GCM Grosvenor Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. GCM Grosvenor completed its business combination and became publicly traded on November 17, 2020; reported consolidated full-year results include the predecessor business, while GAAP EPS covers only the post-combination period.
Business context
GCM Grosvenor is an alternative asset management solutions provider serving institutional and other investors through customized separate accounts and specialized funds. At year-end, it reported $61.9 billion of AUM, $52.0 billion of fee-paying AUM (FPAUM), and $7.1 billion of contracted capital not yet fee-paying. Its strategies include private equity, infrastructure, real estate, alternative credit, and absolute return.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total operating revenue | $430.0 million | $416.4 million |
| Management fees | $310.7 million | $324.7 million |
| Incentive fees | $111.7 million | $84.2 million |
| Operating income (loss) | $(40.9) million | $85.0 million |
| Consolidated net income (loss) | $(67.6) million | $60.0 million |
| Net income attributable to GCM Grosvenor Inc. | $7.5 million | $0 |
| Adjusted EBITDA (non-GAAP) | $147.0 million | $124.8 million |
| Adjusted net income (non-GAAP) | $91.0 million | $72.4 million |
| Net cash provided by operating activities | $68.2 million | $96.2 million |
| Cash and cash equivalents at year-end | $198.1 million | $79.9 million |
| Debt carrying value at year-end | $335.2 million | $448.5 million |
Operating margin was approximately negative 9.5% in 2020, versus positive 20.4% in 2019, reflecting the reported operating loss. The filing attributes much of the expense increase to a $172.4 million non-cash partnership interest-based compensation charge. Adjusted EBITDA and adjusted net income are non-GAAP measures and should not be treated as substitutes for GAAP results.
Year-end total assets were $631.9 million and total liabilities were $556.2 million. The company reported $48.2 million of available capacity under its revolving credit facility and said cash, operating cash flow, and that capacity were expected to fund operations and debt service for the next 12 months. It also had $81.8 million of unfunded investment commitments, generally payable on demand but historically funded over a longer period.
Material changes versus prior period
- Revenue increased 3%, as incentive fees rose 33%—including performance fees increasing to $52.7 million from $14.4 million—partly offset by a 4% decline in management fees. Management fees from absolute return strategies fell, with the filing citing lower average FPAUM and net outflows.
- Operating expenses increased 42%, principally because partnership interest-based compensation rose by $142.1 million. General and administrative expense fell 7%, including lower travel costs during the pandemic, partly offset by transaction-related professional fees.
- Operating cash flow declined to $68.2 million from $96.2 million. Cash increased mainly alongside transaction financing and other financing activity; it should not be read as a measure of recurring operating cash generation.
- FPAUM increased 4% to $52.0 billion. Absolute-return FPAUM benefited from market-value gains but experienced $3.4 billion of withdrawals; private-markets FPAUM rose 5%.
Outlook, commentary, risks, and unusual items
- Growth visibility: Management cited $7.1 billion of contracted, not-yet-fee-paying AUM expected to convert over roughly three years. About $3.1 billion is subject to a scheduled fee ramp, while fees on about $4.0 billion depend on deployment into eligible investments. This is not formal earnings guidance.
- COVID-19: The filing describes risks to fundraising, investment due diligence, deployment and realization activity, portfolio valuations, incentive fees, liquidity, and remote-work cybersecurity. Effects remained uncertain.
- Business combination and ownership: The November 2020 transaction created a public-company Up-C structure. Key holders controlled approximately 75% of voting power as of the filing date through high-vote Class C shares; the company relied on controlled-company governance exemptions.
- Tax receivable agreement: The company recorded a $60.1 million payable at year-end and generally must remit 85% of specified realized or deemed tax benefits to agreement beneficiaries. Future payments may be substantial and could affect liquidity.
- Mosaic transaction: The company transferred interests in historical fund-related carried interest and general partner interests. It received $125.4 million in cash, used primarily to reduce debt, and had a potential-payment arrangement with a stated maximum of $19.9 million; a $4.9 million payment was made in 2020. A call option and counterparty put right also apply under specified terms.
- Debt update after year-end: On February 24, 2021, the company amended its credit agreement, reduced the term-loan margin, extended term-loan maturity to 2028 and revolver maturity to 2026, and prepaid $50.3 million of term debt. It later entered a new interest-rate derivative. These subsequent events are not reflected in year-end debt balances.
- Other risks: Key exposures include variable and performance-based revenue, client redemptions or mandate termination, competition and fee pressure, conflicts of interest, subjective valuations, regulatory and Brexit changes, leverage and covenant restrictions, and potential carried-interest clawbacks. Management said current litigation was not expected to materially affect results.
- Dividends: After year-end, the company declared quarterly Class A dividends of $0.06 and $0.08 per share for March and June 2021 payments, respectively. Future dividends remain at the board’s discretion and subject to contractual and legal restrictions.
Important facts for investors to verify
- Reconcile the $67.6 million consolidated GAAP net loss with the $7.5 million attributable to GCM Grosvenor Inc., the noncontrolling-interest allocations, and the $91.0 million adjusted net income measure.
- Review the nature, valuation assumptions, and potential recurrence of the $172.4 million partnership interest-based compensation expense and the resulting difference between GAAP and adjusted results.
- Track conversion of the $7.1 billion contracted AUM into fee-paying assets, fundraising, withdrawals, and absolute-return performance and fee generation.
- Assess liquidity after the $50.3 million subsequent debt prepayment, ongoing debt service, $81.8 million of investment commitments, and possible Tax Receivable Agreement and Mosaic payments.
- Examine the amended loan terms, interest-rate exposure and hedging, covenant headroom, and the effect of the company’s controlled ownership and multi-class voting structure.