Grosvenor Capital Management, L.P. (GCMG) Bundle
Understanding Grosvenor Capital Management, L.P. (GCMG) Revenue Streams
Understanding Grosvenor Capital Management, L.P. (GCMG)’s Revenue Streams
Grosvenor Capital Management generates revenue primarily through management fees, incentive fees, and other operating income. Here’s a detailed breakdown of these revenue streams:
Breakdown of Primary Revenue Sources
- Management Fees: These fees are derived from assets under management (AUM) and are the largest revenue source. For the three months ended September 30, 2024, management fees totaled $98.5 million, up from $94.6 million in the same period of 2023.
- Incentive Fees: Incentive fees, which include carried interest and performance fees, amounted to $23.3 million for the three months ended September 30, 2024, compared to $26.1 million in the previous year.
- Other Operating Income: This includes administrative fees and other income, which were $1.1 million for the three months ended September 30, 2024, slightly higher than $1.07 million in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for total operating revenues was 1.0%, increasing from $121.7 million in Q3 2023 to $122.9 million in Q3 2024. For the nine months ended September 30, 2024, total operating revenues reached $348.8 million, up from $328.4 million in the same period of 2023, reflecting a year-over-year growth rate of 6.2%.
Contribution of Different Business Segments to Overall Revenue
The revenue contributions from different segments for the nine months ended September 30, 2024, are as follows:
| Segment | Revenue (in millions) | Percentage of Total Revenue |
|---|---|---|
| Private Markets Strategies | $172.3 | 49.4% |
| Absolute Return Strategies | $111.2 | 31.9% |
| Incentive Fees | $49.5 | 14.2% |
| Other Operating Income | $5.0 | 1.4% |
Analysis of Significant Changes in Revenue Streams
In Q3 2024, management fees increased by 4% compared to Q3 2023, driven by growth in both private markets strategies and absolute return strategies. In contrast, incentive fees decreased by 10%, primarily due to lower carried interest realizations. For the nine months ended September 30, 2024, private markets strategies fees grew by 8%, while absolute return strategies remained stable.
The overall increase in revenues reflects successful capital raising efforts and deployment in private markets, despite fluctuations in incentive fees. The firm’s ability to maintain a consistent management fee revenue stream amid market volatility highlights its operational resilience.
A Deep Dive into Grosvenor Capital Management, L.P. (GCMG) Profitability
Profitability Metrics
Gross Profit Margin: For the three months ended September 30, 2024, gross profit was reported at $122.9 million, resulting in a gross profit margin of approximately 55.4%. This reflects an increase from $121.7 million and a gross profit margin of 55.3% for the same period in 2023.
Operating Profit Margin: The operating income for the three months ended September 30, 2024, was $25.0 million, yielding an operating profit margin of 20.3%, compared to $23.9 million and a margin of 19.6% in the prior year.
Net Profit Margin: Net income for the same period was $12.1 million, resulting in a net profit margin of 9.8%, an increase from $17.6 million or 14.5% in Q3 2023.
Trends in Profitability Over Time
Comparing nine-month periods, net income for the nine months ended September 30, 2024, was $6.2 million, reflecting a turnaround from a net loss of $33.8 million for the same period in 2023. This marked a substantial recovery in profitability metrics.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Gross Profit | $122.9 million | $121.7 million | $348.8 million | $328.4 million |
| Operating Income | $25.0 million | $23.9 million | $29.9 million | $(25.0) million |
| Net Income | $12.1 million | $17.6 million | $6.2 million | $(33.8) million |
| Gross Profit Margin | 55.4% | 55.3% | 55.4% | 55.1% |
| Operating Profit Margin | 20.3% | 19.6% | 8.6% | – |
| Net Profit Margin | 9.8% | 14.5% | 2.0% | – |
Comparison of Profitability Ratios with Industry Averages
The industry average gross profit margin is approximately 54%, suggesting that the company is performing slightly above the average. The operating profit margin industry average stands at 15%, indicating a robust operational efficiency compared to peers. The net profit margin average for the industry is around 8%, further highlighting the company's strong profitability position.
Analysis of Operational Efficiency
Operational efficiency can be assessed through cost management and gross margin trends. The company reported total operating expenses of $97.9 million for Q3 2024, compared to $97.8 million in Q3 2023. Despite the slight increase in operating expenses, the company has managed to improve its operating income significantly.
Furthermore, the cash-based employee compensation and benefits for the nine months ended September 30, 2024, were $113.3 million, down from $122.3 million in the same period in 2023, indicating effective cost management.
| Expense Type | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Operating Expenses | $97.9 million | $97.8 million | $318.9 million | $299.4 million |
| Cash-based Employee Compensation | $37.3 million | $39.1 million | $113.3 million | $122.3 million |
| Equity-based Compensation | $3.9 million | $3.4 million | $34.7 million | $33.0 million |
Debt vs. Equity: How Grosvenor Capital Management, L.P. (GCMG) Finances Its Growth
Debt vs. Equity: How Grosvenor Capital Management, L.P. Finances Its Growth
As of September 30, 2024, the company's total debt stood at $432.9 million, compared to $384.7 million as of December 31, 2023. The breakdown of the debt is as follows:
| Debt Type | September 30, 2024 (in millions) | December 31, 2023 (in millions) |
|---|---|---|
| Senior Loan | $436.9 | $389.0 |
| Debt Issuance Costs | ($3.967) | ($4.273) |
| Total Debt | $432.9 | $384.7 |
The company's debt-to-equity ratio, a key measure of financial leverage, was approximately 1.5 as of September 30, 2024. This is consistent with the industry average, which typically ranges from 1.0 to 2.0, indicating a balanced approach to leveraging debt against equity.
In terms of recent debt activity, the company amended its Term Loan Facility on May 21, 2024, increasing the aggregate principal amount from $388.0 million to $438.0 million and extending the maturity date to February 25, 2030. The interest rate margin was reduced to 2.25% over Term SOFR .
Outstanding borrowings under the Term Loan Facility as of September 30, 2024, were $436.9 million, with no outstanding balance under the Revolving Credit Facility, which has a borrowing capacity of $50.0 million .
To balance between debt financing and equity funding, the company has focused on maintaining a steady income from management fees, which amounted to $98.5 million for the three months ended September 30, 2024, reflecting a 4% increase year-over-year . This steady revenue stream supports its debt obligations and provides flexibility in funding growth initiatives without over-relying on debt financing.
The following table summarizes the maturity schedule of the company's debt over the next five years:
| Maturity Year | Amount (in millions) |
|---|---|
| Remainder of 2024 | $1.1 |
| 2025 | $4.4 |
| 2026 | $4.4 |
| 2027 | $4.4 |
| 2028 | $4.4 |
| Thereafter | $418.3 |
| Total | $436.9 |
Assessing Grosvenor Capital Management, L.P. (GCMG) Liquidity
Assessing Grosvenor Capital Management's Liquidity
Current Ratio: As of September 30, 2024, the current assets were $98.4 million, while current liabilities were $66.4 million, resulting in a current ratio of 1.48.
Quick Ratio: The quick assets, which exclude inventories, were $98.4 million, and current liabilities were $66.4 million, yielding a quick ratio of 1.48.
Working Capital Trends
The working capital as of September 30, 2024, stood at $32 million, reflecting a significant increase compared to $11 million as of December 31, 2023.
Cash Flow Statements Overview
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $110,674 | $65,389 |
| Net cash used in investing activities | $(25,108) | $(13,031) |
| Net cash used in financing activities | $(31,528) | $(80,947) |
| Net increase (decrease) in cash and cash equivalents | $54,093 | $(29,809) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had $98.4 million in cash and cash equivalents and $50 million available under its revolving credit facility, indicating strong liquidity. Furthermore, the net cash provided by operating activities increased to $110.7 million in 2024 from $65.4 million in 2023, showcasing improved cash flow management.
However, there are potential concerns due to the total debt of $432,938 million, which includes a senior loan of $436,905 million as of September 30, 2024. The company needs to manage its debt obligations carefully to maintain liquidity.
Overall, the liquidity position appears robust, supported by healthy cash flow from operations and adequate cash reserves.
Is Grosvenor Capital Management, L.P. (GCMG) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of Grosvenor Capital Management, L.P. (GCMG) involves examining key financial metrics that help investors determine whether the company is overvalued or undervalued. This analysis includes the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, Enterprise Value-to-EBITDA (EV/EBITDA) ratio, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $0.03, and the stock price was approximately $7.79. The P/E ratio can be calculated as follows:
P/E Ratio = Stock Price / EPS = 7.79 / 0.03 = 259.67
Price-to-Book (P/B) Ratio
As of September 30, 2024, the book value per share was approximately $7.73. The P/B ratio is calculated as follows:
P/B Ratio = Stock Price / Book Value per Share = 7.79 / 7.73 = 1.01
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
As of September 30, 2024, the enterprise value was calculated using total debt of $432.94 million and cash of $98.4 million. The EBITDA for the nine months ended September 30, 2024, was $136.22 million.
Enterprise Value = Market Cap + Total Debt - Cash = (Stock Price Shares Outstanding) + Total Debt - Cash
Assuming approximately 190.6 million shares outstanding:
Market Cap = $7.79 190.6 million = $1.484 billion
Enterprise Value = $1.484 billion + $432.94 million - $98.4 million = $1.818 billion
EV/EBITDA = $1.818 billion / $136.22 million = 13.35
Stock Price Trends
Over the last 12 months, the stock price has fluctuated as follows:
- 12 months ago: $6.50
- 6 months ago: $7.00
- Current price: $7.79
The stock has increased by approximately 20% over the past year.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, resulting in a dividend yield of 0%. The payout ratio is also 0% as there are no dividends distributed.
Analyst Consensus
According to the latest analyst reports, the consensus rating on the stock is as follows:
- Buy: 3 analysts
- Hold: 2 analysts
- Sell: 0 analysts
The consensus suggests a positive outlook for the company's stock.
| Metric | Value |
|---|---|
| P/E Ratio | 259.67 |
| P/B Ratio | 1.01 |
| EV/EBITDA Ratio | 13.35 |
| Stock Price (Current) | $7.79 |
| Stock Price (1 Year Ago) | $6.50 |
| Dividend Yield | 0% |
| Analyst Consensus (Buy) | 3 |
| Analyst Consensus (Hold) | 2 |
Key Risks Facing Grosvenor Capital Management, L.P. (GCMG)
Key Risks Facing Grosvenor Capital Management, L.P.
The financial health of Grosvenor Capital Management, L.P. is influenced by a variety of internal and external risk factors. Understanding these risks is crucial for investors assessing the company's viability in the current market environment.
Overview of Risks
Grosvenor Capital Management faces several key risks that could impact its financial health:
- Industry Competition: The asset management industry is highly competitive, with numerous players vying for market share. As of September 30, 2024, the company's assets under management (AUM) stood at $79.6 billion, a slight increase of 1% from $78.7 billion at the end of 2023.
- Regulatory Changes: Ongoing changes in financial regulations can pose challenges. Compliance costs can increase, and non-compliance can result in penalties. The effective tax rate for the company was 21% for Q3 2024, compared to 16% in Q3 2023.
- Market Conditions: Fluctuations in market conditions can affect investment performance. The change in fair value of warrant liabilities was $9.3 million for the nine months ended September 30, 2024.
Operational Risks
The company faces operational risks that could hinder its ability to execute its business strategy effectively:
- Employee Compensation: Employee compensation and benefits totaled $73.3 million for Q3 2024, which is a slight decrease from $76.4 million in Q3 2023.
- General and Administrative Expenses: These expenses were $24.6 million in Q3 2024, up from $21.4 million in Q3 2023.
Financial Risks
Financial risks include factors that could impact the company's financial performance:
- Interest Expense: Interest expense remained consistent at $5.9 million for Q3 2024.
- Debt Levels: The total debt as of September 30, 2024, was $432.9 million, up from $384.7 million at the end of 2023.
Strategic Risks
Strategic risks are related to the company's overall strategy and market positioning:
- Fee-Related Earnings: Fee-related earnings increased to $39.8 million for Q3 2024, compared to $36.4 million for Q3 2023.
- Incentive Fees: Incentive fees decreased to $23.3 million for Q3 2024, down from $26.1 million in Q3 2023.
Mitigation Strategies
The company has established several strategies to mitigate risks:
- Diversification of Investment Strategies: The company employs a range of investment strategies, including private market strategies which generated $57.9 million in revenue for Q3 2024.
- Cost Management: The company has implemented measures to control general and administrative expenses, which totaled $24.6 million for Q3 2024.
| Risk Factor | Current Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | AUM of $79.6 billion | Diversification of investment strategies |
| Regulatory Changes | Effective tax rate of 21% | Ongoing compliance monitoring |
| Market Conditions | Change in fair value of $9.3 million | Risk assessment frameworks |
| Operational Risks | Compensation expenses of $73.3 million | Cost management initiatives |
| Financial Risks | Total debt of $432.9 million | Debt restructuring plans |
Future Growth Prospects for Grosvenor Capital Management, L.P. (GCMG)
Future Growth Prospects for Grosvenor Capital Management, L.P. (GCMG)
Analysis of Key Growth Drivers
Grosvenor Capital Management, L.P. has identified several key growth drivers that could enhance its financial health in the coming years:
- Product Innovations: The firm is expanding its investment strategies, particularly in private markets which saw a 5% increase in Fee-Paying Assets Under Management (FPAUM) to $42.3 billion in Q3 2024.
- Market Expansions: The company has reported a 7% increase in Contracted, Not Yet Fee-Paying AUM, totaling $7.9 billion as of September 30, 2024.
- Acquisitions: Strategic acquisitions in niche markets are being pursued to bolster its portfolio and client base.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections indicate a strong upward trend:
- Management fees increased by $4.0 million, or 4%, to $98.5 million for Q3 2024 compared to Q3 2023.
- Total operating revenues for the nine months ended September 30, 2024, reached $348.8 million, up from $328.4 million in 2023.
- Adjusted Net Income for the nine months ended September 30, 2024 was $88.0 million, representing an increase from $70.8 million in 2023.
Strategic Initiatives or Partnerships
The company is actively engaging in strategic initiatives that may drive future growth:
- Partnerships with emerging market funds to diversify investment strategies.
- Investment in technology to enhance data analytics capabilities, which is expected to improve decision-making processes and operational efficiency.
Competitive Advantages
Grosvenor Capital Management possesses several competitive advantages positioning it for growth:
- Brand Reputation: A strong brand presence in the investment management industry enhances client trust and retention.
- Diverse Investment Strategies: The firm's ability to offer a wide range of investment strategies caters to various investor needs and market conditions.
- Experienced Management Team: A seasoned management team with a proven track record in asset management supports strategic decision-making.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| FPAUM | $63.7 billion | $61.7 billion | +3% |
| Management Fees | $98.5 million | $94.6 million | +4% |
| Total Operating Revenues | $122.9 million | $121.7 million | +1% |
| Adjusted Net Income | $31.4 million | $28.4 million | +7% |
As of September 30, 2024, the company reported net income of $12.1 million, a significant increase from $6.2 million in the same period the previous year, showcasing robust financial performance amidst market challenges.
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Resources:
- Grosvenor Capital Management, L.P. (GCMG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Grosvenor Capital Management, L.P. (GCMG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Grosvenor Capital Management, L.P. (GCMG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.