10-K: GCM Grosvenor Inc. Files 10-K Report, Details Subsidiary Structure and Financial Performance

GCM Grosvenor Inc.'s 10-K filing provides a comprehensive overview of its subsidiary structure, financial performance, and risk factors for the fiscal year ended December 31, 2023.

Summary

• GCM Grosvenor Inc. reported $76.9 billion in assets under management (AUM) as of December 31, 2023.
• The company's total management fees were $375 million for 2023, compared to $367 million in 2022.
• Total operating revenues were $445 million in 2023, slightly down from $447 million in 2022.
• Net income for 2023 was $13 million, a decrease from $20 million in 2022.
• Fee-related earnings increased to $140 million in 2023 from $129 million in 2022.
• Adjusted net income was $103 million in 2023, up from $94 million in 2022.
• The company operates across private markets (71% of AUM) and absolute return strategies (29% of AUM).
• Private markets AUM totaled $54.5 billion, including private equity ($29.4 billion), infrastructure ($13.9 billion), and real estate ($6.1 billion).
• Absolute return strategies AUM was $22.4 billion.
• The company also manages $19.7 billion in small and emerging managers and $15.7 billion in diverse managers.
• Alternative credit strategies AUM was $13.2 billion, and sustainable investments AUM was $26.3 billion.
• Customized separate accounts comprised $56.4 billion of AUM, while specialized funds comprised $20.5 billion.
• The company has 538 employees, including 177 investment professionals, across nine offices globally.
• The company's fee-paying AUM (FPAUM) was $61.7 billion as of December 31, 2023, with an additional $7.3 billion of contracted, not yet fee-paying AUM.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While the company shows growth in AUM and FPAUM, there are concerning decreases in net income and incentive fees. The company also faces numerous risks and uncertainties. The sentiment is neutral to slightly positive, reflecting both the growth and the challenges.

Positives

• The company has a diversified AUM across private markets and absolute return strategies.
• The company has a strong track record of long-term client relationships.
• The company has a significant amount of contracted, not yet fee-paying AUM, indicating future growth.
• The company has a strong focus on sustainable and impact investing, which is a growing area of interest for investors.
• The company has a scalable business model with embedded operating leverage.
• The company has a deep bench of talent and a strong corporate culture.

Negatives

• Net income decreased from $20 million in 2022 to $13 million in 2023.
• Total operating revenues slightly decreased from $447 million in 2022 to $445 million in 2023.
• The company's incentive fees decreased from $75 million in 2022 to $65 million in 2023.
• The company's absolute return strategies FPAUM decreased by 3% in 2023.
• The company's business is subject to numerous risks and uncertainties, including market conditions and competition.

Risks

• The company's historical performance may not be indicative of future results.
• Investors in open-ended funds may redeem their investments, and clients may terminate management agreements.
• The company's revenues are variable and dependent on market conditions and investment performance.
• The company operates in a highly competitive industry.
• The company is subject to numerous conflicts of interest.
• The company's international operations are subject to various risks.
• The company's indebtedness may expose it to substantial risks.
• The company is subject to extensive government regulation and compliance failures.
• The company may experience operational risks, including cybersecurity incidents.
• The company is subject to increasing scrutiny regarding sustainable and impact investing matters.

Future Outlook

The company expects its cash flow from operations, current cash and cash equivalents, and available borrowing capacity under its Revolving Credit Facility to be sufficient to fund its operations, planned capital expenditures, and debt obligations for the next twelve months and the foreseeable future. The company also expects that its additional $7.3 billion of contracted, not yet fee-paying AUM will bolster its FPAUM growth over the next several years.

Management Comments

• The company believes its history, experience, expertise, and scale across alternative investment strategies, combined with its flexible implementation approach, are key differentiators.
• The company believes its one-firm culture, rooted in integrity and responsibility, is a key intangible asset to all stakeholders.
• The company strives to put its clients' needs first by providing solutions across alternatives strategies with a high degree of flexibility.
• The company believes its existing clients are a key driver of asset growth, contributing more than 82% of total capital raised in 2023.
• The company believes that investors will increasingly look to the scale, experience, and platform of firms like them to identify high-performing investments across a growing, competitive environment and across economic cycles.

Industry Context

The alternative asset management industry is experiencing strong growth, with total alternative AUM expected to reach $24.5 trillion by 2028. Institutional investors are increasing allocations to alternative investment strategies to improve returns and meet long-term obligations. Individual investors also represent a significant market opportunity. The importance of investment sourcing and due diligence is increasing in the competitive environment. Sustainable and impact investing are also becoming increasingly important for investors.

Comparison to Industry Standards

• The document references Preqin's 'Future of Alternatives 2028' report, which estimates total alternative AUM to grow to $24.5 trillion by 2028, indicating GCM Grosvenor is operating within a growing industry.
• The document cites a 2023 report from PricewaterhouseCoopers (PwC) projecting total global assets under management to increase to $147.3 trillion by 2027, suggesting GCM Grosvenor is positioned within a broader expanding market.
• The document mentions the H2 2023 Preqin Investor Outlook for Alternative Assets, which states that over 93% of surveyed institutional investors plan to maintain or increase their long-term target allocations to private equity and infrastructure, indicating GCM Grosvenor's strategies are aligned with current investor trends.
• The document notes that 76% of institutional investors plan to maintain or increase their long-term allocations to absolute return strategies, suggesting GCM Grosvenor's absolute return strategies are also aligned with current investor trends.
• The document states that analysis by PwC anticipates that high-net-worth and mass affluent individuals will have approximately $203 trillion of assets available for investment by 2025, indicating a significant market opportunity for GCM Grosvenor's individual investor offerings.
• The document highlights that GCM Grosvenor's realized and partially realized investments have outperformed respective market benchmarks across all private markets strategies on an inception-to-date basis as of September 30, 2023, suggesting strong performance relative to industry standards.
• The document notes that GCM Grosvenor's margin on Fee-Related Earnings increased to 38% for the year ended December 31, 2023 compared to 31% in 2020, indicating improved profitability compared to its own historical performance.

Related Party Transactions

• The company has a sublease agreement with Holdings.
• The company incurs certain costs, primarily related to accounting, client reporting, investment-decision making and treasury-related expenditures, for which it receives reimbursement from the GCM Funds.
• The company incurs certain costs, primarily related to employee benefits and travel, for which it receives reimbursement from Holdings.
• Certain employees of the company have an economic interest in an entity that is the owner and landlord of the building in which the principal headquarters of the company are located.
• The company utilizes the services of an insurance broker to procure insurance coverage, and certain members of Holdings have an economic interest in, and relatives are employed by, the company's insurance broker.
• From time to time, certain of the company's executive officers utilize a private business aircraft, including an aircraft wholly owned or controlled by members of Holdings.

Stakeholder Impact

• Shareholders may be impacted by the company's financial performance and dividend policy.
• Employees may be impacted by changes in compensation and benefits.
• Clients may be impacted by the company's investment performance and service offerings.
• Suppliers and creditors may be impacted by the company's financial stability and ability to meet its obligations.

Next Steps

• The company aims to expand relationships with existing clients.
• The company plans to expand its global footprint and client base.
• The company intends to expand its distribution channels.
• The company will build new, differentiated offerings across investment strategies.
• The company will capture the benefits of embedded operating leverage while investing strategically in growth.

Key Dates

Keywords

alternative asset management, private equity, infrastructure, real estate, absolute return strategies, alternative credit, sustainable investing, impact investing, customized separate accounts, specialized funds, AUM, FPAUM, management fees, incentive fees, financial performance, risk factors