Good morning and welcome to Ridgepost Capital's Third Quarter 2026 Earnings Conference Call. My name is Latif, and I will be coordinating your call today. Currently, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I will now pass the call to your host, Brian McKenna, Vice President, Investor Relations. Brian, please go ahead.
Thank you, operator, and thank you all for joining our call this morning. With us today, we have Luke Sarsfield, Chairman and Chief Executive Officer, and Amanda Coussens, EVP, Chief Financial Officer. We also have other members of our executive team here that will be available for the Q&A session. Before we begin, I'd like to remind everyone that this conference call, as well as the presentation slides, may include forward-looking statements within the meaning of the Federal Securities Laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates, and expectations, and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC.
The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any fund sponsored by affiliates of Ridgepost Capital. During this call, we'll reference certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures is available in the presentation slides posted on our website and in our filings with the SEC. In addition, we'll provide certain historical performance metrics for our funds, and further details can be found in the presentation slides. Of course, past performance does not guarantee future results.
With that, I'll turn the call over to Luke.
Thank you, Brian. Good morning, everyone, and thank you for joining our call today. It was another very strong quarter for Ridgepost Capital, characterized by our stability and consistency against the backdrop of a rapidly evolving and highly dynamic macro environment. Adjusted net income per share totaled $0.25, while fee-paying AUM ended the quarter at $35.2 billion, up 2.4% sequentially and 21% year-over-year, or 11% year-over-year, excluding the impact of Stellus. The growth in fee-paying AUM during the period was primarily driven by $1.3 billion of gross fundraising and deployment, including $475 million in venture capital, $450 million in private equity, and $385 million in private credit. Importantly, fundraising activity remains broad-based as we were in the market raising capital for more than 15 funds.
Across the first nine months of 2026, gross fundraising and deployment totaled nearly $4.5 billion in fee-paying AUM, representing a year-to-date record for Ridgepost Capital. Within that, $2 billion came from venture capital, $1.7 billion from private equity, and approximately $700 million from private credit. As we look forward to the fourth quarter and 2027, capital raising and deployment pipelines are strong, including ongoing fundraising for, one, our GP stake strategy, Bonaccord; two, our venture capital strategy, TrueBridge; three, our NAV lending strategy, Hark Capital; and four, our middle market private equity strategies, RCP and Qualitas. We are also preparing to launch our next vintage at Stellus early next year as we expand our lower middle market direct lending fundraising efforts, while our project finance and tax credit strategy, Enhanced, will continue to be in the market.
Bottom line, we are well on our way to achieving our aggregate $10 billion gross fundraising and deployment target for 2026 and 2027, as well as our 2029 year-end fee-paying AUM target of $50 billion. Now, I would like to spend a moment discussing the drivers of the consistency and stability in our results. We believe we benefit from three key factors. One is the underlying structure of our business. Two is the complementary nature of our platform, which is built to optimize our strategies both individually and collectively. And three are the positively differentiated investment performance across our middle and lower middle market strategies, as well as our venture funds. Said another way, the contractual nature of our model, our complementary platform, and differentiated investment performance work synergistically to drive the consistency and strength of our results.
In terms of the underlying structure of our business, the majority of our fee-paying AUM sits within traditional drawdown funds, where management fees are earned on committed capital basis, meaning we generally do not earn management fees on net asset values. Importantly, drawdown fund structures are not subject to investor-initiated redemptions, and in fact, the weighted average remaining duration of our fee-paying AUM stands at approximately seven years. In addition, approximately 98% of our third quarter fee-related revenue was generated by management and advisory fees. Ridgepost Capital also has no direct exposure to realizations, so not only are our fee-related revenues driven by management fees, but bottom line earnings are driven entirely by fee-related earnings. We operate a capital-light business model, and the conversion of our adjusted net income to operating cash flow is high.
Through the first nine months of this year, we have generated $86 million of adjusted net income and $75 million of GAAP operating cash flow, with modest ongoing CapEx needs across the business. Moving on, the clearest example of how our complementary platform optimizes our strategies is the meaningful increase in cross-selling activity. As a reminder, at the time of our September 2024 Investor Day, less than 5% of our LPs had invested across multiple strategies. Over the last two years, we have diligently worked to increase our cross-marketing capabilities and enhance our client data integration across our strategies. These synergies have positively contributed to our fundraising efforts, and we are pleased to report that aggregate firmwide cross-sells since June 2024 total approximately $1.7 billion, or roughly 15% of firmwide fundraising. This cross-sell activity has been driven primarily by the flagship funds across our strategies.
For example, we have seen clients from our private equity business invest in our venture capital strategy across several investor channels, including wealth management and pension funds. We also have had insurance LPs who historically invested in our private credit strategies commit to funds within our private equity strategies as these investors expand their private equity allocations. Furthermore, given our broad network of investors across distribution channels, we are also excited about the capital-raising opportunities at Stellus, our lower middle market direct lending platform, and across our private credit businesses more generally. Cross-selling is just one example of how our strategies benefit from the one Ridgepost platform. But when combined with differentiated investment performance, we believe these platform benefits create a powerful foundation for organic growth.
Given that we are seeing significant momentum across a number of funds in our venture capital strategy, I also want to spend a few minutes on TrueBridge, who has been a leader investing in this part of the market since 2007. Investment performance remains a standout. TrueBridge's primary funds that are more than five years old have generated an average net IRR of 19.8%, while Secondaries I and Direct Fund III at TrueBridge have generated net IRRs of 43% and 23%, respectively. On the back of this differentiated performance, fee-paying AUM at TrueBridge has organically increased 17% annually since the third quarter of 2020, and recent trends suggest that momentum has accelerated, as related fee-paying AUM ended the third quarter at $8.7 billion, up 32% year-on-year.
Equally important, it is clear that the velocity of capital being raised and deployed in the venture ecosystem continues to be robust, and TrueBridge remains at the very center of this. In September, TrueBridge announced the final closing of Secondaries II, raising more than $500 million of capital. Notably, this was more than double the size of Secondaries I, and Secondaries II was raised in roughly one year, highlighting the demand that exists from LPs for secondaries in the venture ecosystem, not to mention the growing opportunity set from a deployment perspective. We are also seeing strong demand for TrueBridge's flagship primary funds. The latest vintage continues to be in the market, raising $851 million of capital through the end of September, with continued momentum into year-end. We expect to launch the next vintage in early 2027.
One other observation from TrueBridge's fund table on page 24 in our earnings deck. Looking at fund sizes from Fund IV, a 2015 vintage, through Fund VIII, a 2023 vintage, flagship successor funds have increased in size by more than 20% on average from vintage to vintage. Given that virtually all of our fee-related revenue is driven by management fees, the vast majority of which are earned on a committed basis, not on net asset value, increasing fund sizes are an important driver of Ridgepost Capital growth longer term. This growth in fund sizes, coupled with ongoing product innovation, creates a straightforward growth formula across our business. We are seeing this play out real-time at TrueBridge, as I just highlighted, while the same dynamic is also occurring at many of our other strategies. With that, I will turn it over to Amanda.
Thanks, Luke. As highlighted earlier in the call, we delivered another strong quarter of results in the third quarter. We generated $0.25 per share of adjusted net income in the period. Fee-related earnings totaled $43 million, up 19% year-over-year, while the FRE margin came in at 48%. Fee-related revenue totaled $89 million in the quarter, up 17% year-over-year. Management and advisory fees represented nearly all of fee-related revenue in the third quarter, totaling $87 million, reinforcing the durability and stability of the earnings profile at Ridgepost Capital. The average core fee rate, excluding direct and secondary catch-up fees, totaled 99 basis points in the third quarter, down one basis point from the second quarter.
Similar to trends across the industry and broader capital markets activity during the period, we experienced more pronounced seasonality across our businesses in the third quarter, specifically for fundraising and our tax credit business, which modestly impacted our core fee rate in the period. Some fundraising activity shifted from the third quarter given the timing of specific fund closings, although fundraising momentum remains strong as we head into year-end. As it relates to our tax credit business, the pipeline continues to build for what is typically a seasonally strong end of the year. In terms of the outlook for the core fee rate, despite the third quarter seasonality, we continue to expect it will total approximately 103 basis points for the full year in 2026, implying a healthy step-up in the fourth quarter. We also expect direct and secondary catch-up fees will total $6 million-$8 million in 2026.
For reference, these catch-up fees totaled $2.1 million in the first nine months of this year, including $1.1 million in the third quarter. I did want to spend a minute on the FRE margin. As I mentioned earlier, the FRE margin came in at 48% in the third quarter, bringing the year-to-date total to 47%, which is in line with the first nine months of 2025. Notably, our FRE margin through the first nine months of 2026 was stable year-over-year for the first time in a few years. Given the momentum we have across the business into year-end, as well as some year-end seasonality, we expect similar year-over-year trends for the FRE margin on the full year in 2026. Moving on to capital management, we continue to operate with a balanced and flexible approach.
As Luke mentioned earlier, through the first nine months of the year, we've generated $86 million of adjusted net income and $75 million of GAAP operating cash flow, with modest ongoing CapEx needs across the business. This cash generation supports our capital allocation priorities, including maintaining our $0.04 quarterly dividend and offsetting dilution from annual employee stock issuance through share repurchases. Following the Stellus acquisition in June, we also continue to prioritize deleveraging. At the end of the quarter, net leverage totaled approximately 2.7 x, and we're on track to end the year in the mid-twos. During the third quarter, we did lean into buybacks, repurchasing nearly 1.8 million shares at an average cost of $8.36 per share, totaling approximately $15 million. The board has approved an additional $30 million of repurchase authorization under our program. To conclude, a few reminders.
The borrowing rate on our credit facilities totals SOFR plus 260 basis points. We continue to expect our cash tax rate to be in the high single-digit to low double-digit range for full year 2026 and in the mid-teens for full year 2027. Fully diluted shares outstanding, including partnership units exchangeable for shares, totaled approximately 129.2 million in the third quarter. With that, I'll turn it back to Luke for a few closing comments before we open it up to Q&A.
Thanks, Amanda. Before we move to Q&A, I want to share a few closing remarks. The macro backdrop clearly remains quite fluid, but as we've discussed at length, the structure of our business, the complementary nature of our platform, and our differentiated investment performance generate a well-balanced, highly durable earnings stream across all operating environments. We continue to focus on what we can control. First and foremost, that includes delivering differentiated returns for our LPs. It also involves expanding the breadth of our fundraising initiatives, including scaling our existing funds, developing new products, and leaning into cross-marketing opportunities. Given our management fee-centric model, our growth formula is straightforward. We have to continue to deliver for our LPs while also finding ways to incrementally grow our AUM base. These two objectives are not mutually exclusive. In fact, they very much work together.
We believe we've created a winning formula on this front, with venture capital and private equity as notable examples. Finally, I want to acknowledge an important milestone for Ridgepost Capital, as we celebrated the fifth anniversary of our IPO two weeks ago. We've made tremendous progress over that time, deepening our capabilities across private equity, private credit, and venture capital. I'm incredibly grateful to our entire team for the hard work and dedication that's driven our success. I'm so proud of what we've built together and even more excited about the opportunity ahead. Bottom line, we have significant momentum across the business as we close out the year, and we're excited about the opportunities ahead in 2027. Thank you for your time today. I'll pass the call back over to the operator to begin the Q&A session.
As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kenneth Worthington of JPMorgan. Your line is open, Kenneth.
Hi, good morning, and thanks for taking the question. Maybe first, how does Q4 look from a fundraising and fee expiration and step-down perspective? From fundraising, are there new funds that are in market in Q4? To what extent did Stellus commitments get postponed at all by the acquisition? From a deployment perspective, is there some further strength expected just from seasonality in the fourth quarter, and anything with expirations?
Great. Well, thanks, Ken. Great to talk to you, and good morning. Couple observations. One is, as we noted, we think the fourth quarter pipeline for fundraising continues to be very strong. We highlighted, I think, that we have about 15 funds in the market across a number of our strategies, and I think that number is going to stay pretty consistent in the fourth quarter. There are a number of strategies that have been and will continue to be in market across many of our strategies, but particularly RCP and Qualitas, certainly Bonaccord, Hark, and TrueBridge. We have a number of things that are in the market and will continue to be in the market. We think that there is good momentum in many of those fundraisers, and we think we'll see tangible progress through the fourth quarter.
Obviously, year-end, I think, is a very natural time for a number of allocators to sort of consider finishing off their allocations for the year. Typically, we see some positive seasonality in the fourth quarter, and I think we would expect this to be very similar to that. As it relates to Stellus, and I'll generalize the comment a little bit more to credit broadly. As we noted, I would say the third quarter, given a lot of the puts and takes in the wider world, obviously the interest rate moves, some of the concerns around software and SaaS and hyperscalers and the like, and then geopolitics, I guess I would say, with the war, I would say it was a fine, if somewhat muted, macro backdrop across credit deployment. I think we're seeing some signs as we head into the fourth quarter that things are improving.
There is also generally some seasonality in that business as well as transactions aim to accelerate and close before year-end. I would make a couple comments to your question specifically on Stellus. Number one, I will tell you, we saw no sort of delays vis-à-vis Stellus or any disruptions as it related to the acquisition or anything that we did. Recall that we closed kind of the complete set of fourth fund and fourth fund-related kind of separate accounts in April of this year. We see a lot of momentum in that business. I think, as we noted on the call, we anticipate being back in the market raising kind of the fifth family of funds and related separate accounts in 2027.
We are really, really optimistic around the momentum in Stellus from both a fundraising perspective and also from a capital deployment perspective as we head into the fourth quarter and beyond.
Great. Anything on step-downs and expirations?
Hi, Ken. Yes, thank you for the question. We are not expecting any large step-downs or expirations in the fourth quarter, and still expecting about 5%-7% for the year.
Okay, great. Thank you very much.
Thank you. Our next question comes from the line of Michael Cyprys of Morgan Stanley. Your line is open, Michael.
Great. Hey, good morning. Thanks for taking the question. Maybe just on the management fee rate, we've seen some variability there over the last couple of quarters on a core basis, while fee-paying AUM continues to grow at a healthy pace. So hoping you could speak to what's driving some of the volatility on the fee rate trend, how much is mix versus timing. I heard you reiterate the 103 core fee rate for the full year. Seems like that would imply quite a bit of a step-up in the fourth quarter to maybe even over 110 basis points, sort of make sure we're thinking about that right. And then how should we be thinking about a normalized fee rate as we're looking into 2027? Should we be thinking about that 103 as a good starting point, and how to think about some of the moving pieces from there?
Michael, thank you for the question. Yes, we did experience more pronounced seasonality, specifically for fundraising and our tax credit business. We did have some fundraising that we expect that was pushed from the third quarter to the fourth quarter. Generally, we do still expect 103 basis points for the full year, which does imply a healthy step-up in the fourth quarter, as you mentioned. Our fundraising pipeline remains really strong heading into year-end. The primary driver, again, is the tax credit business, that typically experiences its strongest activity in the fourth quarter, as well as the fundraisers that were pushed from the third quarter to the fourth quarter. In terms of our overall fee rate or core fee rate, it's still at 103, and that is generally the expectation as we go into next year as well.
Okay, great. Just a follow-up question on the cross-sell. I think, Luke, you mentioned about half of the fundraising of the last couple of years was coming from cross-sell. I was hoping you could elaborate on that a bit. What sort of goals and aspirations do you have for the firm over the next couple of years with respect to cross-sell? Talk about some of the steps you are taking to drive further traction and acceleration there.
Great. Thank you for the question. Just to clarify on the math, we said 15% of the capital we have raised since Investor Day has come from shared clients. That number, 15%, is up from less than 5% at the time of Investor Day. I wanted to make sure we were talking about the same numbers. More generally-
Sorry about that. Thank you.
Sure thing. You are on a very important topic, right? Cross-sell is something that, from the very start, I have been here just over three years now. Sarita, leading the GCS team, has been here coming up on a little over two years. One of the big opportunities we saw, among many other opportunities, was the opportunity to go more deeply and more broadly with our existing clients. I think it is important to note that across the full spectrum of Ridgepost Capital clients, we have over 5,000 clients that we are interacting with, that have done business with us, that have invested with us. I am a big believer in the old saw that the easiest client to do more with is an existing client. It is much harder to create a new client.
We're focused on it, we're doing it every day, by the way, but that is a harder yard than doing more with our existing clients. When you look at the composition of that client base, a couple things stand out. One is, they're generally clients that have been very happy given the robust investment performance that we've generated. So, a happy client is also more amenable to doing more with you. The second thing is, the disposition of those clients tend to very much match with the disposition of our platform. They're focused on alpha generation, they're focused on the middle and lower middle market, they're focused on our fundamental approach in many ways to the world. Building that awareness, building that engagement, and engaging them more broadly across the full spectrum of offerings is something that we've been laser-focused on doing.
We spent a lot of time building our technology architecture to enable us to do that in a more efficient and effective way. I think we can now say that we've accomplished that, and so we have a much better insight into that client base and how we're doing. We continue to work every day with those clients. Many are very close to us and have been great supporters and advocates and are looking for ways to do more with us. That, I think, is very appealing from our perspective. I think the other thing that's really important is our ability to continue to engage with them with some of the new additions to the platform, right? I think about Stellus, for instance, right?
Historically, we might have had clients who were very interested in middle market direct lending, but it was just something that we couldn't offer them. As we continue to round out the product suite, the opportunity that we the chance that we have something in our broader panoply of offerings that's going to match what our client is interested in only goes up. I think when you put that all together, we're really excited about where we are. Obviously, 15 is a lot better than less than five, but I don't think the work is done, and I think there's a lot of progress we can continue to make over the quarters and years ahead.
Great. Thank you.
Thank you. Our next question comes from the line of Benjamin Budish of Barclays. Your line is open, Benjamin.
Hi. Hi, good morning, and thanks for taking my question. Maybe following up a little bit there and tying that into the margin question. I think earlier in the year, or maybe it was the end of last year, you kind of guided to like a mid-40s target. You called out some higher comp from marketing, platform and placement fees. Luke, maybe just following up on your comments, in terms of how much more work there is to do, and as we think about the margin trajectory on the way to your 2029 target, is there a lot more spend in the near term? Should we start seeing more of a margin inflection next year, or does it sort of remain the expectation that things will sort of be more evenly paced on the way there?
I will say a couple things. One is, to your question, we are going to continue to, in a thoughtful way, invest in our platform because we see real opportunities to do that, to obviously accelerate what we are delivering for clients, to accelerate our opportunities to do more with clients, and to continue to grow and scale and raise more capital. Having said that, I want to be clear on this. We are laser focused on the margin. The margin is very important to us, and we understand that delivering profitable growth is absolutely critical from a shareholder perspective, and that is, we are all big shareholders here, and we are very, very focused on that.
What I think you have seen, right, is over the last few years, we have taken some margin points and made some kind of fundamental investments in things like our distribution capabilities and our technology capabilities and our broader infrastructure capabilities so that we can continue to grow and scale the platform and we can continue to engage our clients in broader ways. I think what, in Amanda's commentary, hopefully you heard on the call, is for the first time in a long time, over the first nine months, the margin is effectively flat with last year's margin through the nine months of 2025. I think we expect for the full year, you will see a similar trend, that is, the margin this year will be relatively kind of flat to the margin last year. That doesn't mean we are not making investments.
We're going to continue to make investments, but we're going to make them in a prudent, balanced way. We're going to make them in a smart and margin-conscious way, and we think we can do both of those things at the same time. We don't view them as mutually exclusive, and so we're very focused on that. I don't want to get into 2027 at this point. We'll give 2027 guidance, but I think it's a reasonable expectation that we think we've kind of troughed, and the margins here this year will be relatively equivalent to the margins last year from an FRE basis.
Okay, very helpful. Maybe just a couple of strategy-specific questions. I think TrueBridge, you didn't quite say it, but kind of led us there, maybe a 20% uplift versus the predecessor fund, and I think fair to assume something similar for, I think, Fund X, which you'll be back with next year. Maybe just on WTI, that's one I think we expected to be back with next year that's been pretty consistently every three years. How should we think about the potential sizing there? When we look at Fund XI, the cadence is sort of called capital. Is that sort of on track with what you would typically expect? Should we see more of a rebound to where Funds IX and X were in terms of overall fund size? Any other color there would be helpful. Thank you.
Great. I'd say a few things. I would say first of all on TrueBridge, I don't want to call any specific fund size, but I think generally you've identified the trend and the trajectory we've seen in the business, particularly in the primary funds. I'd also note the acceleration in the related strategies, particularly secondaries, as we commented on. We think there is a lot of general momentum in that venture equity ecosystem. I would say, as it relates to WTI and venture debt, number one, we raised that fund, and I think we're very, very focused on successfully and appropriately deploying that fund. Right now, I would say at WTI, we are focused from a deployment perspective. We are seeing, I think, some very interesting opportunities in the venture debt ecosystem.
Remember that there's probably a little bit of a differential in terms of where TrueBridge plays in the venture ecosystem relative to where WTI plays in the venture ecosystem. While the dynamics may be similar, they are not the same. But I think we're seeing some very interesting deployment opportunities in WTI. Obviously, when it's appropriate, we'll be back out to raise a successor fund. We think there's a lot of momentum in that business. We think there's a lot of things we can do in that business more broadly. We're excited about the WTI franchise. But as we sit here right now, we are focused on deployment.
All right, understood. Thank you so much.
Thank you. I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir?
Thank you, Latif, and thank you, everybody, for your time today and your continued support of the Ridgepost Capital story. Please reach out to our team with any additional follow-up questions, and we very much look forward to updating you on the fourth quarter results in February. Thank you for joining us this morning.
This concludes today's conference call. Thank you for participating. You may now disconnect.