GCM Grosvenor Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the GCM Kroger Second Quarter 20 24 Results Webcast. Later, we will conduct a question and answer session. If you are interested in asking a question, please ensure you dial in using the numbers As a reminder, this call will be recorded.

Speaker 1

I would now like to

Operator

hand the call over to Stacy Selinger, Head of Investor Relations. You may begin.

Speaker 2

Thank you. Good morning and welcome to G. Spinn Grosvenor's Q2 2024 Earnings Call. Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Kherick President, John Levin and Chief Financial Officer, Pam Bentley. Before we discuss past quarter's results, a reminder that all statements made on this call that do not relate to matters of historical fact should be considered forward looking statements, which include statements regarding our current expectations for the business, our financial performance and projections.

Speaker 2

These statements are neither promises nor guarantees. They involve imminent unknown risks, uncertainties and other important factors that may cause our actual results to differ materially from those indicated in the forward looking statements on this call. Please refer to the factors in the Risk Factors section of our 10 ks, our other filings with the Securities and Exchange Commission and our earnings release, all of which are available on the Public Shareholders section of our website. We'll also refer to non GAAP measures that we view as important in assessing the performance of our business. Reconciliation of non GAAP metrics to the nearest GAAP metric can be found in our earnings presentation and earnings supplement, both of which are available on our website.

Speaker 2

Our goal is to continually improve how we communicate and engage with our shareholders. And in that spirit, we look forward to your feedback. Thank you again for joining us. And with that, I'll turn the call over to Michael.

Speaker 1

Thanks, Stacey. We had a strong second quarter building on our recent momentum. During the quarter, fee related earnings increased 20% and adjusted net income increased 29% over the prior year. Our private market strategies continue to grow with 2nd quarter management fees growing 11% year over year. Private markets now comprises 71% of our total assets under management.

Speaker 1

Our fee related earnings margin was 40% for the quarter compared to 31% at the end of 2020. We continue to believe that we have opportunity for further FRE margin expansion in the future. The fundraising environment continued to improve in the 2nd quarter. We raised $1,800,000,000 a 26% year over year increase and that brought first half new capital raise to $3,400,000,000 a 45% increase from the first half of twenty twenty three. Our pipeline has grown nicely throughout the year and we expect fundraising in the second half of the year to exceed that of the first half.

Speaker 1

We've spoken often about the strength of our diversified platform and recently about our confidence in demand for infrastructure and credit strategies. Infrastructure was again the greatest contributor to our quarterly fundraising

Speaker 3

and over $600,000,000

Speaker 1

raised for this strategy in the quarter, followed by private equity and private credit. Year to date, we've raised $750,000,000 from dedicated credit programs and we expect our credit platform to see significant growth going forward. Our private market specialized fundraising of $1,000,000,000 so far this year is a great start and we are well on pace to see materially higher fundraising levels there than we saw in both 2022 and 2023. All of our private market strategies delivered competitive performance and we believe clients remain appreciative of our value add. Absolute return strategies investment performance was again strong, building on the very solid Q1.

Speaker 1

Our multi strategy composite generated a 2.4% gross return in the 2nd quarter, outperforming indices and tiers. Gross returns for our composite are 7.4% year to date and 12.3% over the last 12 months, and we realized $10,000,000 in performance fees so far this year. As a result of the good performance, our ARS pipeline has expanded meaningfully over the past year, during which we raised $1,000,000,000 for the strategy. We did have net ARS outflows during the quarter, which resulted from the partial restructuring of 1 client portfolio. The outflows were the lower than average management fee, leading to an uptick in our average ARS management fee rate.

Speaker 1

We expect total ARS management fees for Q3 to be roughly flat compared to

Speaker 3

the Q3 of last year.

Speaker 1

The recent volatile markets are the type where absolute return strategies typically show well. Having been through a number of market cycles over the past 35 years, I have great confidence in our ability to add value in difficult market environments. Over the past 3 years, we've raised $1,800,000,000 from the individual investor channel. Earlier this year, I told you that expanding our products and distribution in that channel was a strategic priority. We made good progress in that regard this quarter.

Speaker 1

First, we're excited to share that we will serve as a core independent manager for private equity municipal fund focused on private equity co investments and secondaries. In addition, we secured a $300,000,000 anchor commitment that we expect will seed an infrastructure product targeting the individual investor channel. We look forward to telling you more about these efforts in the future. Whether the strong long term demand outlook, our history of high reup rates, our expanded pipeline or our operating leverage, there are a number of factors that lead to our confidence regarding the back half of this year and our longer term goals, which John will address now. We have a lot of ways to win and are confident in our value proposition of clients, shareholders and team members.

Speaker 1

And with that, John, I'll take it over.

Speaker 4

Great. Thank you, Michael. This quarter, I will address our previously stated goal of doubling our 2023 fee related earnings in 5 years. For historical context, from 2020 to 2023, we grew our fee related earnings at a 14% compound annual growth rate. And our platform is stronger and the opportunity set is even more compelling now than it was after 2020.

Speaker 4

There are 5 pillars to our growth: capital deployment, expanding with our existing clients, new client acquisition, scaling new initiatives and margin expansion. Starting with our embedded growth and capital deployment. Over the last 3 years, on average, dollars 3,000,000,000 of our annual FOM growth has been simply from turning on fees in existing programs where the capital had already been raised. Going forward, embedded growth will come from converting our $7,300,000,000 of contracted not yet fee paying AUM into fee paying AUM. We are particularly excited about putting client capital to work in what is an increasingly compelling investment environment.

Speaker 4

Turning to our existing clients. We have a proven track record of expanding our existing client relationships through successful re ups and through the broadening of the relationship. Last quarter, I spoke about how re ups provide embedded growth as they occur at 90% rate, how they've almost averaged 30% increase in size. In addition, we've consistently had success earning our clients trust and expanding with them into new areas. Currently, we're seeing great traction with our existing clients around high growth areas, such as infrastructure and private credit and into direct oriented investment strategies.

Speaker 4

Approximately 50% of our top clients work with us in more than one investment vertical. 3rd, we are entering harvest mode on strategic investments we've made over recent years. One example is our private market specialized fund franchises, as highlighted on Slide 17 of the presentation. Since 2020, we've grown these private market specialized fund franchises by a 23% annualized growth rate as measured by capital commitments. And the opportunity persists going forward in both the more mature and the newer fund series.

Speaker 4

We're fortunate to have such great loyalty from existing clients. More than 80% of our fundraising each year typically comes from those relationships. However, we also had success with new client acquisitions, both in markets where we already have a presence and over time in markets and channels where we are seeking to build our business. We've invested in our teams and seen early success in Europe, Australia and Canada, but we've only scratched the surface of the opportunities set in those regions. Additionally, insurance and individual investors represent a massive opportunity for the alternatives industry and we're in an ideal position to capture share in both of those channels.

Speaker 4

Finally, while revenue growth will be a key driver to reaching our 5 year FRE goal, so is margin expansion from the operating leverage embedded in our business. Achieving our goal assumes continued FRE margin expansion, leading margin enhancement we've enjoyed since going public. Beyond our FRE growth potential, we also have massive incremental incentive fee opportunity. It is unique in that it's 2 fold, both annual performance fees and through carried interests. Both of these earnings streams have been suppressed over the past couple of years.

Speaker 4

And while the exact timing is hard to predict, if we are successful in achieving our FRE growth targets, our growth outcomes in adjusted EBITDA and adjusted ANI should exceed that of FRE. We enjoy industry tailwinds and a platform which has the breadth and flexibility to compete effectively in this exciting market. With that, I'll turn the call over to Pam.

Speaker 2

Thanks, John. We are pleased with our strong results in the 2nd quarter. Assets under management were $79,000,000,000 as of quarter end, a 4% increase from a year ago and fee paying AUM also increased 4% year over year ending the quarter at $63,000,000,000 Contracts did not yet keep paying AUM ended the quarter at $7,200,000,000 a 9% increase from a year ago due to stronger fundraising over the last 12 months. Private markets was once again a key growth driver Private markets was once again a key growth driver with private markets repaying AUM growing by 7% year over year. As of quarter end, the private market business represents 71% of total AUM and 66% of our fee paying AUM.

Operator

We expect the

Speaker 2

double mix shift in our business to continue, 1st towards private markets and second towards direct oriented strategies, which comprise more than half of our private market AUM as of quarter end. Private market management fees grew 11% year over year due to strong specialized loans fundraising and catch up fees of $2,600,000 in the quarter. Private market management fees excluding catch up fees in the quarter grew 6% year over year, in line with our guidance last quarter. We expect a similar year over year growth rate in private market management fees excluding catch up fees in the 3rd quarter. For the full year 'twenty four, we reaffirm our expectation of double digit private market management fee growth, excluding catch up fees.

Speaker 2

At the beginning of the year, we thought about our expectation that our absolute return strategies management fees would stabilize in 'twenty four and we are still on track to meet that goal. 2nd quarter ARS management fees increased 3% year over year and we expect 3rd quarter ARS management fees to be consistent with the Q3 of last year. As Michael noted, investment performance has been very strong, positioning us to generate meaningful potential performance fees this year and client interest in the strategy has grown. Turning to incentive fees, we realized $16,000,000 in the quarter comprised of $4,000,000 of ARS performance fees and $12,000,000 of carried interest. Our growth on realized carried interest grew approximately 4% year over year to $810,000,000 as of quarter end.

Speaker 2

As John noted, we believe our incentive fees provide significant embedded earnings potential, which we look forward to being unlocked as the capital markets and M and A environment improves. As we realize both higher performance fees and increased carried interest, we believe that we have a compelling opportunity to increase the margin on the firm share of incentive fees to levels at or above last year. Turning to our expenses. As expected, 2nd quarter FRE compensation was $38,000,000 and we expect a similar level in the Q3. We remain disciplined in managing expenses and non GAAP general, administrative and other expenses were $20,000,000 in the quarter and in line with our expectations.

Speaker 2

We expect similar levels next quarter. Pulling together these factors on a year over year basis, fee related earnings grew a healthy 20% in the quarter and 22% year to date. Adjusted net income grew 29% in the quarter and 34% year to date on a year over year basis. Our FRE margin grew from 36% in the Q2 of 23% to 40% next quarter. While there may be quarterly margin fluctuations, we enjoy significant operating leverage and still expect our overall FRE margins for 24 to exceed last year.

Speaker 2

Our balance sheet is strong and during the quarter we successfully took advantage of Construction Capital Markets to extend our term loan by 2 years to February 20 30, while decreasing the spread on our debt by 25 basis points from 2.50 to 2.25 and upsizing the aggregate principal by $50,000,000 The incremental cash was used for general corporate purposes, continued investments in the business and opportunistic stock repurchases. We are maintaining a healthy quarterly dividend of $0.11 per share or an annualized yield of more than 4% as of last Friday. There is room for future dividend growth as we enjoy positive momentum in our earnings. We also continue to repurchase shares under our repurchase authorization plan and are focused on managing dilution from our stock compensation program. In the quarter, we repurchased $30,000,000 of stock, leaving $35,000,000 in our share repurchase program as of quarter end.

Speaker 2

To close, we have confidence in our 24 financial objectives and look forward to the opportunities ahead to deliver value to our clients and shareholders. Thank you again for joining us and we're now

Operator

And our first question comes from Bill Katz with TD

Speaker 3

for the disclosure that it was sort of one large withdrawal that impacted the quarter. As you look ahead of the residual platform, can you size or sense what kind of concentration risk you might have just in terms of other potential allies that withdraws regardless of reason, these top five, top ten clients, what does that account for in terms of the AUM and then any sort of sideline to withdrawals as you look into the second half of the year?

Speaker 1

Yes. It's Michael. We don't have concentration risk in terms of revenue at all. And I think as we've talked and as you saw here, we do have some large accounts where it's large AUM, but as the account size gets bigger, the revenues, the fees are down. So, we have a as a firm, we have a high level of diversity and kind of low levels of concentration with regard to revenues.

Speaker 1

And it's one of the things that actually makes us feel very good. And then when you think about the fact that even within ARS, you have different strategies and then of course you have ARS in those private markets. When you look at our revenue mix by client, there's just a lot of diversification there, not a lot of concentration. And so, our goal for ARS for this year was to see stabilization there.

Speaker 3

We I

Speaker 1

think we're pretty much there. We told you there was one client, we told you it was low fee and the average fee picked up. And we told you that Q3, we expect management fee revenue to be equal to what it was a year ago. And on our numbers, we actually think 1,125 FTOM in ARS will be higher than 1,134 FTOM. Performance will matter, obviously.

Speaker 1

There's still some time left on flows, but that's kind of what we see and we think the goal of ARS stabilizing in 'twenty four, giving us the ability for that business to actually grow going forward is we've gotten there.

Speaker 3

I don't know if I can answer as follow-up, but I wanted to throw in anyway. John, thanks for the sort of the pathway to how you think you can double the FRE between now and 'twenty eight. Very helpful. Can you break that down maybe one more layer between how you sort of see the dynamics between the assumptions for the private markets versus ARS within that construct? Thank you.

Speaker 4

Sure, Bill. Happy to do that. I think that the way we would think about that math is not dissimilar from how we've talked about what we look at kind of internally from a budgeting and a forecasting perspective, which is a neutral flows environment on the ARS side, but getting growth from compounding. We've talked about the fact that generally speaking, we use kind of a high single digit number for gross returns depending on the specific strategy. And then continuing the trend of what we've seen in private markets, which has been low double digit to kind of almost low teens kind of growth on the private markets

Speaker 1

revenue side of things. And so

Speaker 4

I think that longer term, those kind of assumptions we use to budget and forecast on a longer term basis is would be similar to how we would look at it over a 5 year period. I think once you get into breaking down how those numbers get there, it's a lot of what I talked about on the prepared remarks in terms of embedded growth we have from CNYFCOM, embedded growth we have from the re up relationships that we have as well as the broadening of those relationships, the new client acquisition opportunity. And I don't think that when we talk about these outcomes, we're really giving or counting on what I would call kind of some of the more outsized opportunities you might have from things like real explosive growth in the individual investor market and issues of that nature.

Operator

And the next question will come from Tim Worthington with JP

Speaker 5

Morgan.

Speaker 3

So digging a little deeper into wealth management and sort of your growing and deepening presence there. Can you talk about how you see Grosvenor as being different in terms of either product design or product focus versus what the market already sees and what's sort of resonating with the distribution channels. You mentioned Tempur as sort of the latest here. In my mind, it's really sustainability impact investing where you seem to be different than peers and what is the opportunity set there in wealth?

Speaker 1

So, Ken, it's Michael. I think that the opportunity in wealth and generally and frankly the opportunity in wealth kind of specifically for us is pretty significant and it's not at all like pigeonholed or it's a significant opportunity and it's an opportunity across a range of different types of products and strategies. Obviously, it's a huge channel. It's a underpenetrated channel for alternatives in a pretty serious way. And the penetration that is there, meaning the balance sheet allocation, if you will, and the balance sheet allocation that is there that is going to rise and there's kind of near unanimity of it on this view, that balance sheet allocation is concentrated today in a relatively somewhat small number of big brand names.

Speaker 1

So, while we see real opportunity in intra, while you mentioned correctly opportunity that we could have in sustainability, there's actually opportunity in private equity and there's actually opportunity in credit, the yield products, because it is a channel that will 5 years out, 10 years out, have a lot more diversification inside of it and a lot more larger number of names on platforms in the future than there are today where the lion's share of the alts names are pretty highly concentrated with 1 to 2 handfuls, 1 to 1.5 handfuls of the biggest best known players. So, we see a lot of opportunity there.

Speaker 3

Okay, great. Thank you. And then just on the absolute return business, you highlighted the concentration redemption from that one client. Is that the vast majority? Was it half?

Speaker 3

What portion of the elevated redemption?

Speaker 1

No, it was a very, very significant majority. The client remains the client, continues to work

Speaker 4

with us.

Speaker 1

Some of that we could see come back in different strategies over time. And that was as we described it, it was a restructuring and reallocation of a client portfolio. It wasn't it was a top down kind of macro thing at a client that we still work with and want to continue to work with as we go forward.

Speaker 3

Thank you. And the contributions are still at Otis contributions are still at very low levels. I think you mentioned in the past, you had a number of strategies that are performing really well. And I think you thought that you might start to attract assets. What do you feel here?

Speaker 3

Is this something where we should see the gross contributions?

Speaker 1

Yes. As I said, look, trying to time inflows and outflows quarter to quarter is not worthwhile. You should have a my opinion, you should have a simplified we do our very best to budget, but it's hard to do that. You have to have a simplifying assumption and build your models, and we're obviously happy to help you do that. I said I think earlier that they don't think it was in the script that we think 1,125, Tang AUM and ARS, we believe that will be higher than 1, 1, 24 through the end of the year.

Speaker 1

Performance will matter on that, but that's our we see that now. We think this has stabilized. And I personally believe that we will see growth over the next several years. It's not going to be linear per se, it's not going to be every quarter like a step function. But we have been through a lot of cycles in this space and that's my belief.

Operator

And the next question comes from Crispin Love with Piper

Speaker 5

questions. Just first on summary, you think PE has been pretty stable here for a few quarters, infrastructure improving. But can you just discuss

Operator

the outlook for the back half of

Speaker 5

the year? You mentioned the second half of the

Speaker 1

year is better than the first. But just

Speaker 3

curious if you could drill a

Speaker 5

little bit deeper there, key areas of opportunity across the private market? And then just as far as the pipeline changes all compared to the numbers you just discussed last quarter, I kind of missed that in the prepared remarks that you mentioned. Thanks.

Speaker 1

Sure. Pipeline is full. We did mention that and that's obviously a good thing. Last quarter, John talked about us having $4,000,000,000 or so of re ups in site. We 3 of those first of all, take a step back, we raised $3,400,000,000 in the first half.

Speaker 1

We've said clearly second half will be higher. We have of the as John mentioned last quarter, we've got about 3,000,000,000 of those that are still in the pipeline. So that's a nice start right there. We've got a number of specialized funds that are in market that we're raising money for and we talked about the fact that we're already off to a quite good start on specialized fundraising for the year. And we think that that's going to continue and we're going to have a good year of specialized fundraising.

Speaker 1

And obviously, we pick up you're talking to new clients and you deploy capital, you pick up new clients and you have existing clients that work move with you into new strategies. And so, we're we are fundraising.

Speaker 4

And I would just add to the last point Michael was making around kind of new client acquisition. We have a number of different, what I would call, I guess, leading indicators for lack of a better word around the activity levels there, whether it's RFPs that are out in the market or the amount of marketing presentations that we're preparing or the general kind of busy nature of our sales team and like all those metrics point to a more certainly a more active environment now than you would have had a year ago. And so it certainly seems the activity levels are higher kind of across the board.

Speaker 5

And then just one last question

Speaker 3

for me, mostly

Speaker 5

on macro side. We've seen plenty of volatility in the past week or so, mostly concentrated late last week in early just as spreads have widened, recession talk reduced. And then with this rate coming likely 100% or so before year end. When you think about it, this all together, can you discuss kind of how it impacts, if at all, your outlook or potential for deal activity in the States and then knock on effects for GTN, whether it's kind of pros and cons across private markets or ARS or

Operator

if you just give it

Speaker 5

kind of more of a uplift than anything else? Just appreciate it. Any color there? Thank you.

Speaker 1

So, in general, volatile markets tend to reinforce the attractiveness of alternative strategies. I honestly, I think that's the biggest takeaway. When you have real extreme volatile markets, your alt strategies are have higher levels of appreciation from your client base. And I think that's what we've experienced and I think that matters a lot. As far as the impact of weight cuts over the next 2, 3 quarters, slowdown in the economy, the chance of a recession, some people writing has gone up from 25% to 35%, from 15% to 25% over the last few weeks.

Speaker 1

That doesn't have a particularly significant impact on how we operate and on how we see opportunity or we see short term, intermediate term results. And nothing

Speaker 3

like

Speaker 1

in that realm has any real impact or makes any real change to our longer term sort of 5 year outlook.

Speaker 3

Thanks, Michael. Appreciate all

Speaker 5

the color here in the Bob Winter. Thank you.

Operator

And our next question comes from Stephanie Mok with Morgan Stanley.

Speaker 6

Hi. Thanks for taking my question. Just wanted

Speaker 2

to get your latest thoughts on private credit. How do you think about that asset cost as you head into potential rate cuts? And against

Speaker 6

the changing macro and rate backdrop, how are you thinking about expanding origination facilities or other interesting areas of opportunities?

Speaker 1

Thank you. Thanks for the question. I think we said it in our prepared remarks and we've seen it in fundraising, private credits can continue to grow. It's not none of these things that we talk about that are why we think we have a very good business that has a very good outlook for the next half decade are affected by these sort of short term items. Private credit is a growth sector, it's going to grow.

Speaker 1

You're going to see it have more of a share of global balance sheet in 5 years than it does today. And we nothing changes our view there and we think it will continue. I think I said specifically in the remarks, our pipeline has a bunch of private credit in it for the remainder of the year for next year. We're enthusiastic about that. And as far as that's in every I think it grows in all the channels.

Speaker 1

I think it grows in the individual investor channel. I think it grows in the institutional channel. I think it grows across private credit strategies. And we're enthusiastic about that channel and our opportunities there, that asset, that vertical and our opportunities

Speaker 2

Great. Thank you. Maybe just one

Speaker 6

on FRE margins, I appreciate your aspirations over time. Any other color

Speaker 2

you can provide on cadence and your trajectory? What are some of

Speaker 6

the steps to get there between ongoing mix shift

Speaker 2

in the business and realizing benefits of scale? And then also maybe you can tie into there some ongoing areas where you continue to invest in? Thank you.

Speaker 1

Sure. I don't know, Pam, if you want to take the margin question, because I think you addressed it to some extent in your comments. To be clear, we think we've got like solid good strong margin performance and some operating leverage this year. And then, I think we were and you picked up on that we were trying to highlight that we believe we have continued operating leverage and margin looking out over the next several years, and I touched on that, John touched on that. We continue to manage our expenses tightly.

Speaker 1

We continue to manage headcount well. We continue to try to align interest between team and shareholders. And I think all of these things lead to our contribute to our margin opportunity. I don't know, Pam, John, if you have anything you want to add.

Speaker 4

Yes. I would just add another point, which is these businesses, and you've seen it obviously not just in our business and the margin enhancement we've had over the last few years, but I think you see it generally in the marketplace, are businesses that are good businesses. They benefit from the tailwinds, they benefit from the revenue trends and they allow you to do to take care of your existing people appropriately from a compensation perspective, while also investing in your business and still have operating leverage and margin enhancement. So I don't think it's the type of thing where you go from 1 quarter to the next quarter and all of a sudden hit your margin goal. I think it's the type of trajectory that you've seen over the last few years where you get it as you're having revenue growth and get it kind of ratably or somewhat linearly over time.

Speaker 4

And I think if you look at us relative to other businesses in our space, you can get a sense for where margins can kind of go over time. I think the important part of what we're speaking to in terms of a 5 year perspective is just different vectors of growth, the multiple ways to win, the optionality you have, you can't predict everything 5 years out. But I think as we look across the board of all the different things that are going on at the business, feel good about the revenue growth and therefore feel good about the ability to continue to have the operating leverage in the business.

Speaker 1

And in terms of what we're investing behind, we've talked about the individual investor channel, We've talked about other distribution channels that we have invested into and will continue to invest into. You've seen us invest in credit. It's credit investment capability over the last several quarters. And we've been clear that we think that's a fruitful growth opportunity. So, I think we're investing in a number of places where we think we can see real results from those investments.

Operator

And the next question comes from Bill Katz with Citi.

Speaker 3

Thank you very much for taking the extra questions. Just zoning in on the opportunity for performance piece. So I wanted to answer a couple of questions. Any I appreciate markets have been ticking out in the last week or so, but putting that aside, how should we be thinking about any kind of cadence in terms of line of sight of activities that you might be seeing? Which portfolios do you think it comes out of as you sort of array between sort of 2013 and the current?

Speaker 3

And then, Brian, can you may have said this and I apologize, I may have missed it. How do you sort of see the aggregate comp ratio on the variable incentive migrating as the quantum of dollars increase? Thank you.

Speaker 1

So, let's take the last one first, which is that net margin and Kim did say this, it's in her remarks, but as the revenues in that incentive line grow, the margin will grow from the levels you saw that in the last couple of quarters. And there is an element and we did address that directly and you'll see that. Most of the ARS portfolios have some element of a performance fee that along with the private market carry contributes to our incentive fee line. Most of that some of that's crystallized from last year a little bit this year already, but most of that crystallizes at the Q4 year end. And so, you don't count we don't count that until we get that.

Speaker 1

But there is for sure a revenue opportunity there for 2024. And ignoring the last week or so as you instructed us to, it's not a trivial revenue opportunity. And I think we put in our earnings deck the earnings power like a base case assumption there and we were obviously outperforming that base case assumption as of the end of the Q2. So there's some revenue there, but it's not there until it is. And you got to we'll see where things land on L31.

Speaker 4

Yes. I mean, Michael said this, Bill, but just to for us, obviously, it's intuitive. We live here every day. But to the extent you see performance fees that are crystallizing, sometimes not in the Q4, it just happens to be the one off portfolio that might have a fiscal year that's not lined up with the calendar year. But as Michael said, most of the portfolios are calendar year portfolios for the measurement of performance fees, which is why you see most of the crystallization happen in the Q4.

Speaker 4

The only other point I would add to what Michael said is most of our ARS portfolio that we manage for clients are what we would think of as multi strategy portfolios. So there are some that are maybe equity specific or credit specific or whatever it might be, but the vast majority of them are multi strategy portfolios, meaning they have equity strategies and then credit strategies and then relative value, macro strategies, etcetera. And so the positive performance we're seeing year to date and even the capital protection that we're seeing through these more difficult markets over the last couple of weeks is kind of broad based positive performance and broad based pretty strong health of production.

Speaker 5

Okay. Thank you very much.

Operator

And that does conclude the question and answer session. I'll now turn the conference back over to you.

Speaker 2

Thank you. Thank you again for joining us today. We appreciate the questions and the engagement and we look forward to either following up or talk to you again next quarter.

Operator

Thank you. And ladies and gentlemen,

Speaker 3

thank you for participating

Operator

in today's conference. This concludes today's program. We hope everyone has a great day. You may all

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