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DATE
Thursday, Aug. 7, 2025 at 3 p.m. ET
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Michael Sacks
President — Jonathan Levin
Chief Financial Officer — Pamela Bentley
Head of Investor Relations — Stacie Selinger
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TAKEAWAYS
Fee-Related Earnings Growth-- Increased 6% in Q2 2025 compared to Q2 2024, and Fee-related earnings grew 14% year to date compared to the same period in 2024.
Adjusted EBITDA and Adjusted Net Income-- Adjusted EBITDA rose 9% in Q2 2025 compared to Q2 2024. and Adjusted EBITDA increased 17% year to date compared to the same period in 2024, while Adjusted net income (non-GAAP) increased 9% in Q2 2025 compared to Q2 2024. and Adjusted net income was up 19% year to date compared to the same period in 2024.
Fee-Related Earnings Margin-- Reported at 42%, up 200 basis points from Q2 2024.
Total Assets Under Management (AUM)-- Ended Q2 2025 with $86 billion in total assets under management, A 5% increase compared to the end of 2024.
Fundraising-- Raised $2.4 billion in Q2 2025. and Raised $5.3 billion in the first half of 2025. This represents a 52% increase from 2024
Infrastructure Fundraising-- Accounted for $1.9 billion in fundraising during the first half of 2025. Constituting over 35% of total capital raised year to date in 2025, with persistent and accelerating growth reported.
Private Credit Contribution-- Identified as the highest contributor to quarterly fundraising, with evolving market trends cited as beneficial to the business model.
Absolute Return Strategies (ARS) Performance-- The multi-strategy composite delivered approximately 6% gross return in Q2 2025. ARS fee-paying AUM increased 7% year to date as of Q2 2025. and Fee-paying AUM in ARS grew 10% over the last twelve months.
ARS Flows-- Generated $1 billion in gross inflows in the first half of 2025, with net inflows of about $400 million in Q2 2025.
Unrealized Performance Fees-- $18 million in unrealized annual performance fees accrued for ARS as of June 30, 2025.
Contracted Not-Yet-Fee-Paying AUM
Private Markets Management Fee Growth-- Private markets management fees grew 11% year to date. Full-year private markets management fee growth guidance remains at 5%-8%.
Expenses-- Second-quarter fee-related earnings (FRE) compensation (non-GAAP) decreased sequentially to $37 million in Q2 2025. Non-GAAP general, administrative, and other expenses were stable at $21 million in Q2 2025.
Incentive Fees-- Realized $16 million in Q2 2025 (comprising $1 million in annual performance fees and $15 million in carried interest); with embedded incentive fee earnings potential exceeding $900 million in unrealized carried interest as of Q2 2025 quarter-end.
Buyback Activity-- Repurchased approximately $25 million of Class A stock; $30 million additional buyback authorization announced, bringing the total available to $87 million.
Dividend-- Quarterly dividend held at $0.11 per share with potential for future increases indicated.
Dry Powder-- $12 billion in dry powder available for new investments as of Q2 2025.
Carried Interest at NAV-- Surpassed $900 million in unrealized carried interest at NAV in Q2 2025, with the firm’s share at approximately $450 million of unrealized carried interest at NAV as of Q2 2025, and over three times the level from 2020 as of Q2 2025.
Infrastructure AUM Growth-- Increased from $6 billion in 2020 to $17 billion as of Q2 2025, reflecting a 26% compound annual growth rate (CAGR) for infrastructure AUM since 2020.
Fund Closes-- A first close for GSF IV occurred in July (post-quarter), with an additional infrastructure product close (CIS) expected by year-end.
Individual Investor Channel Progress-- Grove Lane joint venture added four personnel; infrastructure interval fund initiated sales and reached key operational milestones.
AI Adoption-- Management described artificial intelligence as a “key strategic focus,” with usage and implementation occurring across all firm levels and functions.
Investor Day Announcement-- First GCM Grosvenor Investor Day scheduled for October 15 in New York.
SUMMARY
Management confirmed that fundraising activity continues at a rapid pace, with a record-setting first half and significant visibility in the forward pipeline. The infrastructure platform emerged as a primary growth engine, evidenced by strong fundraising, deal origination capabilities, and product innovation initiatives such as the interval fund and a new partnership with Wilshire Indexes. Management did not guide for material catch-up fees in the second half and Recent fundraising inflows will not significantly affect 2025 revenue but are expected to contribute as we move into next year. Additional scale is being achieved through investments in the individual investor channel and efficient expense management, while strategic buybacks and dividends supported ongoing capital return objectives.
Chairman Sacks stated, “Our goal of 2025 fundraising exceeding 2024 fundraising is highly likely. The only question is by how much we exceed last year's total.”
President Levin highlighted the 26% CAGR in infrastructure AUM since 2020 and described the firm’s open-architecture approach as central to building diversified portfolios and accelerating deployment of capital.
Chief Financial Officer Bentley noted, “Contracted not-yet-fee-paying AUM grew 19% year over year,” as of Q2 2025, supporting expectations for future organic revenue growth as committed capital converts.
Management confirmed the expansion of unrealized carried interest at NAV to more than $900 million as of Q2 2025, with with the firm’s share translating to approximately $2.30 per share as of Q2 2025.
The company reported no significant fee pressure in private markets and absolute return strategies, with fee conversations characterized as constructive and stable by both Sacks and Levin.
Management outlined that second-half fundraising will be weighted toward the fourth quarter due to the timing of expected signings and closings.
The buyback program was further increased, bringing the total authorization to $87 million.
AI adoption has become integral to firm operations, with management describing ongoing efficiency gains and knowledge-sharing across departments.
INDUSTRY GLOSSARY
ARS (Absolute Return Strategies): Investment strategies aiming to produce positive returns regardless of market direction, often involving multi-strategy, hedge fund-style portfolios.
CFO (Collateralized Fund Obligation): A structured financial product backed by a pool of investment funds, used to raise capital while diversifying investor risk.
FRE (Fee-Related Earnings): Earnings derived from management fees and other recurring revenues, excluding performance or incentive fees, commonly used in asset management reporting.
Interval Fund: A closed-end fund, usually providing periodic (e.g., quarterly) liquidity to investors, often used to hold less liquid alternative investments.
GSF IV: Refers to Grosvenor’s fourth series fund in a private market vertical, exact vertical interpreted based on company context.
CIS (likely Customized Infrastructure Solution): An infrastructure-focused investment product referenced as an upcoming fund close.
Carried Interest at NAV: The unrealized share of profits attributable to general partners (or the firm) in investment funds, marked at current portfolio net asset value.
Catch-up fees: Deferred management fees collected retroactively once a fund’s capital commitments are activated or as investments are made, relevant for newly launched funds.
Full Conference Call Transcript
Operator: Good day, and welcome to the GCM Grosvenor Second Quarter 2025 Results Webcast. Later, we will conduct a question and answer session. And if you are interested in asking a question, please ensure you dial in using the numbers you have been provided for this call and press star 1 on your keypad to join the queue. If anyone should require operator assistance, please press star then the zero key on your telephone keypad. As a reminder, this call will be recorded. I would now like to hand the call over to Stacie Selinger, Head of Investor Relations. You may begin. Thank you. Good morning, and welcome to GCM Grosvenor's Second Quarter 2025 Earnings Call.
Today, I am joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks, President, Jonathan Levin, and Chief Financial Officer, Pamela Bentley. Before we discuss this 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. This includes statements regarding our current expectations for the business, our financial performance, and projections. These statements are neither promises nor guarantees. They involve known and unknown risks, uncertainties, and other important factors that may cause our actual results to differ materially from those indicated by 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 will also refer to non-GAAP measures that we view as important in assessing the performance of our business. A 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. Thank you again for joining us. And with that, I'll turn the call over to Michael to discuss our results.
Michael Sacks: Thank you, Stacie. We are pleased to report another strong quarter for GCM Grosvenor, led by strong investment performance, strong fundraising, financial results in line with expectations, and positive business developments that will benefit us in the long run. For the quarter, our fee-related earnings, adjusted EBITDA, and adjusted net income were up 6%, 9%, and 9%, respectively, as compared to 2024. Year to date, fee-related earnings, adjusted EBITDA, and adjusted net income were up 14%, 17%, and 19% as compared to 2024. Our fee-related earnings margin for the quarter was 42%, which is 200 basis points higher than the second quarter of last year.
We ended the quarter with $86 billion of total assets under management, a 5% increase compared to the end of 2024. Our AUM growth was led by excellent ARS performance, moderate ARS inflows, and another strong fundraising quarter for private market strategies. In total, we raised $2.4 billion in the quarter, bringing our first half of the year fundraising to $5.3 billion, a 52% increase from 2024 and our highest first-half fundraising total on record. There continues to be a tremendous amount of activity with a very visible full fundraising pipeline. Given the strong fundraising thus far and our significant pipeline, our goal of 2025 fundraising exceeding 2024 fundraising is highly likely.
The only question is by how much we exceed last year's total. We expect second-half fundraising to be weighted towards the fourth quarter. Demand, activity levels, and pipeline are strong for alternatives generally, and our investment performance has been solid. There are three areas of recent strength around the firm worth noting. The first is infrastructure, which accounted for $1.9 billion of fundraising in the first half of the year and remains a great contributor to growth within the firm. While not a new story, the growth is persistent and likely accelerating. Jonathan Levin will talk about our infrastructure platform, its innovation, and its prospects during his remarks. Private credit was the highest contributor to our fundraising for the quarter.
We believe that market remains strong and, importantly for us, is evolving in ways that benefit our business. We expect investors to increasingly seek greater diversification within their private credit allocations, and as we have discussed in the past, our sourcing breadth and our flexibility to invest via funds and direct, including co-investments and secondaries, whether in credit-focused separate accounts or specialized funds, leaves us well-positioned to continue to grow our credit vertical. The third point we wanted to touch on relates to our absolute return strategies vertical, which had an excellent quarter led by strong investment results and strong first-half fundraising.
Performance for the quarter was good, with our multi-strategy composite returning approximately 6% on a gross basis, increasing fee-paying AUM heading into the second half of the year. In addition, that strong performance has resulted in an additional $18 million of accrued unrealized annual performance fees as of June 30. Our ARS strategy saw $1 billion of gross fund flows for the first half of the year, with net inflows of approximately $400 million for the second quarter. While we continue to model ARS as a flat net flows business in our internal forecast, the sentiment has clearly improved.
The combination of performance and flows has seen fee-paying AUM in ARS up 7% year to date and 10% over the last twelve months. In addition to these areas of demonstrable strength, we wanted to touch on a few topics of note. We continue to make steady progress building out our individual investor channel efforts with Grove Lane, our distribution joint venture, adding four people to the team in the past quarter, and our infrastructure interval fund making steady progress with regard to important operational milestones and starting to generate sales. We continue to emphasize the long-term nature of this opportunity and caution against over-optimistic short-term assumptions.
That said, we are very optimistic with regard to this channel's potential for us in the intermediate to long term. Next, we're in the market with a structured alternative investment solution in the form of a CFO, where the assets will be invested in our credit strategy. We expect to close that transaction in the second half of the year, which will contribute to fundraising. This is our second CFO, and we intend to continue to sponsor collateralized fund obligations from time to time going forward. This wouldn't be a second quarter 2025 earnings call without mentioning AI, which is a key strategic focus inside of Grosvenor. It is a daily conversation somewhere within the firm.
Adoption and use are increasing rapidly, and it will no doubt make us a better, more efficient, and more profitable company over time. Finally, with regard to the macro environment, our fundraising results to date prove out the strong continuing demand for alternative investments. Today, there is more clarity regarding tax policy, and the environment feels better compared to the period immediately following the introduction of increased tariffs at the beginning of the second quarter. Transaction activity seems to be starting to accelerate from recent lows, and the IPO market has some life with regard to certain sectors. Realizations have ticked up since 2024.
That said, we continue to see plenty of volatility around interest rates, tariffs, and policy generally, and we have not abandoned caution. Our teams remain focused on investing client capital on a disciplined programmatic basis and are well-positioned to take advantage of opportunities with $12 billion of dry powder. We remain positioned to benefit significantly from unlocked value in our unrealized carried interest at NAV, which surpassed $900 million this quarter. Half of this carry balance, or approximately $450 million, is owned by the firm, which translates into approximately $2.30 per share.
That $450 million in firm share of carried NAV was up approximately 9%, or $35 million, from last quarter and is over three times higher than where it was at the 2020 despite the firm collecting nearly $100 million of revenue during that period of time. Finally, we're pleased to announce that GCM Grosvenor will host its first Investor Day on October 15 in New York. We look forward to showcasing our team, highlighting our value proposition, and walking you through our growth profile at that time. We hope you can join us. And with that, I'll turn the call over to Jonathan Levin.
Jonathan Levin: Thank you, and good morning. As Michael noted, the focus of my remarks this quarter is our infrastructure platform. That business has been a key growth driver for us, and more broadly, the infrastructure platform is emblematic of the firm's value proposition to clients, our competitive advantages, and our growth opportunities across the platform in the different verticals. Let's first briefly touch on the attractiveness of infrastructure as an asset class. Investors are drawn to infrastructure's predictable cash flows, long duration, and inflation-hedging properties. Core plus and value-add infrastructure assets, which is our focus, tend to be less correlated to traditional equity and fixed income markets, offering resiliency amidst market volatility.
The global need for infrastructure capital is massive, and global demand for infrastructure's properties as a risk asset has major tailwinds. Fueled by aging systems, urbanization, energy transition, and digital innovation, some estimates put the need for infrastructure capital in excess of $100 trillion over the coming fifteen years. Many investors are still under-allocated to infrastructure relative to asset allocation plans. Recent studies suggest that over 90% of investors plan to either maintain or grow their infrastructure allocations over the future periods. As the asset class matures, we're seeing the same type of evolution we saw in the private equity markets, but it's happening much faster. We see thoughtful diversification across market capitalizations, subsectors, and geographies.
We're seeing the development of robust secondaries and co-investment markets. Our infrastructure platform is ideally positioned to capitalize on these trends. With over two decades of experience, our platform is among the most tenured in the industry. It's global by design, with investment professionals across the US, Canada, Europe, and Asia. What sets us apart is the breadth, depth, and flexibility of our manufacturing engine in combination with a client delivery mechanism that can meet varied needs. Our sourcing model is broad and scalable. Our deep relationships across the infrastructure ecosystem unlock investment opportunities of all types: direct control investments, consortium deals, co-investments, and secondary flow. We look at hundreds, if not thousands, of deals a year.
With our flexible investment model, we are closing on some sort of transaction, whether it be a fund commitment or a direct-oriented deal, every two to three weeks. This origination platform enables us to build diversified portfolios for our clients quickly and cost-effectively. We're especially strong in small and mid-cap investments, a segment often overlooked by many investors. This combination of robust origination, asset-based focus, and quicker deployment enables us to build more holistic client solutions that are more diversified than your typical infrastructure fund. Our client offerings have exposure to a large number of investments, and those investments are diversified by investment partners, geography, and sector.
Infrastructure has been a leading contributor to our fundraising success this year, accounting for over 35% of total capital raised. Since going public, we've raised $12.5 billion for infrastructure, proof of the strong demand for our strategies and the trust placed in us by our clients. The results speak for themselves. Our infrastructure AUM has nearly tripled since 2020, from $6 billion to $17 billion at a 26% CAGR. We now serve over 150 institutional clients across customized solutions and specialized funds. We're one of the few firms capable of being a complete solution for client infrastructure allocation, and our separate account practice has flourished with both comprehensive and completion offerings. But we're not just growing; we're innovating.
As previously discussed, we launched the infrastructure interval fund this year with a $320 million seeded portfolio. An early mover in the individual investor channel with a unique position in the market, and we're encouraged by early traction. Additionally, this quarter, we announced our partnership with Wilshire Indexes to launch the Feet Wilshire Private Markets Infrastructure Index, the first comprehensive benchmark for private infrastructure. Wilshire Indexes will govern the index while we contribute market and risk insights. We also plan to launch single point of entry investment vehicles tracking the index, further expanding access to diversified infrastructure for broad groups of investors.
We believe infrastructure capital formation will continue to outpace broader private markets, and with our experience, sourcing capabilities, and innovation, we're positioned to capture more than our fair share of that growth. And with that, I'll turn the call over to Pamela Bentley.
Pamela Bentley: Thanks, Jonathan. We are pleased with our second quarter results, which highlight the multiple avenues we have to achieve success and drive growth. Given our strong fundraising and investment performance this quarter, our contracted not-yet-fee-paying AUM grew 19% year over year, to $8.7 billion, providing a foundation for continued organic growth as that capital converts to fee-paying AUM over the next few years. Year-to-date private markets management fees grew 11% year over year, a combination of solid fundraising and conversion of contracted not-yet-fee-paying AUM. We expect third-quarter private markets management fees to continue this trend. As a reminder, we are not expecting material catch-up fees in the back half of the year.
Absolute return strategies had a strong first half of the year, both from investment performance and flows. We anticipate that ARS management fees in the third quarter will increase slightly from this quarter. Turning to expenses, our compensation philosophy is centered on attracting and retaining top talent by aligning their interests with those of our clients and shareholders. We do this through a combination of annual and long-term incentives, including FRE compensation, incentive fee-related compensation, and equity awards. We remain disciplined in managing expenses, and second-quarter FRE compensation slightly declined from the first quarter to $37 million. Non-GAAP general, administrative, and other expenses were stable at $21 million.
We expect FRE compensation and our non-GAAP general, administrative, and other expenses to remain stable in the third quarter. Pulling together these factors, on a year-to-date basis, our fee-related earnings grew 14% year over year, resulting in the expansion of our FRE margin to 43%. Turning to incentive fees, we realized $16 million in the quarter, comprised of $1 million of annual performance fees and $15 million of carried interest. We're seeing some positive indicators in the deal market that will eventually translate into more normalized levels of carry realizations. We have substantial embedded incentive fee earnings potential from unrealized carried interest of over $900 million as of quarter-end.
As for annual performance fees, our run rate now stands at $32 million based on an assumed average annual gross return of 8% across multi-strategy portfolios. Given our strong ARS investment performance year to date, we have $18 million in unrealized performance fees as of quarter-end, in addition to the $5 million we realized during the first half of the year. Last quarter, we spoke about our Japanese partnership, which we believe will provide significant lift to our strategic position and capital-raising efforts in the region. The partnership included the issuance of approximately 3.8 million Class A shares at a price of $13.32 per share.
Separately in the quarter, we actively managed dilution from employee stock-based compensation through our buyback program and repurchased approximately $25 million of Class A stock. This morning, we announced a $30 million increase to our buyback authorization, bringing the remaining amount available to $87 million. Our financial position is strong, reflecting robust cash generation, investment appreciation, and growing unrealized carried interest. Our primary focus remains on strategically investing for long-term growth. We also continue to pay a healthy quarterly dividend of $0.11 per share, with potential for future increases as earnings momentum builds. Our business is built on a strong foundation and is well-positioned to capitalize on numerous opportunities for growth and scaling.
We are excited to create further value for our clients and shareholders and remain confident in our long-term goal to double our 2023 FRE by 2028. Thank you again for joining us, and we're now happy to take your questions.
Operator: Thank you. And if you're dialed in via the phone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you can press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. And we'll now take your first question, coming from Chris Kotowski with Oppenheimer and Company.
Chris Kotowski: Morning, and thanks for taking the question. You talked a bit about the Evergreen retail vehicle, which was seeded with $300 million of institutional money. And I'm wondering if you could talk a bit about the retail uptake on that and the strategy for building that out and also the status on the private equity vehicle.
Michael Sacks: Sure. Thanks for the question, Chris. As you know, we have a distribution partner for that infrastructure interval fund. They have a full team of salespeople that are out in the market every day. We also have the Grove Lane team helping with that, and that team, as we mentioned, is building. And, as I said in my remarks, we're very confident in the future of that channel for us and broadly and specifically with regard to this product. We think it's a relatively early mover in the infrastructure space, which has, we think, strong demand.
We're seeing that product generate modest sales on a daily basis, and we're seeing those modest sales on a daily basis or weekly basis build. And we're very enthusiastic about that. There seems to be a lot of receptivity, a lot of interest in taking meetings and in learning, and demonstrable, slow rebuilding uptake. I think, as I mentioned, our biggest concern there is that nobody gets too carried away in terms of the speed. We think it is a multiyear build, but we're certainly encouraged by everything that we see.
Chris Kotowski: Okay. And, Jonathan, on the private equity side, you're probably mentioning something we had talked about a bit ago, was probably last year or the year before, which is really different from our kind of core individual investor strategy, which we noted at the time. That was a situation where we were not the manager of a registered fund. We were just like a sub-adviser to somebody else's vehicle, almost like think of it as a separate account, Chris. And our view on that was if they raise money, great. And if they don't, we would always be in the business of making sure we have our own private equity product just like we do in the infrastructure space.
And so what you should expect from us in terms of what we're talking about in private equity, and again, as Michael just said, these things take time. It's our goal would be, and we work on it every day, that at some point in time, you see something from us in private equity. And hopefully not too long of a period of time, that's similar to infrastructure in the sense that it would be our product that we manage that may or may not have a distribution partner. Certainly, Grove Lane would work on it.
That would be seeded by one of our clients or one of our relationships that would have assets in it sourced out of our portfolio, which was one of the great attributes of the infrastructure product. And that's where our focus will be. And, obviously, we'll communicate that in due course.
Chris Kotowski: Okay. Thank you. That's it for me today.
Operator: And, again, if anyone would like to ask a question, it will be star one on your telephone keypad. Your next question is coming from the line of Ken Worthington with JPMorgan.
Ken Worthington: Hi, good morning. Thanks for taking the question. So absolute returns, your absolute return business had better returns, better gross sales, solid gross redemption levels. Does it seem like 2Q is a one-off? Or do you feel like the business is kind of really turned the corner here? And not that we would expect positive flows forever here, but, like, have we sort of reached a tipping point for that business given this combination of better market conditions, better performance, and so on?
Michael Sacks: Thanks, Ken, for the question. As I said in my remarks, we have not changed our internal forecasting with regard to flat flows. That said, the performance this year, the performance of the last couple of years, and the performance rebound in the second quarter no doubt helped. And typically, when you have good performance, your pipeline builds in the wake of that performance. And so we're not moving off that internal assumption set, but it's clearly a better, we're clearly in a better position. A better environment with a better outlook for ARS than we've been in for a while, and we've seen that in the last six months.
Ken Worthington: Okay. And then, still absolute return. The fee rate, which had been so resilient, fell a couple of basis points this quarter. Maybe talk about the influences of the fee rate this quarter. Was it flows or how is the mix adjusting to drive fee rate numbers that we see in the deck?
Jonathan Levin: Yeah. It cannot be done in go in the was just saying, you don't wanna see it's idiocy it's idiosyncratic, Ken. You it could be in any given quarter, it could be one portfolio that might have the, you know, smaller investor that a little bit better than a large investor portfolio that might have a different fee. It could be a little bit about the flows in that particular quarter.
Think the most important thing I would say is as we go out to price a business and have conversations with clients, and as Michael was just talking about, we're not calling for a sea change, but I'll tell you from my perspective, you know, spending incredible amount of time on the road with clients, it is a more relevant topic of conversation than it's been in any time in the recent past. There's no the fee picture there is stable in terms of how that business is getting priced.
Ken Worthington: Yeah. Just the demand the demand the demand is more relevant to Jonathan's point than it's been in a while, quite a while.
Michael Sacks: But there's not we're not experiencing significant conversation around fee and field of fees. It's stable.
Ken Worthington: Okay. No worries. He's always thinking the number, but you can't really see this in the numbers necessarily. It's probably just interesting to you in terms of how people are thinking about that business. And don't hold me to the exact numbers because I don't quite remember. But there was a period of time around, you know, liberation day where you had probably market drawdown in the low double-digit type of a range. And that's a period of time where we can capture performance and see what that looks like. And you had something like a 1%, you know sorry, a 10% capture of that drawdown. Which is a very good period of time for protective capital.
And often when you come out of an environment like that, the challenge becomes, do you participate in the rebound? And sometimes you don't. And in this period of time, you saw some nice capture on the rebound as well. And I think that period of time and that period of time of volatility has been something that I think is opening the eyes of some in the investor community.
Ken Worthington: Great. Thank you very much.
Operator: Your next question is coming from the line of Jeff Schmidt with William Blair.
Jeff Schmidt: Hi. Good morning. How have re-ups been in this kind of volatile environment versus a typical year? Have you seen any pauses at all? Or how has that, I guess, percentage of total fundraising been trending?
Michael Sacks: So the John, you have some specifics on, you know, fundraising re-ups, new investors, things like that, and it's probably worth sharing that. But in general, the re-ups are fantastically you know, they remain very, very strong, and we remain kind of a super high re-up business. And, our, you know, our client tenure and the re-ups are continuing to be a very strong positive feature of the business, with no degradation there whatsoever.
Jonathan Levin: Okay. And was just gonna say to follow-up on Michael's point, what you saw during a period of time, maybe in '23, which was obviously, like, a weaker period of time of capital formation, for the industry for us, as you saw the elongate of re-up periods. You didn't see people not re-upping. You just saw people slowing down programs because the denominator effect market uncertainty and things of that nature. We always said '24 would be better than '23. That happened. We always said '25 is gonna be better than '24, as Michael said in his remarks. We feel good about '25 being better than '24.
And part of that is just a function of kind of re-up cycles getting back to probably more normalized time frames. And one of the things that we really like in our business in particular is if you look at capital raising over long periods of time, in any given year, you get about 70% or 80% of that capital raising coming from your existing clients. And of that, you have about half of that being people that are just re-upping with you to do the same thing they've always done.
About half of that is an existing client doing something new with you, which is just a great example of the power of the cross-sell, the power of the value proposition to clients, is you can deal with relationships, and then obviously you're picking up new clients every year as well.
Jeff Schmidt: Okay. And then are you seeing any fee pressures in private markets in this environment? I mean, I know some of the specialized funds are coming on at higher fees, but the overall fee rate in private markets is down a little bit. Just curious if there's any pressures in specific verticals.
Michael Sacks: No. The fee conversations have been constructive everywhere, and we're not it's not a period of significant focus on fee.
Jeff Schmidt: Okay. Great. Thank you.
Operator: Your next question is coming from the line of Bill Katz with TD Cowen.
Bill Katz: Thank you very much for taking the question, and good morning, everybody. So maybe just tapping into Jonathan, your conversation on the infrastructure side. Wondering if you could step back a little bit. I know you had an Investor Day a little while ago, but maybe just remind us on just sort of the differentiated origination capabilities, if you will. And then, relatedly, I was wondering if you could just speak to the fact you feel pretty good about these sales opportunities second half of the year and where you sort of see that, across the verticals, whether it be SMA side or on a specialized side. Thank you.
Jonathan Levin: I'll take the first part of the question on infrastructure and let Michael comment on the back half of your flows picture. You know, on the infrastructure side, and I think one of the things I would say before diving deep here is this I could give you a pretty similar answer to this question, Bill, for private equity. I could give it to you similar for private credit, the other verticals, etcetera. And it's the idea of the flexible model and or you can call it the open architecture investment model.
And what that means is, as you know, as a solutions provider, our ability to deploy capital is in other people's funds, which is, you know, the allocative nature of the business. Which in our infrastructure practice is actually pretty small. It's probably 20% to 30% of what we do. And then we can deploy capital on a co-investment basis. And then infrastructure the co-investment market's still a little bit immature and early, so co-investments aren't just necessarily like, hey. You know, here's the SPV. You got three weeks to do the deal, which is some of what you see in private equity, but it could be a consortium deal. You could be a co-lead on the deal.
We could be larger than the sponsor on the deal. There's a lot of different ways that can look. You got a very active becoming, I should say, more active secondaries market. I actually think and we actually think that market and infrastructure is more interesting on the single asset secondary side. Because you have people that own assets for a very long period of time. May want to get out when other people don't. And you can buy into individual assets at interesting points. And then we also have our infrastructure advantage strategy, which is a business where we can do control infrastructure.
And then when you have that many ways to invest, you're not you don't only have your own origination. If you think about a direct infrastructure firm, if they're super, super productive, Bill, maybe they do three, four deals in a year. But when you're leveraging your own origination plus everyone else's origination because you can participate in deals as a co-investor, as a single asset, secondary player, etcetera, you're just seeing a lot more deals flow. And as I said in the script, we could be closing on deals every few weeks, that would be, you know, something that would be every few months or every four months at a, quote, unquote, direct firm.
And so I think as you think about infrastructure much more as a maybe a credit asset given the risk profile as opposed to a private equity asset, diversification is super, super important. You're not gonna have four x's that bail out some of your tougher investments. Right? And so you wanna really avoid left tail risk. And one of the best ways we think to do that is diversification. And our open architecture model of different ways to invest and just focus on net return. Don't worry about you know, what type of deal it's called. Has really served our clients well. Because we can create diversified portfolios.
We can create them quickly with minimal J curve, and we can make them on an economically efficient basis, and we're doing that activity globally.
Michael Sacks: Thanks, Bill, for the questions. With regards to fundraising, we obviously had a very, very strong first half and we have said, you know, we're gonna raise more capital. We're gonna have higher fundraising this year than we did last year. And I said in my remarks, the only question is by how much. We have a very full pipeline. We have a lot of opportunity that is in the late stages of the pipeline. And so we're confident with regard to fundraising, for the second half and, frankly, into the first quarter or so of next year.
We did say, and I did say that, you know, the second half fundraising will be weighted towards the fourth quarter just by looking at that large pipeline and looking at the timing of expected signings and closings, things like that, it will be weighted towards Q4. And, you know, how big it will be in the second half and how much will you know, whether any of these big chunky pieces that we see will spill into Q1, we don't it's that's hard to pinpoint precisely. Something gets pushed a few weeks and, you know, it's a different quarter and obviously, a fourth quarter gets pushed a few weeks. It's a different year.
But it's a very good picture on fundraising and it's been and we've been saying that for a little while. It's been proven out by the results. One thing that I do wanna mention is we don't have a lot of we don't have catch-up fee product in the market to a significant degree. So we're not expecting to see big numbers there at all in the second half. And so all of this fundraising, which we think will be substantial, isn't gonna really drive the needle much. It isn't gonna move the needle much on actual 2025 revenue. And so the guidance that Pamela gave for Q3 is pretty good guidance.
And even though we do anticipate a very healthy Q3 and a healthier Q4 on fundraising, we're gonna start to see that kick in on revenue as we move into next year.
Bill Katz: Okay. Super helpful. And if I guess maybe one follow-up. Normally, I wouldn't ask this kind of question on a call here, but I'm sort of intrigued that you sort of proffered it up in your prepared remarks. Talk a little bit about the AI opportunity, maybe at either the portfolio level or at the operational level and how we should think about maybe modeling that through from an earnings perspective. Thank you.
Michael Sacks: So let me give a couple of sentences, and then Jonathan maybe jump in because Jonathan is spending a tremendous amount of time on this. But we are focused on this opportunity pretty much everywhere. And so when I said, you know, somewhere in the firm every day, there are AI conversations. That means each investment vertical and on the investment side and how does it help us to be more efficient investors? How does it help us from a margin and workload perspective? How does it help us ultimately to make better investment decisions? And then from an operational perspective, everywhere in the firm as well.
So outside of the investment teams, how does it help our client group efforts? On multiple levels? How does it help us inside our legal and finance teams on multiple levels? And, you know, it is just a I was a joke. You know, it can't we can't have a Q2 2025 call without mentioning it. It really is kind of an everyday thing somewhere in the firm that's got a lot of senior management focused attention and time and has, I think, a lot of promise, and it's actually something that is very constructive with regard to sleeping at night on long-term margin and efficiency.
Jonathan Levin: Yeah. I would just add. I wouldn't obviously do anything specific in your model, Bill, only in the sense that what we've told you is we've got operating leverage in the business. We've shown continued, you know, margin improvement. Something on the order of, I don't know, 1,200 basis points or something. Since five years ago, and we told you we think there's still margin to go. I think it's all kinda captured in this. I went it's not like, to me, a unique modeling exercise, it's facilitating, obviously, that scalability.
You know, I think that without offending all of my other wonderful 550 colleagues, my favorite meeting of the month that we have is with me and our chief technology officer. We meet with our top five users of Enterprise Chat GPT every single month. And we do that to understand what they're using it for, what's been successful. So that we can then have best practices spread out throughout the firm. Because to Michael's point, it's happening every day and everywhere at the firm.
And what our job as a leadership team to make sure that we can figure out then how to scale those best practices across the organization without damping that entrepreneurial spirit and without damping that curiosity that we're seeing across the employee base. I could give you numerous examples of it, and none of them would really make any, like, big sense to you, but they're all little wins. I'll give you a small one for fun. Our tax team just recently built a custom GPT that enables them to read tax returns and automatically enter data that was used to be manual.
As you know, in the industry and private markets, a lot of that is no longer done by fax. But still a lot of PDFs. And the ability to take PDF information, whether it's on a report on a portfolio company or whether it's a financial statement that used to be manually entered somewhere, but now have that be automatically read and inputted into our data lake. All of those things are fascinating usages. The first draft of a marketing deck you might create for a client. That can come out of a GPT and your ability then to obviously make it appropriate for your organization, make it accurate because we all know it can hallucinate.
There's just exciting use cases kind of all over the place. And we encourage people to think about it not only as a productivity and an efficiency tool, but also think of it as a thought partner and a creative partner and not limit the power of its intellect, for lack of a better word. So I just think you're seeing that all across the world, Bill, all across the industry, and it's just obviously such early days.
Bill Katz: Thank you. Appreciate the update.
Operator: Your next question is coming from the line of Crispin Love with Piper Sandler.
Crispin Love: Thank you. Good morning. First on fundraising, do you expect a first close for GSF IV in the second half? And then are there any other meaningful closes we should be looking out for in the second half that are currently in market?
Jonathan Levin: We had, you don't see it in this because it subsequent to the quarter, but we had a first close for GSF in July. And so we'll talk more about that next quarter. And the other product that we would expect to have a first close on towards the end of this year is our CIS for infrastructure product.
Crispin Love: Great, Jonathan. I appreciate that. And then just one last modeling question. Is your 5% to 8% private markets management fee growth for the year unchanged? I just don't think I heard any color on that in the prepared remarks.
Pamela Bentley: Yes. Unchanged.
Crispin Love: Great. Appreciate you taking my questions.
Operator: And it appears there are no additional questions at this time. I'll now turn the call back to you for any closing remarks.
Stacie Selinger: Thank you. Thank you everyone for joining us today. We appreciate the interest and the questions, and we look forward to speaking with you again next quarter if not sooner. Have a great day.
Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. We hope everyone has a great day. You may all disconnect.