Good morning, and thank you for joining ICG's results for the 12 months ending 31 March 2024. As a reminder, unless stated otherwise, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS.
Today, I'm joined by our CEO and CIO, Benoît Durteste, and our CFO, David Bicarregui, who will give an overview of our performance during the period and will then take questions. The slides, along with the accompanying results announcement, are available on our website. You can submit questions through the webcast messaging function or by telephone. Details are on the online portal. At this point, I will hand over to our CEO and CIO, Benoît.
Thank you, Chris. Good morning, everyone. I'm delighted that in our 30th year of being listed, we are reporting such a universally strong set of results today. Strong, not just because of the performance we have recorded for the year, including our second-highest-ever year of fundraising, management fees of over GBP 500 million, and our 10th consecutive year of fund management company PBT growth. But strong also because of the clear trajectory we have for future success.
Our continued leadership in direct lending and GP-led Secondaries, the final close at $1 billion for LP Secondaries, which opens up a potentially huge market for us, our proven ability to attract new clients and to raise funds through new channels, and most importantly, our extended track record of delivering high-quality return to clients across multiple strategies and, importantly, through cycles.
In what remains a challenging environment, we are raising more from more clients across more products than ever before and are demonstrating growth across all key metrics. This long-term confidence is underlined by the revised guidance we are publishing today, which includes increasing our fundraising ambition to at least $55 billion in the coming four years.
A deceptively ambitious target when you factor in the expected longer duration of funds and the associated increased fee generation in today's environment. But let's start with a near-term reality check. The last two years for the alternatives asset management industry as a whole have been the most difficult since the GFC, and in many ways, more challenging than through the GFC. Buyout activity, a key barometer for corporate private market activity, has reduced globally for the second consecutive year. As a result, less capital is coming back to LPs.
As a percentage of NAV, distributions are actually close to GFC levels. Many LPs are therefore temporarily capacity constrained, and that, in turn, puts pressure on fundraising. The fundraising experience of private asset managers, however, varied vastly, and there is a clear bias towards the largest, most successful managers attracting the lion's share of client capital.
This flight to scale and quality has accelerated in recent years as clients have become more liquidity-constrained and have sought to consolidate the number of manager relationships they have. ICG is clearly benefiting from this trend, as you can see from the right-hand side of this slide, and these numbers and the ICG rankings are global. They are not just for Europe. Importantly, as we'll discuss later, scale and relevance in our flagships is helping us to launch new strategies.
That's a real proof point of the benefits of the brand equity we have established. I do not expect this market environment to materially change in the short term. It is likely that the broad industry will continue to face headwinds for the next year or so. So what does that mean? The increasing consolidation of manager relationships by LPs means you need to be a manager of choice, a strategic partner to these clients. To that end, the playbook for success for an alternative asset manager is clear:
strong investment track record through cycles, a broad waterfront of products to be relevant, and a balance sheet as a powerful and necessary enabler of growth. From an investment perspective specifically, it also places huge value on DPI, the, you know, distributed to paid-in capital ratio, or returning capital to investors in a timely fashion.
Fortunately for us, we have been very vocal in the past in making disciplined return of capital a key feature of our investment philosophy. Those of you who have been following us for some time will have heard me for years and repeatedly talk about crystallizing gains and anchoring fund performance. As a consequence, many of our vintages have excellent DPI metrics, which is a real competitive advantage in today's market.
So ICG is emerging as one of the winners from this environment. We are continuing to grow our client base in absolute terms, and for full year 2024, raised $13 billion, our second highest year ever. Looking ahead and against a slower industry-wide background, I see no reason why ICG should not continue to outperform and to deliver growth....
This favorable market position and the results we are reporting today are the result of a deliberate approach to build ICG for the long term. We have developed a strong view of what is required to succeed in private markets across investment performance, product offering, distribution capability, and the platform and financial resources needed to successfully execute on our growth strategy, all supported by the people we hire, retain, develop, and the culture they embody. The fact that over the last decade we have grown FMC PBT in every single year is impressive, but it is an output.
Where we focus every day is on ensuring we have the right people managing products that are attractive to clients, and that as a firm, we have the breadth, size, and operational capability to invest that capital and meet our clients' objectives across cycles, or in more familiar terms, scaling up, scaling out, and investing in our platform. The results we are reporting speak for themselves.
Our AUM is approaching $100 billion, and our fee earning AUM at $70 billion is up 11% year-over-year. Fundraising has been strong, and more on that later. While deployment and realizations are lower, partly due to timing and cutoffs, but also against the backdrop of subdued market activity generally. Financially, we have grown on every key metric, with management fees hitting GBP 500 million for the first time, and David will talk about these later.
We are maintaining our progressive dividend policy, announcing a total dividend of GBP 0.79 per share for full year 2024, the 14th year of consecutive increase in the ordinary dividend. We want to gain market share in this cycle, and as such, are continuing to invest in our global platform. Opening an office in Toronto that's focused on client marketing, building our presence in Warsaw, which is our data analytics center of excellence, and in Pune, in India, where we are building out our operations capabilities.
So promising across the board from a strategic, operational, and financial perspective. If I turn now to fundraising, as I mentioned, we raised $13 billion during the year, driven by our flagship strategies that combined raised $8 billion. That's mainly SDP, senior direct lending, and Strategic Equity , that's GP-led secondaries.
Our scaling strategies raised a further $5 billion, with notable successes for the second vintage of Europe Mid-Market and the third vintage of North American Credit Partners, or NACP. In a fundraising world where it's said that flat is the new up, the funds we are raising for SDP, Strategic Equity, Europe Mid-Market, and NACP are all already larger than their previous vintages and are continuing to raise.
Launching first-time funds in this environment was brave, which is why I'm particularly proud that we have secured $1.5 billion of capital for first-time funds. I do not know of any other manager that has had that success this past year. As I said earlier, full year 2024 was our second largest year ever for fundraising, and looking at the data, it is clear we are making progress against our stated objectives.
31% came from the US, and 11% came from the wealth channel, both areas we have flagged previously as areas of focus. Stepping back, in May 2021, we announced a fundraising target of $40 billion over four years. A year later, on the back of an exceptional fundraising year, we accelerated it by one year, and today, we are announcing that we have beaten that revised target by 15%, raising $46 billion over the last three years.
Our breadth of product offering is a clear strength, and our products appeal to a wide range of clients globally. Over the last three years, more than half the capital we raised came from America and the Asia Pacific region. Our number of clients has grown by 43% over the period, and today stands at over 680.
Those new clients contributed a third of our total fundraising. We have spent time over the last couple of years talking to you about how we are balancing increasing our share of wallet of existing clients with winning new clients, and looking at these figures, you can see that we are successfully executing on both fronts.
More generally, what this means is that over the last three years, we have created incremental value in our platform, both from the fees we have locked in today and in terms of client reach and relevance, and therefore, our ability to raise new and larger funds in the coming years. Our brand equity has increased. I would like to spend a moment on LP Secondaries, as I believe this is one of the defining successes of the year. This is a first-time fund in a strategy for which we are admittedly a latecomer...
Significant changes in the competitive landscape had led us to conclude that there was a window for us to enter what is a very attractive and quite sizable market. We had a final close that was heavily oversubscribed and reached the hard cap of $1 billion. As you could see from the charts on the left, more than a third of the AUM came from the wealth channel from a number of distributors, both in Europe and the U.S. The client base as a whole is geographically diversified, and half the clients by number are new to ICG. So this is a powerful example of brand equity.
LP Secondaries is a well-established asset class with a number of scaled players globally, and yet, with our brand, the client franchise, balance sheet, along with obviously the right investment team on both sides of the Atlantic, we have raised a great first-time fund. In doing so, we have opened up a new level of potentially substantial growth in the coming years. There is no reason why this strategy couldn't reach $10 billion or more per vintage at some point, and so this could be or should be another meaningful growth engine for us for at least the next decade.
Indeed, we're already looking to capitalize on this success and scale out in this asset class by launching an institutional quality evergreen product targeting the U.S. wealth market, which we're calling ICG Core Private Equity, and will give clients differentiated access to private equity through the secondary market. As we look at our product line today, Core, which I've just mentioned, has appeared on the top left.
Both it and Life Sciences will hopefully move across in the coming quarters, and the teams are continuing to work on Infrastructure Asia and Real Estate Asia . Today, we have a number of large, globally relevant flagships on the right-hand side, and an exciting set of scaling products in the center column that are increasingly relevant to ICG's financial performance and will be a source of meaningful profit growth for many years.
Our waterfront of differentiated strategies enable us to be more relevant, meet the demands of our clients at different points in the cycle, and provide us with multiple levers of growth for years to come. Looking ahead, we will continue to focus on investment excellence and on our people and our platform.
Fundraising for the coming year will see the tail end of fundraising for SDP V , Strategic Equity V , NACP III, and Infrastructure II . We also anticipate launching a number of funds, including Core Private Equity and Europe IX , although the timing of first closes for both are uncertain and could be in the next financial year. In the short term, I still believe the market will remain challenging in many respects.
Industry-wide, I do not anticipate a rapid and sustained recovery in M&A volumes in 2024, and as a consequence, no meaningful change to the fundraising context. But its strategies, niche, optimistic strategies, and more broadly, any strategy providing a liquidity solution at either the portfolio company, GP, or LP level, will continue to do well.
So think credit, structured financing, GP-led secondaries, LP secondaries. Longer term, I remain highly confident in the private markets growth, evolution, and innovation. ICG is 35, and since we listed 30 years ago, we have been growing and investing successfully for the benefit of our clients and our shareholders. From our IPO in 1994 to the 31st of March 2024, we generated a total shareholder return of 85.8x, substantially more than both the FTSE and the S&P 500.
Our total shareholder return has also outperformed both those indices in the last 5 and 10 years. Today, we have the market opportunity, combined with the strategic and financial resources, that position us for decades of growth to come. With that, I will pass to David to talk in more detail about our financial results.
Thank you, Benoît, and thank you all for joining us today. We are reporting strong results today, significant growth on all metrics, and before going into the details, I want to highlight a couple of points. Importantly, it's not just in-year growth. Our consistent delivery is demonstrating that we can generate through-cycle growth.
Fee earning AUM of $70 billion is up 11% compared to last year, 17% annualized over the last 5 years. Management fees are continuing to grow, exceeding GBP 500 million for the first time. Our fund management company generated a PBT of GBP 375 million, up 21% compared to last year, and recorded the 10th consecutive year of growth. Our NAV per share grew 15% to 801 pence. Our balance sheet has demonstrated long-term earnings power invested alongside our clients.
It is also a strategic asset to power future business and growth opportunities. Moving to the top line of our business, fee-earning AUM, over the last 12 months, this has grown by $7 billion, or 11%, driven by $6 billion of fundraising for strategies that charge fees on committed capital, predominantly Strategic Equity and LP Secondaries.
Almost $8 billion of deployment for strategies that charge fees on invested capital, largely Senior Debt Partners, partially offset by realizations of $6 billion. Over the long term, fee-earning AUM has grown at an annualized rate of 17%. As we look over these 5-year periods, also in the subsequent slides, it's worth keeping in mind that this period covers COVID, the war in Ukraine, and the rise in interest rates.
Fee earning AUM is a key driver of management fees, which this year were GBP 505 million, up 5% compared to last year. As you all know, catch-up fees, which are just a timing difference, can cause an element of lumpiness in reported management fees, and excluding these, the year-on-year growth was 11%. At the end of this financial year, we have $16 billion of AUM not yet earning fees, which have annual management fee potential of GBP 117 million, were they to be deployed, all other things equal.
The fact that we have grown management fees through a slower market, impacting fundraising, deployment, and realization pace, underlines the value of this management fee stream. The pace of growth may slow down, but because investments are being realized less quickly, we are extending the duration of our management fees.
This is very visible and not dependent on our ability to raise or deploy capital. One way of thinking about that dynamic is that our earnings quality goes up in a slower environment. The visibility of management fees and their sticky, recurring nature is very powerful, both in delivering growth and in helping us manage the business and invest for the long term.
Now, turning to performance fees, which are notable, but relatively small proportion of our fee income. The notable year-on-year increase is largely due to the inaugural recognition of Europe VII , along with the performance fee in Alternative Credit that is tested every three years. Looking ahead, we are reiterating our guidance that over the long term, performance fees will be roughly 10%-15% of our fee income. Turning now to the earnings of our balance sheet.
Net investment returns this year were 13%, or GBP 379 million, and PBT was GBP 223 million. The NIR was strong across our asset classes and included a hundred and eighteen million pound benefit from three investments that were originally intended as seed investments, but will now be sold to third parties. This included the life sciences investment in Amolyt that was recently acquired by AstraZeneca.
From a cash perspective, we invested over GBP 320 million alongside clients. We also made seed investments totaling GBP 312 million, in particular for real assets, which included our infrastructure Asia team's partnership with an Indian renewables platform, Amp India. In aggregate, the balance sheet investment portfolio generated GBP 139 million of net cash proceeds.
We experienced realizations both from our investments alongside funds, as well as from our seed investments. This latter is particularly important, as our ability to recycle balance sheet capacity into new seed opportunities is an important component of our business model. As a general observation, we are generating attractive earnings and cash flow from our balance sheet, as well as benefiting from the wider strategic relevance of the asset base I'll discuss later.
So as we scale up and scale out, we are generating substantial operating leverage. Our FMC revenue has grown at 19% on an annualized basis over the last five years, while FMC expenses have grown at 12%. This translates into an annualized growth rate since FY 2019 for our FMC PBT of 21%. Or put another way, FMC PBT has grown by more than 2.5 times over the last five years.
Today, our FMC PBT margin is 57%, compared to 52% in FY 2019. So another way to think about the growth in FMC PBT is that about 85% of it has come from our top-line growth, and the remaining 15% has come from margin expansion. In terms of managing our business, that clearly underlines the importance of investing appropriately to drive revenue.
We need to have the right strategies to be able to raise and manage the capital and have the systems in place to effectively serve our clients. We have been making those investments, largely in our people, over this 5-year period, during which our headcount has almost doubled. In FY 2024, FMC operating expenses increased by 21%, and our total operating expenses increased by 14%. We will continue to invest thoughtfully and strategically.
For FY 2025, I would expect the rate of growth in our operating expenses to be lower than we've experienced during the last 12 months.... We are in the fortunate position of being able to grow our top line, invest in our platform, and deliver increased profitability. We have delivered on all those things in the last 5 years, and we are also increasing our margin guidance to be in excess of 52%.
Today, we are a global firm operating from 19 locations around the world. Our global footprint reflects our global client base and our increasingly global product set. It is also reflected in our financial profile, with just over half of our fee income in euros and another third in dollars. As well as our recurring and visible fee income, our growth ambition is supported by a valuable capital base.
We have GBP 4.2 billion gross balance sheet and an NAV per share of GBP 8.01. It's diversified with significant liquidity and well-capitalized. This is a powerful asset, and we think of it as a source of significant future earnings potential. That may come from co-investing alongside our clients to support fundraisers and simultaneously benefiting from fund level returns. It may come through seeding new strategies, which will generate incremental management fees as they scale.
Looking to the years ahead, it provides us with significant flexibility to ensure our business composition is nimble and able to capture growth opportunities. LP Secondaries is a good example of how we efficiently use our balance sheet to scale the business and generate fee income. You'll recall, we had a similar example for the real estate equity business in our shareholder seminar in February.
For LP Secondaries, in aggregate, we have deployed GBP 144 million in seed investments, with the team building a track record and also reducing the blind pool risk for clients in a first-time fund. A large amount was syndicated to LPs, building momentum for fundraising and recycling balance sheet capital. And we transferred a substantial portion to the fund, leaving the PLC with a residual exposure to those seed investments of about GBP 5 million, of the initial GBP 144 million.
Without this, we would not be able to get the LP Secondaries business off the ground in this market, and it underlines how the balance sheet drives growth in a capital-efficient way. As I said earlier, we are pleased to report growth across all key metrics, extending our track record of profitable growth. But it also is worth reminding that we're a long-term business.
Looking at the five-year growth, you can clearly see the value created from scaling up, scaling out, and investing in our platform. That long-term confidence is reflected in our updated guidance today. We now expect to raise at least $55 billion over the next four years, assuming that the fundraising environment normalizes in FY 2026.
As I referenced earlier, in a slower environment, funds are being deployed over a longer period, and therefore, as Benoît says, it's an ambitious target. We are confident that our FMC operating margin is now structurally in excess of 52%, and our performance fee and NIR guidance remains consistent. We've achieved a lot over the last 30 years and are well-positioned to keep being among the winners in the years to come. With that, I'll turn to Chris, and we look forward to taking your questions.
Thank you very much, Benoît, David, and as a reminder, you can either submit a question via text on the online platform or ask an audio question, and we have a couple of audio questions already. I'll start with Hubert Lam from Bank of America. Hubert, your line should be open.
Great. Thank you for taking my questions. I've got three of them. Firstly, on the $55 billion target over the next four years, how should we think about the timing or the trajectory of it? I know you're saying that fundraising is challenging near term, so should we expect FY 2025 to be lower than FY 2024 of 13 billion? That's the first question. The second question is on the EBITDA margin. I know you're saying that you expect it expected to be higher than 52%. You got 57% last year. So do you expect it to come down near term?
Or, I also know that you talked about the cost growth, and you said it's gonna be lower than the 21%, but how should we think about it, more specifically for this year, in terms of mid-teens or high-teen growth, for costs? And lastly, if you can talk also about the credit quality or the default environment on your credit and private debt portfolios, any changes or deterioration in credit quality, particularly in Europe? Thank you.
Benoît, do you want to take the $55 billion and the credit quality-
Yes.
and then David on the margin?
Will do. So two aspects to your question on, on the, you know, the fundraising guidance. So over the four-year period, would you expect, you know, increasing fundraising numbers? Yes, if only because we're at a low point in the cycle in the fundraising context. So it would only be natural to see the market normalize.
Or I'm not sure what normalize means or what the new normal would be, but certainly improve, from where it is today, and therefore, see a growth path over that four-year period. Now, narrowing it to the one-year outlook, that's much more difficult, as you know, because it could be pretty lumpy. I'll just give you one example. I've mentioned that-
... We will be launching Europe IX, which is one of our flagship funds, as you know, during the course of this year. However, the timing of the first close is highly uncertain. You know, we just don't know. It's partially dependent on when we finish investing the, you know, the previous vintage, so there are elements of unknown.
It could very well be at the very back end of this year. It could also be in the following year, and suddenly that changes your fundraising number for the year. Doesn't really change much in terms of fee generation, but just in terms of the cutoff, it, you know, it would yield a very different result on the fundraising amount. So that's the way I would...
That's the way to position it, but I don't expect that we suddenly see a drop in the fundraising number this year. But you can easily have several billion USD that could flip from one fiscal year to another. On your question on the default environment, it's, I mean, you know, there's a reason that, you know, people have been saying that, you know, that this is a very attractive time for credit strategies.
It's not just because interest rates are higher, and you're, you know, you're naturally just generating higher returns. It's also because, you know, we're not experiencing a severe recession, unlike if you think back GFC or even previous cycles. And as a result, you know, portfolio company performance across the board... By the way, this is not just ICG.
We could see this across the board. Portfolio, you know, company performance remains pretty good. I mean, on average, there are still double-digit EBITDA growth. You know, the real question in the market is more around the evolution of equity valuations, but the businesses are, by and large, doing well, particularly those businesses that the buyout industry tends to be exposed to, which are the less cyclical, more cash flow generative businesses.
And so, as a result, you're not seeing much default at all, and I don't really expect to see much of it, which is why, you know, I tell our clients that, you know, this period is not really a test for credit strategies because everything's going in the right direction for credit strategies. There's no reason why you should see much, in the way of default, and you're going to be carried up by increased interest rates. So that's the, you know, that's the, the environment for credit strategies. Do you want to take the-
Yeah. On operating margin, Hubert, I mean, a couple of things I'd say there. Firstly, our prior guidance was 50%, and we've increased that to 52%, in excess of 52%, actually. I think that tells you that we now feel very confident that we've got a structural underpinning to that 52%, i.e., management fees. In my remarks, I called out the consistent and recurring nature of management fees, which drives us to that conclusion.
Of course, there can be upside to the extent performance fees and other factors helps the upside, but I think at this point I'd regard it as an in excess of 52% underpinning, informed by the management fee stream. On expenses directly, you observed we are at 21% FMC expenses over the one year.
If you look at our five-year, which we put up on the slide, it's more like 12%, and so I'd expect in the period ahead, we bring in our rate of growth down closer to where our five-year average has been. And that reflects the fact that we've made a substantial investment in the platform already in the form of people. Many of those people joined in FY 2023 and FY 2024, and so that cost base is in place, and we don't feel the need to materially increase expenses beyond the numbers I just gave you.
Can I add perhaps that we've made a strategic, conscious decision to be on the front foot during this part of the cycle, and therefore, invest in the platform, invest in our teams, invest in our marketing teams, in particular, because I am convinced, and we're already seeing it, that was part of the presentation today, that, you know, in this more difficult period, you're seeing greater bifurcation between those managers who are coming out on top and others. And so we clearly wanna take advantage of this period to, you know, create, you know, further distance with some of our competitors.
Thank you.
Very helpful. Thank you.
Thanks, Hubert. We have some questions now from Nicholas Harman at Citi. Nick, your line should be open.
Yes. Morning, gents. Thank you for taking my questions. Also three, please. On fundraising—firstly, on fundraising. Actually, there's a couple here. Could you please just talk about the outlook for credit, and how much you expect that to contribute to fundraising over the next four years? And then a clarification on—as well. Thank you for providing the reconciliation between keeping AUM and AUM in the release.
Just for the avoidance of doubt, just how much of your EUR 46 billion raised over the last three years was fee exempt? Was there any, and how, and I guess, would you expect that to also then comprise any of the EUR 55 billion? And then finally, on the fundraising, it looks like you're embedding approximately 20% up sizing between vintages.
Just put some color here, what kind of environment is your guidance basically assuming or embedding in order to reach these kinds of vintages? Just if you could provide some color around that, that would be very helpful. And then the other question. Well, to the question, sorry, I apologize.
Also on deployment, I appreciate that some of the—you know, it's a bit uncertain—but if I look at the deployment, some of the flagship strategies, European Corporate VIII , Asia IV , deployment's pretty much flat on the year. Just how are you thinking about the investment period duration for these two strategies? as well as Strategic Equity V and SDP V . So I appreciate that was 4, not three. Thank you.
Okay, thanks, Nick. There's quite a lot in there. So first of all, why don't I repeat them? So, Benoît, do you just wanna talk briefly about the fundraising outlook for credit, I guess, specific to both the credit asset class, CLOs, and also the private debt asset class, NACP and direct lending?
Yeah, I mean, I mean, you know, the, I mean, as we know, the environment has been quite favorable. I think, you know, this is—it's not just temporary. I think it's a, there's been a shift in the market. Private markets were generally not exposed or very little exposed to, to credit. And so there's been a significant shift that's not going away anytime soon.
So, you know, the—whether it's SDP, whether it's CLOs, whether it's NACP, in the U.S., I mean, we're just assuming that they're going to continue to, to, you know, raise subsequent vintages. You know, the growth between vintages, it's, you know, you could take several views. It depends on market environment, it depends on many things.
For these strategies, it's, I mean, of course, it matters for the fundraising number, the headline number, but in the scheme of things, it doesn't matter all that much because these are fees on invested. What really matters is you have enough capacity to deploy, and then how quickly you are deploying, that's what's generating your fee stream. So unlike strategies with fees uncommitted, where the size of the fund matters, in this case, it's more the velocity of deployment that really drives the profit growth. I think there was a question about a 20% upside between funds. I'm not sure where that-
Yeah. So more broadly, then the question was around, you know, we talk about a normalized fundraising-
Ah!
- environment from FY 26. Can you give some more color around what you mean by that?
Well, I mean, listen, I mean, if... I think, you know, ICG's numbers, because we have, you know, we're fortunate that we have a number of strategies in the market. We've diversified a lot in past years, and so we've clearly benefited from that. But that's somewhat masking the, you know, how challenging the fundraising market is for the broader market.
And so, you know, as I mentioned during the presentation, you know, at least consultants or advisor are now saying that, you know, for strong teams, flat is the new up. If you, you know, just managed to raise the same amount as you did in previous vintages, you're doing pretty well. So it so happens that we've done better than that, but that's the experience in the market. That's not normal, right?
I mean, that is an abnormal situation. So when we're talking about the market generally normalizing, I would expect an environment where you're seeing growth again. You could even see a scenario, but, you know, I just don't wanna paint too rosy a picture, 'cause I don't have a crystal ball.
But you could absolutely see a scenario where the lack of capacity that LPs are struggling with today reverses at some point. Because what will happen is, there is a lack of deal flow, particularly in private equity right now, and that's why LPs are capacity constrained. There's not enough capital coming back to them. But that will change at some point, and it...
You know, there's just a backlog of transaction and of capital that is going to make its way back to LPs, potentially quite quickly. When that happens, LPs are gonna find themselves in the opposite situation, where they're gonna be struggling to deploy.
So you could even see a scenario where there is a period, and I just can't tell you when that will be, but you could quite see where there is gonna be a period where there is going to be a rush to deploy by LPs, and so you could almost have a period of time where there is, you know, disproportionate deployment, and then it normalizes. So that's the if I, if I try to, you know, gauge the, the, the fundraising environment, and, and that would flow to us, at least in some form or fashion.
You have to overlay on that our own fundraising cycle and which funds we have in market. But, you know, for sure, that overall environment would have an impact on us. Putting it differently, we're not immune to the general market environment.
So yes, our numbers this year are pretty good. You know, had the environment been more normal, if I can use that term, or more in line with the, you know, the historical levels, we would have raised even more, I mean, for sure. So that, that's, that, I think that's a, that's a different way of, of putting it, which kind of ties into the, you know, the, the previous question about, do we see, in that four-year cycle, do we see almost a natural growth in, in the fundraising amount? Yes, just because of where the market is and the fact that at some point, it will normalize.
Thank you. There was then a question on deployments, and if you've got any commentary on the deployments of maybe year eight, SDP, and-
Yeah, there are a number of factors there. So, I mean, you're right to point out that the numbers for some of the funds, not all, but some of the funds, Asia, Europe, last year, the deployment was relatively low. But it's not, I can't identify a trend in that, because a lot of it is lumpy. And if I look at, for instance, like if I look at Europe, there are actually quite a few deals that were signed last year and that just happened to close after the financial year end. So you can't really draw, you know, much conclu...
I mean, which is why, you know, I could say with strong confidence that we're going to be going out raising Europe nine is because, yeah, I could see the deployment and the fact that we'll need another vintage in the not too distant future. So I wouldn't draw. I wouldn't really draw conclusions from that. SDP is a bit different. It's a different dynamic because SDP, whereas Europe and Asia are not - they're not directly correlated to the buyout market because a lot of the deals, actually, most of the deals these strategies invest in, are non-vanilla.
They're not market deals. They tend to be backing family-owned or founder-owned businesses, so they have their own dynamics. SDP is directly correlated to the buyout activity because it mostly finances sponsored deals, private equity-sponsored deals. And what we've been observing there, but that's been the case for two years now, and it's continuing now, and I don't see it changing in the near term, is, there isn't much primary deal flow, you know, because there is not much M&A, not many, not many private equity transactions being closed, and so there isn't much primary activity.
However, there's quite a lot of activity that is linked to the existing portfolio. So a lot of additional financing add-ons as private equity sponsors, as they, you know, cannot find windows to exit their deals, they're not being idle. They're, you know, obviously trying to manage, you know, increased value in their portfolios. And so they're doing more work on their portfolio companies, which in many instances require more financing.
And so that's what's been a key generator of the deployment for SDP, and I don't see that changing very much, again, until you see the primary market reopening. I don't have a view as to when that is. I don't think it's gonna be in the near term. I just don't see the catalyst for that. When it does, you could see a raft of transactions for, you know, for SDP, but again, I wouldn't count on this for this year.
Thank you. Before we go to the AUM question, then we've actually had a question online which links to your SDP question-
Yep.
-but also. We're hearing a lot about increased leveraged loan market activity, particularly in the U.S.-
Yeah
... since the start of 2024. Do you have any comments around how that's impacting the net deployments in SDP for the coming quarters?
So, you know, we're more Europe-focused than U.S. In the U.S., we have more of a sub-debt mezz strategy, which is less directly impacted by this. But it is true that there is more activity from the syndicated loan market. Having said that, that's coming from pretty much zero. Last year, the market was essentially closed, and it's again, it's against a backdrop of very limited primary activity, which is why there's a bit of noise around that, because when the one deal emerges, there's a lot of noise around it just because there's lack of deal flow.
So, you know, again, I, I don't think it dramatically changes things for SDP because certainly in the past couple of years, SDP hasn't really been relying that much on the primary market because there wasn't much of it. So, I wouldn't make too much of that.
And actually, I'm not so sure about the depth of capacity in syndicated loans. It's just that there's, you know, it's supply, demand, you know. There's just not much primary deal flow in today. Thank you. To wrap up on Nick's questions, David, there was a question on fee-paying AUM and AUM, and how much fee-free or fee, fee-exempt fundraising was included in the 46.
Yep. So, Nick, a couple of things there. Firstly, as you said, we've updated our AUM definition. We've actually brought it in line with many of our peers at $98 billion. It doesn't change fee-earning AUM, of course. It's why we provide the bridge, and that's the economics that are important. In terms of the actual numbers, there's $9 billion of fee-exempt AUM in the bridge. If you look back, we've tended to raise something like $1 billion-$2 billion of fee-exempt on an annualized basis. So if that's helpful in terms of how you build the guidance from here.
Thank you very much. Some more questions from the phone. We'll now turn to Arnaud from BNP. Arnaud, your line should be open.
Yeah, good morning. I've got three quick questions, please. Firstly, can I ask about the management fees in Structured Private Equity? I understand there were limited catch-up fees in the period, so I'm trying to understand why there's a pickup in margin and if that is sustainable. My second question is a follow-up on the FMC operating margin guidance of 52%.
If I understood well, that is sort of an FRE margin, so a guidance of FMC operating margin excluding performance. Is that correct? And my third question is on your US wealth distribution capabilities. Good to see you launch a Core Private Equity in the US. Some of your US peers have significant distribution capabilities. I'm wondering if that's something you aspire to, or indeed, if having hundreds of people in distribution in the U.S. is something that is required to have success there. Thank you.
Dav id, do you want to take the question on the catch-up fees in Structured Private Equity and then on the FMC margin?
Yeah, sure. So, a few things. So if you look at the Structured and Private Equity segment that we break out in the RNS, you can see that the management fees for last year were GBP 283 million versus GBP 284 million this year. As we called out in the presentation, last year did include, significant amount of catch-up fees, and that's why we quoted it before and after.
So if you look at it, you know, flat, but then 11% up in terms of total management fees if you took out the catch-up fees at the firm-wide level. So hopefully, that's helpful guidance as you think forward. In terms of the FMC operating margin, just to be clear, the guidance is in excess of 52% for the FMC operating margin, all in.
But it's underlined and underpinned by the fact that we have management fees that could deliver 52% or more. If you literally took out performance fees from this year, you get to something around that level. So clearly, performance fees can create some upsides to that number, but they're less predictable, hence why I want to have an underpin at 52%.
And on the, on the US wealth question, I mean, you're right. I mean, there are many ways of approaching the, you know, the market in the US. If essentially you're trying to go almost direct retail, then you need hundreds of people to address the market. That's not what we are trying to achieve. We're not of that size. I'm not sure we ever will be. But that's not the only way to approach the wealth, particularly if you're in the wealth and high net worth market, because there are platform, and you can go through through intermediaries. And actually, some, some...
These platforms are looking for managers, and they're also they're often looking for managers that have something that's a bit differentiated, so that they don't always you know, you know, propose the same managers and the same products. So that's what we're leveraging, and we're finding that there is, there's, you know, reasonably strong demand, which is why we've been quite successful with LP Secondaries, which I think is a product that works well, and why Core, which is, you know, the evergreen version of that, if you want, I think will likely resonate as well.
We had a question online around how large we think Core could get over the coming three years. Is there any guidance on that? These things tend to ramp pretty-
It's hard to... Yes, exactly. They tend to ramp slowly, but then they start to snowball, but it takes a while, so I... You know, we need to be there. We want to establish the brand because, you know, we, we'll be thinking of, you know, launching different products in the future. But these things, yeah, they take a while to take hold.
Thank you very much. We now have some questions from Ollie Carruthers at Goldman. Ollie, your line should be open.
Morning. Thanks, everyone. It's Oliver Carruthers from Goldman Sachs. So a few quick questions on LP Secondaries, where, you know, it looks like you entered the market at a nice time, and were able to accelerate your ramp using your balance sheet here. So the first question, you know, will this strategy have a strong European tilt in terms of its investments, or will it be more global?
You know, where's the opportunity? Second question: Is the 95 basis point fee rate on committed capital in line with market here? And then third question: As we think about the J-curve for your group P&L, how big does this strategy need to get to start contributing positively to the FMC PBT? Thank you.
Yeah. So, LP Secondaries, these strategies tend to be global. I'm trying to think if they are European. Yes, I think there are a couple of European-specific managers, but by and large, LPs want global because they want diversification. And the, you know, part of the, you know, merit of these strategies is you're getting diversified exposure across a number of private equity funds. So yes, that strategy is global, which is why I mentioned that our team is based both here in Europe and in the U.S. That's one thing. I think there was a question on fees. Yes-
Nine-
Yes, it's... I mean, to be fair, I'm not sure what market is.
Mm-hmm.
But yes, you know, clearly, when we look at launching new strategies, we're looking at, you know, where the market is generally pricing, and
Yeah
and where you need to position the strategy. So there's... It's not an outlier at all. I'm sure you could find more aggressive people, and people that, you know, may have, yeah, maybe some... I'm not sure on average if they have higher fees than that, but maybe at the margin, because that's our first time fund. But yeah, yeah, it's not an outlier, if that was the underlying question.
Yeah. And, Ollie, I think the third question was just about the J-curve effect. I mean, this is a very attractive business from that perspective. You know, $1 billion, first-time fund. Demand was in excess of that. Obviously, you can move to a second vintage quicker than your other average products. There's a bunch of natural tailwinds on why we're excited about this business being more scalable and more profitable sooner than some of the other strategies.
Perfect. And then we have a couple of questions online. David, is there anything, any guidance we can give on performance fee trajectory for FY 25, given the strong outturn for FY 24?
No, is the short answer. And it's partly why I focus on the things that are inside our control, the management fee streams that's recurring and predictable. The expense base we talked about will be a function of how much investing we want to do in the platform, the opportunity set, opportunities to bring teams on board, so we need the flexibility to do that, hence the 52% underpinning.
But performance fees, by definition, is a function of things that the funds are doing, not the PLC, and we'll stay focused on it, but it's not something we guide on, other than over time, we feel the 10% and 15% mix of fees is reasonable.
Perfect. With that, there are no more questions. Benoît and David, thank you. Thank you to everyone for joining us on the phone.