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GCM Grosvenor(GCMG) - 2023 Q4 - Annual Report

Part I Item 1. Business GCM Grosvenor is a global alternative asset manager with $76.9 billion in AUM as of December 31, 2023, providing customized investment solutions across private markets and absolute return strategies - The company's client offerings are structured in two main ways: customized separate accounts, which comprise 73% of AUM ($56.4 billion), and specialized commingled funds, which make up the remaining 27% ($20.5 billion)40 - Existing clients are a key growth driver, contributing over 82% of total capital raised in 2023; 52% of the top 50 clients by AUM utilized multiple investment strategies38 Investment Strategies The firm's investment strategies are divided into Private Markets ($54.5 billion AUM) and Absolute Return Strategies ($22.4 billion AUM), with a significant focus on Sustainable and Impact Investing - The firm has a dedicated effort in investing with small, emerging, and diverse managers, managing $19.7 billion in small and emerging managers and $15.7 billion in diverse managers as of December 31, 202336105 - Sustainable and Impact Investing is a significant focus, with $26.3 billion in AUM, implemented for over two decades to meet clients' specific goals and risk tolerances36108 Investment Performance The company reports strong long-term performance across its private markets strategies, outperforming respective market benchmarks, and consistent returns from Absolute Return Strategies Private Markets Performance (Realized/Partially Realized, as of 09/30/2023) | Strategy | Investment Net IRR | PME Index Return | Outperformance | | :--- | :--- | :--- | :--- | | Private Equity (Primary) | 13.7% | 10.5% (S&P 500) | +3.2% | | Private Equity (Secondaries) | 19.1% | 12.1% (S&P 500) | +7.0% | | Private Equity (Co-Invest) | 21.9% | 16.1% (S&P 500) | +5.8% | | Infrastructure | 12.6% | 6.7% (MSCI World Infra) | +5.9% | | Real Estate | 16.8% | 12.0% (FNERTR Index) | +4.8% | | Diverse Managers | 22.9% | 14.6% (S&P 500) | +8.3% | Absolute Return Strategies Performance (Net, as of 12/31/2023) | Strategy | 1-Year | 3-Year Ann. | 5-Year Ann. | Since Inception | | :--- | :--- | :--- | :--- | :--- | | Absolute Return (Overall) | 7.3% | 2.2% | 5.1% | 5.7% (since 1996) | | GCMLP Diversified Multi-Strategy | 8.1% | 2.4% | 5.5% | 6.4% (since 1993) | Assets Under Management Fee-Paying AUM (FPAUM) grew to $61.7 billion at year-end 2023, with $7.3 billion in Contracted Not Yet Fee-Paying AUM (CNYFPAUM) indicating future growth - As of December 31, 2023, the company had $61.7 billion in Fee-Paying AUM (FPAUM) and an additional $7.3 billion in contracted capital that is not yet paying fees (CNYFPAUM)76151 - Of the $7.3 billion in CNYFPAUM, approximately $2.7 billion is subject to a scheduled fee ramp-in over the next three years, while the remaining $4.6 billion will generate fees as capital is invested153 Regulatory Environment GCM Grosvenor is subject to extensive regulation in the U.S. by the SEC, Department of Labor, and CFTC, and internationally in jurisdictions like the EU, UK, Japan, and Hong Kong - The company is registered with the SEC as an investment adviser, with the CFTC as a commodity pool operator, and is subject to ERISA regulations for funds holding 'plan assets'187191192 - Internationally, the firm is subject to regulations such as the AIFMD in the European Union and UK, and is also regulated in Japan and Hong Kong193196 - The company's funds generally rely on exemptions from registration under the Securities Act and the Investment Company Act, typically by conducting non-public offerings to qualified or institutional investors198200 Company Overview (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Assets Under Management (AUM) | $76.9 billion | | Employees | 538 | | Investment Professionals | 177 | | Global Offices | 9 | Key Financials (Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Management Fees | $375 million | $367 million | | Total Operating Revenues | $445 million | $447 million | | Net Income | $13 million | $20 million | | Fee Related Earnings | $140 million | $129 million | | Adjusted Net Income | $103 million | $94 million | AUM Breakdown by Strategy (as of Dec 31, 2023) | Strategy | AUM (billions) | % of Total AUM | | :--- | :--- | :--- | | Private Markets | $54.5 | 71% | | - Private Equity | $29.4 | - | | - Infrastructure | $13.9 | - | | - Real Estate | $6.1 | - | | Absolute Return Strategies | $22.4 | 29% | | Total AUM | $76.9 | 100% | Item 1A. Risk Factors The company faces numerous risks including fund performance dependency, investor redemptions, intense competition, reputational harm, market conditions, reliance on due diligence, leverage, and extensive regulation - Business & Industry Risks: Poor fund performance could adversely impact revenues; open-ended fund investors can redeem periodically, and the industry is intensely competitive208212221 - Fund-Related Risks: Difficult market and geopolitical conditions can reduce investment value and capital deployment; due diligence may not reveal all facts, and reliance on leverage introduces volatility307319322 - Organizational Structure Risks: The company is a 'controlled company' due to Key Holders' voting power, exempting it from certain Nasdaq governance requirements, and has substantial payment obligations under a Tax Receivable Agreement360364 - Regulatory & Operational Risks: The business is subject to extensive and evolving government regulation; operational risks, including cybersecurity threats, could disrupt business and harm reputation259260271 Item 1B. Unresolved Staff Comments None Item 1C. Cybersecurity The company implements a cybersecurity risk management program based on NIST and CIS frameworks, overseen by the Board's audit committee, with no material risks identified - The cybersecurity program is designed and assessed based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF) and the Center for Internet Security (CIS) Critical Security Controls415 - Governance is handled by the Board of Directors' audit committee, receiving periodic reports, while the Chief Technology Officer and Chief Information Security Officer manage day-to-day threats418421 Item 2. Properties The company leases its principal headquarters in Chicago, with the current lease expiring on September 30, 2026, and considers its office space adequate - The company leases its principal headquarters in Chicago, with the current lease term expiring on September 30, 2026423 Item 3. Legal Proceedings The company is involved in various lawsuits in the normal course of business but does not expect any current litigation to materially affect its financial condition Item 4. Mine Safety Disclosures Not applicable Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock and warrants trade on Nasdaq, a quarterly dividend of $0.11 per share was declared, and a $140 million stock repurchase plan is active - On February 8, 2024, the company declared a quarterly dividend of $0.11 per share of Class A common stock430 - The Board of Directors authorized a stock repurchase plan, increased to $140 million in February 2024; $30.3 million was spent on repurchases and tax withholding settlements during 2023432403 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Total operating revenues slightly decreased to $445.0 million in 2023, driven by increased management fees offset by lower incentive fees, leading to an operating loss and decreased net income Results of Operations In 2023, management fees grew to $375.4 million, while incentive fees decreased to $64.9 million, and total operating expenses rose 25% to $456.8 million due to higher employee compensation Consolidated Results of Operations (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total operating revenues | $444,999 | $446,530 | | Management fees | $375,444 | $367,242 | | Incentive fees | $64,903 | $75,167 | | Total operating expenses | $456,845 | $366,218 | | Employee compensation & benefits | $356,044 | $277,311 | | General, administrative & other | $100,801 | $88,907 | | Operating income (loss) | ($11,846) | $80,312 | | Net income attributable to GCM Grosvenor Inc. | $12,774 | $19,820 | - The increase in employee compensation was primarily driven by a $72.1 million increase in partnership interest-based compensation and a $19.9 million increase in equity-based compensation486 Fee-Paying AUM Fee-Paying AUM (FPAUM) increased by $2.8 billion to $61.7 billion in 2023, driven by Private Markets contributions, partially offset by Absolute Return withdrawals, with $7.3 billion in CNYFPAUM FPAUM Rollforward (Year Ended Dec 31, 2023) | (in millions) | Private Markets | Absolute Return | Total | | :--- | :--- | :--- | :--- | | Balance as of Dec 31, 2022 | $36,876 | $21,980 | $58,856 | | Contributions | $4,485 | $497 | $4,982 | | Withdrawals | ($205) | ($2,365) | ($2,570) | | Distributions | ($1,006) | ($167) | ($1,173) | | Change in market value | $239 | $1,583 | $1,822 | | Foreign exchange and other | ($120) | ($114) | ($234) | | Balance as of Dec 31, 2023 | $40,269 | $21,414 | $61,683 | Non-GAAP Financial Measures Key non-GAAP measures for 2023 showed improvement, with Fee-Related Earnings increasing to $139.9 million, Adjusted EBITDA to $162.2 million, and Adjusted Net Income to $103.2 million Key Non-GAAP Metrics (Year Ended Dec 31) | (in thousands, except per share) | 2023 | 2022 | | :--- | :--- | :--- | | Fee-Related Revenue | $365,540 | $360,522 | | Fee-Related Earnings | $139,942 | $128,513 | | Adjusted EBITDA | $162,185 | $149,347 | | Adjusted Pre-Tax Income | $137,057 | $124,493 | | Adjusted Net Income | $103,204 | $94,366 | | Adjusted Net Income Per Share | $0.55 | $0.50 | Liquidity and Capital Resources As of December 31, 2023, the company had $44.4 million in cash, $50.0 million available credit, $389.0 million in debt, and $92.1 million in net cash from operating activities Liquidity Position (as of Dec 31, 2023) | (in millions) | Amount | | :--- | :--- | | Cash and cash equivalents | $44.4 | | Available Revolving Credit Facility | $50.0 | | Outstanding Debt (Term Loan) | $389.0 | Cash Flow Summary (Year Ended Dec 31, 2023) | (in millions) | Amount | | :--- | :--- | | Net cash provided by operating activities | $92.1 | | Net cash used in investing activities | ($18.8) | | Net cash used in financing activities | ($113.7) | - The company has contractual obligations totaling $677.7 million, primarily consisting of debt obligations ($389.0 million), interest on debt ($127.8 million), operating leases ($75.3 million), and capital commitments ($85.6 million)547 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to price, interest rate, and foreign exchange risks, with primary exposure through fund investment fair values and interest rate risk on its $389.0 million floating-rate debt - The company's main market risk exposure relates to the sensitivity of its management and incentive fees to the fair value of investments in its funds579 - The company has $389.0 million in floating-rate debt; a 100 basis point increase in interest rates is estimated to increase annual interest expense by $3.9 million582583 - To mitigate interest rate risk, the company has a $300 million notional interest rate swap agreement, effectively fixing the rate on a portion of its debt584 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023, 2022, and 2021, with an unqualified opinion from Ernst & Young LLP on both financial statements and internal controls - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of December 31, 2023590591 Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,354 | $85,163 | | Total Assets | $504,943 | $488,933 | | Debt | $384,727 | $387,627 | | Total Liabilities | $616,172 | $582,939 | | Total Deficit | ($111,229) | ($94,006) | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified opinion from the independent auditor - Management concluded that the company's disclosure controls and procedures and its internal control over financial reporting were effective as of December 31, 2023903905 Item 9B. Other Information During the fourth quarter of 2023, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable Part III Items 10-14 Information for Items 10-14, covering directors, executive compensation, security ownership, related transactions, and accountant fees, is incorporated by reference from the forthcoming 2024 Proxy Statement - The information for these items, including details on directors, executive compensation, and security ownership, is incorporated by reference from the forthcoming 2024 Proxy Statement911912913914915 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements included in Item 8 and all exhibits filed as part of the Annual Report on Form 10-K, with schedules omitted if not applicable or included elsewhere Item 16. Form 10-K Summary None