GCM Grosvenor Q3 2025: Contradictions Emerge on ARS, Private Credit, and 2025 Fundraising Outlook

Business Commentary:

* Strong Financial Performance: - GCM Grosvenor Inc. reported fee-related earnings, adjusted EBITDA, and adjusted net income up 18%, 16%, and 18% respectively for Q3 2025 compared to Q3 2024.

- This growth was driven by strong investment performance, fundraising, and financial results exceeding expectations.

• Assets Under Management (AUM) and Fundraising:
• Assets Under Management (AUM) increased to a record $87 billion, representing a 9% increase year-over-year.

• Year-to-date fundraising resulted in $7.2 billion raised, with a trailing 12-month total of $9.5 billion, the highest on record for Grosvenor, supported by strong demand in Infrastructure and Credit strategies.

• Absolute Return Strategies (ARS) Performance:

• Multi-strategy composite returns for ARS delivered a 14.2% gross rate of return over the last 12 months.

• The strong performance, combined with a healthy pipeline, is expected to drive AUM growth through strong performance.

• Carried Interest and Fee Structure:

• Gross unrealized carried interest balance reached an all-time high of $941 million, with $24 million realized in Q3.

• The growth and realization were attributed to strong investment performance and the maturity of carry revenue, with expectations for continued improvement in 2026.

• Dividend Increase and Shareholder Confidence:

• The quarterly dividend was increased to $0.12 per share, reflecting confidence in continued growth and strong cash flow generation.
• This move underscores the company's commitment to shareholder value and financial stability.

Contradiction Point 1

Improvement in Absolute Return Strategy (ARS)

It reflects differing perceptions about the performance and investor interest in the Absolute Return Strategy, which could influence investor confidence and strategic planning.

Why isn't the ARS net flow improvement reflected in the results despite improved performance and environment? - Kenneth Worthington (JPMorgan Chase & Co, Research Division)

2025Q3: We acknowledge that investor interest is higher and opportunities are improving for ARS. - Michael Sacks(CEO)

Has the absolute return business turned the corner with improved returns and gross sales in current market conditions? - Kenneth Worthington (JPMorgan)

2025Q2: The internal forecasting remains unchanged for flat flows, but performance and pipeline have improved. - Michael Sacks(CEO)

Contradiction Point 2

Private Credit Market Conditions

It highlights differing assessments of the Private Credit market, which could impact investment strategies and fundraising efforts.

Have clients raised concerns about bankruptcies in the credit sector, and how has this impacted private credit? - Tyler Mulier (William Blair & Co, Research Division)

2025Q3: We are continuing to see strong demand for Private Credit. Recent bankruptcies have affected only specific areas outside direct origination. - Michael Sacks(CEO)

Could you explain the sales opportunities across verticals in the second half of the year? - William Katz (TD Cowen)

2025Q2: The firm leverages an open architecture model to invest in various ways, including direct investments, co-investments, and secondaries. This approach allows for diversification and efficient capital deployment globally. - Jonathan Levin(President)

Contradiction Point 3

ARP Performance and Investor Interest

It involves differing perspectives on the performance and investor interest in ARP, which could impact investor confidence and strategic decisions.

Why aren't ARS net flow improvements reflected in the numbers given improved performance and environment? - Kenneth Worthington (JPMorgan Chase & Co, Research Division)

2025Q3: We acknowledge that investor interest is higher and opportunities are improving for ARS. - Michael Sacks(CEO)

What is the current pipeline status and the impact of fee-paying AUM on ARS, and what is the source of allocations? - William Katz (TD Cowen, Research Division)

2025Q1: ARS pipelines are strong, with modest net inflows expected in Q2. Allocations come from both existing clients and new investors attracted by stable performance during market volatility. - Michael Sacks(CEO)

Contradiction Point 4

Private Credit Demand and Market Conditions

It involves differing assessments of the demand and market conditions for Private Credit, which could influence investment strategies and expectations.

Have client concerns about credit bankruptcies impacted private credit's landscape? - Tyler Mulier (William Blair & Co, Research Division)

2025Q3: We are continuing to see strong demand for Private Credit. - Michael Sacks(CEO)

What has shifted in the deployment of capital, given historically strong SMA growth compared to the current cautious outlook? - William Katz (TD Cowen)

2025Q1: We are seeing a cautious view near term because of the policy uncertainty. But we are also seeing strong fundraising momentum. - Michael Sacks(CEO)

Contradiction Point 5

Fundraising Expectations for 2025

It involves changes in financial forecasts, specifically regarding fundraising expectations for 2025, which are critical indicators for investors.

How should we think about stock-based compensation and share count trends next year? - William Katz (TD Cowen, Research Division)

2025Q3: We expect 2025 fundraising to exceed 2024. The environment continues to improve, indicating that 2025 will be better than 2024. However, specifics by quarter are uncertain due to factors like timing and client readiness. The pipeline is strong, and we expect growth compared to 2024. - Michael Sacks, Jonathan Levin

Can you discuss your margin outlook, especially FRE margins? Is there a long-term cap on margins? - Crispin Love (Piper Sandler)

2024Q4: We expect 2025 fundraising to exceed 2024. The environment continues to improve, indicating that 2025 will be better than 2024. However, specifics by quarter are uncertain due to factors like timing and client readiness. The pipeline is strong, and we expect growth compared to 2024. - Michael Sacks, Jonathan Levin