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Sculptor Capital Management (NYSE:SCU)
Q3 2020 Earnings Call
Nov 09, 2020, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, everyone, and welcome to Sculptor Capital's third-quarter 2020 earnings call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Elise King, head of shareholder services at Sculptor Capital.

Elise King -- Head of Shareholder Services

Thanks, Devin. Good morning, everyone, and welcome to our call. Joining me are Robert Shafir, our chief executive officer; and Tom Sipp, our chief financial officer. Today's call contains forward-looking statements, many of which are inherently uncertain and outside of our control.

Before we get started, I need to remind you that Sculptor Capital's actual results may differ, possibly materially, from those indicated in these forward-looking statements. Please refer to our most recent SEC filings for a description of the risk factors that could affect our financial results, our business and other matters related to these statements. The company does not undertake any obligation to publicly update any forward-looking statements. During the call -- during today's call, we'll be referring to economic income, distributable earnings and other financial measures that are not prepared in accordance with U.S.

GAAP. Information about and reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, which is posted on our website. No statements made during this call should be construed as an offer to purchase shares of the company or any interest in any of our funds or other entities. Our earnings press release from this morning also included an earnings presentation.

We will be referring to this report during the call. If you have joined through the conference call and would like to follow along, you can find the presentation on the investor relations page of sculptor.com at the 3Q Earnings Release link. If you join through the webcast, you can navigate through the presentation on the webcast screen. Earlier this morning, we reported third quarter 2020 GAAP net income of $8 million or $0.35 per basic and $0.25 per diluted cost a share.

As always, you can find a full review of our GAAP results in our earnings release. On an economic-income basis, we reported third quarter 2020 distributable earnings of $29 million or $0.52 per fully diluted share. In the third quarter, we recorded a legal provision of $2 million in addition to the previous $136 million provision taken between the last -- between last quarter and the third quarter of 2019. Third-quarter adjusted distributable earnings, which excludes the legal provision and related legal fees, were $32 million.

If you have any questions about the information provided in our press release or on our call this morning, please feel free to follow up with me. With that, let me turn the call over to Rob.

Rob Shafir -- Chief Executive Officer

Thanks, Elise, and good morning, everyone. The firm continues to operate effectively, with the majority of employees working remotely due to COVID-19. We are monitoring CDC guidelines and will slowly move toward a more normalized operating environment when we determine that it is safe for our employees. I'm pleased to report that the Africo matter has been resolved with approval of $138 million settlement.

Now that the Africo matter is concluded, we expect the deferred prosecution agreement will be terminated in the near future. With resolution of Africo and anticipated termination of the DPA, we have put all of the legal issues stemming from legacy dealings in Africo behind us. This cleans up the last of any material legal matters. Now, an update on performance.

Sculptor Master Fund returned 6% net in the third quarter, bringing year-to-date net performance to 12.4% through September 30, which compares favorably to the MSCI World Index's 1.4% increase over the same period. The master fund was down 1% net in October, bringing year-to-date performance through October to up 11.3% net. In a year that has been characterized by extreme moves in both directions, we're particularly pleased that the master fund was able to protect capital during the worst of the market drawdown and participate meaningfully in its recovery. We believe our year-to-date outperformance continues our history of generating strong risk-adjusted returns irrespective of market cycles.

The master fund generated positive contributions across nearly all strategies in the third quarter lifted by a broad rebound in risk assets and a strong earnings season for equities. Our active repositioning and capital deployment through the depths of the crisis in the spring were instrumental in realizing global equity upside with only a fraction of the global equity beta in the quarter. All of our strategies now have generated positive performance year to date. Fundamental equities was a significant positive contributor to performance in the third quarter, as we saw promising economic data, an incredibly strong earnings season and the introduction of a dovish Fed framework.

Our portfolio positioning established during the COVID equity market drawdown was awarded in the third quarter, driven by secular growth companies and, in particular, a handful of our core positions in the software and Internet sectors, which posted solid earnings during the quarter. Corporate credit generated a positive return in the quarter as further market retracement aided performance. Noteworthy contributors came from spread-based investments that we added during the months following the market drawdown, along with our larger process-driven distressed positions, which have continued their recovery. In structured credit, we saw markets tightening across collateral types and continued healing after being severely oversold in March.

Our meaningful deployment of capital in this strategy in March continues to drive performance as structured credit is the largest contributor to year-to-date returns. Robust returns generated in our convertible and derivative arbitrage strategy rounded out the master fund's strong performance for the quarter as the strategy saw widespread gains across a diverse range of positions and benefited from continued improvements in valuations, flows, and strong support in the volatility environment. Our global opportunistic credit fund, the Sculptor credit opportunities fund, returned 4.5% net for the third quarter of 2020, bringing year-to-date net performance to down 7.5% through September 30. The fund has generated an 8.9% annualized net life-to-date return through September 30, which has outperformed the BAML Global High Yield Index by 2.8%.

The fund was down 0.2% net in October, bringing year-to-date performance to down 7.7% net. Performance in the quarter stemmed from both structured and corporate credit, where a broad rebound in risk assets helped to deliver strong returns in the majority of positions we added at the depths of the COVID crisis and in the months that followed. With many high-quality spreads in corporate and structured credit retracing their drawdowns, we have been harvesting gains and reducing exposure by monetizing positions that we believe have limited upside as we pivot to sourcing opportunities elsewhere. Beyond the positive performance achieved in the third quarter, we believe there remains embedded upsides still to come from the majority of the assets that we had owned prior to the COVID crisis as well as those that we have added to the portfolio in the near to medium term.

Our real estate funds continue to deploy capital and generate strong returns, with an 18.4% annualized net return through September 30 in our third opportunistic fund. Our $2.6 billion Fund IV, which held its final close in June, is currently taking advantage of recent dislocations in public equities, distressed public debt, and motivated for sellers in private real estate. Turning to flows. As you can see on Page 7, as of September 30, our assets under management were $36.0 billionm, with net inflows in the third quarter of $44 million, performance-related depreciation of $940 million, and distributions and other reductions of $418 million.

As of November 1, our assets under management were $35.6 billion, which was driven by an estimated $143 million of performance-related depreciation, $236 million of net outflows, and $9 million of distributions in October. Turning to Page 8. Multi-strategy funds had assets of $10 billion as of September 30, which included $54 million of net outflows and $605 million of performance-related appreciation in the third quarter. From September 30 to November 1, multi-strategy had net outflows of approximately $115 million and depreciation of $108 million.

Opportunistic credit had $6 billion of assets as of September 30, which included $93 million of net inflows in the third quarter, $246 million of performance-related appreciation, and $177 million of distributions and other reductions. In addition, we saw a net outflows of $75 million and depreciation of $6 million in opportunistic credit from September 30 to November 1. Through October 1 of this year, we have seen almost $1 billion of gross inflows across multi-strategy and opportunistic credit funds, the most since 2015. We have been encouraged by the increased interest in the past few months due to a pull-forward of demand from the market dislocation.

We also believe that the Africo matter will aid in our ability to raise capital as all legacy issues have been put to rest. In total, clients see the value of investments in funds such as ours that hedge and have the ability to shift capital among strategies. All that said, while we have been pleased with the flows to date and are excited by our long-term prospects, COVID has, in some ways, made it harder for institutions to allocate as due diligence is taking longer than normal. We remain cautious overall in predicting a near-term turnaround in the net-flow picture as it will take time for the pipeline to materialize.

Real estate had total assets under management of $4.7 billion as of September 30. The decrease in the quarter was driven by $46 million of distributions and other reductions. Institutional credit strategies had total assets of $15.3 billion as of September 30, with distributions and other reductions of $195 million in the third quarter. We are seeing some early signs of stabilization in the aircraft ABS business, driven mainly by the overall tightening in spreads across credit sectors.

However, we do not expect a return to normalcy until the beginning of next year at the earliest. The pace of normalization will be driven by the path of the virus, passenger comfort with air travel, and the ability of airlines to return to profitability. Last month, we refinanced a fixed tranche in one of our U.S. CLOs.

The U.S. CLO equity market remains challenging with elevated return requirements amid stubbornly wide funding spreads lagging tightening asset spreads. We continue to elevate the U.S. market -- sorry, to evaluate the U.S.

market and believe we are well-positioned to participate when conditions improve. In Europe, we are encouraged by the CLO market recovery and recently priced a $370 million CLO, which will close in the fourth quarter. Before I turn it over to Tom, I'd like to highlight the deal Sculptor signed with Delaware Life in September. Having reached resolution in Africo, we plan to close in the near future and as early as today.

We are very excited about the opportunities that will stem from closing this deal, including lowering our outstanding obligations, capturing available discounts, and working closely with Delaware Life in the future. I will let Tom go into the specifics of the deal in a moment. With that, let me turn the call over to Tom to go through the financials.

Tom Sipp -- Chief Financial Officer

Thanks, Rob, and good morning, everyone. As Elise mentioned at the beginning of the call, and as you can see on Page 9, we reported third-quarter 2020 distributable earnings of $29 million and adjusted distributable earnings of $32 million. We did not declare a dividend this quarter. Revenues were $107 million for the third quarter, up 15% from the third quarter of 2019, and up 11% from the previous quarter.

Management fees were $64 million in the third quarter, up 7% from the third quarter of 2019, and up 12% from the previous quarter. The increase in management fees quarter over quarter was due to higher hedge fund assets and lower CLO fee deferrals. We expect to see continued recovery in our CLOs in the fourth quarter. And currently, only three of our CLOs are in full deferral.

Incentive income was $42 million in the third quarter, up 35% compared to the third quarter of 2019, and up 9% from the previous quarter due to an increase in client crystallizations at quarter end. As seen on Page 10, as of September 30, 2020, our accrued but unrecognized incentive was $257 million, up $29 million from the prior quarter. The increase was driven by $48 million in positive performance with the majority coming from the customized credit platform, offset by $19 million in crystallizations. We continue to expect a large portion of the opportunistic credit Aburi to crystallize in the fourth quarter of 2020.

Turning back to Page 9. Other revenues were $2 million in the third quarter, down 36% versus the third quarter of 2019, and down 4% from the previous quarter. The decrease year over year was due to lower interest income stemming from lower interest rates. For the third quarter 2020, total expenses were $65 million.

Total adjusted expenses were $63 million, down 9% from the third quarter of 2019, and relatively flat from the previous quarter. In the third quarter 2020, compensation and benefit expense was $41 million, down 10% from the third quarter of 2019, and up 1% from the previous quarter. Bonus expense was $23 million for the third quarter, down 15% from the third quarter of 2019, and up 6% from the previous quarter. We expect full year bonus accrual to be between $75 million and $85 million.

Salaries and benefits were $19 million for the third quarter, down 4% from the third quarter of 2019, and down 4% from the previous quarter. The decrease quarter over quarter was due to lower headcount. We expect full-year salaries and benefits to be between $75 million and $80 million. In the third quarter, general and administrative expenses were $20 million.

Adjusted general and administrative expenses were $18 million, down 14% from the third quarter of 2019, and down 4% from the previous quarter. The lower adjusted G&A year over year was primarily due to lower professional services and employees working from home and travel restrictions. We expect full-year adjusted G&A to be between $75 million and $80 million. Interest expense for the third quarter of 2020 was $4 million, up 76% from the third quarter of 2019, driven primarily by the interest accrual for our debt securities.

We expect full-year 2020 interest expense to be between $16 million and $18 million. Please note that our preferred units started accruing dividends in February and will not impact economic income. However, it will be treated as a reduction to distributable earnings. Our guidance for the full-year 2020 tax receivable agreement and other payables as a corporation is 10% to 15%.

As a reminder, tax estimates are subject to many variables, including year-end performance, that won't be finalized into the fourth quarter of the year and, therefore, could vary materially from the estimates provided. As mentioned earlier, in the third quarter, we took an additional $2 million reserve in relation to the Africo matter. This is in addition to the $136 million previously taken for a total payment of $138 million. As Rob mentioned, the Judge has accepted the settlement agreement between odd Africa and Africo, and the settlement payment was made from our cash reserve associated with the matter.

Now, an update on our balance sheet. Turning to Page 11. As of September 30, 2020, total cash, cash equivalents, and long-term treasuries were $442 million. The outstanding balances of our obligations included $9 million of term loan, $207 million of preferred units, and $200 million of debt securities.

I'd like to elaborate on the refinancing deal that was signed in September and is slated to close as early as today. Delaware Life insurance has agreed to issue the firm a $320 million term loan and a $25 million revolver. In connection with the new facility, we agreed to issue Delaware Life warrants for 4.3 million class A shares struck at $11.93 and provide Delaware Life a seat on our Board. The revolver can be used for working capital and general corporate purposes.

The term loan will be used to refinance our $416 million of existing term loan, preferred and debt securities, while capturing $62 million of negotiated discounts available under the preferred and debt securities. The deal also comes with the opportunity to prepay up to $175 million on or prior to March 31, 2022, at no cost and extends the maturity of our debt for seven years with minimal amortization and attractive covenants. We are required under the new term loan to sweep 100% of the first $100 million and 25% of the following $50 million in distributed earnings after public shareholder dividends. On a pro forma basis, we've had a $303 million term loan and cash and cash equivalents of $254 million on September 30.

With that, let me turn it back over to Rob.

Rob Shafir -- Chief Executive Officer

We are very pleased with all that we've accomplished in the third quarter. We had great performance across our funds, which shows our value proposition at work. We are encouraged by the continued low redemptions in our multi-strategy funds as well as positive inflows into opportunistic credit. Also, we expect to be within our expense guidance as we finish out the year.

In addition, we believe we are generating solid momentum by resolving Africo and closing the Delaware Life transaction. Having put Africo behind us, the last of our legacy issues, we can pivot to forward-looking conversations with clients. The Delaware Life deal will immediately reduce our obligations and set us on a clear path to further improve our balance sheet. As previously announced, I will be transitioning the CEO role to Jimmy Levin in April 1 and leaving Sculptor at the end of 2021.

My close colleague and good friend on the line, Tom Sipp, came to Sculptor with me to focus on restructuring of the firm. The majority of this work is complete, and the company is very well-positioned for the future. As a result, Tom has decided that now is the right time to move on and transition to a new CFO. We are thankful for Tom's guidance and leadership over the last few years.

We will be announcing a successor in the coming weeks, and Tom will be transitioning responsibilities in the first quarter. With that, let me turn the call back over to the operator.

Questions & Answers:


[Operator instructions] Our first question from the line of William Katz with Citi. Please proceed with your question.

Bill Katz -- Citi -- Analyst

OK. Thank you very much. Just sort of question starting maybe on to the maybe the free cash flow priorities as you look into the end of the year and into next year. You know, a few moving parts.

Still, I appreciate that the Delaware Life greatly enhances the flexibility. But can you speak to maybe how much of the receivable will get crystallized by the end of the year and, if the year ended now, where the hedge fund is positioned, how you think about paying down that term loan into the new quarter?

Tom Sipp -- Chief Financial Officer

Yeah, Bill. This is Tom. The – you know, the priority -- the Delaware Life deal comes with cash sweep. So, the first $100 million of distributable earnings will be swept to pay down the balance.

And then the next $50 million, 25% will be swept. So, at a minimum, the next $150 million of distributable earnings, you know, a good portion will be swept to pay down the term loan. And I'd say next -- you know, we're still -- our guidance on a full-year basis is a 20% to 30% payout ratio for the dividend. That will go just to the public shareholders.

Beyond that, we will have flexibility, you know, based on how we finish out the year, and we will, you know, continue to evaluate and look for ways to optimize our capital structure.

Bill Katz -- Citi -- Analyst

OK. And then just sort of stepping back with the Delaware Life transaction. Can you speak to the opportunity in terms of net growth opportunities? And then what was the thinking to give out equity at this price point and/or of board seat?

Tom Sipp -- Chief Financial Officer

Well, let me take -- this is Tom. Let me take the first part of it. The Delaware Life deal, you know, they lent money to the firm. We are excited about the opportunity to work with them as our lender.

There may be opportunities to work together in the future, but the focus is, you know, clearly on, you know, the term loan deal that we were just closing, you know, most likely today. And then, Rob, I'll turn the second part of the question over to you.

Rob Shafir -- Chief Executive Officer

Yeah. I mean, I think as Tom said, Bill, clearly, the transaction has given us, you know, great financial flexibility in terms of, you know, capturing the discounts, you know, on our debt, you know, pushing in our amortization schedule. You know -- and again, we look at Delaware Life, you know, obviously, as a very strong, stable, major institutional partner for us that we can explore to do things with in the future. And with all that flexibility and their significant commitment to the firm, we felt that a board seat was appropriate.

Bill Katz -- Citi -- Analyst

OK. Just one final one. So, I appreciate that performance is very good in both the hedge fund and in credit. And yet, you continue to have some outflows into the fourth quarter.

Just sort of wondering what's driving that sort of residual attrition at this point in time? And then why do you think the slowdown with COVID is having, you know, sort of an incremental impact at this point in time?

Rob Shafir -- Chief Executive Officer

Yeah. Tom, I'll take that. I mean, I think if you look at the flow picture, Bill, you have to start by saying, OK, look, what have we achieved here to date and where do we go from here? You know, we -- as I said in the speech, we've raised close to $1 billion in our multi-strategy and opportunistic credit funds or more hedge fund like businesses. And that is the largest amount of gross inflows we've had in those funds since 2015.

So, we're obviously starting to see the gross inflow side come in. In addition to which, if you look at the outflow side, you know, it's really come down to basically normal churn rate types of outflows. You know, the numbers are very moderate and way, way, way below last year. So that has really normalized is how I would characterize the outflows, thus far.

And, you know, as I look forward, there's a few things I'd say. Number one, I did make the point about COVID, and I just think that it generally slows things down a little bit. Some of these -- some of our clients would like, in a perfect world, to do things like on-site due diligence. Obviously, that's not going to happen.

So, I just think, in general, it slows things down. But I think the big picture really is the following, you know. From a market perspective, we have been able to deliver really excellent performance pretty much across, you know, the various parts of the disruptions in the marketplace. We've been able to deliver performance.

We were able to protect the downside. And I've said this for a while, but I did believe, and still do believe, that as market conditions change into less of a one direction market, it's more of a volatile type of market, that these types of strategies with the flexible capital and the ability to protect downside and capture upside are going to be more attractive products. And I think that is going to be the case. And I'd say early days, conversations with clients seem to indicate that, that will be the case in the future.

I think in addition to that, for us, obviously, putting the Africo situation behind us, thus settling all legacy issues, I think, is a major thing for us because, as you know, a lot of clients puts you on hold over things like that and basically want to see that resolved in a positive way. So, to have all of our legacy issues, not just the Africo settlement, but everything related to past African matters behind us, you know, is very material to us. And I think it will open up a much broader range of clients who will take us off-hold and begin the process. Now, I indicated in the speech that I said, look, let's not expect that tomorrow morning, there's going to be an avalanche of millions of dollars walking the door.

It will take time. And some clients are farther along, you know, and obviously evaluating us than others. But the major point here is that it will take us off hold with many of our clients, whether it's consultants, private banks or institutions so they can begin their process. And, you know, we think that there, over time, you know, will be a material pipeline that will materialize out of our ability to deliver that performance that we've talked about and the fact that we have no legacy issues.

I don't think it's a question of if. I think it's a question of when.

Bill Katz -- Citi -- Analyst

Thank you.


Our next question comes from the line of Gerry O'Hara with Jefferies. Please proceed with your question. Gerry your line is live. All right.

Our next question comes from the line of Craig Siegenthaler with Crédit Suisse. Please proceed with your question.

Craig Siegenthaler -- Credit Suisse -- Analyst

I want to follow up on the last question. Once you receive the termination on the deferred prosecution agreement and in-person meeting is restart, how much of a lift could you see to fundraising, just given how strong the performance has been the last two years?

Rob Shafir -- Chief Executive Officer

Craig, it's Rob. It's difficult to sort of quantify that. I mean, I'd say that, you know, number one, there's a timing factor. And as you know, the asset management process of raising, you know, money is a long process going through ODD and IDD and so forth.

So, you know, I think it will take time, and I'd quantify that as being anywhere from – you know, broadly speaking, anywhere from 12 to 24 months, you know, where we would really expect to see, you know, sort of a broad range of clients begin to come in to some of these strategies. That does not mean, however, that we're not going to see inflows into 2021. It just means that when you look at the universe, you know, I'd characterize it as certain clients that are -- that know us and are probably farther along, and they're thinking about us that want to see us get a hold -- off hold to what is actually -- I think, actually, a much broader range of clients who really have had us on hold for years and are just, you know, beginning that process again. And I think that's the part that is actually even more encouraging longer-term because there's a big universe out there.

And, as you know, there aren't that many firms that deliver the kind of performance in these types of strategies that are out there right now. So that is encouraging to me. As those conversations begin to start up again and they see what they see, which I think is a firm that's going to have, as I said earlier, no legacy issues, great historical performance, you know, and a very solid management team across the board. So, I'm very confident over the long term.

I'd say, over the short term, you know, we'll have to see, you know, what comes in when. But as I said, I think between, you know, the market condition changing, I think the need for these types of strategies, I think our performance and not having anything that would hold us back with these clients that would be major impediments. I like our chances. I just think it's going to take some time.

It's very hard to predict specifically, you know, when those assets are going to come in. But, as I said earlier, I don't think it's -- I think it's a when, not an if. I really do believe it will happen.

Craig Siegenthaler -- Credit Suisse -- Analyst

And then just as my follow-up, we've seen a pickup in M&A and M&A interest across asset management. Do you think Sculptor could benefit from more scale? And I'm especially thinking about global distribution.

Rob Shafir -- Chief Executive Officer

You know, look, from my perspective, as a firm, what we've really tried to focus on here over the last few years is not only restructuring the firm, but essentially, you know, putting it in a position to really move forward. And whether that was, you know, dealing with some of the legacy issues, getting a better ownership structure to retain and grow with the active partners in the firm, you know, whether it was, you know, putting ourselves in a position to really get our balance sheet a lot stronger, which we've done through, you know, obviously our earnings and which has now been enhanced by the refinancing of the debt, I sort of look at the firm and, you know, you sort of put yourself in a much better position, you know, as a firm to operate independently. So, I believe that certainly, as a stand-alone business, you know, we have the ability to, within the products, we have of real estate credit and multi-strat, grow our business quite materially over time for the reasons that I've stated just a couple of minutes ago. You know, in terms of other things strategically that can enhance the firm, you know, I mean, I think those things are always interesting conversations to have, but I don't think that we're a firm that is going to require that to be able to grow materially over time.


Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Patrick Davitt -- Autonomous Research -- Analyst

Hey, good morning, guys. Just a quick follow-up on the cash flow dynamics. I just want to make sure I understood correctly. Should we assume then that you'll pay out 20% to 30% of the cash flow after the cash sweep? Is that the right way to be thinking about the fourth quarter?

Tom Sipp -- Chief Financial Officer

No. Think about it 20% to 30% of full-year distributable earnings.

Patrick Davitt -- Autonomous Research -- Analyst

After the cash sweep? Or before the cash sweep?

Tom Sipp -- Chief Financial Officer

Before the cash sweep.

Patrick Davitt -- Autonomous Research -- Analyst

Before the cash sweep. Perfect. Thank you. That's all.

Tom Sipp -- Chief Financial Officer

Thanks, Patrick.


Our final question comes from the line of Gerry O'Hara with Jefferies. Please proceed with your question.

Gerry O'Hara -- Jefferies -- Analyst

Great. Thanks. Sorry about that from earlier. Rob, perhaps picking up on a comment you made earlier with respect to the Delaware Life partnership and potential for additional sort of products or kind of strategic pursuits.

So, I was hoping you might be able to flesh that out and maybe give some examples of, you know, how you think that partnership might evolve down the road.

Rob Shafir -- Chief Executive Officer

Yeah, I think it's a little bit early, Gerry, to sort of talk about specific product ideas or anything like that. The way I would characterize it is, you know, as I said, you know, earlier, Delaware Life is -- has obviously become a very material -- the material financing partner for the firm in terms of the fact that they've essentially allowed us to refinance, you know, basically all of our debt and our capital structure here. That has allowed us to, as I said earlier, capture all the discounts, push out our amortization schedule, and give us the ability to pay down so much of our debt, you know, without any kind of friction costs whatsoever. So that gives us a tremendous amount of flexibility to optimize our capital structure, as Tom said, which I think is, you know, one of the key objectives for the firm right now.

And given our performance and everything else that's out there, I think we're, you know, in a pretty good position to be able to do that.So, I think that's, you know, sort of the core piece of this thing. And I think for that being as materially capital provider for us, you know, having them on our board, you know, we think, is also, you know, an appropriate thing to do. Now that being said, as we think about them, as I said, they are a major financial institution with a very solid, you know, capital base. We are a major financial institution.

And there are certainly areas, particularly, I would think, in some of the financing areas, and possibly other things over time that we'll be able to explore together. It's difficult to sort of say it's this specific product. But, you know, think of it as two institutions that have a major interest in one another, you know, from a financing standpoint that we'll try to explore synergies that make sense for both firms going forward.

Gerry O'Hara -- Jefferies -- Analyst

Great. Thanks. And perhaps one for Tom as well. I think we know the majority of the accrued incentive for opportunistic credit is set to crystallize in the fourth quarter.

Can you give us some sense of how much AUM is tied to that accrued incentive, just for modeling purposes? Thank you.

Tom Sipp -- Chief Financial Officer

It's about $3 billion of total assets.

Gerry O'Hara -- Jefferies -- Analyst

OK. Great. Thanks for taking my questions this morning.


I'm not showing any further questions. And I would now to turn the call back over to Ms. King.

Elise King -- Head of Shareholder Services

Thanks, Devin. Thank you, everyone, for joining us today and for your interest in Sculptor Capital. If you have any questions, please don't hesitate to contact me at (212) 719-7381. Media inquiries should be directed to Jonathan Gashalter at (212) 257-4170.

Thank you. Have a great day.


[Operator signoff]

Duration: 38 minutes

Call participants:

Elise King -- Head of Shareholder Services

Rob Shafir -- Chief Executive Officer

Tom Sipp -- Chief Financial Officer

Bill Katz -- Citi -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Gerry O'Hara -- Jefferies -- Analyst

Gerry OHara -- Jefferies -- Analyst

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