GCM Grosvenor - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was a strong start: GAAP revenue rose 16% year-over-year to $125.8mm, Fee-Related Earnings grew 22% to $46.7mm, and Adjusted EBITDA increased 26% to $53.4mm; Adjusted EPS was $0.18, while GAAP diluted EPS was -$0.02 due to non‑cash warrant revaluation.
• Management highlighted “very strong results,” citing a 77% YoY increase in quarter‑to‑date fundraising ($2.9B), catch‑up fees from IAF II, and progress on strategic initiatives; they stated “we beat profitability expectations” and maintained a $0.11 quarterly dividend.
• Guidance: 2025 Private Markets fee-related revenue expected to grow 5–8% including catch‑ups; ARS management fees expected to be roughly flat vs 2024 given tougher equity markets; Q2 PM management fees ex catch‑ups to rise slightly over Q1.
• Strategic catalysts: (1) SuMi TRUST partnership (targeting ≥$1.5B AUM by 2030; $50mm equity purchase), (2) launch of Grove Lane JV to scale individual investor distribution, (3) IAF II final close at $1.3B; these expand distribution breadth and embedded earnings power.
• Narrative for the stock: resilient fee base, operating leverage, and compounding embedded incentive fees (gross unrealized carry $865mm; firm share $415mm) with selective caution on near‑term incentive realizations amid policy uncertainty; share repurchases and dividend support capital returns.

What Went Well and What Went Wrong

What Went Well

• Exceptional fundraising and fee momentum: $2.9B raised in Q1 (77% YoY), PM management fees up 20% YoY driven by $7.6mm catch‑up fees from IAF II; FRE +22% YoY, Adjusted EBITDA +26% YoY, Adjusted EPS +29% YoY.
• Strategic partnerships/distribution expansion: Non‑exclusive SuMi TRUST partnership targeting ≥$1.5B by 2030 and $50mm equity purchase; launch of Grove Lane JV to expand RIA/IBD individual investor reach, leveraging open‑architecture and SMA capabilities.
• Embedded earnings power building: Gross unrealized carried interest rose to $865mm (firm share $415mm), providing significant long‑term monetization optionality even as realizations remain muted.

What Went Wrong

• GAAP diluted EPS negative (‑$0.02) despite strong non‑GAAP results, primarily reflecting an $8.8mm non‑cash increase in warrant liabilities fair value, which lifted net other expense in the quarter.
• Incentive fee realizations likely to be “muted” near‑term as management cited reduced visibility on deployments due to tariff/tax policy uncertainty; ARS performance was flat in Q1, tempering run‑rate incentive fees for the industry.
• Absolute Return Strategies management fees expected to be roughly flat for FY 2025 vs FY 2024 under flat flows assumptions, limiting near‑term growth contribution from ARS despite strong multi‑year alpha.

Transcript

Operator (participant)

Good day, and welcome to the GCM Grosvenor First Quarter 2025 Results Webcast. Later, we will conduct a question-and-answer session. If you're 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 the zero key 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.

Stacie Selinger (Head of Investor Relations)

Thank you. Good morning, and welcome to GCM Grosvenor's First Quarter 2025 earnings call. Today, I'm joined by GCM Grosvenor's Chairman and Chief Executive Officer, Michael Sacks, President Jon Levin, and Chief Financial Officer, Pam 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 the 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 factor 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 shareholder section of our website. We will 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 our website. Thank you again for joining us. With that, I will turn the call over to Michael to discuss our results.

Michael Sacks (Chairman and CEO)

Thank you, Stacie. GCM Grosvenor had very strong results in the first quarter. We beat profitability expectations, enjoyed exceptional fundraising, our portfolio investment performance was solid, and importantly, we made progress on strategic initiatives. With regard to fundraising, our first quarter total of $2.9 billion is our highest quarterly fundraising level in over two years and second highest level since we began reporting publicly. Approximately half of that total was for infrastructure, including a strong final close of nearly $500 million for our second Infrastructure Advantage Fund. IAF2's final fund size of $1.3 billion was nearly 50% larger than its predecessor fund and is an important part of the success of our broad $16 billion infrastructure strategy. We launched the next vintage of our Global Diversified Infrastructure Fund, CIS4, later this year.

Following infrastructure, private equity was the second greatest contributor to first quarter fundraising, with over $720 million raised for the strategy. That included the final close of our private equity co-invest fund, GCF3, bringing the fund's total size to approximately $615 million, also a material increase over its predecessor fund, which brought PE co-invest total AUM to $9.6 billion. Within the private equity vertical, the next fund coming to market will be our secondaries fund, GSF4, which we expect to launch later this year. While the market volatility through April requires no recap, it's worth noting that demand for alternatives, and in particular private markets, remains strong. At this time, outside of certain idiosyncratic pockets, we have not seen investors backing away at all.

We came into the year forecasting that 2025 fundraising would exceed 2024's total of $7.1 billion, and despite the volatile conditions, we continue to stand by that view. The strong IAF2 final close led to meaningful catch-up fees in the first quarter of $7.6 million. As a result, total private markets management fees for the quarter increased 20% year-over-year. First quarter fee-related revenue grew 12% year-over-year, and fee-related earnings grew 22% year-over-year. First quarter adjusted EBITDA grew 26% and adjusted net income grew 30% year-over-year. It was a very solid quarter in terms of financial performance. At the end of the day, our ability to fundraise and grow the business is a function of the value proposition we deliver to clients, in large part driven by the risk-adjusted returns we deliver over long periods of time and across market cycles.

We are pleased with our results in that regard. Our absolute return strategies business, which delivered relatively flat performance in Q1, was viewed quite positively by our clients given the drop in equity markets over the same period. Our multi-year performance has been strong there, driving increased client interest in the strategy. Our multi-strategy composite has generated a 10.6% annualized gross return over the last two years, outperforming industry benchmarks and exceeding our run rate performance assumptions. Since the start of 2024, we have raised $1.6 billion for absolute return strategies, and our late-stage pipeline is stronger now as compared to any time over the past few years. Similarly, we enjoyed solid investment performance across private markets, and we saw our carried interest balance grow to $865 million, an 11% increase from a year ago and more than double our 2020 balance.

The firm's share of carried grew by 12.5% to $415 million as of quarter end. Importantly, realization activity remains muted amidst the ongoing market uncertainty, but our carry, which is particularly diversified in nature, continues to represent strong earnings potential. We announced two exciting strategic initiatives this quarter: a joint venture called Grove Lane, which is a distribution platform focused on the individual investor, and a strategic partnership in Japan, an important market with exciting growth prospects. Jon will talk about both in a minute, but through both of these initiatives, we are leveraging our core strengths: open architecture investing across the full range of alternative investments and a client-centric approach to developing tailored investment solutions. We believe over time, after an adequate period to ramp, both of these efforts can be significant contributors to revenue and profit.

Before I hand it over to Jon, it's important to acknowledge that despite the great quarter, the solid fundraising picture, the still strong pipeline, and the progress on strategic priorities, we believe that the uncertainty related to trade and tax policy is likely to keep deployment and transaction levels depressed. In addition, while it is still early in the year and anything can happen, the challenging equity markets make it harder to see the ARS business achieving the same level of returns this year as it did last year. Consequently, incentive fee levels for the industry as a whole and for GCM Grosvenor are unlikely to reach the levels experienced last year. It's important to reiterate that at this time, we do not see tariff and tax uncertainty affecting fundraising.

Therefore, the FRR and FRE impact of policy uncertainty is thus far limited to the loss of compounding on ARS FPOM due to the tougher market environment and somewhat slowed private markets' deployment of dry powder. As a result, utilizing our standard budgeting with flat ARS close assumptions, we would expect 2025 ARS management fees to be about the same as 2024 ARS management fees. We expect full-year private markets' fee-related revenue, including catch-up fees, to grow in the mid-single-digit 5%-8% range compared to 2024. As we mentioned last quarter, we have limited additional catch-up fees anticipated between now and year-end due to the mix of offerings in market. As always, Pam will speak more specifically to what we see for the second quarter in a few minutes, but I do want to close by saying that our clients value us most in the midst of market volatility.

Importantly, we remain confident in our ability to achieve our goal to double FRE from 2023 levels by the end of 2028. With that, I'll turn the call over to Jon.

Jon Levin (President)

Thank you. As Michael noted, I will dive deeper into the recently announced strategic initiatives. Although the Grove Lane joint venture targets RIA distribution in the U.S. and the partnership in Japan targets investors in Japan, both initiatives reflect our consistent goal to create distribution capabilities that we can grow and that we can leverage. Through these efforts, we can offer our value proposition to more investors and fully harness the strength of our origination and manufacturing platform. As we've highlighted before, our investment engine scales well, and we are long origination and short capital. Put simply, we are highly confident in our ability to deploy additional capital through our existing pipes. The much talked-about individual investor channel represents a massive opportunity. Thus far, our success has been largely in the wirehouse channel, and we've raised $3.5 billion from individual investors since 2020.

The Grove Lane joint venture marks an exciting next step in our evolution, enhancing and extending our distribution reach into the RIA and IBD markets and complementing our existing individual investor distribution footprint in the U.S. We believe our institutional product, our registered product, and our separately managed account capabilities will all be relevant to this market. In particular, we believe our 30 years of experience providing separately managed accounts and related services will be a differentiated offering in this market. We will continue to launch new products similar to our seeded and almost fully invested registered ticker-enabled infrastructure interval fund that we launched earlier this year. We will support Grove Lane as they build out their team and business and have structured our investment to ramp as the business enjoys success.

We also have the option to purchase Grove Lane management's interest in the entity at a future point in time and would likely do so when and if it is accretive. Before turning to our strategic partnership in Japan, it's important to understand the strength of our brand and business across Japan and the broader Asia-Pacific region. We've built long-standing relationships in Japan and across the Asia-Pacific market since the 1990s. Nearly a quarter of our AUM is from Asia-Pacific-based clients, and some of our deepest and most involved strategic partnerships are from the region. Case in point, four of our top 10 largest clients are Asia-based, and our approximately 50 total clients in the region represent nine countries. We've seen consistent strong growth from the region, raising over $3 billion from Asia over the last two years alone.

Our non-exclusive partnership in Japan aims to raise at least $1.5 billion in additional assets by 2030. We expect this growth to come primarily from private market strategies and to utilize our separate account capabilities, our franchise of specialized funds, and possibly new products catered to the Japanese market. To underscore their commitment to the partnership, our Japanese partner also purchased approximately $50 million of newly issued shares of GCM Grosvenor Class A Common Stock at $13.32 per share. As Michael noted, amidst the daily turmoil and ups and downs, we are content to keep our heads down, delivering for our clients while growing the business and investing for the future. With that, I'll turn it over to Pam.

Pam Bentley (CFO)

Thanks, Jon. We are pleased with our first quarter results, which highlight the multiple avenues we have to achieve success and drive growth. Given our strong fundraising this quarter, assets under management grew to $82 billion, and fee-paying AUM grew to $66 billion. Our contracted not-yet-fee-paying AUM grew 16% year-over-year to $8.2 billion, providing a foundation for continued organic growth as that capital converts to fee-paying AUM over the next few years. Private markets was the key driver of our results in the quarter, with private markets management fees increasing 20% over the first quarter of 2024, inclusive of $7.6 million of catch-up fees. Given that IAF2 reached its final close this quarter, we expect very little in the way of catch-up fees for the remainder of the year.

In the second quarter, we expect private markets management fees, excluding catch-up fees, to increase slightly over the first quarter. Absolute return strategies performed well against the broader market downturn and are providing a key source of stability in many of our clients' portfolios. That said, with flat ARS investment performance and flows in the first quarter, we anticipate that ARS management fees in the second quarter will remain in line with first quarter levels. Turning to our expenses, our compensation philosophy is to invest in, align, and motivate our greatest asset, our talent, through a combination of annual and long-term rewards, including FRE-related compensation, incentive fee-related compensation, and equity awards. We remain disciplined in managing compensation expenses and first quarter FRE compensation was $38 million, consistent with our 24-quarterly average. We expect FRE compensation to remain at similar levels in the second quarter.

Non-GAAP general and administrative and other expenses were $21 million in the first quarter, and we expect a consistent level in the second quarter. Pulling together these factors, our first quarter fee-related earnings grew 22% year-over-year with a 44% fee-related earnings margin. Turning to incentive fees, we realized $15 million in the quarter, comprised of $4 million of annual performance fees and $11 million of carried interest. Market conditions are likely to result in muted incentive fee realizations in the near term, but we are well-positioned to enjoy significant long-term cash flow generation from the embedded value of both our carry and performance fees. Our gross unrealized carried interest increased to $865 million as of quarter end, up from $836 million last quarter, which provides significant future earnings potential. Run rate annual performance fees stand at $31 million as of Q1.

As a reminder, we typically retain 40%-50% of the firm share of incentive fees after cash incentive fee compensation. In the first quarter, the number was 40%, which is the same as the first quarter of 2024. Our balance sheet is strong, and we are maintaining a healthy quarterly dividend of $0.11 per share. As of Monday, we had a 3.5% dividend yield, and there is room for future dividend growth as we enjoy positive momentum in our earnings. We are also strategically investing in our long-term growth, such as through our joint venture with Grove Lane. We continue to repurchase shares under our repurchase authorization plan, and we intend to use the $63 million remaining in our program as of May 1, largely to manage dilution. Our business is built on a strong foundation and is well-positioned to capitalize on numerous opportunities for growth and scaling.

We are excited to continue creating value for our clients and shareholders. Thank you again for joining us, and we're now happy to take your questions.

Operator (participant)

Thank you. If you would like to signal with questions, please press star one on your touch-tone telephone. If you're joining us today, use a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions. The first question comes from Crispin Love with Piper Sandler.

Crispin Love (Director and Senior Research Analyst)

Thank you, and good morning, everyone. First, just starting on the 2025 markets, private markets management fee expectations, I believe it's up 5%-8%. Can you just discuss some of the puts and takes there? Fundraising has been strong, but what are the key drivers to get you back to the 10%+ range over the longer term, which are levels that you've talked about in the past?

Michael Sacks (Chairman and CEO)

You have a couple of factors that impact that in a short-term timeframe. Longer term, very good, strong picture, and feel very good about that. How much of your funds raised in a particular quarter go direct to FPOM versus go to CNYFPOM is a factor. Then deployment from CNYFPOM is a factor. Where you have pay on as invested capital, how fast you invest that is a factor that impacts your revenue within a year. Those are the real factors that affect the timing of revenue realization, the timing of revenue turn-on, or those are the factors, I guess I should say, that we think have variability to them. We feel like, as I said at the end of my remarks, our ability to meet our FRE goals by our 2028 target remained very strong.

We're actually very pleased with the quarter. The fundraising has been great. The trailing 12-month fundraising has been great. Sort of a very significant increase from where we were in 2023. It's building on the increase in 2024. The pipeline is full. We said we see ourselves beating last year for the full year. It's really just how much of that, as it hits, is pay on committed versus pay on invested, and then how the deployment works from the CNYFPOM, which is the pay on invested.

Crispin Love (Director and Senior Research Analyst)

Perfect, Michael. That makes a ton of sense there, especially in this environment. Just last question for me. Just looking at the last 12 months fundraising, you've continued to expand more and more internationally. If I look at the last 12 months, I think fundraising in the Americas is at about 58% currently. It's come down from 65% just a couple of quarters ago. As you look out over the intermediate and long term, where do you expect that to trend? Where are the biggest opportunities? Clearly, you're leaning into Japan and Asia, but just any additional thoughts would be helpful on your opportunity internationally. Thank you.

Michael Sacks (Chairman and CEO)

Yeah. The opportunities are significant globally. They are significant here in the U.S. They are significant internationally. We do not really predict how much is going to be from outside the North America or inside North America quarter to quarter. It has been, as you said, higher. It has been lower. There have been periods of time where we have had higher international fundraising than we have experienced recently. That moves around. I think the important thing is that the demand is very strong globally. It is strong in all the investor channels. I would say when you are talking about biggest opportunity, I do not think we segment that really domestic versus international. Jon may want to add something here, but that individual investor opportunity that Jon talked about, we think is a tremendous opportunity, and we are being very deliberate and purposeful in trying to go after that.

That is a tremendous opportunity here in the U.S. It is also a tremendous opportunity outside of the U.S., and that is part of what this joint venture in Japan is about. We see a lot of that. I would argue that could be, over a five-year period, your biggest opportunity.

Jon Levin (President)

Michael, nothing really to add there. I agree with your point around hard to look at these trends short-term. The business has been about 60%-65% Americas from an AUM standpoint and the balance outside for a very long period of time. You are seeing a slightly less percentage than that. I would say on the margin, you probably have some higher growth balance sheets or some healthier balance sheets outside the U.S. in terms of allocators to alts, but then you have a massive individual investor opportunity globally where the biggest part of that market is in the U.S. I would not expect to see major changes in that kind of pie chart, Crispin, in a very short term.

I think where you'll see us have success are on the areas where we're making investments, where that it still takes a lot to move the pie chart, but you'll see that individual investor channel obviously continue to grow for us as it is for the industry as a whole.

Crispin Love (Director and Senior Research Analyst)

Great. Thank you, and appreciate all the color.

Operator (participant)

The next question will come from Bill Katz with TD Cowen.

Bill Katz (Senior Equity Analyst)

Great. Thank you very much. Good morning and congrats on the two new initiatives. I want to start with the Sumo Trust. That seems to be intriguing to me. I guess when I saw the news, I was just surprised that it is a relatively nominal level of capital raise over the next 4+ years. I was wondering if you could talk a little bit about where you see the greatest opportunity. Related to that, I am sort of curious, is there an opportunity for the SuMI TRUST to increase their stake in GCMG? Thank you.

Michael Sacks (Chairman and CEO)

Thanks, Bill. I think that Sumitomo Trust is obviously a big player in that marketplace. The potential for this partnership, as Jon touched on, and the potential opportunity in that market with a partner, and I should mention it's not an exclusive partnership. We have the ability to enter into partnerships with other distributors there. The potential is obviously much greater than the stated number. I think that there wasn't any particular magic to that number. I think that in terms of the stock issuance, and Bill, a long way of saying we'd obviously our goal is to exceed that number. In terms of the stock issuance, there are no conversations about increasing that. There are no plans to do that. Frankly, I don't know that we're focused on that at all. That's not something that was part of conversations, that was part of plans.

I think that was just an investment to strengthen what was already a pretty good relationship and a signal about the seriousness of the intent of building this out.

Bill Katz (Senior Equity Analyst)

Okay. Just a follow-up. Just coming back to your cautious commentary on deployment, you understand that given the market volatility. However, when I step back, I think about the franchise, one of the strengths of the business is the very strong SMA growth of the business, which I had a sense was much more programmatic in terms of deployment. What has shifted from more of that structural opportunity to deploy capital versus the more cautious view here, particularly since a number of your peers have been accelerating some deployment given the market volatility, both in the equity as well as the credit markets? Thank you.

Michael Sacks (Chairman and CEO)

Yeah. Nothing has shifted substantively. Nothing has shifted long-term. Everything that took place in the quarter and that's taking place in the business, from our perspective, is constructive, and we feel very good about that. That just simply was intended to be a comment and kind of a bit of realism. It's a little there's less visibility around the investment committee table today in light of the policy volatility around tariff and tax than there has been. If you're sitting around the table and you're looking at an investment and you aren't sure of your cost of goods sold because you don't know quite where the tariff's going to be, and you're not sure of where taxes settle, it's just a little harder to have visibility right now.

Our hope is certainly that by later in the summer, the visibility will clear up a bit, and you'll start to see things moving forward. I think when we started out late last year, early this year, there was quite a bit of enthusiasm with regard to transaction activity levels, and that seems to have dissipated somewhat quickly for now. Our comments are really reflecting that sort of short-term impact on visibility, and it's not in any way a substantive comment on the structure of the business. In fact, what we've seen is the opposite. We've seen people, we had a tremendous fundraising quarter. We've seen people continuing with their programs, continuing with their re-ups. It's just inside of those programs in terms of transaction levels. They're down and haven't rebounded in the way that we thought they would.

That is not all of that capital is sitting there with fees waiting to turn on, waiting to be deployed, and we're working. There's no structural change whatsoever, and we did not mean to imply that in any way. It was just a visibility comment on the two big areas of policy uncertainty now that I think slows deployment for the short term. I hope it's truly short-term, like the last quarter, this quarter, but we'll have to all see.

Bill Katz (Senior Equity Analyst)

Okay. Thank you very much.

Operator (participant)

If you would like to signal with questions, please press star one on your touchstone telephone. Again, that is star one if you would like to signal with questions. The next question will come from Ken Worthington with JPMorgan.

Ken Worthington (Managing Director and Senior Equity Research Analyst)

Hi. Good morning. Maybe following up on Bill's question just here. Do you see the opportunity for Grosvenor in the announcements by a number of these endowments and the potential for them to meaningfully reduce the size of their PE positions? Does this seem like a big enough opportunity for you to capitalize on somewhere in your private markets businesses?

Michael Sacks (Chairman and CEO)

There have been a couple of large. First, I should say that we're pretty insulated to an endowment pullback on private markets commitments. It's a small part of our AUM, and it's just not that aspect of what you're raising, Ken, is not an issue or a concern for us. You could argue it's unfortunate. It's not an issue or a concern for us, but it's just a small part of our business. In terms of capitalizing on what's happening there, obviously, there have been a couple of large publicly announced secondary sales, and there likely will be more secondaries activity. We look at all of that in our secondaries business, and so that is an opportunity to deploy capital there. I think there's a possibility that the mix shift inside the endowments towards alternatives that have more liquidity is a possibility.

That is certainly something that our ARS business can capitalize on. We are going to try to capitalize on all the opportunities we see. I think short-term, what we have seen already is an increase in LP-led secondaries out of that space, and that is probably likely to continue. There may be a move towards liquidity and more liquid alts, which is something we are good at.

Ken Worthington (Managing Director and Senior Equity Research Analyst)

Okay. Perfect. Yeah. From the opportunity side of the perspective. Maybe second question, just going to slide 26 in your deck, we see the fees from specialized funds experiencing very strong growth, but the separate account fees are essentially flat. Can you talk about the dynamics maybe weighing on the separate account fee growth that we've seen over the last 12 months, and then talk about the outlook that you see maybe for the next 12 months on the separate account side?

Michael Sacks (Chairman and CEO)

Yeah, I would say.

I think.

Jon, you go ahead. What I was going to say, the first point I was going to say was I think that we do raise money constantly, and we raise money that is pay on committed, and we raise money that goes into CNYFPOM. You have seen a pretty good, healthy growth in CNYFPOM looking back over the last four or five quarters. You see that go up. You have that growth built in, but the fees have not started to pay yet, and that comes as we roll forward. That is clearly part of it. Jon, you want to add to that?

Jon Levin (President)

Yeah. I was just going to say, Ken, this is actually exactly what we would expect it to look like. One of the things we've talked about in the past is some of the mix shift in our business towards more direct-oriented strategies and that coming at a higher fee. When you look at the types of investment strategies that dominate the specialized funds, it tends to be the more direct-oriented strategies, whereas inside of the separate accounts, you'll have a much broader mix of allocative strategies and direct-oriented strategies. The idea that you see the specialized fund rate, A, be higher, but also bounce around a little bit higher as you have more and more direct-oriented strategies makes sense to us. The other thing that we always talk about is that you have fee discounts for clients that work with you at scale, volume discounts.

We've always had that in our business going back in time. As you have more cross-selling and growth with your existing separate account clients, which we view as a great thing, you get more capital, you get more dollars of revenue, but you also recognize that in terms of the fee rate. I mean, as you look forward, I would expect stability there. I mean, in both lines, meaning I would not expect you to see much change with the average fee rate in those two categories. What I do think you will see is, as what you have seen in the past, is more of the management fees coming from specialized funds over time in private markets just because we are growing off a still lower base there, given the strength and the history of the customized separate account business.

Ken Worthington (Managing Director and Senior Equity Research Analyst)

Okay. Great. Thank you very much.

Operator (participant)

Moving on to Tyler Mulier with William Blair.

Tyler Mulier (Equity Research Analyst)

Hi. Good morning. I was just curious on the Grove Lane opportunity. What was the rationale behind the JV structure? What are the initial efforts going to be focused on? Understanding that it may not be the best environment for individual investors given the equity market sell-off and increased uncertainty.

Michael Sacks (Chairman and CEO)

Yeah. Let me take the back part of that question first because I think that while the market uncertainty is real for now, it's a lot of volatility, a lot of policy conversations that have led to volatility, that investor universe is significantly underallocated to alternatives as we know. And while you may have different growth rates depending on different market conditions, I don't think there's any work out there that doesn't see that growing and doesn't see it growing at a very good rate. That is a very real opportunity that I think is going to grow outside of any real major exogenous shock that's going to grow, and it's just going to continue to grow. I think you're going to see growth there over time.

We've been careful to say it's going to ramp for us and to not get we shouldn't be getting ahead of ourselves in terms of building in fund sales and fundraising into our numbers too quickly. That's a very real opportunity, and I think it's going to continue to power through throughout despite environments kind of ebbing and flowing and being more constructive and less constructive. As far as the structure goes, we like the structure a lot. The structure enabled us to attract some pretty and will continue to enable us to attract some very solid talent from real places that wants to be part of building something and can have some ownership in a vehicle and can do what they're good at in that structure.

We have structured that as there will be some information on that structure in our queue that you will see, but we have structured it in a way where we have the ability to take that joint venture in in the future when it is more mature, but the team can do well for themselves and be properly incented during the period of time that during a reasonable period of time while that is maturing, which I think increases the quality of the team and therefore the results for us intermediate and long term.

Tyler Mulier (Equity Research Analyst)

Thank you.

Operator (participant)

The next question will come from Bill Katz with TD Cowen.

Bill Katz (Senior Equity Analyst)

Okay. Thanks for taking the next questions. Just coming back to ARS, that seems like a great opportunity. Can you talk a little bit, maybe quantify how big the pipeline is? I think you mentioned something rather strongly. Within that, how quickly does it normally translate into the fee-paying AUM? If you have any color on where those allocations are coming from, and then believe it or not, I actually have a follow-up. Thank you.

Jon Levin (President)

Sure. The pipeline.

Michael Sacks (Chairman and CEO)

Go ahead. Go ahead, Jon.

Jon Levin (President)

I was just going to say, Bill, you've seen it a little bit. Recall last year, we raised about $1.2 billion for ARS, which was more than a couple of years prior combined. I think that when you look at it, we actually think we're going to have modest net inflows as we sit here right now in the second quarter. Anything can change and show some nice wins and contributions there. From my travels around the world, which have been numerous over the past several weeks for both me and my partners, one of the things we're hearing a lot is, yes, we love our private markets investments. Yes, we're going to continue to allocate.

As Michael noted a little bit earlier in response to one of the questions, it's also nice to be able to generate some alpha and return out of a more liquid part of the portfolio in periods of time when distributions from privates are not as strong. That's just been a constant theme, especially when that's been in a category that's generated a nice amount of return and alpha in recent periods of time. In light of the fact that you might be looking at a more volatile market going forward where the ability to protect capital in down markets and make money throughout market cycles is interesting. I just think we've seen it already in the numbers. We think we'll see some more activity again in the second quarter, and it's just kind of activity levels generally.

Michael Sacks (Chairman and CEO)

Yeah. To your question on the fees, that's largely overwhelmingly a pay on committed business. The fee-related revenues turn on when you start, when you execute the SMA or make the fund sale. You get the fees ramp effectively immediately.

Jon Levin (President)

Yeah. I mean, I agree with what Michael said. I mean, basically, Bill, to think about it this way, there is no distinction between committed and invested because it happens simultaneously, effectively.

Michael Sacks (Chairman and CEO)

As you know, Bill, you get the compounding there.

Bill Katz (Senior Equity Analyst)

Of course. One quick one from Pam. While you guys go, thank you. The share count, maybe pro forma for SumoTrust, as well as the buyback quarter to date, where is that number now? Does that look like a sort of flash number from here based on your comments around offsetting stock-based comp? Thank you.

Pam Bentley (CFO)

Hi, Bill. Thanks for the question. Yes. The Sumo transaction was just around 2% dilution. Sitting here as of May 1, relatively modest to little dilution as a result of both the RSU vesting and the Sumitomo issuance.

Bill Katz (Senior Equity Analyst)

Thank you.

Operator (participant)

That does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional or closing remarks.

Stacie Selinger (Head of Investor Relations)

Thank you. Thank you, everyone, for joining us today. We look forward to any follow-up questions. Otherwise, I look forward to seeing you next quarter.

Operator (participant)

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. We hope everyone has a great day, and you may all disconnect.