Blackstone Q3 2023 Earnings Call Transcript

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November 2, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Hercules Capital Q3 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Mike O'Hara, Managing Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, Justin. Good afternoon, everyone, and welcome to Hercules' conference call for the Q3 2023. With us on the call today from Hercules is Scott Bluestein, CEO and Chief Investment Officer and Seth Meyers, CFO. Hercules financial results were released just after today's market close and can be accessed from Hercules' Investor Relations section at investor. Htgc.com.

Speaker 1

An archived webcast replay will be available on the Investor Relations webpage for at least 30 days following the call. During this call, we may make forward looking statements based on our own assumptions and current expectations. These forward looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward looking statements made during this call for a number of reasons, including, but not limited to, the risks identified in our annual report on Form 10 ks and other filings that are publicly available on the SEC's website. Any forward looking statements made during this call are made only as of today's date and Hercules assumes no obligation to update any such statements in the future.

Speaker 1

And with that, I'll turn the call over to Scott.

Speaker 2

Thank you, Michael, and thank you all for joining the Hercules Capital Q3 2023 Earnings Call. Our best in class venture and growth stage lending platform continued to deliver record earnings and operating performance in Q3, as well as delivering record year to date gross fundings of $1,290,000,000 which represents an increase of over 17% year over year. We were able to achieve record Q3 results despite continued volatility in both the equity and credit markets as well as across the broader global macro landscape. While we are pleased with our continued record operating performance in Q3 and remain optimistic about our positioning in the asset class and our ability to capture further market share over the coming quarters. We continue to take steps to manage our business defensively, while maintaining the ability to play offense as the market improves.

Speaker 2

This includes enhancing our liquidity position, maintaining very low leverage, tightening our credit screens for new underwritings and driving our 1st lien exposure up to over 87%, our highest level since Q1 2017. During Q3, we Many of the same themes that we have been discussing over the last several quarters. With one notable exception, Capital raising across our portfolio remains strong, exceeding the level of activity that we saw in Q2. Rising rates combined with higher onboarding yields and an increased weighted average portfolio balance drove total investment income, Core investment income and net investment income to record levels. N and A activity and interest Continues to be strong across our portfolio and we expect several additional M and A exits over the coming quarters.

Speaker 2

Our differentiated business model, which is predicated on asset and liability diversification, fundamental credit underwriting and long standing relationships with over 1,000 venture capital and private equity investors has continued to serve us well and allows us to outperform in a variety of macro environments. For the remainder of 2023, our focus will remain on prudent underwriting, Diversification and maintaining an abundance of liquidity. Let me recap some of the key highlights of our performance for Q3. In Q3, we generated record total investment income of 116,700,000 up over 38% year over year and record net investment income of 76,800,000 up over 53% year over year or $0.52 per share and providing 130% coverage of our base distribution of $0.40 per share. This is our 4th consecutive quarter of delivering record net investment income.

Speaker 2

We also generated return on equity in Q3 of over 20% for the 2nd consecutive quarter. Our portfolio generated a GAAP effective yield of 15.5% in Q3 and a core yield of 14.2%, which is indicative of the recent rate increases and higher on boarding yields for certain new loans. With GAAP leverage at a very conservative 99.8% and continued robust liquidity across our platform, Our balance sheet remains very well positioned. Although we have managed to deliver record year to date gross new fundings, We continue to expect the market environment for new deals in our asset class to improve over the coming quarters. Having a strong and diversified balance sheet with maximum liquidity will be a key differentiator for our platform and BEST positions Hercules to capitalize on the market opportunity that we continue to believe is in front of us.

Speaker 2

The focus of our origination efforts in Q3 was once again on diversification with an emphasis on later stage and more scaled opportunities. Our Q3 originations activity was driven by both our technology and life sciences teams delivering healthy funding performance during the quarter, although our new business activity was intentionally weighted more towards the life sciences side. In Q3, approximately 56% of our fundings were to life sciences companies, while approximately 68% of our commitments during the quarter were to life sciences companies. Our unique ability to excel in both Technology and Life Sciences Lending at the same time with dedicated teams in each vertical helps drive consistent outperformance relative To our peer group, we funded debt capital to 28 different companies in Q3, of which 10 were new borrower relationships. Consistent with what we have seen throughout the year, we expanded our funding relationship with numerous portfolio companies that continue to show strength and achieve performance milestones during the Q3.

Speaker 2

In addition, the strong level of fundings to existing companies Also helped to maintain our available unfunded commitments at $400,000,000 which was up slightly from $381,000,000 in Q2. Approximately 31% of our available unfunded commitments will expire by the end of the year, driving higher expected follow on fundings through the end of 2023. As we guided to on our Q2 earnings call, Our quarterly funding activity in Q3 was back end weighted with over 50% of our quarterly fundings coming in the month of September. This theme is likely to repeat in Q4. After an atypically strong Q3 for originations, We expect our origination activity in Q4 to moderate slightly, although we remain on track to deliver record annual gross fundings in 2023.

Speaker 2

Since the close of Q3 and as of October 31, 2023, Our deal team has closed $34,000,000 of new commitments and funded $42,700,000 We have pending commitments of an additional $290,000,000 in signed non binding term sheets. The bar for us on new originations remains very high and we continue to pass on the vast majority of deals that we are currently seeing in the market. We are increasingly hearing from prospective portfolio companies about the importance of partnering with a lender that has a strong balance sheet and staying power. And this gives us great confidence in our ability to continue to generate and deliver quality asset growth over the coming quarters. Although portfolio company exits and liquidity events for the industry continue to be slow, we are pleased with Our portfolio has experienced so far this year.

Speaker 2

Year to date, as of today, we have had 1 portfolio company complete their IPO and 2 additional portfolio companies which have filed for IPOs along with 13 portfolio companies completing M and A transactions. Our portfolio company, Engene Holdings, just completed their SPAC merger IPO on November 1. We expect additional M and A transactions for our portfolio companies to close over the coming quarters. Our portfolio activity continues to validate the great work and underwriting that our investment teams do. As we anticipated, early loan repayments decreased in Q3 to approximately 148,000,000 which came in slightly below our guidance of $175,000,000 to $250,000,000 For Q4 2023, we expect prepayments to increase from Q3 levels and be in the range of 150,000,000 to $250,000,000 although this could change as we progress in the quarter.

Speaker 2

Credit quality of the debt investment portfolio remained relatively stable. Our weighted average internal credit rating of 2.28 increased slightly From the 2.24 rating in Q2 and remains within the normal historical range. Our Grade 1 and Grade 2 credits improved to 62.1% compared to 59.4% in Q2. Grade 3 credits were lower at 34.5% in Q3 versus 38.3% in Q2. Our rated 4 credits increased slightly to 2.6% and rated 5 credits increased to 0.8% in Q3 as a result of one loan being downgraded to a 5 during the quarter.

Speaker 2

Subsequent to quarter end, one of our rated 4 loans Paid off their outstanding obligations to Hercules in full. In Q3, we added 1 debt investment on non accrual. We have 2 debt investments on nonaccrual with an investment cost and fair value of approximately 88,100,000 and $24,600,000 respectively or 2.7% and 0.8% as a percentage of the company's total investment portfolio at cost and value respectively. As of our most recent reporting, 100% of our debt portfolio companies remain current on contractual payments to Hercules. The one new loan added to non accrual during Q3 was our secured debt investment in Convoy.

Speaker 2

Our workout efforts remain ongoing and we continue to work with Convoy to maximize our ultimate recovery. We believe that Convoy was a unique situation that resulted from a perfect storm of events that negatively impacted Convoy and its ability to continue operating and raise more equity capital. At the same time, ongoing and accelerating turmoil and pressure Across the broader freight market landscape, negated the ability for Convoy to find a strategic buyer for the business as a going concern. Based on our efforts to date, we currently believe that our net recovery will meet or exceed our Q3 fair value mark and that our recovery efforts will likely wrap up early next year, although the situation remains ongoing and fluid. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level.

Speaker 2

Our focus on credit underwriting and a diversified asset base is continuing to serve us well. We are seeing general outperformance and positive momentum in terms of capital raising, M and A activity and milestone achievement throughout our Life Sciences book. While things remain more muted on the technology side with respect to the same. Public market valuations for growth stage tech And Life Sciences companies pulled back considerably in Q3, putting additional pressure on fundraising for certain private companies. Despite this and continued increased selectivity and valuation sensitivity from venture capital investors, Capital raising across our portfolio remains strong in Q3 with 23 companies raising over $2,000,000,000 in new capital In Q3, this was the strongest quarter of new capital raising in our portfolio over the last year and a half.

Speaker 2

During Q3 2023, Hercules had net realized losses of 2,600,000 Comprised of net realized gains of $900,000 due to the gain on investment funds and debt investments, offset by $3,500,000 due to the loss on equity and warrant investments. Through Q3, we have generated 5.6 1,000,000 of realized gains year to date. Our net asset value per share in Q3 was $10.93 A slight decrease of 0.3 percent from Q2 2023. We ended Q3 with strong liquidity of almost $600,000,000 inclusive of available liquidity and our private funds, we have more than $900,000,000 of liquidity as of the end of Q3. Our balance sheet is strong and stable and it puts us in an advantageous position to be able to benefit Venture capital ecosystem fundraising and investment activity continue to stay at muted levels relative to the historical highs that we witnessed In 2021 2022, with fundraising activity at approximately 43,000,000,000 and investment activity at approximately $126,000,000,000 for the 1st 3 quarters of 2023, respectively, according to data gathered by PitchBook and VCA.

Speaker 2

In terms of VC investment activity, Q3 was equal to Q2 with $40,000,000,000 of new investments. Year to date Q3 2023 investment levels Have already exceeded 20 nineteen's $103,000,000,000 and the number of investment deals is more than double the number in 2019, 9,962 deals versus 4,431 deals. We expect fundraising to stay at much lower both in prior years and investment activity to remain stable as we approach the end of the year. With our record operating performance year to date, We exited Q3 with increased undistributed earnings spillover of over $155,000,000 or $1.03 for ending shares outstanding. For Q3, we maintained our base distribution of $0.40 and declared a supplemental distribution of $0.08 for a total of $0.48 of shareholder distributions.

Speaker 2

In closing, our scale, Institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment Continues to drive our business forward and our operating performance to record levels. In Q3, Hercules delivered its 2nd consecutive quarter of over $100,000,000 of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Our success is attributable to the tremendous dedication, Efforts and capabilities of our 100 plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams and investors that continue to make Hercules their partner of choice. I also want to acknowledge the handful of portfolio companies that we have and certain of our VC partners and investors that are being impacted by the terrorist attack that took place on October 7 and the events that have followed.

Speaker 2

I will now turn the call over to Seth.

Speaker 3

Thank you, Scott, and good afternoon, ladies and gentlemen. Q3 marked another quarter of records for Hercules Capital. Total investment income Was a record of $117,000,000 We had record net investment income of $77,000,000 and core income of $0.46 per share. To support the $195,000,000 of portfolio growth, We proactively strengthened our balance sheet and liquidity position with the equity offering in August. We also received a green light letter from the SBA for an additional SBIC license, which upon final licensing and will provide us with additional attractive financing.

Speaker 3

With these points in mind, let's review the following areas: the income statement performance and highlights NAV, unrealized and realized activity, leverage and liquidity and finally, the financial outlook. Turning first to the income statement performance and highlights. Total investment income exceeded $100,000,000 again at $116,700,000 driven by the year to date growth in the debt portfolio on consistent business on underwriting and a small increase in benchmark rates. Core investment income, a non GAAP measure, again exceeded 100,000,000 At $107,400,000 Core investment income excludes the benefits of income recognized as a result of loan prepayments. Net investment income was another record of $76,800,000 a 1.4% quarter over quarter increase or $0.52 per share in Q3.

Speaker 3

NII margin was 65.8% for Q3 and has increased every quarter since Q1 2022. Our effective and core yields in the 3rd quarter were 15.5% and 14.2%, respectively, compared to 16% and 14.1% in the prior quarter. The decrease in the effective yield was due to lower prepayments consistent with our guidance versus the prior quarter. The increase in the core yield was due to an increase in coupon interest as a result of benchmark interest rates. We continue to forecast a leveling of core yield Hereafter due to minimal movement from the Fed in the coming quarters.

Speaker 3

Turning to expenses. Our gross operating expenses for the quarter decreased slightly to $42,400,000 compared to $42,900,000 in the prior quarter. Net of costs recharged to the IRA, our net operating expenses were fairly level at 40,000,000 Interest expense and fees decreased modestly to $19,000,000 from $19,600,000 in the prior quarter due to lower utilization of the credit facilities as a result of the equity offering in early August. SG and A expenses remained stable at $23,400,000 in line with my guidance of $23,000,000 to $24,000,000 Net of cost recharged to the RIA, the SG and A expenses were at $21,000,000 Our weighted average cost of debt Remain stable at 4.8 percent based on the lower utilization of the credit facilities due to the equity raise. Our ROAE or NII over average equity increased modestly to 20.2% for the 3rd quarter And our ROAA or NII over average total assets was 9.7%.

Speaker 3

Switching to NAV unrealized and realized activity. During the quarter, our NAV decreased slightly by 0 point $0.03 per share to $10.93 per share. This represented an NAV per share decrease of 0.3% quarter over quarter. The main drivers for the decrease were the net change in the unrealized appreciation of $46,200,000 including the reversal of prior unrealized appreciation of $4,500,000 mainly due to investment disposals or write off, partially offset by accretion due to the equity sale in August. Our 46 $200,000 of unrealized depreciation was primarily driven by $30,400,000 of net unrealized depreciation On the loan portfolio and $9,900,000 of depreciation to the public equity and warrant portfolio.

Speaker 3

Moving on to leverage and liquidity. Our GAAP and regulatory leverage decreased to 99.8% and 89.2%, respectively, compared to the prior quarter due to the equity raise in August. Netting out leverage with cash on the balance sheet, our net GAAP and regulatory leverage was 97.9% and 87.3%, respectively. We ended the quarter with approximately $600,000,000 of available liquidity. As a reminder, this excludes the capital raised by the funds managed by our wholly owned RAA subsidiary.

Speaker 3

Inclusive of these amounts, the Hercules platform had more than $900,000,000 in available liquidity. Strong liquidity positions us very well to support our existing portfolio companies and source new opportunities. We continue to have no material near term maturities, giving us the ability to be opportunistic should we decide to raise additional capital to support the business. Finally, on the outlook points, we expect our core yield range to tighten at 13.8% to 14%. As a reminder, approximately 95% of our debt Folio is floating with the floor, so any additional rate hikes will benefit our core yield going forward.

Speaker 3

Although very difficult to predict, As communicated by Scott, we expect our $150,000,000 to $250,000,000 in prepayment activity in the 4th quarter. We expect our 4th quarter interest expense to increase compared to the prior quarter based on portfolio growth expectations. For the Q4, we expect SG and A expenses of $21,000,000 to $22,000,000 and RIA Allocation of approximately $2,000,000 As previously guided, we expect the Advisor business to begin paying dividends in the 4th quarter to Hercules Capital. Initially, the dividend should be approximately $1,000,000 per quarter with variation depending on the portfolio growth and performance. In closing, our balance sheet remains strong to support our existing portfolio as well as opportunistically invest in the best opportunities.

Speaker 3

I'll now turn the call over to the operator to begin the Q and A part of our call. Justin, over to you.

Operator

And thank And we ask that you limit yourself to 1 question and one follow-up. Again, that is 1 question and one follow-up. Bear with me one moment. And our first question Comes from Crispin Love from Piper Sandler. Your line is now open.

Speaker 4

Thanks. Good afternoon, everyone. Scott, you made some comments on being weighted more towards life sciences in the quarter. Just curious if you can dig a little deeper there. Was that due to Credit expectations, demand from borrowers or just anything else worth calling out?

Speaker 4

And would you expect it to be more weighted towards life sciences over the near term?

Speaker 2

Sure. Thanks, Crispin. So it was an intentional move. I think we're one of the few private credit direct lenders in the market Have the ability to sort of toggle back and forth between technology lending and life sciences lending. And as we've said consistently over the course The years depending on what our macro assessment is, we will go back and forth in terms of waiting between those two sectors on a quarterly basis.

Speaker 2

Over the course of Q3 and we would expect this to sort of remain this way in Q4 as well, given the macro volatility that we're seeing, Given some of the turmoil that we're seeing on kind of a global perspective, our view was that the life sciences sector represented a better credit Opportunity for us in terms of short term underwritings and that was our focus in Q3. We expect that to continue to be our focus in Q4. I want to emphasize, however, that we will continue to very actively pursue both technology and life sciences transactions. I mentioned the numbers in my prepared remarks, but it was not 100 percent Life Science and 0% Technology. It was essentially a sixty-forty allocation in the quarter and we think we'll Pretty consistent for the remainder of the year in terms of those numbers.

Speaker 4

Okay, great. That's helpful. And then just on leverage, Leverage here remains very well contained. But looking a

Speaker 2

little further out, can you talk about

Speaker 4

where you'd be willing to increase leverage to if Opportunities pick up just from the changing competitive landscape out there and I'm thinking over say the next several quarters to a year if the environment improves?

Speaker 3

Sure. Thanks, Chris and it's Seth. So our guidance has always been a 125% GAAP leverage ceiling and we're going to stay A fair distance away from that, just for mark to market volatility at the end of quarters and things of that nature. While we are working through a leading up to a recessionary environment, we're going to be pretty careful and stay around the one to one level. We have taken it up in 2022 and in certain quarters to about the 115 level, historically twice.

Speaker 3

So I would see that as our ceiling, but I would see us operating The 1 to 1 to 1 10 range in the foreseeable future as a result of the recessionary environment and wanting to maintain sufficient liquidity.

Speaker 2

And Crispin, I would just add to that from a positioning perspective. Right now, we think 2 Critical items from a platform perspective are high liquidity and low leverage. And the reason for that is really not credit related, it's new business related. Based on the conversations that our investment teams are having with Venture Capital Firms, Private Equity Firms and Prospective Companies, we are actually very optimistic about what the new business environment will look like, particularly in the first half of next year. And we think being able to aggressively move to win those opportunities We'll be a key point of differentiation and by maximizing liquidity and keeping leverage low, we'll be able to react very quickly to take advantage of that market

Speaker 4

All right. I appreciate you taking my questions.

Speaker 2

Thanks, Crispin.

Operator

And thank you. And one moment for our next question. And our next question comes from Christopher Nolan from Ladenburg Thalmann. Your line is now open.

Speaker 5

Hey, guys. Seth, based on your effective yield, core yield guidance, Should we assume that the flow through over the rate increases is just about done?

Speaker 3

Yes. I would agree with that, Chris. I think that what we see is probably the ceiling absent any additional rate increases from the Fed. As we've said, we're going with later stage companies that comes with tighter spreads. And we've benefited certainly from the increase of spreads As the Fed has raised and a lot of these loans, remember, were originated at times when rates were much lower.

Speaker 3

We continue to see a strong prepayment volume on the higher rates. And so we're just trying to manage the expectations that The new originations largely will come in or just below the level that we're at as far as Spreads because they're later stage companies and that as the larger spreads pay off, we expect that this is likely our feeling in the rates that we see. And again, absent any changes from the Fed, if they decide that they need to continue to increase rates To stem inflation, then all bets are off as to what our ceiling is.

Speaker 5

And then I guess strategically, given the increase in 1st lien And being more selective focusing on later stage, should we assume that we're not going to see any sort of Yield expansion from just attractive market opportunities, you're more likely to see real yield compression in coming quarters?

Speaker 2

Sure. Thanks, Chris. I don't think we're going to see yield compression and we're really not forecasting any significant yield compression of note. We think despite the fact that we're moving upstream, despite the fact that we're positioning into more of a first lien Book exposure will be able to maintain the core yields in that sort of high-13s, low-14s range. So We're not expecting any contraction and we feel pretty comfortable despite the move upstream that we'll be able to maintain core yields roughly where they are today.

Speaker 5

Great. Thanks, guys.

Speaker 3

Thanks, Chris.

Operator

And thank you. And one moment for our next question. And our next question comes from Ryan Lynch from KBW. Your line is now open.

Speaker 6

Hey, good afternoon. My first question was, could you just provide a little context of what drove the Approximately $30,000,000 of unrealized depreciation on your debt portfolio this quarter?

Speaker 3

Yes, sure. Absolutely, Ryan. So it was a number of things offsetting each other. The most significant is the loss on convoy, which is about $50,000,000 write down on the BDC. And contrasting that though was the appreciation on the remainder of the portfolio where the benchmark rates that we use to Really model out what our market value should be for the existing portfolio, had a compression, in the yields, Whereas we did not see that in our originations, and we felt that our portfolio was still Coming along pretty strong with the exception of Convoy.

Speaker 3

So we had a slight uptick in the value of our portfolio of 20,000,000 And those two things were the offsetting amounts that were most material.

Speaker 6

Okay. That makes sense. And then my other question is kind of a 2 part question. I think you mentioned you had 23 Companies raised new capital in the 3rd quarter, which was the strongest quarter you've had in the last one and a half years. And so kind of a 2 part question on that is, number 1, and you've talked about having a very strong portfolio for a long period of time.

Speaker 6

Why do you think was there any sort of driver behind why this quarter was so strong from a capital raising standpoint in your portfolio companies? And then the second part of that was, maybe this correlation doesn't make sense, but it's natural to me if there's a lot of your For the companies that are raising new capital this quarter, you would have seen an increase in prepayment activity. Now prepayment activity actually got cut in half this quarter from about $300,000,000 to about $150,000,000 And so it was interesting that that correlation Didn't stand. I'm not sure if historically that's been a good correlation or not, but I naturally would have thought that would have occurred. So why didn't that happen?

Speaker 6

And are those things normally correlated or not?

Speaker 2

Sure. Thanks, Ryan. I'll take the second part first. So there actually is not typically correlation between those two items for us. The vast majority of our prepayments historically come from either M and A exits or traditional refinancings When the companies are able to secure cheaper, more bank like facilities, very rarely will one of our portfolio companies go out and raise an equity round and then Use the proceeds to retire the debt.

Speaker 2

And so there historically has not been correlation, so I really wouldn't look into that too much. On the first point, A couple of comments. Number 1, Q3 was our strongest quarter in terms of portfolio company fundraising in the last 18 months as I mentioned in the remarks. It was up slightly from Q2. In Q2, we had 21 companies raise $1,900,000,000 In Q3, we had 23 companies raised $2,000,000,000 The biggest driver this quarter was actually continued outperformance On the life sciences side, we had several fairly large public biotech companies achieve Very meaningful milestones during the quarter and they use those milestones to go out and raise additional financing.

Speaker 2

It wasn't just Public Biotech that drove that number. If you kind of think about it in terms of public versus private mix, Of the 23 companies that raised capital in the quarter, 12 were private, 11 were public. So a nice mix between public and private, But definitely some of the bigger ones that help drive that $2,000,000,000 were on the public biotech life sciences side.

Speaker 6

Okay. That's really helpful detail and background on that. That's all for me today. I appreciate the time.

Speaker 2

Thanks, Ryan.

Operator

And thank you. And one moment for our next question. And our next question comes from Finian O'Shea with Wells Fargo. Your line is now open.

Speaker 7

Hi, everyone. Good afternoon. Scott, first high level question. I think At times, not very often, but opportunistically, Hercules would invest in equity In the past and seeing how you feel that opportunity is today and what your appetite for it might be?

Speaker 2

Sure. Thanks, Fin. Right now, we're focused on credit. We're focused on underwriting and allocating our capital to new investment opportunities that we think Generate the best risk adjusted returns for our investors and the vast majority of those opportunities we believe right now will come on the secured credit side. We have and we will continue to opportunistically invest in equity.

Speaker 2

Over the course of Q3, we did make a couple of equity investments In some of our portfolio companies by exercising the RTI, which gives us the right to invest in subsequent rounds of financing, We still think valuations have some room to go down further. And so we're certainly not allocating any significant amount of capital to equity at the

Speaker 7

And just a follow-up, Are you able to remind us on the RIA, AUM and maybe what you Targeted or hope or expect for 2024 fundraising?

Speaker 2

Sure. We continue to be very excited about the private platform that we have underneath the RIA. We do not disclose Separate AUM numbers for the private funds, but we do disclose an aggregate number, which is a little bit over $4,000,000,000 in our Press release and that's obviously inclusive of the public and private fund business. You can back into the private fund business AUM by just subtracting what the AUM is in the public BDC. From a growth perspective, right now we still have significant liquidity in the private funds to put to work.

Speaker 2

We're very excited about the investment opportunities that we think will be in front of us over the next several quarters and fundraising for next year TBD in terms of when we'll go back to market, but we continue to believe that that private fund business will be a key driver of returns for our public company investors.

Speaker 8

Thanks so much.

Speaker 2

Thanks, Fin.

Operator

And thank you. And I am showing no further questions. I would now like to turn the call back over to Scott Bluesten for closing remarks.

Speaker 2

Thank you, Justin, and thanks to everyone for joining our call today.

Operator

And pardon me, Scott, I apologize. We have one more question. Okay, one moment please. And our next question comes from Craig Bellinger from City National Bank. Your line is now open.

Speaker 8

Hi, thank you. Sorry, I was slow to press the buzzer. Congratulations on a record results. And I appreciate the comments on Convoy and And particularly some of the reserves that you've taken. I wonder if there's any other color on that in terms of kind of the go forward position on that, On that particular outlier?

Speaker 2

Yes. Appreciate the question. We're not going to make any further public Comment outside of what I said in the prepared remarks, it remains an active workout situation. We are working with the company to Our recovery and based on our efforts to date, as I mentioned in my remarks, we expect that our net recovery will meet or exceed our Q3 fair value mark.

Speaker 5

Okay. Thank you.

Operator

And thank you. And now I would like to turn the call back over to Scott Bluestein for closing remarks.

Speaker 2

Thank you, Justin, and thanks to everyone for joining our call today. As a final note, we will be participating in the Jefferies' 8th Annual BDC Summit on November 15th in New York City, the JMP Virtual BDC Direct Lending Day on November 30th, and the SMBC Virtual Annual BDC Fixed Income Investor Event on December 1. If you are interested in attending any of these events, Please contact Jefferies, JMP or SMBC directly or Michael Hara. We look forward to reporting our progress on our Q4 and year end 2023 earnings call. Thanks everyone and have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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