of dry powder. From a capital formation perspective, 2025 was the best fundraising year in the history of the firm. We raised $10.7 billion of total capital with approximately $3.5 billion of that coming in the fourth quarter, both records. Jon will go into more detail, but our fundraising was broad-based with all of our verticals, including ARS, having positive flows and all investor channels and geographies contributed. Our pipeline of activity is very strong entering 2026, which bodes well for fundraising this year. 2025 financial results were similarly strong. Our fee-related earnings, adjusted EBITDA and adjusted net income were up 11%, 15% and 18%, respectively, when compared to 2024. Our fee-related earnings margin for the year was 44%, which is 200 basis points higher than our margin in 2024. We continue to enjoy significant margin improvement since coming public, and we believe we still have positive operating leverage. Our adjusted EBITDA and adjusted net income were aided by the $68 million of performance fees generated from our ARS business. In that regard, 2025 represented the fourth time in the last 6 years that we have generated more than $50 million in annual performance fees from ARS. While carried interest realizations were light for the fourth quarter,…

Thank you. As Michael noted, my remarks will focus on our strong fundraising results for the year 2025. Our $10.7 billion raised in addition to being a firm record, is notable for its diversification across strategies which is best illustrated on Page 10 of our earnings presentation. Every investment strategy contributed meaningfully to our results this year and all have sizable pipeline heading into 2026. But the numbers only capture part of the story. So to bring our fundraising to life, I'm going to take you through a few real examples of 2025 wins. First, as we've discussed in the past and at our Investor Day, evolving alongside our existing clients, through cross-selling has been a key driver of our growth, generating approximately 20% to 25% of our fundraising in any given year. One such client is a large public pension that has partnered with us for years on a multi-asset private markets program focused on smaller cap opportunities in private equity and real estate. Through our ongoing dialogue, our client described that they had strong demand for what they call the missing middle of real estate, sitting between smaller and very large opportunities. We designed a new program specifically to address that gap. Importantly, the client also re-upped to their original private equity and real estate programs committing more than twice their initial allocation. It's a strong example of listening closely, adapting quickly, creating durable solutions and growing alongside our clients. To that point, our AUM with this particular client is 4x what it was when they launched their first program with our firm. A second example highlights similar expansion but in the Absolute Return Strategy space. In this case, we worked with the client for almost 20 years, managing small and middle-market programs across private equity, infrastructure and…

Thanks, Jon. Both our fundraising and investment performance led to strong asset growth in the fourth quarter and the year. Private markets fee paying AUM and management fees grew 10% and 6% year-over-year, respectively, from a combination of solid fundraising and conversion of contracted, not yet fee-paying AUM. Growth in all of our various earnings drivers throughout the course of '25 sets us up well for continuing momentum and earnings expansion. As usual, let me touch on key figures for the upcoming quarter. For the first quarter of '26, we expect private markets management fees to be relatively consistent with the fourth quarter. It's also important to note that given timing and fee structure of our specialized funds and market, we expect limited catch-up fees this year. As noted, Absolute Return Strategies had strong investment performance and capital formation resulting in ARS fee-paying AUM and management fees growing 15% and 5% year-over-year, respectively. For the first quarter of '26, as a result of positive net flows and terrific investment performance, we expect ARS management fees to increase by approximately 5% from the fourth 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 our FRE compensation and benefits remained stable for the year at approximately $148 million or an average of $37 million per quarter. As a reminder, we typically see a seasonal uptick in compensation in the first quarter of the year, and we expect FRE compensation and benefits to be approximately $1 million higher in Q1 of '26 versus Q1 of last year. Non-GAAP general,…

[Operator Instructions] The first question will come from Jeff Smith with William Blair.

Could you discuss your capital allocation plans just with balance sheet cash up on the warrant exercise? And Pam, you had mentioned you paid down some debt over the last week or 2 and up share buybacks. But what are your plans from here? Should we expect additional debt paydowns?

Thanks, Jeff. So it's Michael, and then Pam jump in if I leave anything out here. But you know we've always talked about the fact that we're capital light business, and we've paid a healthy dividend and increased that dividend a number of times since coming public. And we've said numerous times, we intend to sort of stay capital-light business. So we did -- you saw in the Q4, we bought back shares post warrant exercise and we are going to pay some debt down now. And I think that with the current authorized exercise and the current -- and the debt paydown we announced this morning, that kind of puts us back in a pretty comfortable range. Obviously, we have a quite healthy dividend yield, not getting a ton of appreciation for that. So while we probably do have cash flow to be able to increase that dividend, it doesn't seem to get me rewarded, particularly by shareholders sort of focused on increasing that buyback.

And then you continue to see really good operating leverage in the business. I think the fee-related margin was 44% for the year. It's up a lot over the last 5 years. Can you continue to keep expense growth low as this business scales out through '28, which was sort of your medium-term outlook? Can you continue to drive margin expansion over that period?

We believe we can. And so we do think -- I think I mentioned it in my comments, we believe we have continued operating leverage, and we think that we can and will continue to drive FRE margin and overall margin through '28.

The next question comes from Ken Worthington with JPMorgan.

The Absolute Return business had a great quarter, had a really solid year. You've been highlighting for some time the expectation of flat flows. How you're feeling about the business? And how do you feel about that business sort of returning to organic growth as we look to the future, given sort of the successes you've had in the in the past couple of years?

Well, again, we're going to flash back to our Investor Day conversation when we were out in the call. We're not changing our budgeting, and we're not changing and making any proclamations on a call like this. And as anybody who was at the Investor Day or watched that Investor Day recording, knows we definitely have people in the firm in that vertical that are more bullish on the vertical than we are budgeting, but we're not changing that budgeting at this time. And I could point out, Ken, that budgeting relates to flows, which obviously translates directly into management fees, but it also does relate to performance expectations and kind of what we sort of talk about as run rate performance fees at budget. And I did highlight that for the last 6 years, we've beaten the run rate at budget on the performance fee side as well.

That was an elegant way of answering, so I appreciate it. As we think about, I just want to dig into --

It's Jon. Sorry. Let me add one thing. I mean I agree with everything Michael said. I do want to just make sure we make the important distinction because you framed the question in the context of organic growth. Pam gave guidance for the first quarter of '26 and you might have been specifically referring to flows as opposed to just FRR. But that guidance for the first quarter of of '26 does have embedded in it, obviously, FRR growth from that vertical in light of the success we've been having. So I just want to make sure that when you follow back and look at that script, you catch that piece.

And just on 2 funds, maybe first, Advance, how much has been raised thus far in the strategy and how much time is left until that fund closes? And then CIS is back in the market. Just remind us how big the prior fund was?

Sure. Let me take -- Jon, let me take advance and you just give the specific number on CIS. So Ken, we are in market with -- for Advance. We actually have the ability to extend the period to raise funds for Advance, and we have talked to our LPAC about doing that. And so we'll be continuing to try to raise money for Advance going forward the next several next quarter or so. Advance is, in my view, likely to come in smaller than the prior Advance. It will be one of the few funds we've ever had where a successor is smaller than the predecessor. And as you know, Advance focuses on emerging managers, which is emerging and diverse managers, and there's been a lot of conversation about diversity and diversity equity inclusion over the course of the last year or so. And it's been a steeper slope for the fund raise this time around. And I think that's just a fact. That's a fact we've been living with. And when we have our final close, we don't announce the numbers along the way, but when we have our final close, it will be I think, smaller than the prior fund. I would say that as -- given the size of the prior fund, it's not going to be all of our forecasts and everything incorporates the idea that it's going to be smaller. So we've understood that. We understand the landscape. We've been -- that, that fund has been operating in for a while now, and that's baked into our guidance and our expectations.

And just CIS, the prior one?

Yes. It's about between roughly $1 billion. There were some sidecar vehicles that invest alongside that fund. But for CIS III plus or minus $1 billion were, as you said, now in market with critical infrastructure solutions for and you know that we've talked a lot about the success we're having generally in the infrastructure space. And so when you look at the total capital formation for infrastructure vertical across separate accounts and various products. This is just a piece of it, but we feel as good about this piece as we do about the broader infrastructure strategy, which is obviously going pretty well.

And the next question will come from Bill Katz with TD Cowen.

So Jon has spent a lot of time talking about the depth and breadth of the gross sales dynamic for 2025. And I think between you and Michael sort of hinted at a pretty good '26. I was wondering if you could maybe unpack the drivers for 2026 and maybe break that down between specialized versus maybe the SMA side of the equation, retail global wealth versus institutional, and any other metric you think is sort of salient for us as we sort of work through our math.

Sure. I don't know, Bill, if I broke it down, I would break it down much differently from what the flows formation and the makeup of that formation has been over the past couple of years with the relevant embedded trends in it. So when you think about it being broad-based globally, when you think about being broad-based across the channels, when you think about it being highly diversified across many of our verticals, the mix between separate accounts and specialized funds being roughly the same mix as that's represented in our AUM at 70-30 with the underlying trend still being relevant to that. Infrastructure is strong and we're in market with a bunch of infrastructure stuff. And the individual investor market is growing faster than the institutional. We had individual investor AUM up close to 20%, which is larger than our -- what our overall AUM growth was, continued growth from the capital from the insurance channel as compared to what it represents in AUM. So I don't think that I would call for something kind of markedly different in any period of a reasonably long period of time that you would capture capital formation over. I would say that our expectation would be a continuation of the trends we're seeing, which is a very healthy environment for capital formation, and us benefiting from the diversification and breadth of the business and where we're making investments in particular to get behind the tailwinds that we're all collectively seeing in the market.

Bill, it's Michael. I don't think we said in the script, which we often do. So glad that you asked and happy to say it now. Our pipeline we've talked in the past how we track pipeline and we have near-term pipeline in a couple of categories and near-term pipeline, et cetera. After raising $10.5 billion through December 31, our pipeline today is larger than it was a year ago. So just to -- and to Jon's point, it's completely diverse on channel, on jurisdiction, geography, et cetera. So that's -- I think we normally mention that, and we didn't this time, I don't believe. So thanks for asking.

And maybe a follow-up for Pam. It maybe a 2-part question. You've been able to really hold the line on expenses year-on-year even as the business continues to scale. What is it that's driving that, the ability to sort of tamp down, particularly on the OpEx side and the comp side? And then as we look ahead, sort of unrelatedly, how are you guys thinking about the realization opportunity on the carry side of the equation and which bucket do you think it comes from?

Appreciate the question, Bill. I think on the OpEx side, I would say, obviously, we're focused on continued expense management, but also just continued investment in scalability and technology. There's a lot of great efforts going on that are enabling us to achieve that scale and including AI, and we spoke a little bit about that at Investor Day as well. And we are also, again, just disciplined in making sure we're still investing in the areas of the business where there's product growth such as in the individual investor space. So we're investing where it makes sense and we're holding the line and reducing expenses where we can through really investments in technology. And I think, Bill, if you can remind me the second part of your question there?

I'll take it, Pam. It was the carry question, where is it going to come from and how good do we feel about it? And what's our -- how do we characterize it? And I think, Bill, where I would start on that is I think the most important piece, and I want to dig in a little is, how we mostly think about it is it's not an if it's a when. And so when matters, time value money matters, absolutely for sure, sooner is better. That said, that asset is appreciating very rapidly. And I encourage everybody to listen to my comments in the script with regard to that asset, look at the appreciation over the year, last year, quarter-over-quarter. That asset is appreciating rapidly. And what to me is very encouraging about that asset, when you have a carry asset on your balance sheet. One of the things you worry about is sort of old carry and is the old carry just kind of stale and sitting there and you're not going to really collect it. If you look at our collections, our old carry has come way, way, way, way down. We've collected most of it, so it's live. It has been a when not an if question. And we have every confidence that, that carry at [ $479 ] firm share now is a when, not an if, and that, that number is going to go up, which we touched on. And there is a ton of carry at work behind doesn't really appear anywhere, right, because it's just carry that's not yet in the money to be counted and carry at NAV, but it's working. We're deploying the capital, and we're creating the investment returns to turn that into carried NAV and there's a ton of that, that we've generated in the last 6 years or so. And so we're hopeful that the same experience you've seen with our carry asset over the time period that we've been public, where we've tripled 3.5x, whatever it is, the size of the asset while collecting a lot of cash, not saying specific dollar amounts, but that, that same pattern is going to occur again on top of the [ $479. ] We think this is not -- like if you look at our carry asset today at [ $479 , ] it's a big chunk of our total enterprise value relative to peers. It's worth noticing that. And then you think about the dry powder, the carry that we have behind that, and it's a very significant asset for Grosvenor that we sort of feel and it will start cash flowing to a higher degree, just a question of when. And when we -- when it does, we think it will be significantly appreciated.

And we'll take a question from Crispin Love with Piper Sandler.

First, on the fundraising outlook broadly, very strong in '25. Just curious on how you're thinking about '26, just given the momentum you have built up, at least that compares to 2025. You said pipeline is stronger than a year ago. Does that mean that we should assume that you expect fundraising in '26 to exceed 2025? Or am I going a little bit too far there?

Our bottom-up granular build coming in from the business development team and the investment teams lands at a number that would exceed last year. Given how good last year's fundraising was given it was a firm record, given the sort of massive increase over 2024, we're not budgeting any -- we're not standing on the call today saying that '26 fundraising will exceed '25. But we've certainly got the pipeline to give -- to give '25 a series run for it's money. And as I said, our teams think we should have a bigger year. But our base budget is in line with last year, and we'll keep updating that as we get through the -- go through the year and when we're confident that we're going to exceed it, we'll announce that.

Perfect. That makes a ton of sense. And then just performance fee is very strong in the quarter, but my question is a follow-up on the carried interest side, was the softest for carry in '25. First, was that surprise for you. I know third quarters are typically the strongest. So not a major surprise to see a little bit lower in the fourth. But just curious on the absolute level for the fourth quarter, and I do appreciate the difficulty in forecasting these levels.

It was lower than expected than we expected. That said, carry is not the revenue -- the easiest revenue stream for anyone to predict. And so particularly when your carry is quite -- is a highly diversified carry with lots of different waterfalls. It's not like work on one deal and generate carry. So it's the hardest revenue stream for us to predict. We would love it to the -- we would love the realizations to increase. We've been looking for that to happen since kind of the slowdown in '22, '23, we do see interesting, more activity teed up everywhere public market, private market. And so we are expecting some -- expecting increased revenues there. But that movement in the carry at NAV is super important because you don't know when you're getting that money, but you are going to get it. And so tracking the asset matters a lot. And we -- that asset moved a bunch in Q4 even though we didn't collect a lot of cash.

And at this time, there are no further questions.

Thank you again to everyone for joining us today and taking the time. We appreciate the engagement and the questions. If there are follow-up questions, please feel free to reach out. If not, we look forward to speaking with you next quarter and hope everybody has a wonderful day.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.