GCM Grosvenor(GCMG) - 2021 Q3 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements of GCM Grosvenor Inc. for the periods ended September 30, 2021, and December 31, 2020, including statements of financial condition, income, comprehensive income, equity (deficit), and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, business combinations, revenue recognition, investments, fair value measurements, equity, debt, and other financial disclosures Condensed Consolidated Statements of Financial Condition Condensed Consolidated Statements of Financial Condition (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total Assets | $512,883 | $632,278 | | Total Liabilities | $623,033 | $599,347 | | Total Deficit | $(110,150) | $(82,190) | - Total assets decreased by $119.395 million (18.88%) from December 31, 2020, to September 30, 2021, primarily driven by a decrease in cash and cash equivalents and other assets[17] - Total liabilities increased by $23.686 million (3.95%) from December 31, 2020, to September 30, 2021, mainly due to an increase in debt[17] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $118,075 | $101,746 | $340,997 | $274,493 | | Operating Income | $25,077 | $9,168 | $42,629 | $29,933 | | Net Income | $22,706 | $11,168 | $64,545 | $1,771 | | Net Income Attributable to GCM Grosvenor Inc. | $4,056 | $0 | $7,259 | $0 | | Basic EPS | $0.09 | $0 | $0.17 | $0 | | Diluted EPS | $0.03 | $0 | $0.03 | $0 | - Net income attributable to GCM Grosvenor Inc. was $4.056 million for the three months ended September 30, 2021, and $7.259 million for the nine months ended September 30, 2021, with no comparable figures for 2020 due to the timing of the Transaction[20] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $22,706 | $11,168 | $64,545 | $1,771 | | Total Other Comprehensive Income (Loss) | $1,715 | $1,571 | $2,441 | $(6,027) | | Comprehensive Income Attributable to GCM Grosvenor Inc. | $4,467 | $0 | $7,829 | $0 | - Total other comprehensive income increased significantly for the nine months ended September 30, 2021, to $2.441 million, compared to a loss of $(6.027) million in the prior year, driven by unrealized gains on cash flow hedges[23] Condensed Consolidated Statements of Equity (Deficit) Condensed Consolidated Statements of Equity (Deficit) (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total GCM Grosvenor Inc. Deficit | $(37,604) | $(29,342) | | Noncontrolling Interests in Subsidiaries | $104,439 | $94,013 | | Noncontrolling Interests in GCMH | $(176,985) | $(146,861) | | Total Deficit | $(110,150) | $(82,190) | - The total deficit increased from $(82.190) million at December 31, 2020, to $(110.150) million at September 30, 2021, reflecting changes in retained earnings and noncontrolling interests[26] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands): | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $144,796 | $43,131 | | Net Cash Used in Investing Activities | $(11,953) | $(2,701) | | Net Cash Provided by (Used in) Financing Activities | $(209,962) | $37,769 | | Net Increase (Decrease) in Cash and Cash Equivalents | $(78,165) | $78,320 | | Cash and Cash Equivalents, End of Period | $119,981 | $158,186 | - Net cash provided by operating activities significantly increased to $144.796 million for the nine months ended September 30, 2021, from $43.131 million in the prior year[30] - Net cash used in financing activities was $(209.962) million for the nine months ended September 30, 2021, a substantial change from $37.769 million provided in the prior year, primarily due to the exercise of the Mosaic call option and debt-related activities[30] Notes to Condensed Consolidated Financial Statements 1. Organization GCM Grosvenor Inc. (GCMG) and its subsidiaries provide comprehensive investment solutions, including hedge fund strategies, private equity, real estate, infrastructure, and strategic investments, to institutional clients. GCMG was incorporated in July 2020 for a business combination and holds approximately 23.4% ownership in GCMH as of September 30, 2021 - GCM Grosvenor Inc. (GCMG) and its subsidiaries offer comprehensive investment solutions across alternative investments like hedge funds, private equity, real estate, infrastructure, and strategic investments[32] - GCMG's ownership in GCMH (through IntermediateCo) increased from approximately 22.1% as of December 31, 2020, to 23.4% as of September 30, 2021[34] 2. Summary of Significant Accounting Policies This section outlines the accounting policies, including the basis of presentation for unaudited interim financial statements, the company's status as an 'emerging growth company' (EGC) and its election for an extended transition period for new accounting standards, the impact of COVID-19, fair value measurements, investment valuation, and equity-based compensation. It also details recently issued accounting standards and their potential impact - The company is an 'emerging growth company' (EGC) and has elected to use the extended transition period for complying with new or revised accounting standards[37] - The company categorizes fair value measurements into a three-level hierarchy based on input observability, with Level 1 for quoted prices in active markets, Level 2 for observable inputs other than quoted prices, and Level 3 for unobservable inputs[41] - The company early adopted ASU 2018-17 (Consolidation) on July 1, 2021, and ASU 2017-04 (Goodwill Impairment) on April 1, 2021, with no material impact on consolidated financial statements[48][49] 3. Business Combination On November 17, 2020, GCMG completed a business combination with CF Finance Acquisition Corp. (CFAC), structured as an "Up-C" transaction, where GCMG indirectly holds general and limited partnership interests in GCMH, and GCMH owners retain their ownership - The business combination with CFAC was consummated on November 17, 2020, and treated as a common control transaction[55] - The transaction utilized an "Up-C" structure, allowing GCMH owners to retain their ownership in GCMH while GCMG indirectly holds partnership interests[56] 4. Mosaic Transaction The Mosaic Transaction, effective January 1, 2020, involved GCMH transferring partnership interests to Mosaic Acquisitions 2020, L.P. On July 2, 2021, GCMH exercised an amended Mosaic Call Right to repurchase the interest in Mosaic for $165.0 million, leading to a reclassification of investments from redeemable noncontrolling interest to the Company's holdings and a reduction in additional paid-in capital and noncontrolling interests in GCMH - GCMH exercised the amended Mosaic Call Right on July 2, 2021, to purchase the interest in Mosaic for a net purchase price of $165.0 million[63] - The exercise of the Mosaic Call Right resulted in a $14.0 million reduction to additional paid-in capital and a $47.5 million reduction to noncontrolling interests in GCMH[63] - The transaction reclassified approximately $96.8 million of investments from redeemable noncontrolling interests to the Company's holdings[67] 5. Revenue Total operating revenues for the three months ended September 30, 2021, increased to $118.075 million from $101.746 million in 2020, driven by increases in both management fees and incentive fees. For the nine months ended September 30, 2021, total operating revenues rose to $340.997 million from $274.493 million in 2020 Revenue (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Management fees | $87,796 | $78,269 | $256,015 | $231,106 | | Incentive fees | $29,178 | $21,774 | $79,619 | $38,048 | | Other operating income | $1,101 | $1,703 | $5,363 | $5,339 | | Total operating revenues | $118,075 | $101,746 | $340,997 | $274,493 | - Management fees increased by $9.527 million (12.17%) for the three months ended September 30, 2021, and by $24.909 million (10.78%) for the nine months ended September 30, 2021, compared to the respective prior periods[64] - Incentive fees increased by $7.404 million (34.00%) for the three months ended September 30, 2021, and by $41.571 million (109.26%) for the nine months ended September 30, 2021, compared to the respective prior periods[64] 6. Investments Total investments increased to $203.993 million as of September 30, 2021, from $166.273 million at December 31, 2020. The decrease in investments held by noncontrolling interest holders is primarily due to the exercise of the amended Mosaic Call Right, which transferred approximately $96.8 million of investments to the Company Investments (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Equity method investments | $202,815 | $165,095 | | Other investments | $1,178 | $1,178 | | Total investments | $203,993 | $166,273 | - Investments held by noncontrolling interest holders decreased from $161.9 million at December 31, 2020, to $91.0 million at September 30, 2021[66] - The exercise of the Mosaic Call Right on July 2, 2021, resulted in approximately $96.8 million of investments previously held by noncontrolling interests now being held by the Company[67] 7. Fair Value Measurements The Company's assets and liabilities measured at fair value include money market funds (Level 1), interest rate derivatives (Level 2), and public/private warrants (Level 1 and Level 3, respectively). Private warrants are valued using a binomial option valuation model with significant unobservable inputs, classified as Level 3. The fair value of private warrants decreased from $6.4 million at December 31, 2020, to $2.0 million at September 30, 2021 Fair Value Measurements (in thousands): | Category | Sep 30, 2021 Total | Dec 31, 2020 Total | | :-------------------- | :----------------- | :----------------- | | Assets at Fair Value | $36,296 | $149,553 | | Liabilities at Fair Value | $42,106 | $71,235 | | Private Warrants (Level 3) | $2,016 | $6,372 | - The fair value of private warrants (Level 3 liability) decreased from $6.372 million at December 31, 2020, to $2.016 million at September 30, 2021[68][75] - Key unobservable inputs for private warrant valuation include risk-free interest rate (0.78% at Sep 30, 2021), expected term (4.1 years), and expected volatility (30%)[72][73][74] 8. Equity As of September 30, 2021, the Company had 44,022,131 Class A common shares and 144,235,246 Class C common shares outstanding. The Board of Directors declared quarterly dividends of $0.06, $0.08, and $0.09 per share for March, June, and September 2021, respectively, and authorized a $25.0 million stock repurchase plan in August 2021, of which $17.7 million remained available as of September 30, 2021 Common Stock Outstanding: | Class | Dec 31, 2020 | Sep 30, 2021 | | :---------------- | :----------- | :----------- | | Class A common stock | 40,835,093 | 44,022,131 | | Class C common stock | 144,235,246 | 144,235,246 | Dividends Declared in 2021: | Declaration Date | Dividend per Common Share | | :--------------- | :------------------------ | | January 4, 2021 | $0.06 | | February 25, 2021 | $0.08 | | August 6, 2021 | $0.09 | | November 8, 2021 | $0.10 | - The Company authorized a $25.0 million stock repurchase plan on August 6, 2021, with $17.7 million remaining as of September 30, 2021[80] 9. Warrants As of September 30, 2021, the Company had 20,036,269 public warrants and 900,000 private warrants outstanding. During the nine months ended September 30, 2021, 1,793,903 public warrants were exercised, generating $20.6 million in proceeds, and 243,395 public warrants were repurchased for $0.4 million Warrants Outstanding: | Type | Dec 31, 2020 | Sep 30, 2021 | | :------------- | :----------- | :----------- | | Public Warrants | 20,273,567 | 20,036,269 | | Private Warrants | 2,700,000 | 900,000 | | Total Warrants | 22,973,567 | 20,936,269 | - During the nine months ended September 30, 2021, 1,793,903 public warrants were exercised, generating $20.6 million in proceeds[81] - The Company repurchased 243,395 public warrants for $0.4 million during the nine months ended September 30, 2021[82] 10. Variable Interest Entities The Company consolidates certain Variable Interest Entities (VIEs) where it is the primary beneficiary and holds variable interests in other unconsolidated VIEs. As of September 30, 2021, the maximum exposure to loss from unconsolidated VIEs was $112.876 million, with unfunded commitments of $29.2 million Non-Consolidated VIEs (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Investments | $91,334 | $77,511 | | Receivables | $21,542 | $14,322 | | Maximum Exposure to Loss | $112,876 | $91,833 | | Unfunded Commitments | $29,200 | $32,800 | - The decrease in investments in VIEs owned by noncontrolling interest holders from $77.4 million at December 31, 2020, to $53.0 million at September 30, 2021, was primarily due to the exercise of the Mosaic Call Right[86] 11. Employee Compensation and Benefits Total employee compensation and benefits decreased by $2.448 million (3.25%) for the three months ended September 30, 2021, but increased by $45.595 million (24.45%) for the nine months ended September 30, 2021, compared to the respective prior periods. This was driven by higher equity-based and carried interest compensation, partially offset by a decrease in partnership interest-based compensation Employee Compensation and Benefits (in thousands): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cash-based employee compensation and benefits | $39,792 | $40,133 | $122,629 | $122,775 | | Equity-based compensation | $5,878 | $0 | $38,518 | $0 | | Partnership interest-based compensation | $6,029 | $21,605 | $20,958 | $38,381 | | Carried interest compensation | $16,708 | $12,442 | $41,164 | $21,943 | | Cash-based incentive fee related compensation | $3,380 | $0 | $6,081 | $0 | | Other non-cash compensation | $1,080 | $1,135 | $2,704 | $3,360 | | Total employee compensation and benefits | $72,867 | $75,315 | $232,054 | $186,459 | - Equity-based compensation increased significantly to $5.878 million and $38.518 million for the three and nine months ended September 30, 2021, respectively, due to RSU expense amortization[89] - Partnership interest-based compensation decreased by $15.576 million (72.09%) for the three months and $17.423 million (45.39%) for the nine months ended September 30, 2021, primarily due to award modifications in the prior year[89][91] 12. Equity-Based Compensation The Company adopted the 2020 Incentive Award Plan in February 2021 and granted 5.1 million Restricted Stock Units (RSUs) with an aggregate fair value of $65.7 million during the nine months ended September 30, 2021. Total unrecognized compensation expense related to unvested RSUs was $27.6 million, expected to be recognized over 1.6 years - The Company granted 5.1 million RSUs with an aggregate grant date fair value of $65.7 million during the nine months ended September 30, 2021[96][97] - Total unrecognized compensation expense for unvested RSUs was $27.6 million as of September 30, 2021, with a weighted-average recognition period of 1.6 years[97] - Compensation expense related to RSUs was $5.9 million and $38.5 million for the three and nine months ended September 30, 2021, respectively[97] 13. Debt Total debt, net of issuance costs, increased to $391.234 million as of September 30, 2021, from $335.155 million at December 31, 2020. This increase is primarily due to an amendment and extension of the Senior Loan in February 2021, which extended maturity to February 2028 and increased the principal amount to $400.0 million in June 2021. The Company was in compliance with all debt covenants Outstanding Debt (in thousands): | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Senior loan | $398,000 | $340,259 | | Less debt issuance costs | $(6,766) | $(5,104) | | Total debt | $391,234 | $335,155 | - The Senior Loan maturity was extended to February 24, 2028, and its aggregate principal amount was increased to $400.0 million in June 2021[103][105] - The weighted average interest rate on the Senior Loan decreased to 3.25% for the nine months ended September 30, 2021, from 3.98% in the prior year[108] 14. Interest Rate Derivatives The Company uses interest rate derivatives to hedge interest rate risk on its debt. All outstanding derivative instruments were terminated on February 24, 2021. Subsequently, new swap agreements were entered into in March and July 2021 to hedge the extended and incremental Senior Loan amounts, both determined to be effective cash flow hedges Interest Rate Derivatives (in thousands): | Derivative | Notional Amount (Sep 30, 2021) | Fair Value (Sep 30, 2021) | | :-------------------- | :----------------------------- | :------------------------ | | Interest rate swap | $232,000 | $92 | | Interest rate swap | $68,000 | $(218) | | Total | $300,000 | $(126) | - All previously outstanding derivative instruments were terminated on February 24, 2021[118] - New swap agreements were entered into in March 2021 ($232.0 million notional) and July 2021 ($68.0 million notional) to hedge interest rate risk on the Senior Loan, both designated as effective cash flow hedges[119][120][122] 15. Commitments and Contingencies The Company had $82.8 million in unfunded investment commitments to GCM Funds as of September 30, 2021. It also has a fixed management fee obligation for an aircraft share, reduced to $0.3 million per year after assigning 50% of its interest. The Company is involved in various lawsuits but does not expect a material effect on its financial condition or operations, and believes the risk of loss from off-balance sheet arrangements as general partner of GCM Funds is remote - Unfunded investment commitments to GCM Funds totaled $82.8 million as of September 30, 2021[125] - The Company's fixed management fee for an aircraft share was reduced to $0.3 million per year after assigning 50% of its interest[124] - Management believes the outcome of current litigation will not materially affect the Company's financial condition or results of operations, and the risk of material loss from off-balance sheet general partner risks is remote[127][128] 16. Related Parties Related party transactions include partnership interest awards paid by GCMH Equityholders, a sublease agreement with Holdings, reimbursements from GCM Funds for costs, and investments by executive officers and employees in GCM Funds not subject to fees. The Company also utilizes aircraft and charter services owned or controlled by Holdings members, incurring $0.8 million in expenses for the nine months ended September 30, 2021 - The Company records non-cash profits interest compensation and offsetting deemed contributions to equity for partnership interest awards paid by Holdings, Holdings II, and Management LLC[90][129] - Due from related parties for reimbursable costs was approximately $9.4 million as of September 30, 2021[132] - Executive officers, senior professionals, and employees invested $489.8 million in GCM Funds as of September 30, 2021, generally exempt from management and performance fees[133] 17. Income Taxes The Company's effective tax rate was 10% and 6% for the three and nine months ended September 30, 2021, respectively, differing from the statutory rate primarily due to income allocation to noncontrolling entities and valuation allowances. The Company had no unrecognized tax positions as of September 30, 2021 Effective Tax Rate: | Period | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Effective Tax Rate | 10% | 5% | 6% | 49% | - The effective tax rate for the nine months ended September 30, 2021, was 6%, significantly lower than the 49% in the prior year, primarily due to income allocated to noncontrolling interests and valuation allowances[139] - As of September 30, 2021, the Company had no unrecognized tax positions and anticipates no changes within the next 12 months[140] 18. Earnings Per Share Basic earnings per share (EPS) for Class A common stock was $0.09 for the three months and $0.17 for the nine months ended September 30, 2021. Diluted EPS was $0.03 for both periods. No EPS information was presented for periods prior to November 17, 2020, due to the timing of the Transaction Earnings Per Share (EPS): | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.09 | $0.17 | | Diluted EPS | $0.03 | $0.03 | | Weighted Average Shares (Basic) | 44,387,598 | 43,673,347 | | Weighted Average Shares (Diluted) | 188,877,077 | 188,136,198 | - Public and private warrants were excluded from diluted EPS calculations for the periods presented because their impact would have been antidilutive[144] 19. Subsequent Events Subsequent to September 30, 2021, through November 12, 2021, the Company repurchased an additional 112,059 public warrants for $0.2 million. On November 8, 2021, a quarterly dividend of $0.10 per share of Class A common stock was declared, payable on December 15, 2021 - From October 1, 2021, to November 12, 2021, the Company repurchased 112,059 public warrants for $0.2 million[146] - A quarterly dividend of $0.10 per share of Class A common stock was declared on November 8, 2021, with a payment date of December 15, 2021[146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of GCM Grosvenor's business as an alternative asset management solutions provider, discussing key trends, the impact of COVID-19, and a detailed analysis of its financial performance, including revenues, expenses, and non-GAAP financial measures. It also covers liquidity, capital resources, debt, dividend policy, stock repurchase plan, and critical accounting policies Overview GCM Grosvenor is an independent, open-architecture alternative asset management solutions provider, offering customized separate accounts and commingled funds across private markets (Private Equity, Infrastructure, Real Estate, Alternative Credit) and absolute return strategies to sophisticated global institutional investors - GCM Grosvenor is an independent, open-architecture alternative asset management solutions provider[149] - The company invests on a primary, secondary, co-investment, and direct basis, operating customized separate accounts and commingled funds[149] - Key investment strategies include Private Equity, Infrastructure, Real Estate, Alternative Credit, and Absolute Return Strategies[150] Trends Affecting Our Business The company's performance is influenced by global financial markets, economic conditions, and increased investor demand for alternative investments in a low-interest rate environment. Key factors include the ability to retain and attract investors, expand into new lines of business and geographic markets, realize investments, identify suitable opportunities, generate strong returns, and comply with evolving regulatory requirements - Increased investor demand for alternative investments is driven by a low-interest rate environment and public equities' inability to achieve expected returns[152] - Future performance depends on retaining existing investors, attracting new ones, and expanding into new lines of business and geographic markets[153][154] - The ability to realize investments, identify suitable opportunities, and generate strong returns are critical for attracting and retaining clients and maintaining desired fee structures[155][156][157] COVID-19 The COVID-19 pandemic has caused significant disruption and uncertainty, impacting the company's business by impeding in-person client meetings, potentially slowing fundraising, restricting investor allocations, and affecting investment values in impacted industries. As of September 30, 2021, the company maintains adequate liquidity with $120.0 million in cash and $48.2 million in available borrowing capacity - COVID-19 has disrupted client and prospect meetings, leading to remote interactions that may impede marketing and new business generation[160] - The pandemic may slow fundraising activity, resulting in delayed or decreased management fees and making due diligence on investments more difficult[160] - As of September 30, 2021, the company had $120.0 million in cash and $48.2 million in available borrowing capacity, indicating adequate liquidity[162] Repurchase of Mosaic Assets On July 2, 2021, the company exercised its option to repurchase the interest in Mosaic for $165.0 million, as further detailed in the Liquidity and Capital Resources section - The company exercised its option to repurchase the interest in Mosaic on July 2, 2021, for $165.0 million[163] Operating Segments The company operates in a single operating and reportable segment, aligning with how its chief operating decision maker allocates resources and assesses performance - The company operates in a single operating and reportable segment[164] Components of Results of Operations This section details the components of the company's financial results, including management fees (based on client commitments or NAV), incentive fees (carried interest and performance fees), other operating income, employee compensation and benefits, general and administrative expenses, investment income, interest expense, other income/expense, and changes in fair value of warrant liabilities. It also explains the provision for income taxes Management Fees Management fees are earned from investment management services for specialized funds and customized separate accounts. Fees for private markets strategies are typically based on client commitments or invested capital, while absolute return strategies' fees are based on Net Asset Value (NAV). The company also recognizes fund expense reimbursement revenue - Management fees are derived from investment management services provided to specialized funds and customized separate account clients[166] - Private markets strategies' fees are generally based on client commitments or invested capital, while absolute return strategies' fees are based on NAV[167][168] - The company provided investment management/advisory services on assets of $70.5 billion as of September 30, 2021, up from $61.9 billion at December 31, 2020[169] Incentive Fees Incentive fees comprise carried interest (performance-based capital allocation, common in private markets strategies, subject to clawback provisions) and performance fees (fixed percentage of investment gains, common in absolute return strategies, subject to loss carryforward provisions). These fees are highly susceptible to market factors and third-party actions - Incentive fees consist of carried interest (common in private markets strategies) and performance fees (common in absolute return strategies)[171] - Carried interest is a percentage of profits, subject to clawback provisions, and is realized upon underlying investment distributions or sales[172][173] - Assets under management subject to carried interest were approximately $33.0 billion, and those subject to performance fees were approximately $14.3 billion as of September 30, 2021[174][177] Other Operating Income Other operating income primarily consists of administrative fees from private investment vehicles where the company performs administrative functions without managing or advising capital - Other operating income mainly comprises administrative fees from private investment vehicles where the company provides administrative functions but does not manage or advise capital[178] Expenses Expenses include employee compensation and