Good day, and welcome to the GCM Grosvenor Fourth Quarter and Full Year 2022 Results Call. Later, we will conduct a question and answer session. 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 one on your keypad to join the queue. If anyone should require operator assistance, please press star then zero on your telephone. 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 Fourth Quarter and Full Year 2022 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 our 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-K, 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'll 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 the Public Shareholders section of our website. Our goal is to continually improve how we communicate with and engage with our shareholders, and in that spirit, we look forward to your feedback. Thank you again for joining us. With that, I'll turn the call over to Michael.
Thank you, Stacie. During the fourth quarter of 2022, our financial results were in line with or moderately exceeded the expectations that we communicated on our last earnings call. Despite a challenging backdrop, we performed well for clients while raising $1.5 billion of capital to achieve total funds raised of $7.8 billion for the year. Our private markets verticals continued to grow with Q4 private markets management fees, excluding catch-up fees, rising by 10% over the fourth quarter of 2021 and 14% for the full year of 2022. Fee-related earnings for the full year increased by 7%, while FRE margin improved by 100 basis points. As was the case for the entire category, Adjusted EBITDA and net income were lower than the prior year due to the capital markets environment.
On a bright note, during the quarter, we were pleased to launch a new and important specialized fund, Elevate, with a $500 million anchor investment. As with our investment in GCM Grosvenor Insurance Solutions, we believe that the Elevate strategy, part of a broader Sponsor Solutions category, provides the firm with a lot of promise. John will take you through that in his remarks. Looking ahead, the continued growth of our private markets management fees, combined with our strong fundraising pipeline, including our five private markets specialized funds in market, leave us confident that we can compound fee-related earnings in 2023 and beyond at mid-teens rates.
While forecasting incentive fees is always a challenge, the earnings power represented by our absolute strategies performance fees, combined with our significant carry asset, give us confidence that we have similar strong rates of growth in Adjusted EBITDA and adjusted net income over time. For 2023, we can achieve these objectives with lower levels of total fundraising than we saw in 2022. Like last year, we believe total fundraising in 2023 will be weighted towards the back of the year and will exceed or equal 2022 levels. Overall, we expect full year 2023 growth in private markets management fees in the mid-to-high teens over 2022.
For Q1 2023, we expect continued strong private markets management fee growth, excluding catch-up fees, of 11%-13% over Q1 of 2022, with overall private markets management fee growth a couple of points below that due to minimal expected fund closings in the quarter. Due to the back-end weighting of our fundraising, the limited Q1 catch-up fees, the full effect of the 2022 absolute return strategies results, and the timing of certain compensation-related expenses, we expect Q1 fee-related revenue and fee-related earnings that are both slightly lower than Q4 of 2022. This month marks the two-year anniversary of our first earnings call as a public company. It is worth reflecting on our performance over that period of time.
Since coming public, we have raised $17 billion of new capital, of which $9 billion was in fee-accretive strategies such as co-investments, secondaries, and direct investments. With more than $10 billion of dry powder across strategies as of year-end, our fundraising success leaves us enthusiastic about our ability to capture investment opportunities and generate alpha for clients. During the last two years, we have grown both private markets fee-paying AUM and management fees by 32%, with private market strategies now comprising 63% of our fee-paying AUM, up from 54% just two years ago. We believe that this double mix shift, the movement towards more private markets AUM and more fee-accretive strategies, will continue to be a driving force of value creation going forward.
In addition to the growth we have achieved, we have made strategic investments in our business to capture white space and lay the groundwork for continued growth in the coming years. Our offices in Toronto and Frankfurt, our new efforts in insurance solutions, where we've already seen results, and our new Sponsor Solutions efforts all provide significant opportunity. Our fee-related earnings margin increased from 31% two years ago to 36% at year-end as we realize the scalability and operating leverage embedded in our business. We believe we have continued room to expand in that regard. Our existing clients are re-upping at higher rates and in greater amounts, we are growing our specialized fund franchises with successor funds achieving larger size and scale than their predecessors, all while bringing new funds to market.
We have made good on our commitment to return significant excess cash to our shareholders. Since going public just 2 years ago, we have paid $0.74 in cumulative dividends per share, increasing our quarterly dividend 4 times from $0.06 to $0.11 per share. As of Friday, our annualized quarterly dividend was 4.7%. In addition, we've returned $44 million of capital through share and warrant repurchases. We have managed our share count, and as Pam will describe, we intend to significantly mitigate any dilution associated with our LTIP and stock-based compensation going forward. In closing, despite last year's tough environment, we are proud of our results both last year and over our first 2 years as a public company. We delivered value for our clients despite a powerful paradigm shift, significant market losses, and record-setting volatility.
The value proposition for clients and the strength of our business model have shown well, while the opportunities for clients and shareholders in 23 and beyond are as compelling as they have ever been. Importantly, investor demand for alternatives remains strong. We continue to believe that our stock represents good value, and we look forward to delivering for all of our stakeholders going forward. With that, I will turn it over to John.
Thank you, Michael. Our $7.8 billion of fundraising in 2022 was once again noteworthy for its high level of diversification across strategy, client, and geography. Private markets, which now represent 69% of total AUM, represented 93% of fundraising in 2022 and was diversified across each of private equity, infrastructure, and real estate. This year, 56% of private markets capital raised was in fee accretive strategies such as co-investments, secondaries, and direct investments. Notably, we reached the final close of our secondaries opportunities fund, GSF III, which at $972 million was 38% larger than its predecessor fund. As with past years, our existing clients were a key driver of capital formation, contributing 85% of new commitments in 2022.
Our clients' validation of our value proposition, especially against a difficult market, is not only rewarding, but a strategic advantage as investors currently have a high bar for where they commit their capital. Importantly, many of these new commitments were to new programs or new strategies as clients expanded the scope of their relationship with GCM Grosvenor into new areas. Our ability to evolve and expand with our clients has been and will continue to be one of the strongest drivers of our future growth. A perfect illustration of this phenomenon was the launch of our new Sponsor Solutions strategy in the fourth quarter. The first initiative in this category is our Elevate strategy, which will focus largely on seeding small, emerging, and diverse private equity managers, and which was launched with a $500 million investment from the California Public Employees' Retirement System.
CalPERS has been a GCM Grosvenor client for over a decade. We're very excited to be expanding our long-standing relationship with their team with the new Elevate strategy. The Sponsor Solutions category is also a fantastic example of the extension possibilities of our platform and our ability to build on our existing strengths. Our expertise investing in small, emerging, and diverse managers is already a key differentiator for the firm. We have invested in small and emerging managers for 30 years, culminating in nearly $18 billion of assets under management as of year-end, and have had a dedicated effort investing in diverse managers for the past 20 years with more than $13 billion in assets under management. We have consistently believed that there is a significant, too frequently overlooked, opportunity to generate exceptional risk-adjusted returns by investing in small, emerging, and diverse managers.
As you'll see in our public disclosures, our track record in diverse managers exceeds that in private equity investors more broadly. As a result of our long-standing leadership, we have built a fantastic network of relationships and a reputation as a preeminent source of capital for any new investor looking to launch a fund. The Elevate strategy is a natural extension of these efforts. We are leveraging our existing expertise in partnering with successful firm founders early in their life cycles and make catalytic seed investments structured as minority investment partnerships that enable managers to scale successfully while generating compelling returns for our investors. This product is also an example of extending into adjacencies that enable us to leverage the existing platform resources to a large degree. The Sponsor Solutions category will be led by a new senior partner and one of our existing senior partners who is moving roles.
Last quarter, I discussed the significant value inherent in our customized separate account relationships, which were 74% of assets under management as of year-end. We are constantly in dialogue around new potential customized separate accounts, which represent 78% of capital raised in 2022 and will continue to be an essential growth driver going forward. While we do not anticipate meaningful specialized fund closings in the first quarter, we expect specialized funds to have a greater impact to our 2023 fundraising and results as the year moves on. With that, I'll turn the call over to Pam.
Thanks, John. The strength and scalability of the GCM Grosvenor platform were evident in our 2022 results and remain the key factors driving our growth in 2023 and beyond. In the fourth quarter, private markets was again our primary area of growth, with private markets fee-paying AUM up 11% from a year ago. Excluding the impact of catch-up fees, which were $1.6 million in the quarter, private markets management fees increased 10% from the fourth quarter of 2021. For the full year 2022, private markets management fees increased 12%. While we are satisfied with this growth, given the challenging market backdrop, we expect to exceed that growth rate in 2023. For Q1 2023, we expect continued strong private markets management fee growth, excluding catch-up fees of 11%-13% over Q1 2022.
We foreshadowed on our last call, Absolute Return Strategies management fees declined a half a percent this quarter as compared to the third quarter of 2022. Given the 2022 starting point of ARS fee-paying AUM, we expect ARS management fees in Q1 2023 to be slightly down on a sequential quarter basis. We realized $7.2 million of incentive fees in the quarter, the majority from carried interest. We cannot predict the timing of when a more active transactional environment will resume, our carried interest earnings power continues to improve. Of year-end, we have $789 million in gross unrealized carried interest across 131 programs, the firm's share of which is $368 million.
Despite the market environment, this figure is 11% higher than a year ago, given the outperformance of our private market portfolios versus the public markets. Our annual performance fees are tied to ARS investment returns and typically crystallize in the fourth quarter each year. Given 2022 public market impacts and the high-water marks of our ARS funds, our 2023 performance fee earnings potential, assuming an 8% gross rate of return for multi-strategy and a 10% gross rate of return for opportunistic investments, is approximately $17 million, which compares to $30 million if all portfolios were at high-water mark. Turning to expenses, fee-related earnings compensation in the quarter was approximately $38 million, down slightly compared to the third quarter as we finalized year-end results and made our discretionary compensation decisions.
Consequently, we expect fee-related earnings compensation in the first quarter of 2023 to generally be consistent with the first quarter of 2022. Other than strategic investments in the business, we do not expect significant headcount growth over the coming year. We continue to focus on alignment of our team's compensation with the performance of the business through the use of stock awards to both reward and retain our talent. As we have said before, this tool was one of the factors that made coming public attractive. We have two basic prongs to our approach to stock-based awards. First, we want to continue to use our LTIP to align and incentivize our employees. We grant restricted stock with varying vesting periods to provide both current reward and long-term retention. In 2022, we granted 4.5 million restricted shares to employees.
Second, we have and will continue to buy back shares to offset solution from stock-based compensation. As of year-end, we had more than $45 million remaining on our stock buyback authorization. Non-GAAP general and administrative and other expenses were approximately $19 million in the fourth quarter, up modestly from the third quarter. We expect a slight sequential increase in this figure in the first quarter of 2023 and continue to tightly manage expenses despite inflationary pressures. Our fee-related earnings margin expanded to 36% in 2022 from 35% in 2021. We anticipate continued long-term fee-related earnings margin expansion in 2023 and beyond. To reiterate, we anticipate private markets management fees will grow in the mid to high teens in 2023, resulting in fee-related earnings growth in the mid-teens.
While we are not immune to the impact of the current market environment, our track record of strong performance, the scale and diversification of our platform, combined with the strength of our team and culture, provide us with great confidence. We remain focused on delivering long-term value to our clients and shareholders. Thank you again for joining us, and we're now happy to take your questions.
Thank you. If you would like to ask a question at this time, please press star 1 on your telephone keypad. If you are using a speakerphone, please ensure your mute function is turned off. Again, that function is star 1. Our first question will come from Chris Kotowski with Oppenheimer.
Yeah, good morning, and thanks for taking my question. I wanted to start on the Elevate program. First I was wondering, has there been any precedent in your experience where you know, obviously not on this scale, but where you had an anchor tenant of this nature come in with a big commitment? Is there any way to think about how the ultimate fund that resulted, you know, compared to the initial commitment?
Sure. The short answer is we have had large anchors that have helped to launch funds in the past. And, you know, all of our specialized funds that we've launched have, you know, turned into, I don't know the right word, franchises, if you will, Chris, and have then gone on to, you know, successor fund 2 and successor, you know, fund 3, et c. We are incredibly excited about Elevate, and we're excited about it on a few different levels. 1, you know, to start with an anchor of that size and that quality and caliber is a terrific thing, and we think it will get attention in the marketplace, and it will enable us to have this first fund, you know, be larger, in terms of its size than simply the anchor investor. We're not putting a number on that.
We don't do that, but we do. John did mention in his remarks, you know, we will be raising money for this fund for the next 18 to 24 months. Second, we think the fund itself is a, you know, fantastically exciting fund that is addressing a real need in the market, which is seed capital and all kinds of other support for new small emerging and diverse managers to launch private equity firms. We think that there are, you know, there's ample opportunity for us to deploy the capital there to generate very good returns on that capital and on behalf of our investors in Elevate to own interests in, you know, new private equity sponsors that will grow and turn into, you know, terrific, valuable businesses.
As you know, we have been in the business of allocating capital to early-stage fund one, private equity managers in the small, emerging, and diverse manager space for a long, long time, decades. We feel very confident in our ability to deploy the capital wisely, and we know that the returns available to the capital, you know, when you get that right are outsized. We're very excited about it. The last point I would just wanna reiterate on Elevate, which John touched on and tried to talk about in his comments, is that it is, a sponsor solution program where we are, you know, delivering value to sponsors.
We believe that there are other ways that we can deliver value to sponsors over time and other opportunities, and we're excited about building out Sponsor Solutions broadly defined, you know, as we move forward into the future. It was a terrific, you know, very bright spot in the fourth quarter, and we're thrilled to have that fund in market this year, which is not something, you know, that we had communicated about prior, and we think it's a very positive development for the firm and for our future.
Yeah. you said you'd be fundraising for 18 months or so. presumably it turns on before that time, but financially speaking, it's probably not an event for 2023 numbers. Am I thinking about that correctly?
No. That, you know, the fees for that fund have turned on already on January 1st. We will enjoy some revenue from that fund from the anchor investor.
Oh.
In 2023. The structure of that fund is it's a, fees on, committed capital with a catch-up. You know, as we raise money for that fund, those fees will go back to January 1.
Brilliant. Okay, that's it for me. Thank you.
Our next question will come from Jeff Schmitt with William Blair.
Hi, good morning. The infrastructure fundraising was pretty strong in 2022. I think it was around 27% of the total. You'll be in the market this year. You are right now with the diversified infrastructure fund. Infrastructure Advantage is supposed to start up at some point this year. I'm just thinking about the inflation protected characteristics of those strategies. Are you seeing competitors get more aggressive there and raise additional funds? Or do you think there could be, you know, potential upside to your fundraising for those funds this year given demand?
We're enthusiastic about the LIFT fund . We're enthusiastic about the diversified fund. Importantly, we're enthusiastic, we remain enthusiastic about our separate account infrastructure vertical, where we've raised a lot of money over the last couple of years. We don't see any change at all in demand for infrastructure. It remains very strong. In fact, you know, we don't see any demand change at all in demand for alts. I think it remains very strong. We've seen a slowdown a little bit in fundraising just due to the macro environment and as much, you know anything the, you know, decline in traditional assets, and the decline in transaction levels. I think as transaction levels come back, the whole space kind of loosens up and, you know, you start to see fundraising pick up.
I think we got so used to infrastructure dominating the fundraising for four quarters or six quarters or whatever it was, that over the last couple of quarters where private equity has kind of taken the lead, you know, it's a question, well, what about infrastructure? That should not be a question. There's a lot of demand out there, and we have a great team, and we have raised a bunch of money over the last couple of years, and we're going to continue to do that this year.
Okay. On the Adjusted EBITDA margin, you know, it's fairly flat for the year, which is pretty good result, I guess, given the drop in revenue. How should we think about that margin in a more normalized environment just in terms of its run rate? And how much of future expansion is sort of dependent upon revenue growth?
It's a great question. You know, we feel it's very hard, as Pam noted, to predict carry levels. They are very much, you know, correlated with transaction activity levels, and transaction levels were down, you know, significantly last year in light of just the general macro and capital markets environment. Our view, you know, our belief is that as rates stabilize and transaction levels resume, and we feel like we're seeing some, you know, green shoots there, and that's kind of starting maybe to pick up a little bit. We're not making, you know, sharp timing predictions, but we believe, you know, very, you know, there's a very real asset there for us, and that asset has maintained its value. As transaction levels pick up, we'll start to see more carry come in.
Obviously the, you know, difference between our FRE and our, you know, Adjusted EBITDA is a result of our incentive fees, our carry, and our performance fees and ARS. You know, we've got great earnings power there. It's hard for us to predict when that will come, but it will come. The earnings power and the asset underlying the carry is there and is intact, and it grew slightly. You know, we know that that will return. It's just a question of when. When it does, you know, that is, you know, a good thing for our growth in EBITDA, growth in net income and for our margins in that regard.
Okay, that makes sense. Thank you.
Our next question will come from Ken Worthington with J.P. Morgan.
Hi, good morning, and thanks for taking the questions. I wanted to dig into the fundraising environment for the private markets business, sort of as we transition from 4Q to 2023. Have you seen a change in the environment as we sort of transition? I think in the last call you expressed confidence that fundraising would be higher in 23 than 22. In the comments today, you sort of added the qualifier, you know, bigger or equal to 2022 levels. Are you feeling a little less confident? I guess the kicker here is on CS III and MAC III, which have their final closes this year. I think fundraising needs to accelerate for you to reach your prior targets for those funds. Is that something you feel confident in?
If not, can fundraising be extended to sort of reach your prior targets?
Yeah. Thanks for the question, Ken. I think that specifically, just first to just clarify what we said in the, you know, in the call was that our FRE goal of mid-teens, you know, FRE growth for 2023, we can achieve with even less fundraising than we had last year. That was really to provide context for all of you in terms of what we need to do to make that mid-teens number. That was not in any way intended to be, you know, an indication of what we think will happen. And in fact, we do think we'll have more fundraising in 2023 than we had in 2022. And I think that's very important that you hear that. That was in no way, you know, an effort to tell you what we think is gonna happen.
It was more an effort to kind of give you an appreciation for what's needed for us to make our mid-teens FRE growth. Our own view is that demand for alts has remained strong. Nobody's moving away from the strategies. Nobody's, you know, changing kind of lowering where they want to see alts in their overall balance sheet allocation. You had a slowdown last year, and it was really related entirely to kind of the macro capital markets environment, and importantly, to both, you know, the dual factors of you know, denominator on significantly reduced, you know, long stock, long bond portfolios. It was related to the reduced transaction levels, which mean that, you know, cash flows are, you know, coming back from the portfolio are down.
People kind of slow down a little bit in terms of making new commitments. Our view is that as transaction levels increase, you'll see everything loosen up and you'll see, you know, commitments...
To new funds, and to new programs increase as well. That's our outlook. As far as MAC and diversified infrastructure, that fundraising does need to accelerate. We do have the pipeline to do that. I think it's a natural expectation in a slower environment where people want, you know, to wait a little bit to sign their subscription documents that you'll see bigger closes towards the end of the period. We do have nice, solid pipeline across the firm in all the verticals, and for those specific efforts, as well. We do expect to have some productive fund closings, for both of those funds this year.
Excellent. That was super helpful. Catch-up fees. How should we think about catch-up fees this year versus last year, if all goes according to plan? Fundraising a bit back-end loaded, it sort of suggests that these catch-up fees will be more robust in the second half of the year. To help us sort of level set, how should we think about 2023 versus 2022 just on catch-up fees?
We expect they'll be higher. You know, MAC has catch-up fees, and as we just talked about, we expect some good closings for MAC this year. The Elevate fund I mentioned earlier, you know, started on January 1, and so the extent you raise money there in Q3, Q4, you're gonna have catch-up fees there. You know, the Infrastructure Advantage will have a first closing at some point and then gonna have a little bit of catch-up fees as well. Those are the three of the five funds in market that have catch-up fees, and we think they will generate, you know, catch-up fees this year that will equal or exceed the catch-up fees of last year.
Okay, great. Thank you.
Thank you.
Thank you.
Once again, if you do have a question, please press star and then one on your telephone keypad. Our next question will come from Adam Beatty with UBS.
Thank you, and good morning. A couple of questions on Elevate and Sponsor Solutions more broadly. First, just in terms of mechanics, wondering how either the fund or the firm more broadly, expects to balance the eventual need for return of LP capital from the fund, you know, with the perhaps, you know, need for longer term, maybe even permanent financing on the part of the issuers in question. You know, seems salient given Grosvenor's own history. More broadly, just wondering about what you're seeing in the issuer market there. You know, in terms of capital formation, are small firms being formed, you know, at the same rate as before or a little bit less, given some of the environment and the challenges? Thank you.
Sure. Adam, this is John. Happy to take that one. I think you can think of these investments out of the Elevate strategy as being kind of multifaceted partnerships with the sponsor talent. The way that can look is they won't all be equal, but you could have investments in the funds themselves. You could have the co-investment relationships with those managers. It's possible you could have financing for the management company or the GP itself. In return, part of that economic package would also be minority interest types, whether those are revenue shares or equity interest in the managers themselves.
I think for the bulk of the capital, right, whether that's the investment in the fund, a co-investment or financing at the management company or GP level, that capital would be coming back over the course of the duration of a, you know, private equity life in due course. The LPs of our fund would have their capital back, and the remaining interest would be a cash flowing interest, you know, in the form of revenue share or equity participation that, to your point, could last for a long duration, but at that point it is cash flow and capital coming back after having had all your invested capital back. We think that's a good profile for investors in this type of strategy.
I think on the second part of your question, there is certainly some cyclicality that exists always in the form of new fund launches. That, you know, has some relation to general capital markets environment, general correlation to denominator effect of things of that nature. The reality is we have a huge sourcing network, a huge investment funnel, and if we're thinking about doing 8- 10, 8- 12 deals over 3- 4 years, that's plenty of time and a small enough number that we feel like we can be highly selective and partner with the right firms in their launches.
Perfect. Thank you, John. Appreciate the detail. Maybe just a quicker one on the fee AUM backlog, particularly the portion of that that's charged on deployed or invested capital. I think it's $4.7 billion. You know, just either historically or in your budgeting or what have you know, how long do you think, you know, given the fund set up right now, how long do you think it would take to deploy that? Is that like a one-year, two-year kind of timeframe or what are you thinking there? Thank you.
We've generally said that it's ratable over a few year period of time. There could be some that's a little bit longer, but that's generally the guidance that we've given on that front.
Okay, sounds good. Thanks very much.
From Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for taking the question. I was hoping to dig into the absolute return business in terms of the fundraising outlook there. I was just hoping you could comment on what you're seeing in the marketplace in terms of LP appetite for absolute return strategies, particularly in light of the strong outperformance versus broad benchmarks last year in that strategy. What do you expect in terms of gross sales into 2023? Are there any particular strategies where you're seeing more demand versus less demand, and any sort of expectation around redemption trends as well? Thank you.
Thank you, Mike. I think that the demand there is, and the demand, you know, for specific strategies, is mixed. You'll see people that have an interest in credit-oriented strategies. Commodities had a great year last year. You're seeing people talk about, you know, whether they wanna shift capital towards those strategies. You know, there's sort of that space is so diversified in terms of the number of strategies that take place underneath and the ability to have, you know, funds and separate accounts that focus on different strategy sets and have different makeups that, you know, there's always a level of demand. We have said for a long time, you know, that we think, you know, we don't think you're in a, you know, strong net inflow environment.
We think that the asset class is kinda growing through compounding, but not, you know, through incremental allocations to the asset class. I think we believe that continues to be kind of the overarching, the overarching theme there and don't see any real change in that kinda macro picture for demand for hedge funds. I do think that when you have an environment like we had last year, you know, people will tend to use liquid strategies and liquid portfolios for liquidity. That maybe is obvious, that, you know, in terms of saying that.
I do think you see people that can take a little money from ARS to fund some things elsewhere in their alts book that they wanna keep funding and wanna keep doing, but they're over-allocated alts, you know, because of the denominator effect, and that's a place for some liquidity, and we suspect that will abate somewhat this year. In general, we have, you know, we have in our ARS strategy, which we talk about as kinda one vertical, there are a number of different approaches inside of that, some of which had very good results last year, and we would expect, you know, some of those to experience some growth this year while others, you know, could see, you know, could see redemptions.
On a net basis, you know, we're actually budgeting for some modest redemptions this year, more modest than last year, and not seeing a major increase in the, you know, balance sheet allocation writ large to hedge funds. That said, Mike, I do wanna just mention, like, you know, we talk a lot about ARS and, you know, that we feel like our ARS vertical doesn't necessarily get the respect that it deserves. In a weird way, the performance of the portfolios last year, you know, certainly showed the value of the ARS strategies to clients as compared to traditional strategies.
Equally important, I think, from a firm value perspective, you look at kinda, you know, what did the assets of the ARS, you know, strategy, strategies do, and what did the revenues do. You think about that as compared to traditional asset management, which is a comparison we've always tried to make. That, you know, let's not be, you know, focused, so worried about hedge funds, and let's think about it in comparison to traditional asset managers. If you look at the revenues last year and what the revenues did last year, compared to traditional asset management firms, you know, it was a much better business to be in last year than to be a long-only traditional manager. We believe that will continue to be the case over time.
Great. Thank you. Just a follow-up question, circling back on Elevate. With that, you're launching a fund strategy, a fund vehicle around a strategy and capability that you guys have had for some time now. Just curious if, you know, as you kind of look at your separate account capabilities and investments, if there's other types of strategies that you guys already have today that you might be able to bring to the marketplace and package in a commingled fund. Just how do you think about that sort of growth opportunity there on the fund side, taking what you're already doing in different pockets on the separate account side?
Yeah. We have a lot of manufacturing capability and a lot of origination capability that we believe, you know, we can grow, and we can grow both in custom separate account and in specialized fund form. We have that in the impact space. We have that in the Sponsor Solutions space. There are, you know, we've been pushing in the insurance channel for a while. There are, you know, commingled fund products that can make a lot of sense for that channel. And structured products that can make a lot of sense for that channel. I think that we are, sort of long origination and long manufacturing, and we have a lot of ability to add new funds and new strategies over the next several years.
You've seen us do it over the last couple of years, and I think you'll continue to see us do it as we move forward.
Great. Thank you.
Thank you. I'm not showing any further questions at this time.
Well, thank you all very much. We appreciate your interest, and we look forward to delivering for shareholders as we move forward. Thank you.
Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. We hope everyone has a great day. You may all disconnect.