All right. Anybody else out of breath beside me as you make these turns and,
You only gave us five minutes of turnover.
five minutes, and Adam might be a little more elongated than you are. No, no. Yeah, good afternoon, everybody. I'm Ric Prentiss, head of Telecommunication Services Research plus Media now, so we're excited by picking up media. So that's a transformation for us to put the M in TMT at Raymond James. And talking about transformations, we got Jacky Wu, CFO of DigitalBridge here with us that has transformed the company dramatically over the last couple of years. Simplified the story now. Finally, I will stop losing hair, and I'll be able to tell hedge fund folks, "Is this a good or a bad quarter when you announce?" as opposed to, like, "Let me get back to you." But why don't you hit us on where you at today, what are you focused on, and just updates on the story.
Then we'll do a fireside chat, and then we'll take some questions, and then, of course, we have the breakout.
Sure. So DigitalBridge now, we're a 100% alternative asset manager. We manage $80 billion of assets globally across 30+ different portfolio companies, principally in digital infrastructure investment management, over 100+ investment professionals globally. And, you know, obviously a long track record of having both operating digital operating experiences as well as private equity experiences. That's really the DNA and foundation of the firm. We are considered to be sector specialists. We don't stray too far away from our roots, which is digital infrastructure. We know what we're good at, and we know what we don't know. And we know that we're good at this, and we will only invest in digital infrastructure going in our funds construct, or adjacencies to it. We're high growth.
Last year we posted over 50% growth in our fee revenues, over almost 50% year-over-year in terms of our fee earning equity under management. Basically, the amount of equity that we manage and get fees off of, we grew another 50% year-over-year. And we're asset light, right? We were able to play in this space without direct ownership on our balance sheet through our public shareholders of these assets. We form capital, no differently from Blackstone or KKR or Carlyle or TPG, in a fund construct where we've pulled together third-party capital from sovereign wealth funds and corporate pension funds globally, and we're able to deploy them in billions and billions of dollars through these fund structures, and we collect a management fee off of. So it's a highly recurring revenue stream, high-margin business, asset light at the end of the day.
And why are we only in digital infrastructure? Because, A, we know we're good at it. We come from that background. The company was founded over 10 years ago by Ben Jenkins, who was a senior managing director at Blackstone, and Marc Ganzi, who was a founder of a number of digital infrastructure businesses, principally in the cell tower space. And both of them have a long track record of having success in this space and investing in this space. But it's that marriage of having understanding of how these networks are built, understanding how to run these businesses operationally, but also underwriting in that fund construct. That marriage is what created DigitalBridge and why it makes us so special, compared to the other private equity firms. We like the sector because, obviously, for obvious reasons, we all have our cell phones. We all hear about AI today.
We all understand that the industry is fast growing into new sectors and new industries beyond TikTok, but potentially in things like autonomous vehicles, and on top of revolutionizing healthcare and energy and other aspects of the world, where they're all fast becoming digitized. We love that tailwind. Understanding this space and how high growth it is, it's mission-critical assets at the end of the day, and it's highly resilient. As shown by the pandemic, our sector was one of the most resilient. It grew as a result, significantly as a result of the pandemic, but it's recession-resilient. We have great counterparties like the Verizons and Amazons and Googles and Microsofts of the world. We love what we do, and, you know, this is a time to play in our stock and in our space.
Great. Thanks, Jacky. First, we're glad and we thought it was important to get the guidance changed over to calendar year versus kind of exit run rate type stuff. So I know it wasn't easy.
It wasn't easy. I would say every transformation I always joke with the team, but Rome wasn't built in a day, and we wanted to explain to everybody where we were going, when we first put out that framework on a run rate basis. But we're now going into our third fund. We're fundraising that this year. We're expecting big things out of it. We already have $3.5 billion locked up in our third vintage. Our second fund was $8 billion. So we're of scale now where, you know, we're going to be like the big boys and give fiscal year guidance.
Yeah, sounds good. Obviously, this interest rate environment makes it interesting, challenging as far as fundraising. How comfortable first, let's go ahead and get the guidance again here in what you guys are looking to do this calendar year. The pacing of that capital raise and why can you raise that capital?
Sure. Well, first of all, we all hear the thematics of AI, right? And we're hearing a lot of folks, a lot of institutional capital like Blackstone and KKR also playing in the space. And they're really kind of validating the size of the opportunity and helping us grow this size of the pie and this opportunity. So there's a ton of tailwinds in the space, obviously for a whole host of reasons that we've all read about, certainly with AI and 5G and mobile edge compute. So that tailwind is driving, you know, certainly a lot of institutional capital interested in our space. So that's certainly one why we've got conviction around it. Our guidance this year is to post yet another $7+ billion. I emphasize plus, because we certainly are hopeful and think that we can do better.
But what we've guided is $7+ billion of fundraising, fee earning, and fundraising fees, generating fundraising, this year. We're expecting an ending fee earning equity under management in the $36 billion-$38 billion range at the end of this year. You know, that's another double-digit growth year-over-year. We grew 50+% last year. You know, that implies a slightly slower growth rate, this year. But, you know, given the interest rate environment, given some of the unknowns, we want to be cautious. At the end of the day, it is a more difficult fundraising environment in general, purely because a lot of this capital is hung up in, you know, commercial offices and all the stuff that we don't do and touch, but cognizant that a lot of the other funds, that invest in us also are invested in that type of asset class.
They really need that money back, right, in order to, you know, put more to work. Candidly, that's been a challenge for the space.
Why does an LP, pension, sovereign, life insurance, why do they choose you instead of Ares, Apollo, Blackstone, Carlyle, etc.?
Well, I think they definitely choose them for, you know, a whole host of other reasons. And they're fantastic and great firms. And we, you know, certainly commend what those guys have been able to build. But why they choose us is if you want to go into digital infrastructure and you definitely want somebody that knows what they're doing, knows what they're buying, can get access to proprietary deals, whether it's, you know, our deal that we did with Liberty Global where we carved out the data centers that Liberty Global has in Europe, and we formed a joint venture in tier two, tier three data centers across Europe, and now is benefiting from this huge tailwind of AI. And, you know, that's who they come to and why they would want to, you know, partner with us.
We can get access to those types of deals because we are sector specialists. We have those relationships with the customers. Our entry as a result of doing these type of proprietary deals isn't this runaway bid-up auction where we're entering at a 30x multiple. We're getting good deals, like we did with DataBank, like we did with Liberty Global, with AtlasEdge, you know, deals in the teens, right, as an entry multiple. And that's giving us great returns as a result of that, right? So it gives folks a chance to play in stuff across the spectrum, not just money into digital infrastructure, but ideas and strategies alongside our customers.
And clearly, one of the things that you have a limited history publicly is demonstrating carried interest. How much do you think that potential is in your stock price today, and what does it take to get it in there?
Yeah, sure. I think that a lot of it is not in our stock today. And we've done a valuation framework in the past where we kind of showed some of the parts. But we understand that, look, we've got to show that track record. And we're starting to show it. The last two years, we've had three really, really nice exits. One was Wildstone, which is a digital billboards business. Our Fund One implied returns, well, in exits at almost 30%. We had DataBank, which was a 2x MOIC. That was an exit last year, that we did a recapitalization with Swiss Life. And that was a fantastic return of capital and realization for our LPs. We also had Vantage Towers, which was sold to KKR. That was the tower portfolio with Vodafone, which we were an early investor in, and we sold that off.
So we are demonstrating those realizations. I think over time, you know, our funds are still pretty young. Our first fund, DBP1, which was a $4.1 billion fund, was a 2018 vintage. We typically see hold periods in that seven to eight year range because we have long-dated fund structures. But with that said, as we get closer to that and as we have more and more exits, I do think that public shareholders will see this carried interest line, this revenue that we're getting, these gains and profits we're accruing, and goes to the benefit of our shareholders. And when they can see that more consistently, I think they'll give us some credit for it. The industry in general doesn't give full credit for carried interest because there is a risk component to that.
But at the same time, those, as we get bigger and as we continue to show what we're made of, I think that folks will give us some credit for it.
Yeah. You guys do keep management teams around. Why don't you lay out kind of the bench strength that you've got? You're going to be going onto the bench here pretty soon too, right?
Well, I do love doing deals. My background, I spent five years at American Tower, 10 years at Verizon, doing deals. But, you know, I've done a fair bit of transformations now. And what we pride ourselves in is getting folks that have that industry experts. So we've got Alex Gellman, who's one of the top-notch CEOs, heads up Vertical Bridge, for example. We have Raul Martynek at DataBank. We have Sureel Choksi at Vantage. So we've got these, a plethora of operating partners and CEOs that have been driving significant value with our portfolio companies.
These are folks that are well recruited and would want to, you know, our competitors would want to recruit into their businesses, and they choose to stay with us because of the value creation that they can bring here at DigitalBridge, building something unique, having that brotherhood and sisterhood of other operating well-thought-of operating partners within the ecosystem. So that's part of what makes DigitalBridge so great. And when you're investing in us, you're not just investing in just money going into data centers. You're investing in an entire ecosystem, an entire franchise.
You guys have also done some M&A. You did a transaction. There's been some turnover at that transaction. But talk about what you learned from doing that manager acquisition. And what's the opportunity and what's the kind of the pool you're fishing in?
Sure. We did a deal. We acquired the equity business and equity investment management business of AMP Capital last year. We closed on that transaction. It's worked out really great for us. We underwrote to a $23 million fee-related earnings. We're now sitting here at a run rate of close to $33 million. So we pulled out a lot of cost out of the business. We bought it at an implied multiple of less than 5x on an investment manager for that investment manager for that GP. It's worked out really well for us. It's been highly accretive. You know, obviously, we bought it at an opportunistic price, because we knew that there were some things that we needed to work through in terms of their funds and in terms of their portfolio companies. We know we have that expertise to do it.
So I would say when we underwrote to it, we did all the things that we should have done, which is looked at the LP base, you know, built the report with the LPs, made sure that the price and the return to our common shareholders made sense. And certainly, you know, the track record is something that we can manage and we can grow from. We continue to believe that. I would say the learnings is that, you know, certainly, and I think we've done it, which is turned over the business, the leadership a bit and certainly upgraded that talent quite a bit. And so the learning is just to be hypervigilant to execute on that. We know we can do that again and again.
I think going forward in terms of M&A in that universe is, we won't just be buying, you know, fixer-uppers or opportunistic deals. I think things that are tucked in as quality, you know, asset classes like energy or private equity platforms or credit platforms that we find interesting that can augment our skill set, our track record, those are things that we can certainly play in and buy. I think anything with an AUM sub $10 billion can be seen as a tuck-in for us and can be, you know, very accretive for us depending on the price. And so we're going to go after that. As long as we like the LPs, it's additive to us, the team's additive, and the asset classes it plays in is synergistic or adjacent to digital infrastructure.
Makes sense. We did that similar work saying, "Here's how we think you should value DigitalBridge as it makes the transformation complete to the financial side." So Brent can send you that model and how we kind of do the framework. Your company website has a very similar one on how to frame it out there. One of the questions we're getting, obviously more financial buy-siders, people that invest in financial stocks are getting interest in your name now that it's clean. I don't think you'll lose the TMT or the REIT folks, but a new asset buyer for you guys. But one of the questions coming from them has been, "How do you match up the life of your funds?" You mentioned they're fairly long life, but they're not perpetual. They're not permanent. And the capital needs of your company.
How do you kind of frame your fund life versus the company's?
Sure. That's a great question. A lot of these businesses that we have, data centers, cell towers, they've got tremendous growth for a long period of time and could be forever, right, depending on how AI and the future product set looks over the next, you know, 10, 15, 20 years. Our fund lives are 10, 11, 12, 13 years with extensions for the most part. But the way we kind of look at our business, our portfolio companies, the way we underwrite to it, operate them, execute on them, is that we build great businesses with great teams and just do the right thing organically for the firm, which is investing in it and looking at all opportunities.
When it gets close to the fund life and let's say we think that we've done what we needed to do, realized the growth opportunities and put the capital we needed and invested in the teams, we have a couple of options. We can sell it, right, to a financial buyer. We can IPO it. We can sell it to a strategic. But if there's opportunities to make more money off of it, we have and like other sponsors or and we have other products like core products or we can form continuation vehicles. There are ways for us to, you know, so long as it makes sense for our LPs and for potential co-investors, for us to, you know, have some of those portfolio companies go into a continuation vehicle. You're seeing a lot more GPs and sponsors do that type of stuff.
The way I kind of look at it is you maximize a return for the existing LPs, limited partners invested in that fund as it's nearing the end of that life. We sell it, and they make a good return. We sell it to a continuation vehicle, which may have limited partners or co-investors that are looking for more yield or more cash yield. If it's a data center business, like, you know, that's high growth today because of AI, because of Mobile Edge Compute, because of all these tailwinds. We get to an ultimately get to an occupancy utilization of 95%+. There's not a lot of growth left. It's grown into the leverage, and it's delevered, and it generates a lot of cash flow. That's attractive to some core investors. That's attractive to folks that want cash yield.
No different than folks like around the room that may want to buy American Tower or Equinix, right? They're great businesses. It could go into, you know, a product like a BREIT, just like Blackstone's non-traded REIT. Those are things that make sense, right, where it generates a lot of cash and cash yield. So there's a lot of opportunities for it. The best part is our number one goal is just to make great businesses. And we know the optionality and the value optionality will be there.
Talk a little bit deeper about co-invest opportunities. And then also, how much CapEx is going into the data center or REIT right now? It feels like it is hot. They need more capacity. They need more power. So let's talk co-invest and then also capital deployment.
Sure. Co-invest is basically a way for our limited partners, for our investors in our funds, to get more outsized exposure to a specific company or asset class. There's a, you know, bunch of wins here. One is, you know, for the sake of Switch or GD Towers, where it's a big transaction, we bought both of those businesses last year. They're big checks. It allows for us to compete and, you know, certainly punch above our weight class and buy these assets through co-investors. We pull together capital. We a lot of times get some fees off of that as well. It's a lower fee, but we get some fees off of that. We can, you know, certainly expand our opportunity set to buy, you know, a lot more stuff.
It gives our co-investors and limited partners more exposure to a specific company or asset class that they want. So that's a benefit of being a part of the DigitalBridge ecosystem and family. More access, more exposure to good digital infrastructure assets. It gives us more fees as a result of it. And it actually smooths out for us the highs and lows of fundraising cycles. Because to the degree we're not fundraising fund three, you know, in a year or two's time, we will always have co-invest opportunities. And the fourth piece is it further grows and increases the value of our portfolio companies. We know these data center businesses have tremendous needs for capital. And for all the tailwinds we've already talked about and you've heard.
So as we get more co-invest dollars in, it fuels more growth and more opportunity sets for the Vantage and for the DataBank of the world. And with respect to your question on data centers, you know, what Marc and I talked about on our last earnings call is, you know, $15 billion of capital being deployed, expected to be deployed this year. And that's just our base plan. And over two-thirds of it is already going to go into data centers. And so you can, you know, obviously, we all read NVIDIA's earnings. They're growing like hotcakes. And we are certainly a beneficiary of that. Our portfolio companies certainly are.
I'll take a moment there, see if there's any questions in the audience. All right. I'll throw another one to you, Jacky. Private credit. Talk a little bit about the size of that market, how you want to play in the market, and your vision.
Yeah. I mean, Ben, a lot of times says that he thinks private credit certainly could be at least a $10 billion idea, right? And we've raised our first.
For you guys?
For us, even. We have already raised our first fund. We closed on that. We are already advancing and thinking through the next iteration of that. There's a ton of digital infrastructure and TMT, candidly, TMT companies that need access to capital. They're great companies. And we certainly believe in them. But we also know that interest rates are high, which creates a huge opportunity because a lot of these companies may not have access to traditional regular-way bank financing that they would have otherwise in a lower interest rate environment in a better capital financing market. And so private credit, we, along with a lot of other folks like Ares or Apollo, we can fill that void. And for us, no different than our underwriting on the equity side. We understand these networks and these companies, and we believe that there's opportunity.
We're more than happy to provide private credit and help bridge that financing gap for them, especially if we think that they've got a bright future.
Where in the credit stack do you guys want to sit for those?
I mean, we'll play in all of it, but I would say more likely than not, the first and second lien position is really where we like. You know, when you get to MEZ, it gets a little bit more esoteric. But I don't think we need necessarily to go down that route. You know, some of our positions may have call rights to it and convert rights. So that's obviously opportunities for us to get an outsized return. But for the most part, it's pretty regular way.
And with higher rewards can be higher risk. So how are you guys underwriting that risk? How are you getting underneath the covers to figure out, is this a good place to do credit?
Sure. The good thing is it's just digital infrastructure and TMT, right? So we know the space. We'll understand when we underwrite to it, not just, you know, the paper and the management team like everybody else has to do, but we'll also look at, you know, whether or not they actually have a good product, what their customer's view of that business, and certainly is the network built well. Because, you know, in the event, worst case, and we don't underwrite this, but we know that we can, you know, run these businesses or have management teams and we are in equity position for a lot of these types of businesses or these asset classes, we know we can step in if we need to also.
Which is fiber one of those categories? I mean, thinking about, there's a lot of fiber getting built. There's a lot of need for money. It's, you know, tight out there in some places.
It is tight. And, you know, we talked about this last year, and we talked about this for a bunch of years now. A lot of folks asked us, "Well, when are you guys going to get into more of the consumer fiber-to-the- home?" And we kind of stayed in the sidelines, certainly when the multiples on the equity side was, you know, skewing in the 20s. And we couldn't get comfortable with it. And this is another reason, again, as an example of why you invest in us, because we are sector specialists. We're not going to just chase the thematic or what people view as a tailwind at that point in time. We just couldn't get comfortable with that pricing. And we stayed in the sidelines.
And sure enough, you know, a couple of years later with the higher interest rates, a lot of these consumer fiber, the home businesses are failing or in distressed category, and they need private credit. They're actually all going to private credit. And candidly, you know, on the credit side, I can probably get a bit more comfortable, and we can, simply because you're obviously more senior to the stack than equity, and you've got a much more secure position from a cash flow waterfall perspective. So we get more comfortable there. And I think that certainly is an opportunity. As equity pricing has now come down, you have seen us play a bit more in that now. We have done a couple more distressed acquisitions in the European theater.
That's where we kind of view it as, "All right, now the price point's low enough where we can play." That's not a bad position to be in.
Great. Do we have a question back there? Go ahead, and I'll repeat it.
On the credit side, what is the loan-to-value ratio that we're talking about? And remember, you have fixed and floating rates.
So yeah, Loan-to-Value on the credit side and.
Yeah, sure. It's both fixed and floating. We'll play in both. And then in terms of loan-to-value ratios, I would say we typically like to skew a little bit more on a conservative front in the 30%-50% loan-to-value range versus, you know, anything more esoteric.
Great. And so, Jacky, we're sitting here in March of 2024, hard to believe. You guys have been on a long slug through this. A year from now, what do you think this room wants to hear DigitalBridge be able to say you achieved? And what's still to come?
Sure. You know, we're hyper-focused. So, you know, a year from now, Fund 3 is done, and we're happy with it. And we've, you know, advanced, if not, you know, beat our expectations for fundraising and VUM. So Fund 3 is done. We've advanced credit, our strategy in credit. And we've got a couple, you know, solid realizations that generate good carried interest where it accrues profits to our shareholders and to our limited partners and advanced our track record. Those are the three things I would say are super important for us.
Right. It's also very simple for us to kind of monitor and follow and get comfortable that we know what's happening here and staying focused on digital infrastructure and knowing it deep. Does it ever make sense for you guys to consider M&A of yourself? I know it's been speculated out there, but it seems like a lot of growth opportunity. But what is the possibility of could something happen from the other side?
Look, you know, there's been a lot of deal activity, and there's been a lot of consolidation in the space. For smaller guys, we're not seeing, you know, an issue for us in this theater, which is there's been a bunch of smaller players, a bunch of smaller GPs having a hard time fundraising. And so you see some of those guys try to sell themselves. But at the same time, you're also seeing larger players look at the ecosystem and say, "What capabilities don't I have?" And so you saw, you know, BlackRock bought by GIP. You know, certainly TPG bought Angelo Gordon. So there's been EQT bought Barings. So there's been a number of transactions and consolidation. We know that we're sitting at $33 billion. We know that we're in a very hot sector with digital infrastructure.
We know people want what we have, which is a scaled digital infrastructure private equity firm with a great heritage of success within this space. We don't shy away from it. And there are folks that probably would want that. And, you know, we welcome it too, you know, because at the end of the day, that demand in our sector makes us look better.
Great. Let's wrap it there. We'll take it to breakout. Thanks, everybody.
Thanks.