AlTi (ALTI) - 2023 Q4 - Annual Report

Part I Item 1. Business AlTi Global is a global wealth and alternatives manager with $71.4 billion in assets, operating through Wealth Management and Strategic Alternatives segments - Assets Under Management/Advisement (AUM/AUA) as of Dec 31, 2023 | Metric | Amount (USD) | | :--- | :--- | | Total Combined Assets | $71.4 billion | | Wealth Management AUM/AUA | $51.0 billion | | Strategic Alternatives AUM/AUA | $20.4 billion | - The company operates globally with approximately 480 professionals across 21 cities in 10 countries, though this includes about 80 individuals expected to depart due to pending sales of the Family Office Services (FOS) business and LXi REIT Advisors Limited[36][92] - AlTi is a leader in impact investing, with approximately $4.4 billion of its AUM/AUA dedicated to impact strategies as of December 31, 2023[37][84][100] - The company's revenue is diversified, with 77% generated from stable management or advisory fees for the year ended December 31, 2023. The wealth management business boasts a high client retention rate of 97% since 2019[96] Wealth Management The Wealth Management segment, with $51.0 billion in AUM/AUA, offers holistic solutions and an endowment-style approach to UHNW clients - Wealth Management Client Profile (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Segment AUM/AUA | $51.0 billion | | Average Account Size | $40.0 million | | Average Relationship Span | > 10 years | | Client Retention Rate (since 2019) | 97% | | Top 25 Clients' Share of Segment Assets | 22% | - The segment provides clients access to alternative asset classes such as private equity, private credit, and real estate through third-party managers. As of December 31, 2023, 20% of client portfolios were invested in alternative assets[47] - The firm operates feeder vehicles to provide wealth management clients with access to strategies like vintage private equity, credit, and real estate, which they might not otherwise be able to access due to high minimum investment thresholds[48] Strategic Alternatives The Strategic Alternatives segment, with $20.4 billion in AUM/AUA, manages an alternatives platform and is exiting certain real estate fund management activities - Strategic Alternatives AUM/AUA Breakdown (as of Dec 31, 2023) | Strategy/Platform | AUM/AUA (USD) | | :--- | :--- | | Total Segment AUM/AUA | $20.4 billion | | Alternatives Platform | $7.7 billion | | - TIG Arbitrage (Internal) | $2.4 billion | | - External Strategic Managers | $5.3 billion | | Real Estate (Public & Private) | $12.7 billion | - The company is undergoing strategic changes in its real estate fund management. The management contract for LXi REIT plc was terminated upon its merger with LondonMetric in March 2024, and the company has served notice to terminate its management contracts with HLIF[61][64][65] - The alternatives platform provides a full suite of services to its internal and external managers, including sales, marketing, legal, compliance, and back-office infrastructure, allowing portfolio managers to focus on investment strategy[58][60] Our Revenue Streams AlTi's revenue streams include recurring management/advisory fees, variable performance fees, distributions from investments, and other income - Revenues are broadly classified into four streams: recurring management/advisory fees, incentive/performance fees, distributions from investments, and other income/fees[66][67][68] - Economic Interests in External Strategic Managers | Strategy | Economic Interest | | :--- | :--- | | Real Estate Bridge Lending | 21% profit share | | European Equities | 25% revenue share | | Asian Credit and Special Situations | 12% revenue share | - Co-investment fees include arrangement fees (50-100 bps of equity value), acquisition fees, and carried interest entitlements, which are typically 10-20% of investor returns above an 8-15% hurdle[75][76] Regulatory and Compliance Matters The company is subject to extensive U.S. and international financial regulations, maintaining dedicated compliance groups to mitigate non-compliance risks - The company is subject to extensive regulation in the U.S. by the SEC under the Advisers Act and the Investment Company Act, which impose fiduciary duties and restrictive standards on its advisory activities[119][121][122] - Internationally, the company must comply with data privacy laws like the EU and UK GDPR, as well as financial regulations such as MiFID II and the Alternative Investment Fund Managers Directive (AIFMD) in Europe[117][276][277] - The company has a Chief Compliance Officer and dedicated compliance groups to manage regulatory risk, with policies addressing material non-public information, personal trading, and conflicts of interest[116] Item 1a. Risk Factors The company faces significant macroeconomic, business, regulatory, operational, and personnel risks that could adversely impact its financial condition and operations - Macroeconomic Risks: Difficult market conditions, inflation, and rising interest rates may reduce the value of investments, hamper performance, and lower the value of assets on which the company earns revenue[128][156][159][161] - Business & Industry Risks: Revenue is highly correlated to AUM and investment performance. The business depends on identifying suitable investment opportunities, and historical returns are not indicative of future results. There are also risks related to valuation subjectivity, due diligence failures, and conflicts of interest[130][131][135] - Regulatory & Legal Risks: The company is subject to extensive and evolving government regulation globally. Failure to comply could result in fines and reputational harm. It is also exposed to litigation risk, particularly related to the historic management of Home REIT and HLIF, which are under investigation by the UK FCA[140][266][348] - Operational & Public Company Risks: The company has identified material weaknesses in its internal control over financial reporting. It also faces data and cybersecurity risks, dependence on senior management, and the general challenges and costs associated with being a public company[142][148][373] Item 1b. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[415] Item 1c. Cybersecurity AlTi maintains a cybersecurity risk management program overseen by its CISO and Board committee, with no material incidents identified to date - The company has a cybersecurity risk management program designed to identify, protect against, and manage threats, which includes annual risk assessments using third-party consultants[415][416] - Governance oversight is provided by the Board's Audit, Finance and Risk Committee (AFRC) and, at the management level, by an Executive Risk and Compliance Committee (ERCC)[420] - The Chief Information Security Officer (CISO), a Certified Information Systems Security Professional with over two decades of experience, is responsible for the cyber risk management program[421] - The company has not identified any cybersecurity incidents or threats that have materially affected its business, operations, or financial condition[417] Item 2. Properties The company leases all its global office spaces, including its New York headquarters, and owns no real estate - The company's corporate headquarters is leased and located at 520 Madison Avenue, 26th Floor, New York, NY[422] - AlTi does not own any real estate and leases all its office space across its global locations[422] Item 3. Legal Proceedings The company is involved in legal proceedings, including UK FCA investigations and claims related to Home REIT and HLIF, with no loss contingency reserved - The company may be involved in various legal proceedings from time to time. For additional details, refer to Note 20 of the financial statements[423] - In February 2024, the UK FCA commenced investigations into the historic performance of certain group entities in their services to Home REIT and/or HLIF, focusing on potential false or misleading statements or other rule breaches[527][884] - On October 6, 2023, a pre-action letter of claim was received by subsidiaries AFM UK and ARE from a law firm representing shareholders of Home REIT, asserting potential claims. The quantum of such claims cannot be reliably assessed at this time[523][882] Part II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities AlTi's Class A Common Stock trades on Nasdaq under 'ALTI', with 367 holders of record and no cash dividends paid to date - The company's Class A Common Stock trades on the Nasdaq Capital Market under the ticker symbol "ALTI"[425] - As of March 21, 2024, there were 367 holders of record of the Class A Common Stock[425] - The company has not paid any cash dividends to date and future dividend payments are at the discretion of the Board of Directors[426] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations AlTi reported $250.9 million in revenue and a $305.8 million net loss in 2023, primarily due to non-cash impairments, with results not comparable to prior periods - Financial Highlights for the Year Ended Dec 31, 2023 (Successor) | Metric | Amount (USD in millions) | | :--- | :--- | | Total Revenues | $250.9 | | US GAAP Net Loss | $(305.8) | | Adjusted EBITDA | $28.6 | - The significant net loss was primarily driven by non-cash charges, including a $153.6 million goodwill impairment and a $73.6 million impairment of other assets, largely related to restructuring unprofitable, transaction-oriented business lines[454][463][465] - Financial results for the year ended 2023 (Successor) are not comparable to the year ended 2022 (Predecessor) because the 2022 results reflect only TWMH, prior to the business combination with TIG and Alvarium[456][487] - The company ended the year with $188.8 million in outstanding debt under its credit facility and had contractual obligations including a $17.6 million Tax Receivable Agreement (TRA) liability and a $62.4 million Business Combination Earn-out liability[501][510][516] Results of Operations Total revenues increased to $250.9 million in 2023 due to business combination, leading to a $305.8 million net loss driven by impairment and combination expenses - Consolidated Results of Operations (USD in Thousands) | Metric | 2023 (Successor) | 2022 (Predecessor) | | :--- | :--- | :--- | | Total Revenues | $250,880 | $76,872 | | Management/Advisory fees | $184,824 | $76,872 | | Incentive fees | $43,377 | $0 | | Distributions from investments | $17,185 | $0 | | Total Expenses | $567,217 | $82,343 | | Compensation expenses | $204,052 | $51,234 | | Non-compensation expenses | $363,165 | $31,109 | | Net Loss | $(305,803) | $(5,998) | - The increase in revenue was primarily due to the accretive impact of including TIG and Alvarium's operations, which added management, incentive, distribution, and other fee streams not present in the predecessor's 2022 results[489][490] - The significant increase in non-compensation expenses in 2023 was mainly due to a $206.5 million impairment loss on goodwill and intangible assets, $42.8 million in business combination expenses, and $14.5 million in interest expense[492] Liquidity and Capital Resources AlTi manages liquidity with $188.8 million outstanding on its credit facility, reporting net cash used in operating and investing activities, and significant future contingent obligations - Cash Flow Summary for Year Ended Dec 31, 2023 (USD in Thousands) | Activity | Amount | | :--- | :--- | | Net cash used in operating activities | $(81,706) | | Net cash used in investing activities | $(132,947) | | Net cash provided by financing activities | $36,019 | | Net decrease in cash | $(175,841) | - The company has a $250 million credit facility, comprised of a $100 million term loan and a $150 million revolving credit facility. As of Dec 31, 2023, $95.0 million was outstanding on the term loan and $93.8 million on the revolver[501] - Significant future contingent obligations include the Tax Receivable Agreement (TRA) with a liability of $17.6 million and the Business Combination Earn-out with a fair value liability of $62.4 million as of year-end 2023[510][516] Item 8. Financial Statements and Supplementary Data This section presents AlTi Global's audited consolidated financial statements for 2023 (Successor) and prior periods (Predecessor), including detailed notes on key accounting areas and subsequent events - The independent auditor's report from KPMG LLP highlights that due to the business combination effective January 3, 2023, the financial information for the period after the transaction is on a different cost basis and is not comparable to prior periods[546] Consolidated Statement of Financial Position As of December 31, 2023, total assets increased to $1.27 billion, driven by the business combination, with total liabilities at $478.5 million and shareholders' equity at $788.0 million - Consolidated Balance Sheet Highlights (USD in Thousands) | Account | Dec 31, 2023 (Successor) | Dec 31, 2022 (Predecessor) | | :--- | :--- | :--- | | Total Assets | $1,266,567 | $91,989 | | Goodwill | $411,904 | $25,464 | | Intangible assets, net | $435,677 | $20,578 | | Total Liabilities | $478,541 | $74,136 | | Debt, net | $186,353 | $21,187 | | Total Shareholders' Equity | $788,026 | $17,853 | Notes to Consolidated Financial Statements The notes detail the 2023 business combination, a $153.6 million goodwill impairment, the $250 million credit facility, contingent liabilities, and significant subsequent investment agreements - Business Combinations (Note 3): The merger effective January 3, 2023 was accounted for as an acquisition with total purchase consideration of $1.07 billion. The company also acquired AL Wealth Partners in April 2023 and the remaining 70% of AWMS in August 2023[671][694][702] - Goodwill Impairment (Note 14): A goodwill impairment charge of $153.6 million was recognized for the Strategic Alternatives segment as of September 30, 2023, after a triggering event analysis indicated its carrying value exceeded its estimated fair value[643][813] - Debt (Note 15): The company entered into a $250 million credit agreement on January 3, 2023. As of year-end, $188.8 million was outstanding. The agreement was amended multiple times, including in February 2024, to adjust covenants and permit new investments[819][824] - Subsequent Events (Note 22): In February 2024, the company entered into significant investment agreements with Allianz ($250 million) and Constellation ($115 million initial). The sale of LRA was completed on March 6, 2024[890][892][895] Item 9a. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2023, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective[901] - The ineffectiveness is due to material weaknesses in internal control over financial reporting, specifically related to a lack of sufficiently documented risk assessments, process level controls, and information technology controls[902][905] - A remediation plan is in progress, which includes hiring more accounting staff and designing and implementing improved controls and documentation policies[906] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement to be filed within 120 days of the fiscal year-end[911] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement to be filed within 120 days of the fiscal year-end[912] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement to be filed within 120 days of the fiscal year-end[913] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the registrant's Definitive Proxy Statement to be filed within 120 days of the fiscal year-end[914] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement; KPMG LLP is the independent auditor - Information is incorporated by reference from the registrant's Definitive Proxy Statement to be filed within 120 days of the fiscal year-end[915] - The company's independent registered public accounting firm is KPMG LLP, Philadelphia, PA, Auditor ID: 185[915] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K - This section contains a list of all exhibits filed with the Form 10-K, including the Business Combination Agreement, corporate governance documents, material contracts, and certifications[917][919]