GCM Grosvenor Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparison is primarily with FY 2021. The filing is an annual report, not a standalone fourth-quarter report. GCM Grosvenor is an alternative asset management firm offering customized accounts and specialized funds across private markets and absolute return strategies.
Key financial and operating metrics
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total operating revenue | $446.5 million | $531.6 million | Down 16% |
| Management fees | $367.2 million | $351.2 million | Up 5% |
| Incentive fees | $75.2 million | $173.9 million | Down 57% |
| Operating income | $80.3 million | $109.4 million | Down 27% |
| Net income attributable to GCM Grosvenor Inc. | $19.8 million | $21.5 million | Down 8% |
| Fee-related earnings (non-GAAP) | $128.5 million | $120.4 million | Up 7% |
| Adjusted net income (non-GAAP) | $94.4 million | $118.8 million | Down 21% |
| Operating cash flow | $216.5 million | $178.8 million | Up 21% |
Operating margin was approximately 18% of revenue, versus approximately 21% in 2021; fee-related earnings margin increased to 36% from 35%. Reported consolidated net income was $79.5 million, down from $142.1 million, before allocations to noncontrolling interests. Basic EPS was $0.45 versus $0.49; diluted EPS was $0.28 in both years. Adjusted diluted EPS, a non-GAAP measure, was $0.50 versus $0.63.
AUM and liquidity: Year-end AUM was $73.7 billion, up 2%; fee-paying AUM (FPAUM) was $58.9 billion, nearly flat. Private markets FPAUM rose 11% to $36.9 billion; absolute return FPAUM fell 14% to $22.0 billion. Contracted, not-yet-fee-paying AUM was $7.6 billion. Cash and cash equivalents were $85.2 million, with $48.2 million of available revolving capacity. Operating cash flow was $216.5 million; investing cash use was $10.1 million and financing cash use was $215.1 million.
Debt: $393.0 million principal was outstanding under the senior secured term loan at year-end ($387.6 million net of debt issuance costs); the $50 million revolver had no borrowings. The company reported compliance with debt covenants and a Total Leverage Ratio below 2.75x. The term loan matures in 2028. A $300 million interest-rate swap was entered into in November 2022 at a fixed rate of 4.37%.
Material changes versus FY 2021
- Management fees increased, principally from private markets fundraising and deployment. Absolute return fees declined with lower average FPAUM, market performance and net withdrawals.
- Incentive fees fell substantially: carried interest declined to $72.5 million from $121.9 million, and performance fees to $2.6 million from $51.9 million. Management cited lower investment exits and distributions, and weaker absolute return performance.
- FPAUM contributions of $6.4 billion were offset by $2.6 billion of withdrawals, $1.5 billion of distributions and a $1.6 billion decline in market value. Absolute return withdrawals were $2.5 billion.
- Employee compensation and benefits declined 17% to $277.3 million, primarily reflecting lower carried-interest and incentive-related compensation and lower equity compensation. General and administrative expense was broadly flat at $88.9 million.
- Investment income declined to $10.1 million from $52.5 million, primarily due to changes in the value of private and public market investments. The company recorded a $20.6 million non-cash gain from a decrease in warrant liabilities.
Outlook, risks and unusual items
No specific earnings or revenue guidance is provided. Management said cash, operating cash flow and available revolver capacity are expected to fund operations, planned capital expenditures and debt service for the next 12 months. It expects most of the $7.6 billion of contracted not-yet-fee-paying AUM to begin generating fees over approximately three years, subject in part to investment deployment. Run-rate annual performance fees were estimated at $29.6 million using stated assumed gross-return scenarios; this is not a forecast of actual fees.
Management highlighted continued investment in growth, including the Elevate strategy launched in Q4 2022 with a $500 million anchor investment. Results remain exposed to markets, fundraising and withdrawals, investment performance and realizations, competition, fee pressure, regulatory and compliance changes, conflicts of interest, valuation uncertainty, cybersecurity, and retention of experienced personnel. Inflation, rising rates, geopolitical conditions and reduced exit activity may affect fund investments and fee income.
Other items to note: the company received $40.3 million upon terminating prior interest-rate swaps in November 2022; this cash receipt is not recurring operating performance. The Tax Receivable Agreement requires payment to former GCMH equityholders of generally 85% of certain realized or deemed tax benefits; the recorded liability was $55.4 million, and future payment timing and amounts remain uncertain. The company paid $26.4 million to repurchase Class A shares and $2.6 million to repurchase warrants during 2022, and paid $18.4 million of dividends. It declared a $0.11-per-share dividend in February 2023.
The auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not provide an ICFR attestation because the company was an emerging growth company. The filing says current litigation is not expected to have a material financial-statement effect.
Most important facts for investors to verify
- Whether private markets fundraising and deployment continue to offset absolute return withdrawals and market-related declines in FPAUM.
- Whether incentive fees, carried-interest realizations and associated compensation recover, and how unrealized carried interest converts to cash.
- Debt service, covenant headroom, interest-rate exposure and the effect of future rates after the swap hedge.
- The assumptions, timing and cash impact of the $55.4 million Tax Receivable Agreement liability and future payments.
- The sustainability of dividends and repurchases given cash needs, distributions from GCMH, debt restrictions and the company’s holding-company structure.