Sculptor Capital Management (SCU) Q4 2020 Earnings Call Transcript

Sculptor Capital Management (SCU)
Q4 2020 Earnings Call
Feb 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to Sculptor Capital's fourth-quarter and full-year 2020 earnings call. [Operator instructions] As a reminder, this conference is being recorded. I will now read the following remarks on behalf of the company. Today's call contains forward-looking statements, many of which are inherently uncertain and outside of the company's control, and actual results may differ, possibly materially from those indicated in these forward-looking statements.

Please refer to the company's most recent SEC filings for a description of the risk factors that could affect its financial results, its businesses and other matters related to these statements. The company does not undertake any obligation to publicly update any forward-looking statements. During the call, the company will be referring to economic income, distributable earnings, and other financial measures that are not prepared in accordance with U.S. GAAP.

Information about and reconciliations of these non-GAAP measures to the most direct comparable GAAP measures are available in the company's earnings release, which is posted on its website. No statements made during this call should be construed as an offer to purchase shares of the company or an interest in any of its funds or any other entities. The company's earnings press release for this morning also included an earnings presentation. The presenters 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 Q4 link earnings release. If you joined through the webcast, you can navigate through the presentation on the webcast screen. I will now hand the call over to Robert Shafir, chief executive officer at Sculptor Capital. Thank you, sir.

Please go ahead.

Robert Shafir -- Chief Executive Officer

Thanks, Dona, and good morning, everyone. Joining me on the call today is Dava Ritchea, our new chief financial officer. We're happy to welcome Dava to the Sculptor team during this exciting time of the firm. Early this morning, we reported fourth-quarter 2020 GAAP net income of about $216 million or $9.50 per basic and $5.05 per fully diluted Class A share.

Distributable earnings were $342 million or $6.08 per fully diluted share and adjustable distributable earnings were $343 million or $6.10 per fully diluted share. We declared a dividend of $2.35 per Class A share. Dava will get into the details of our results a little later. Our fourth-quarter results are a culmination of the hard work and dedication of the entire organization, setting us against a challenging 2020 backdrop.

This focus was reflected in our strong investment performance, growth in our client base and improvement in our corporate balance sheet. Let me first turn to performance. Despite weakness in October, market sentiment shifted rapidly in the aftermath of the election, helping global equity markets close at record levels with the MSCI World Index climbing 12.5% during this fourth quarter. The Biden victory, coupled with the lack of a clear democratic majority, followed shortly thereafter by a host of better-than-expected vaccine trial results, propelled risk assets to new highs heading into year end.

Sculptor Master Fund returned 6.3% net for the fourth quarter, bringing 2020 year-to-date net performance to 19.5%, our strongest net return for the fund in over a decade. This compares favorably with the MSCI World Index, which was up 14.1% over the same period. Fundamental equities was the largest positive contributor to our performance during the quarter. Our expertise in fundamental investing, coupled with dynamic capital allocation was central to our ability to navigate the ever-changing market backdrop during 2020.

Our credit strategies generated positive returns during the quarter as credit assets experienced one of the best backdrops for sustained gains in years. With headline looks exciting, we witnessed more cyclically sensitive companies with complicated stories performed strongly, which ultimately helped drive gains in the large process-driven positions. Moreover, many high-quality spread-based investments in corporate and structured credit further retraced their drawdowns. In those situations that have reached their target levels, we have continued to harvest gains as we now pivot to source opportunities elsewhere.

Lastly, our convertible and derivative arbitrage strategy generated gains across a diverse range of positions as the strategy benefited from continued improvements in valuations, flows and a healthy new issuance. Our global opportunistic credit fund, Sculptor Credit Opportunities Fund returned 6.4% net for the fourth quarter of 2020 and was down 1.5% for the full year. At the height of the crisis, we deployed approximately $800 million of capital into new opportunities, which helped drive a 23.1% net return for the fund from April 1st through year-end. This also illustrates our ability to adapt quickly to a rapidly changing situation and deliver value to our clients.

Performance in the quarter stemmed from both structured and corporate credit where continued strength in risk assets helped deliver strong returns. Their positive performance was both broad-based and spread-based investments where we added exposure during this crisis in addition to a resurgence among our largest process-driven holdings. Similar to our multi-strategy funds, with many high-quality spread product investments in corporate and our structured credit retracing their drawdowns, we have continued harvesting gains in reducing exposure by monetizing positions that reached target levels. Across our opportunistic real estate credit and equity funds, we continue to deploy capital and generate strong returns, with our third opportunistic fund generating an 18.3% annualized net return through December 31.

We are finding attractive opportunities in both our real estate credit and equity strategies, taking advantage of recent dislocations in public real estate markets as well as liquidity driven sellers in some private markets. Despite the volatility across the real estate and capital markets in 2020, we continue to be very active in both new investments as well as providing liquidity to our investors. Across our real estate platform in 2020, we deployed approximately $700 million of capital into new investments and distributed nearly $0.5 billion back to our investors. Our CLOs also continue to see an improvement across almost all tests and metrics in the fourth quarter.

The improvement was driven by strong performance on targeted investments made during Q2 and Q3 as well as continued improving underlying fundamentals across our existing portfolios. The recovery in fundamentals and loan prices has also led to refinancings and increased sponsor and M&A activity, where we are finding select opportunities to deploy fresh capital. We expect to see these continued improvement in subordinate management fee payments as we move into this year. Turning to 2021, we witnessed a significant volatility in the equity markets amid a series of well-documented events.

We weathered the situation with the Master Fund down 0.8% net in January and Sculptor Credit Opportunities Fund up 2.3% net. We believe that our ability to navigate such episodes and protect capital in challenging market conditions is another testament to our dynamic multi-strategy approach. We continue to believe that our current investment landscape presents a robust opportunity set for multi-strategy, credit, and real estate investing. Turning to flows, as you can see on Page 7, as of December 31, our assets under management were $36.8 billion, with net inflows in the fourth quarter of $274 million.

Performance-related appreciation of $1.1 billion and distributions and other reductions of $562 million. As of February 1st, assets under management were $36.4 billion, which was driven by an estimated $175 million of performance-related depreciation, $140 million of net outflows and $55 million of distributions, including pay downs in our CLOs to investors and certain funds in January. Turning to Page 8, multi-strategy funds had assets of $10.5 billion as of December 31, which also included $648 million of the performance-related appreciation and $92 million of net outflows in the fourth quarter. Opportunistic credit at $6.3 billion of assets as of December 31, which included $338 million of performance-related appreciation had $89 million of net outflows in the fourth quarter.

In 2020, we saw that over $1 billion of gross inflows across multi-strategy and opportunistic credit funds, almost double the amount we saw in 2019 and the most since 2015. We believe the value proposition of our multi-strategy funds is apparent to our investors. Real estate had total assets under management of $4.3 billion as of December 31st. The decrease in the quarter was driven by $506 million of other distributions and reductions, which primarily related to the step-downs committed to invested capital upon the expiration of investment period of our real estate credit fund.

These reductions were partially offset by $107 million of net inflows. Institutional credit strategies had total assets of $15.7 billion as of December 31, with $348 million of these net inflows and $107 million of performance-related appreciation in the fourth quarter. The CLO issuance environment continued to normalize in the fourth quarter. As we enter 2021, the CLO market now continues to show signs of towing, and we expect to see increased refinancing activity after the rally and CLO liability spreads in the fourth quarter, along with continued activity in new-issued CLOs.

Last month, we priced a $308 million U.S. CLO deal and will consider refinancings of existing deals and establishing new CLO warehouses as our market conditions improve. We also see a continued rebound in aircraft ABS markets, driven by overall tightening in spreads across credit sectors and we hope for a rebound in air travel in the latter part of this year as vaccinations continue to roll out. With that, let me turn the call over to Dava to go through the financials.

Dava Ritchea -- Chief Financial Officer

Thanks, Rob, and good morning, everyone. As Rob mentioned at the start of our call, and as you can see on Page 9, we reported fourth-quarter 2020 distributable earnings of $342 million and a full-year distributable earnings of $279 million. Adjusted distributable earnings were $343 million for the fourth quarter and $406 million for the full-year 2020. Additionally, we have declared a cash dividend of $2.35 per Class A share.

Revenues were $600 million for the fourth quarter, up 124% from the fourth quarter of 2019. And for the full-year 2020, revenues were $876 million, up 52% from 2019. Management fees were $70 million in the fourth quarter, up 11% from the previous quarter and up 16% from the fourth quarter of 2019 due to increased AUM and recovery of deferred CLO fees. Management fees were $250 million in the year 2020, 5% higher than 2019.

The year-over-year increase in management fees was driven primarily by Real Estate Fund IV, which held its final close in the second quarter of 2020 and higher average fee-paying assets in certain of our open-ended credit funds, partially offset by CLO fee deferrals. As Rob mentioned, we expect to see the continued recovery in our CLOs in this first quarter. As of today, only one of our CLOs remains in full deferral, which is a significant recovery from the deferrals we were seeing early on in the pandemic. Incentive income was $528 million in the fourth quarter, up 160% compared to the fourth quarter of 2019.

Incentive income was $617 million for the full-year 2020, 92% higher than 2019. The higher incentive income was driven by our multi-strategy funds performance in 2020 as well as the crystallization of an accrued unrecognized incentives in the customized credit platform. As seen on Page 10, in 2020, we generated an additional $78 million of accrued unrecognized incentive due to our strong fund performance. We recognized $206 million of incentive from our longer-dated assets in 2020, including from a portion of the incentives generated this year, reducing our accrued unrecognized incentive balance to $128 million as of December 31st.

Our main driver of these impacts was from the customized credit platform. Now turning to our operating expenses. For the fourth quarter of 2020, total expenses were around $254 million, bringing full-year total expenses to $570 million, up 30% from 2019, with the increase driven primarily from legal settlements and provisions and related legal fees. Total adjusted expenses, which excluded these items, were $253 million for the fourth quarter and $444 million for the full-year 2020, up 12% from 2019, with bonus expense driving our increase in light of higher incentive income from strong fund performance.

In the fourth-quarter 2020, compensation and benefit expense was $227 million, bringing our full-year compensation and benefit expense to $350 million, up 15% from 2019. The driver of this increase was our bonus expense, which was $212 million for the fourth quarter, bringing full-year 2020 bonus expense to $276 million, up 23% from 2019. The year-over-year increase was driven by higher incentive income from strong fund performance. As a reminder, we paid bonuses largely based on this current year performance, which is not necessarily when we realize the related incentive income.

For example, the majority of the compensation related to the incentive crystallized from our multiyear customized credit platform was paid out over prior years as performance was being generated, even though we didn't recognize the cumulative accrued incentive until 2020. As a result, bonus expense as a percentage of incentive will vary year to year. As usual, we will also accrue a minimum level of annual bonus throughout 2021. We expect that to be $75 million to $85 million.

Salaries and benefits were $15 million for the fourth quarter, down 18% from the previous quarter, mainly due to the capitalization of certain internal IT costs related to a software implementation. Salaries and the benefits were $74 million for the full-year 2020, down 8% from 2019, primarily from lower headcount as we continued our focus on streamlining operations and proactively managing our fixed expenses. We expect full-year 2021 salaries and benefits to be between $70 million and $75 million. In the fourth quarter, general and administrative expenses were $21 million, bringing full-year G&A expenses to $204 million.

Adjusted G&A expenses, which exclude legal settlements and provisions, related legal fees and our recap-related costs were $20 million for the quarter, bringing the full year to $78 million down 4% from 2019, primarily due to lower professional services as well as the impact of travel restrictions and employees working from home. We expect full-year adjusted G&A to be between $75 million and $80 million in 2021. Interest expense for the full-year 2020 was $17 million, up 63% from the 2019. The increase was driven by the interest accrual for our now retired debt securities as they began accruing interest on February 1, 2020.

Prior to that, the debt securities did not accrue any interest. We expect full-year 2021 interest expense to be between $15 million and $20 million. Our guidance for the full-year 2021 payable for taxes and tax receivable agreement is 20% to 25% of economic income. As a reminder, this estimate is subject to many variables, including year-end performance that won't be finalized until the fourth quarter of the year and therefore, could vary materially from the estimates provided.

Now for an update on the balance sheet. Turning to Page 11, as of year-end, total cash, cash equivalents and long-term treasuries were $288 million. As previously announced in November, we closed on a $320 million term loan and $25 million revolver. We used the proceeds of the term loan to capture $62 million of discounts on the early prepayment of our then existing debt and preferred units.

And as of today, we have repaid $175 million of the amount outstanding on the new term loan, leaving a balance of $145 million, which is due at maturity. As a result of the prepayment, we are no longer subject to the cash sweep for financial maintenance covenants other than the $20 billion minimum fee-paying AUM covenant. The $25 million revolver remains undrawn and that's available for working capital and general corporate purposes. And with that, let me turn it back over to Rob.

Robert Shafir -- Chief Executive Officer

Thanks, Dava. 2020 was a pivotal year for the firm. We achieved outstanding financial results and made significant progress on our strategic goals, putting the firm in a strong position going forward. We're incredibly proud of our performance in 2020, the strongest in over a decade in our flagship multi-strategy fund.

We also broadened our investor relationships, raising over $1 billion of new capital in our multi-strategy and opportunistic credit funds, launched our largest ever opportunistic real estate fund with almost $2.6 billion in commitments, and we settled the last of our legacy legal matters. With the refinancing and debt pay downs, we strengthened our balance sheet, leaving us in the most stable and flexible capital structure since 2007. We continued to focus on operational efficiencies enhancing our scalable platform that will provide us with the operating leverage as we continue to grow our assets under management. With Jimmy Levin taking over as CEO in April, combined with a broader leadership team, most of whom have been working together for well over a decade, I am confident that the right people are in place to lead Sculptor toward a bright future.

With that, let me turn the call back over to the operator to take some questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is coming from Gerry O'Hara of Jefferies. Please go ahead.

Gerry O'Hara -- Jefferies -- Analyst

Great. Thanks for taking my question this morning. Perhaps we can start on fundraising and if you could give maybe any sense of how conversations have been evolving with the kind of consultants, gatekeepers, and the like as it relates to the forward outlook for 2021.

Robert Shafir -- Chief Executive Officer

Sure, Gerry. It's Rob. I'll take this one. Look, I'd say in terms of the level of inquiring activity, it is definitely the best by a long shot, it's been since I've been at the firm.

And I think there's several reasons for that. First and foremost has been our returns, which I think have been exceptional, and they've been consistent. So I think we can lead with that. And I think that in addition to that, just closing out all of our legacy issues, which, as we all know, is an impediment with many of the clients out there has also opened up a lot of new conversations with us.

So whether you're looking at consultants who are upgrading us and those conversations are becoming more robust, whether it's private banking platforms that have opened to us and more conversations going on there that's about potentially more openings as well. And the institutional client base that we're seeing pretty much across the globe, gives me a lot of encouragement. Now with that said, and I've said this before, timing of these things is always tricky. So, for some of these accounts, when they look at our firm, they're really reunderwriting our firm.

And I would say not just for clients who've never done business with us, but clients that may have been business many, many years ago, still look at Sculptor Capital today, and rightly so, are looking at a very different firm and that our reunderwriting process takes some time. COVID, I would say, also has not helped there with some of the newer clients who, in some cases, like to have face-to-face meetings. So that's been a bit of a drag. So what I would say is there is always going to be the occasional idiosyncratic outflow here and there, given the nature of institutional clients.

But when I look at our level of activity and I look at our returns, particularly in an environment that's not as target-rich as perhaps it once was. And I think about the fact that the legacy issues are behind us and that the firm is a much more stable place than it may have been a few years ago, that gives me a lot of confidence. So I guess my answer to you would be, I'm very optimistic in the long term, very difficult to determine exactly when it's going to happen. I wouldn't expect to have some avalanche of money arrive at our door tomorrow morning but I think that's it's really a question of when not if.

So I am confident we'll be able to grow over the intermediate to long term.

Gerry O'Hara -- Jefferies -- Analyst

OK. That's helpful context. I guess also if we can maybe touch on Delaware Life, if there's any update you might be able to provide there with respect to some potential future opportunities, whether it's strategic or otherwise to partner with them for product that would also be helpful.

Robert Shafir -- Chief Executive Officer

Sure, Gerry. Well, look, let's put context into the whole Delaware Life transaction. I mean what the Delaware Life transaction did for us is, number one, it allowed us to capture over $60 million of discounts on the outstanding liabilities at the time. In addition to that, it allowed us to really push out amortization schedule.

We're giving our balance sheet much more flexibility and comfort going forward. And remember, this was at a time when you were sitting on -- COVID beginning to rise and we didn't have the vaccine news that we have today, and you had an upcoming election. So it derisked the firm, it gave us a much more flexible capital structure and it allowed us to capture discounts. So there's a lot of logic to going forward with the financing.

I'd say in addition to that, the fact that Delaware Life has a real board seat, and they are a warrant holder aligns them with us. So as we think about portfolio opportunities and our financing opportunities, I'd say we have good dialogue with them, and yeah, we look forward to collaborating with them in the future.

Gerry O'Hara -- Jefferies -- Analyst

OK. Great and one more. Thanks for taking all my questions this morning, if I could squeeze this one in. The CLO sub-fees, you kind of mentioned that that will remain a headwind in 1Q, perhaps a question for Dava here but could you put maybe a finer point on what we might be able to expect for 1Q and perhaps into this year as the sub-fees?

Dava Ritchea -- Chief Financial Officer

Sure. I'm happy to take that one. So the CLO sub-fees have really started to normalize. And that is because, as of today, we only have one CLO that is currently still in full deferral and we have four CLOs that are in partial deferrals.

For the fourth quarter, we actually saw a net impact of the deferrals of a positive $2.3 million. So we had a small amount of additional deferrals in Q4, which was $1.8 million, and that was offset by $4 million that we recognized in Q4 related to some prior periods. So we are seeing that balance go down in terms of what continues to be deferred and we still have a balance of $5.6 million that we would expect to collect out all of those CLOs accrue.

Gerry O'Hara -- Jefferies -- Analyst

OK. That's great. Thanks for taking my questions this morning.

Operator

Our next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.

Patrick Davitt -- Autonomous Research -- Analyst

Hey. Good morning, everyone. So if I think about the time line for realizing the accrued carry balance, I know you had talked about the vast majority of it before being realized and we saw the event in the fourth quarter. So is the right way to think about it, kind of the $50 million of legacy balance kind of coming more immediately and then the $80 million of new accrual may be spread over a longer term or are you still kind of thinking about that coming out quite quickly?

Dava Ritchea -- Chief Financial Officer

Sure. I can take that. So of the $80 million of new accrual this quarter, $60 million of that was actually related to the customized credit platform, and that has fully crystallized this year. So a portion of what we earned this year actually did crystallize within the year.

We have $128 million that's left outstanding. The vast majority of that is in our real estate business, which we'll accrue over time as those funds exit their investment periods and start to return capital.

Patrick Davitt -- Autonomous Research -- Analyst

Great. That's helpful. And then another one on fundraising, could you maybe update us on, away from the Master Fund, kind of potential chunky products in the market, either in real estate credit, real estate equity, credit -- the credit platform. Anything you kind of see in the pipeline that could add to the more closed-end side of the business?

Robert Shafir -- Chief Executive Officer

Yes. I'll take that one, Dava. Look, we can't comment on any specific fundraising on a forward basis, so I can't be specific about that. I'd say if I were to sort of look across the platform, I think we've got opportunity to grow pretty much in all the verticals, starting with multi-strat.

I mean as we've -- as I've said on many of these calls, I've just been a strong believer that our ability to approach markets and invest anywhere in the capital structure pretty much anywhere in the globe and having the flexibility to do that in a disciplined way, to me, was real competitive advantage if you have real capability there and I think we do and I think we've demonstrated that. And I think as markets continue to do what they do, and they become somewhat more volatile at times, we have -- given that nimble approach that does protect capital, it's going to be a really good value proposition to our clients. So I believe that. I believe that for a long time, and I think that will ultimately bear fruit.

I think in the credit space, again, we can't comment on specific funds or raises, but credit is a place that is always going to be target-rich in nature. And I think if you think about this COVID crisis, it's also created tremendous dispersion among companies in terms of capital requirements and outcomes and so forth. So we will see our opportunities there. And I think if you saw what we did when the crisis hit, we obviously deployed a lot of capital.

We caught a lot of that retracement of things in the spread product area. But we also have lots of more complex process-driven investments that are going to, from time to time, begin to bear fruit and we started to see that more in the fourth quarter, and we're seeing that in 2021. So I think it's more idiosyncratic in nature, but there will always be these opportunities there. And in terms of real estate, obviously, we've ended the investment period on rec one.

We've just closed the big private equity fund, but we have real momentum in the real estate vertical right now. And I think a broadening -- a very happy client franchise there. So I do believe over time that that vertical will really become bigger and more meaningful as part of the Sculptor platform.

Patrick Davitt -- Autonomous Research -- Analyst

Thanks.

Operator

Our next question is coming from Craig Siegenthaler of Credit Suisse. Please go ahead.

Unknown speaker

This is Sam on for Craig. Now that you've raised your fourth real estate fund, what opportunities are you seeing across segments and geographies?

Robert Shafir -- Chief Executive Officer

Yes. Again, I'll answer. As I said, I can't comment on any specific areas in particular but what I would say is the first thing you have to think about when you think about our real estate business is the fact that it's a little bit less conventional than some of the other real estate businesses out there in the sense that we cast a very broad net and invest in many different asset classes, many nontraditional places like in gaming and places like Marinas and so forth. So because of that wide net, we generally are going to see sort of a broader range of potential opportunities out there.

I think that's worked out very well for us, not only through the crisis, but certainly, over the history of our real estate business. But I'd say, look, we're seeing opportunities pretty much across the board. We're seeing everything from these public market opportunities to also -- and given the dislocations that we've seen to things in the private markets, whether it's being a liquidity provider or taking advantage of certain situations where assets have needed to be disposed of and so forth as well as some of the more traditional places where we do equity investment. So I think we're going to see things that's across the capital structure there and we're going to see things across a very broad range of traditional and nontraditional asset classes where we've typically been very active.

Unknown speaker

Thank you. And just as a quick follow-up, can you talk about the realization trajectory for the third real estate opportunistic fund?

Dava Ritchea -- Chief Financial Officer

Sure. I can take that. We just exited the investment period. And so you can expect realizations to occur over the next several years as we are out of that investment period.

Unknown speaker

Thank you.

Operator

Our next question is coming from William Katz of Citi. Please go ahead.

William Katz -- Citi -- Analyst

OK. Thank you very much for taking the questions. And Rob, congratulations on turning the franchise around a good luck on your next endeavor and, Dava, welcome to the group. A question for you just on capital management policy from here.

It looks like you paid down debt a bit fast, and we were certainly now modeling, given the big performance during the quarter. How do you think about sort of capital return from here, dividend policy, buyback for the deleveraging reinvestment, maybe for the kickoff how you sort of think about that? And maybe put that just in the context of where you are in the distribution holiday versus a normalized payout ratio?

Robert Shafir -- Chief Executive Officer

Dava, why don't I start and you can chime in from here. Obviously, as you know, Bill, we've paid down a bunch of net debt right now, and we're sitting, from a balance sheet perspective, in the best position we've sat in, in years. Obviously, given our cash and our assets on balance sheet, vis-a-vis, what is all the $145 million of liabilities left on the balance sheet. That being said, I think, first and foremost, our objective continues to be to strengthen that balance sheet.

And the reasons for that are severalfold. First of all, the stability and strength of the franchise in order to not only weather different market environments and have this staying power to do so in a very comfortable way, which is sort of objective No. 1 and also be able to play offense where we see opportunities to potentially grow the business. So I think from a strategic standpoint, it was all about delevering before.

We'll continue to look to do that and strengthen our balance sheet, as I said. I think beyond that, beyond strengthening and/or giving us the right opportunity to play offense, I'd say, look, we will obviously be opportunistic in considering the -- our dividend policy, considering optimizing our balance sheet across debt and equity so that we are in what we really consider to be our most optimal place. But first and foremost, it's about strength and stability. But Dava, I don't know if you want to jump in here and anything --

Dava Ritchea -- Chief Financial Officer

I don't mind taking the distribution holiday question. So we had a distribution holiday of where we had to earn $600 million of distribution holiday economic income. We have, to date, earned $378 million of that distribution holiday economic income. So we have $221 million left to go.

William Katz -- Citi -- Analyst

OK. That's helpful. And just a follow-up question, maybe a little more conceptual. Just given everything that's going on in the retail engagement dynamic and some of the short positions getting hit pretty difficultly.

How do you think about that as it relates to the multi-strat portfolio? Is there any risk or opportunity as a result of some of these outsized moves? Obviously, there's much more illiquid names, and I'm sure you're playing around in. But nonetheless, is there some kind of structural opportunity or impediment to the multi-strat looking ahead?

Robert Shafir -- Chief Executive Officer

Yes. I mean, look, first and foremost, I'd say, obviously, we weathered that little mini storm quite well. You saw our returns for the month of January and obviously, markets have recovered, and things are going fine for us. Typically, we are not a player in very illiquid-crowded shorts as kind of a general rule.

So I wouldn't -- there's always specific situations, but I don't anticipate that being a major risk factor for us. And as you know, away from just the alpha generation potential on our short positions, you have just our general risk management approach to the portfolio. And oftentimes, we are using indices and options and so forth to risk manage our exposures. So I think that both in terms of the fact that we're oftentimes managing risk through broader indices and option markets and generally not very involved in very crowded illiquid shorts.

I don't anticipate that being a major challenge for us just going forward. And arguably, it could be an opportunity. We'll see. We'll see how it works out for some of our business models that are more challenged by that.

I suspect they'll generally make the proper adjustments and be just fine but I don't see how that's being a major impeditive for us.

William Katz -- Citi -- Analyst

Thank you.

Operator

At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Robert Shafir -- Chief Executive Officer

No. I guess, look, I'll just close. I mean, again, thanks, everyone, for participating. This will be my last call.

Again, I'm very proud of what we've been able to do here. And as I said earlier, just in terms of not just the financial results but really kind of achieving a lot of the strategic things that we've all set course to do. And that's been an effort by pretty much everybody at the firm in terms of whether it's closing out some legacy issues, getting back on the growth path, managing our expense base, strengthening our balance sheet and really rebuilding our brand right now. So I feel good about where the firm is and I feel very good about where it's going, and I'm confident that Jimmy Levin will do a great job, along with the management team that, as you all know, that has worked together for many, many years.

I think they are all -- these people are all ready to drive the business at the next level and I think they're going to do a great job. So with that, I'll -- I guess I'll close the call. Thanks, everyone.

Duration: 38 minutes

Call participants:

Robert Shafir -- Chief Executive Officer

Dava Ritchea -- Chief Financial Officer

Gerry O'Hara -- Jefferies -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Unknown speaker

William Katz -- Citi -- Analyst

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