Business context and reporting period
GCM Grosvenor Inc. filed this Form 10-K for the fiscal year ended December 31, 2021. The alternative asset manager reported $72.1 billion of AUM, including $58.7 billion of fee-paying AUM (FPAUM), serving more than 500 clients through customized separate accounts and specialized funds across private markets and absolute-return strategies. The company operates as a single reportable segment.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Total operating revenue | $531.6 million | $430.0 million |
| Management fees | $351.2 million | $310.7 million |
| Incentive fees | $173.9 million | $111.7 million |
| Operating income (loss) | $109.4 million | $(43.1) million |
| Net income (loss), consolidated | $142.1 million | $(83.2) million |
| Net income attributable to GCM Grosvenor Inc. | $21.5 million | $4.0 million |
| Adjusted Net Income (non-GAAP) | $118.8 million | $91.0 million |
| Net cash provided by operating activities | $178.8 million | $68.2 million |
- Fee-Related Earnings (non-GAAP) were $120.4 million versus $95.1 million; the Fee-Related Earnings margin was approximately 35% versus 31%.
- FPAUM rose 13% to $58.7 billion. A further $7.7 billion of contracted capital was not yet fee-paying at year-end.
- Cash and cash equivalents were $96.2 million, with $48.2 million of available capacity under the revolving facility. Cash declined from $198.1 million; financing cash outflows included the Mosaic repurchase and distributions.
- Term-loan principal was $397.0 million; reported debt, net of issuance costs, was $390.5 million. The revolver had no outstanding balance. The company reported compliance with debt covenants.
- The company reported a $59.4 million Tax Receivable Agreement liability and $83.5 million of unfunded investment commitments.
Material changes versus 2020
- Revenue increased 24%; management fees grew 13%, while incentive fees grew 56%, primarily reflecting higher carried interest from realizations. Carried interest was $121.9 million versus $58.9 million; performance fees were $51.9 million versus $52.7 million.
- Operating results improved substantially from a 2020 operating loss to 2021 operating income. Employee compensation and benefits declined 14%, mainly because 2020 included unusually high partnership-interest compensation expense; 2021 included $44.2 million of equity-based compensation.
- Operating cash flow increased to $178.8 million. FPAUM growth reflected contributions and investment gains, partially offset by distributions and withdrawals.
- On July 2, 2021, GCMH repurchased the third-party investor’s Mosaic interest for a net $165.0 million, ending the associated redeemable noncontrolling interest.
- Gross AUM increased 16% to $72.1 billion. The company opened offices in Toronto and Frankfurt and launched GCM Grosvenor Insurance Solutions.
Outlook, commentary and risks
The filing provides no specific revenue, earnings or AUM guidance. Management cited client relationship expansion, international growth, insurance distribution, new offerings and operating leverage as priorities. It expects existing contracted capital to begin generating fees over approximately the next three years, subject to investment activity and contractual fee schedules. The board declared a $0.10-per-share quarterly dividend in February 2022 and increased the stock-repurchase authorization from $25 million to $45 million; future capital returns remain discretionary.
- Results can fluctuate with markets, fundraising, redemptions, investment performance and the timing of carried-interest realizations. Carried interest is subject to fund-level clawbacks; $6.6 million of realized carried interest was deferred at year-end under the company’s recognition policy.
- Other key risks include competition and fee pressure, client termination or redemption, conflicts of interest, valuation uncertainty in illiquid assets, regulatory and compliance obligations, cybersecurity, COVID-19 effects, foreign-market and Brexit exposure, and leverage.
- The company repaid or refinanced debt during 2021, extended term-loan maturities, and increased the term-loan facility to $400 million. The debt is secured and bears floating-rate exposure; interest-rate swaps hedged $300 million of principal. Management estimated that a 100-basis-point rate increase, excluding hedge effects, would add $3.9 million to interest expense over 12 months.
- Management said a material weakness related to warrant accounting, which had resulted in a restatement of previously issued financial statements, was remediated by September 30, 2021. Management concluded internal control over financial reporting was effective at year-end; the auditor did not provide an ICFR attestation because the company was an emerging growth company.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. The company said current litigation was not expected to have a material financial-statement effect.
Important facts for investors to verify
- How much of future revenue growth comes from recurring management fees versus volatile incentive fees, and how promptly the $7.7 billion of contracted, not-yet-fee-paying AUM converts to FPAUM.
- How the Mosaic repurchase, debt service, $83.5 million of investment commitments and Tax Receivable Agreement payments affect liquidity and capital returns.
- Whether carried-interest realizations, deferred amounts and potential clawbacks remain consistent with reported earnings and cash generation.
- Whether the warrant-accounting control remediation remains effective and whether any future filings disclose control deficiencies or restatements.
- The effects of concentrated voting control, noncontrolling interests, potential share dilution and related-party arrangements on Class A shareholders.