GCM Grosvenor(US:GCMG)2021-03-11 16:00Part I Business GCM Grosvenor is a leading independent alternative asset management firm with $62 billion in AUM as of December 31, 2020, offering customized investment solutions across various strategies Assets Under Management (AUM) by Strategy as of Dec 31, 2020 | Strategy | AUM ($ Billions) | | :--- | :--- | | Private Equity | $22.8 | | Infrastructure | $6.0 | | Real Estate | $3.2 | | Alternative Credit | $11.4 | | Absolute Return Strategies | $25.2 | | Total AUM | $62.0 | - The company serves over 500 institutional clients, with the 25 largest clients having an average relationship of over 12 years, and 92% of these top clients expanded their relationship in the last three years29 - The business model is structured into Customized Separate Accounts ($48 billion AUM) and Specialized Funds ($14 billion AUM)34 - As of December 31, 2020, the company had $7.1 billion of contracted capital not yet earning fees, expected to bolster FPAUM growth over the next several years35 - The company has a strong focus on ESG and impact investing, with approximately $16.6 billion committed or invested in ESG-related themes since 20023973 Risk Factors The company faces numerous risks, including poor fund performance, COVID-19 impacts, intense competition, reputational damage, and extensive regulatory oversight - Business and Industry Risks: Poor fund performance, the impact of COVID-19, intense competition, reputational harm, and numerous conflicts of interest are key risks197204211 - Fund-Related Risks: The business is affected by difficult market conditions, the subjective nature of asset valuations, the illiquidity of private market investments, and dependence on leverage and underlying fund manager performance276289296 - Organizational Structure Risks: The company is a "controlled company" exempt from certain Nasdaq governance rules, with a multi-class stock structure concentrating approximately 75% of voting power with Key Holders, and an obligation to pay 85% of certain tax benefits under a Tax Receivable Agreement323325328 - Public Company and Regulatory Risks: The company faces risks related to maintaining effective internal controls, its status as an "emerging growth company," extensive government regulation from bodies like the SEC and CFTC, and legal and regulatory uncertainty from Brexit236252347 Unresolved Staff Comments The company reports that there are no unresolved staff comments - There are no unresolved staff comments376 Properties The company does not own any material real estate, leasing its principal headquarters in Chicago, IL, under an agreement expiring September 30, 2026 - The company leases its principal headquarters in Chicago, IL, with the lease expiring on September 30, 2026377 Legal Proceedings The company is involved in various lawsuits in the normal course of business but does not expect any current litigation to have a material effect on its financial condition or operations - The company does not expect any current litigation to have a material effect on its financial condition or operations378 Mine Safety Disclosures This item is not applicable to the company - Not applicable380 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock and warrants began trading on Nasdaq in November 2020, with 41,603,993 shares outstanding as of March 9, 2021, and a quarterly dividend policy initiated - Class A common stock (GCMG) and warrants (GCMGW) have been listed on Nasdaq since November 18, 2020382 - A quarterly dividend of $0.06 per share was declared for Q1 2021, and a dividend of $0.08 per share was declared for Q2 2021384 - As of March 9, 2021, there were 41,603,993 shares of Class A common stock outstanding383 Selected Financial Data This section is reserved and contains no information - This item is noted as '[Reserved]'391 Management's Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020, total operating revenues increased 3% to $430.0 million, driven by a 33% rise in incentive fees, while total operating expenses surged 42% to $470.8 million, resulting in an operating loss of $40.9 million and a net loss of $67.6 million Results of Operations (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $429,981 | $416,394 | 3% | | - Management fees | $310,745 | $324,716 | (4)% | | - Incentive fees | $111,650 | $84,165 | 33% | | Total operating expenses | $470,839 | $331,425 | 42% | | - Employee compensation | $388,465 | $242,967 | 60% | | Operating income (loss) | $(40,858) | $84,969 | (148)% | | Net income (loss) | $(67,630) | $59,998 | (213)% | Fee-Paying AUM (FPAUM) Movement (Year Ended Dec 31, 2020) | (in millions) | Private Markets | Absolute Return | Total | | :--- | :--- | :--- | :--- | | Beginning Balance | $26,477 | $23,556 | $50,033 | | Contributions | $3,563 | $1,625 | $5,188 | | Withdrawals | — | $(3,386) | $(3,386) | | Distributions | $(2,022) | $(256) | $(2,278) | | Change in Market Value | $(2) | $2,721 | $2,719 | | Ending Balance | $27,839 | $24,130 | $51,969 | - Contracted, not yet fee-paying AUM increased 37% to $7.1 billion during 2020, indicating future management fee growth potential461463 Non-GAAP Financial Measures (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Adjusted Fee Related Earnings | $95,069 | $88,094 | | Adjusted EBITDA | $147,044 | $124,821 | | Adjusted Net Income | $90,963 | $72,448 | - As of December 31, 2020, the company had $198.1 million in cash and cash equivalents and $340.3 million in outstanding long-term debt490497 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is the sensitivity of its revenues to the fair value of its funds' investments, with $340.3 million in floating-rate debt exposing it to interest rate risk, which is hedged using derivatives - The company's predominant market risk is the sensitivity of its revenues (management fees, incentive fees, investment income) to the fair value of its funds' investments549 - As of December 31, 2020, the company had $340.3 million of floating-rate debt, where a 100 basis point increase in interest rates would increase annual interest expense by an estimated $3.4 million553554 - The company uses interest rate swaps and collars to hedge its interest rate risk on its outstanding debt554 Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for 2020, 2019, and 2018, along with the independent auditor's report and detailed notes on significant events like the November 2020 Business Combination - Includes the Report of Independent Registered Public Accounting Firm, Ernst & Young LLP, which provides an opinion on the consolidated financial statements562 Consolidated Statement of Financial Condition (As of Dec 31, 2020) | (in thousands) | Amount | | :--- | :--- | | Total Assets | $631,891 | | Cash and cash equivalents | $198,146 | | Investments | $166,273 | | Total Liabilities | $556,167 | | Debt | $335,155 | | Payable to related parties (TRA) | $60,131 | | Total Deficit | $(39,397) | Consolidated Statement of Income (Year Ended Dec 31, 2020) | (in thousands) | Amount | | :--- | :--- | | Total operating revenues | $429,981 | | Total operating expenses | $470,839 | | Net income (loss) | $(67,630) | | Net income attributable to GCM Grosvenor Inc. | $7,507 | - The notes detail significant accounting policies, the Business Combination, the Mosaic Transaction, debt structure, and related party transactions588694700 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None reported841 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal controls reported - Disclosure controls and procedures were deemed effective as of December 31, 2020843 - A management report on internal control over financial reporting is not included due to the transition period for newly public companies844 Other Information This section discloses an amendment to the employment agreement for CIO Frederick E. Pollock, effective January 1, 2021, including a one-time grant of 750,000 restricted stock units, and the scheduling of the 2021 annual meeting of stockholders for June 2, 2021 - On March 11, 2021, the company amended the employment agreement for CIO Frederick E. Pollock846 - Mr. Pollock is entitled to a one-time grant of 750,000 restricted stock units850 - The 2021 annual meeting of stockholders is scheduled for June 2, 2021852 Part III Directors, Executive Officers and Corporate Governance This section lists the company's executive officers and board of directors, including Michael Sacks (Chairman & CEO) and Jonathan Levin (President & Director), noting that as a "controlled company," GCM Grosvenor is exempt from certain Nasdaq governance requirements - The board of directors consists of seven members: Michael Sacks, Jonathan Levin, Angela Blanton, Francesca Cornelli, Stephen Malkin, Blythe Masters, and Samuel C. Scott III853 - The company has an audit committee comprised of four independent directors: Angela Blanton, Francesca Cornelli, Blythe Masters, and Samuel C. Scott III873 - The company has a written Code of Business Conduct and Ethics applicable to all directors, officers, and employees869 Executive Compensation This section details the compensation for named executive officers for fiscal years 2020 and 2019, including base salary, bonuses, and significant other compensation from profit-sharing partnerships and carried interest arrangements 2020 Named Executive Officer Compensation | Name | Position | Salary ($) | Bonus ($) | All Other Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Michael J. Sacks | CEO & Chairman | 3,700,000 | — | 282,540 | 3,982,540 | | Jonathan R. Levin | President | 500,000 | 861,957 | 25,097,954 | 26,459,911 | | Sandra Hurse | CHRO | 500,000 | 1,702,147 | 757,511 | 2,959,658 | | Francis Idehen | COO | 500,000 | 2,393,577 | 1,105,266 | 3,998,843 | | Frederick Pollock | CIO | 500,000 | 1,687,500 | 11,650,523 | 13,838,023 | - NEOs participate in profit-sharing through membership interests in Holdings L.L.C. and Management LLC, which provide for both fixed and discretionary distributions888895 - NEOs are eligible for carried interest from certain funds, which generally vest over a multi-year period886 - The company maintains the GCM Grosvenor Inc. 2020 Incentive Award Plan with 26,307,158 shares reserved for issuance, but no awards were granted in 2020881 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the beneficial ownership of the company's voting shares as of March 9, 2021, with Michael Sacks holding 75% of the combined voting power through his control of various entities Security Ownership of Major Holders (as of March 9, 2021) | Beneficial Owner | Class A Common Stock (%) | Class C Common Stock (%) | Combined Voting Power (%) | | :--- | :--- | :--- | :--- | | Michael Sacks | 77.7% | 100% | 75.0% | | The Vanguard Group | 28.2% | — | 6.3% | | CF Investors | 19.8% | — | 4.4% | | Adage Capital Partners, LP | 8.4% | — | 1.9% | | Alyeska Investment Group | 7.2% | — | 1.6% | - The GCM Grosvenor Inc. 2020 Incentive Award Plan has 26,307,158 securities available for future issuance as of December 31, 2020930 Certain Relationships and Related Transactions, and Director Independence The company discloses several related person transactions, including using an insurance broker with director and CEO family interests, chartering private aircraft from a CEO-controlled entity, and allowing directors and executive officers to invest in GCM funds on a no-fee basis - The company utilizes an insurance broker where director Stephen Malkin has a ~35% economic interest and CEO Michael Sacks' brother is an executive, with commissions paid to the broker totaling $0.8 million in 2020943 - The company charters private aircraft owned by Holdings (controlled by CEO Michael Sacks), with payments totaling approximately $0.5 million in 2020944 - Directors and executive officers are permitted to invest in GCM funds on a no-fee and no-carry basis, with aggregate investments of $298.7 million in 2020946947 - The company is a "controlled company" as the Key Holders control approximately 75% of the combined voting power970 - The board has determined that four of its seven directors (Angela Blanton, Francesca Cornelli, Blythe Masters, and Samuel C. Scott III) are independent971 Principal Accountant Fees and Services This section summarizes the fees billed by Ernst & Young LLP for 2020 and 2019, totaling $5.67 million and $1.64 million respectively, with the Audit Committee having a pre-approval policy for all services Accountant Fees (Ernst & Young LLP) | Fee Category (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fees | $1,068 | $635 | | Audit-Related Fees | $2,995 | $184 | | Tax Fees | $1,605 | $825 | | All Other Fees | — | — | | Total Fees | $5,668 | $1,644 | - The Audit Committee has a policy for pre-approving all services provided by the independent auditor974 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8 and provides a comprehensive list of exhibits filed with the Annual Report on Form 10-K, including key agreements and various certifications - Provides a list of all exhibits filed with the Form 10-K, including key agreements like the Transaction Agreement, Credit Agreement, Stockholders' Agreement, and Tax Receivable Agreement980981982 - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits983 Form 10-K Summary This item is noted as "None," indicating no summary is provided - None985