Rithm Capital - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong non-GAAP results: Earnings Available for Distribution (EAD) of $275.3M ($0.52 per diluted share), marking the 22nd consecutive quarter of EAD covering the dividend; GAAP diluted EPS was $0.07 as MSR mark-to-market drove GAAP volatility.
• Against S&P Global consensus, EAD/“Primary EPS” beat ($0.52 vs $0.467), while revenue missed as MSR fair value swings reduced reported revenue; management emphasized hedge offsets and staying “close to home” to limit book value volatility*.
• Business momentum across platforms: largest-ever MSR debt issuance ($878M), two non-QM securitizations ($634M UPB), Newrez pretax income ex-MSR marks $270.1M with servicing UPB at $845B; Sculptor AUM ≈$35B with $1.4B gross inflows.
• Potential catalysts: management is actively pursuing capital actions (e.g., externalization/C‑corp, partial IPO of Newrez) to unlock value; book value quarter-to-date ~$12.60 and robust M&A/fundraising pipelines support narrative of value realization in 2025.

What Went Well and What Went Wrong

What Went Well

• Non-GAAP profitability held up: EAD $275.3M ($0.52 per diluted share) and dividend coverage for the 22nd straight quarter; CEO targets 15–20% annual returns on equity for the business.
• Strategic financing and securitization: completed $878M secured MSR financing (largest-ever MSR debt issuance) and two non-QM securitizations totaling $634M; sponsored a $230M SPAC (RAC) to expand fee streams.
• Operating platforms execution: Newrez pretax income ex-MSR marks $270.1M (19% ROE) and servicing UPB reached $845B; Sculptor grew to ≈$35B AUM and held $870M additional commitments for Real Estate Fund V, plus a €420M CLO; management: “Performance matters first, and we will never sacrifice performance”.

What Went Wrong

• GAAP volatility: diluted EPS fell to $0.07 (from $0.50 in Q4) as MSR fair value swung −$541.9M QoQ; “servicing revenue, net” declined sharply versus Q4, demonstrating sensitivity to valuation inputs.
• Revenue compression QoQ: total revenue dropped to $768.4M (from $2,096.3M in Q4) driven by MSR fair value changes; asset management revenues also lower QoQ ($87.7M vs $258.9M).
• Margin pressure in origination: management cited increased competition and margin compression, electing not to “chase market share”; origination funded volume was $11.8B (+9% YoY but down vs Q4), consistent with disciplined pricing focus.

Transcript

Speaker 2

Good day and welcome to the Rithm Capital First Quarter 2025 earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Emma Pollar, Associate General Counsel. Please go ahead.

Speaker 0

Thank you and good morning, everyone. I would like to thank you for joining us today for Rithm Capital's First Quarter 2025 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO, and President of Rithm Capital; Nick Santoro, Chief Financial Officer of Rithm Capital; and Baron Silverstein, President of NewRez. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website, www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC.

In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. With that, I will turn the call over to Michael.

Speaker 1

Thanks, Emma. Good morning, everyone. Thanks for jumping on the line this morning. Another good quarter for the company, despite all the market volatility we're seeing play out. All of our business lines performed extremely well. When I think about us, the market volatility plays well into the strengths and disciplines of our organization. Our investment teams have many years of experience. In markets like these, you want to make sure your capital is managed by investment professionals who know how to protect the fort as well as seek opportunistic investments to grow the business. As you will hear us speak about the growth of Rithm, I want to be clear. The number one message is our desire to earn the trust of LPs and investors. The one thing that matters is performance.

Performance matters first, and we will never sacrifice performance in lieu of growing our platform. When I think about our business, I like to say, "Why us?" This goes back to a little bit of our comments from last quarter's earnings. Results first. We must have performance to grow our business. Two, we have the ability to manufacture assets through our different operating businesses. We underwrite, originate, and service the assets from beginning to end. Servicing matters. Our mortgage company is the third-largest servicer of mortgages in the United States. Our asset management business continues to put up great results, and we look forward to growing our business in private funds. We are seeing inflows across all of our products and all of our funds.

Sculptor's Real Estate Fund 5 now has commitments up to $3.2 billion so far, and this is the largest real estate fund in Sculptor's history, building on their 20-year track record in opportunistic real estate investing. When you look at our company from top to bottom, we now have funds in the following: real estate, credit, energy, infrastructure, and we have cash flow-based funds such as ABF, which is the new old buzzword of the day. This quarter, we will be rolling out MSR funds as well. As you hear about the term ABF, which many of our peers are marketing today, this is nothing new, and we have been doing this our entire career. Where can you get diversified risk with teens' returns and current cash flow? ABF. We are seeing huge demand for that product. Our value prop is the following: results first again.

Our investment professionals and teams are best in class. Across all of our investment businesses, we have over 400 individuals, and our operating business lines have approximately 7,000 people. When I look at our company and how we trade in the public markets, our equity is severely undervalued. We continue to work on our capital structure and look forward to unlocking shareholder value. Finally, our manufacturing engine for assets differentiates us from others. We can differentiate our product offerings again from others. I will refer to the supplement, which has been posted online. I am going to start on page three. Similar slides to what we put up. Again, number three, mortgage servicer in the U.S. Number five, mortgage originator in the U.S. Little under $8 billion of permanent capital.

Between assets managed on the private side as well as the public side, there's over $80 billion of assets under management. When you look to the right side of the page, our family of operating companies, again, one of the largest mortgage companies in the U.S., NewRez. Sculptor, obviously, our asset management business. Genesis Capital, one of the largest RTL lenders, again, in the U.S., non-bank RTL lenders in the U.S. Rhythm Property Trust was the business that we took over, which we rebranded from Great Ajax. Now we're on a very good path with that business. Finally, Adore, which is our single-family rental business. Financial results, page four. Again, very stable, very solid quarter. Our earnings available for distribution, $0.52 per diluted share. That represents an 8% year-over-year growth. This is the 22nd consecutive quarter where EAD was greater than common dividends paid.

GAAP net income, $36.5 million or $0.07 per diluted share, a 2% return in equity. Obviously, you're going to have some mark-to-market volatility around the MSR business. Earnings available for distribution, $275 million. As I pointed out, $0.52 per diluted share or 17% return in equity. That business should continue, or business overall should continue to do something between 15% and 20% on an annual basis. Book value, $6.6 billion. At the end of the quarter, we were trading at $12 and I'm sorry, our book value is $12.39. When you look at where we trade, I think we closed last night at $10.40. Again, I firmly believe that our equity is severely undervalued and we're doing we will be taking measures to hopefully unlock that and get true value out of our business.

Common stock dividend, 8.7% dividend yield, $0.25 per common share in dividends paid and cash and liquidity at the end of Q1 of $1.9 billion. Looking at the quarter in review, pretty active is what I would say. On the Genesis Capital side, a little under $1 billion in production, 7% increase year over year. That business will continue to grow for us. We had 33 new sponsors in the quarter. Quinn Aerosmith, who runs that business, does a great job for us. We are excited about the growth prospects there. On the asset management side, Sculptor, $35 billion of AUM, continued fundraising momentum with $1.4 billion of gross inflows across the platform in both real estate and credit. Good performance for the first quarter.

Finally, we priced a SPAC in the first quarter, which gives us some ability to generate more fees for shareholders and do some off-balance sheet, a potential acquisition that would be off-balance sheet. On the investment portfolio, we did three securitizations in the first quarter, totaling roughly $1.5 billion. We did a $900 million securitization on our MSR business. We also invested roughly $1.5 billion in the quarter in non-QM loans, residential transitional loans, and both RMBS and ABS. Again, with the thought process there that diversified risk with teens' returns will benefit both our shareholders and LPs. On the NewRez side, again, top three servicer, top five originator, servicing portfolio, roughly $850 billion. That includes our third-party servicing, which will continue to grow. Obviously, Cooper and Rocket did a deal in the quarter, and I'm sure there'll be some questions on that.

First quarter funded volume, a little under $12 billion. And then we generated $270 million of pre-tax income. Ex-mark-to-market is up 14% year over year. When page six, our foundation for growth, I feel like sometimes we're beating a dead horse here, but the ABF space is, what I would say, alive and well. Us and other folks in the marketplace, this is kind of the brand du jour of the day. As I pointed out in my opening remarks, this is something we've been doing, quite frankly, for my whole career. And our investment teams here have been doing it their whole career. I feel like we have a real good edge there to create real value for LPs as we continue to roll out funds in that space. Where are we going? Next stage of growth, grow off-balance sheet capital. What does that mean?

Grow origination businesses, grow funds, and take origination and put that in funds and grow our LP base, which will enable us to not grow our balance sheet and get higher valuations on our overall company. Expand investment verticals. I mentioned Rhythm Property Trust, which was the old Great Ajax business. Rhythm Acquisition Corp is our SPAC. Asset-based finance, we are in the markets now with funds. Energy transition, infrastructure. We currently have those funds up and going as well. The main theme, what I would say as you think about growth in the asset management business, it is really you need partnerships. The traditional way of raising capital, in our opinion, of just going out and raising a fund is great. We will continue to do that.

Having real partnerships with LPs who are part of your life is something that I think is really going to be the key for us as we go forward. Page seven, when you look at how we trade, we trade roughly at 83% of book value. We got to get away from the so-called book value metric. We should be trading, in my opinion, on a multiple of earnings. If you look at where we trade relative to others, again, I think there is a ton of value here. If you look at the sum of the parts on the right side of the page, we have a low estimate where we think we should be of $13.69, a high estimate of roughly $23. These numbers are not made up. These are real numbers relative to peers in the marketplace where we think we should trade.

I would encourage you to have a look at that because, again, I do believe our equity is severely undervalued because we get lumped into, quite frankly, with other, no disrespect, with other REITs and other mortgage companies. As we continue our growth into the asset management world, we'd like to make sure that we get proper valuations. I think that's going to help us grow overall. Page eight, this is a slide we put in. It just shows our growth over the years since 2021, $6.9 billion of capital deployed, earnings growth of 53% with a CAGR of 11%. Page nine, we wanted to put this in there because a lot of the volatility has occurred over the past few weeks.

A lot of this, again, plays into the strength of who we are as we think about risk and risk disciplines as well as opportunistic investing. We have been doing this for a very, very long time. Here is just a slide talking about where spreads are. You can see how high yield has blown out. You can see different movements in both gold, Bitcoin, and oil. If you look on the left side of the page in equities, you could have a good snapshot of what is going on there. None of this is a surprise to anybody, but we do believe wholeheartedly in the so-called growth of our ABF business. That is something that, again, we feel like we have an edge and we have expertise in.

I'll spend a few minutes on a couple of our operating businesses, then I'll turn over the mortgage company stuff to Baron. On the Genesis side, again, a very, very solid quarter. If you look to the right side of the page here, 46% growth year over year from a commitment perspective, 7% growth from funded volume. Delinquencies, which are truly the core to what I think to what we do here, remain extremely low. A lot of that is due to our underwriting and our servicing, and those teams do a great job. When you look at sponsor growth, it's up 37% year over year. Page 12, you could just have a quick look. This is just the portfolio detail. There's 58% is construction, 32% is bridge, and 10% is renovation. We are going to be looking to grow our multifamily presence.

We think there's going to be opportunities, whether that be acquirer companies, but we want to grow our origination in multifamily as we believe that sector. Obviously, it's gotten hit pretty hard, no different than the single-family rentals space. What we need to see is the economics make sense relative to a number of the other strategies that we do here. Couple of minutes on asset management. Sculptor business continues to perform well during the quarter, as I pointed out, $1.4 billion of inflows. $870 million was due to the real estate business. That brings that to $3.2 billion. When you look at the credit fund, just last week, there was an announcement on the close of $900 million in AUM on STAX. That's the Sculptor Tactical Credit Fund. Great performance there. We also closed the CLO in the quarter in Europe for $420 million.

Business is performing extremely well. Returns are very good. Overall, when I look at our asset management business, very, very excited where we're going. On the Rhythm Property Trust, we're doing earnings on Monday on this business. We took this where it was really an RPO business in the single-family space, turned it into an opportunistic commercial REIT. It was losing money. Now it's break-even. We raised $50 million of a prep in the quarter. That business is sitting on a little under $100 million of cash. We have $300 million of equity there. We're going to look to grow that. As you think about asset management, there's an asset management fee there of 1.5%. Then there's promote. All of that will lead into what we hope is going to be higher FRE for asset management business and just more earnings overall.

Finally, for me, on page 16, just our SPAC, $230 million SPAC. This correlates to a target of something between probably $1 billion and $1.5 billion. I think that we believe today the SPAC market is vastly different than it was back in 2021/2022 from a value standpoint. We are excited as we continue to look at plenty of targets in that space. With that, I'll skip the investment portfolio side, and I'm going to turn it over to Baron. He's going to talk about NewRez. All right. Thank you, Michael. Good morning, everybody. Starting on slide 20, and as Michael mentioned, just another great quarter as we continue to execute on our 2025 strategy, focused on recapture technology, our AI initiatives, and growing our third-party businesses.

Q1 pre-tax income, excluding mark-to-market, was approximately $270 million, up 14% year over year and delivering a 19% ROE for the quarter. Right? With NewRez being the number three ranked servicer and the number five ranked originator, these results continue to show the power of the platform. Turning to slide 21, our performance over the last few years demonstrating really the strong momentum we've had on both sides of the business as we continue to take advantage of opportunities to generate these consistent returns. In 2025, right, our focus on building a best-in-class platform, focused on our homeowners, innovation through process efficiency and AI, and market opportunities, whether organically or externally, that will continue to drive our returns overall. Moving to slide 22, our origination business continued also to perform well. Michael mentioned $11.8 billion in funded volume and $65 million in pre-tax income.

While the MBA forecasted Q1 volumes to be flat to last year, we're up 9% in funded volume, 7% in locked volume, and 54% in pre-tax income when compared to the first quarter in 2024. However, with expected overall lower origination volume, we saw increased competition and, in turn, margin compression. Given these conditions, we did not chase market share, remained disciplined in our pricing with a focus on our ROE. At these origination levels, our multi-channel strategy allows us to optimize opportunities in all market environments, and all of our channels were made profitable in the first quarter. Turning to slide 23, one of our top priorities and significant growth opportunities is our ability to retain our customers with or without a rate rally. Amplifying our brand and building great digital experience is key to our success in connecting with our 3.7 million homeowners.

Our recapture investments are focused on delivering great experiences to our homeowners, including seamless, easy-to-close refinances, fantastic white glove service for home purchases, and a digital home equity offering with closing as fast as three days. Moving to slide 24, our servicing business is also performing very well. $242 million of pre-tax income, up 7% quarter over quarter, which is driven by our servicing portfolio of $845 billion, which is $509 billion of owned MSRs and $254 billion of third-party servicing. Our third-party servicing franchise is also continuing last year's growth by adding four new clients in the first quarter alone. One of our top priorities is the expansion of our Resi AI initiatives, which continue to empower our employees with real-time tools that deliver a superior customer experience.

In addition to the gains from our Resi AI technology, our focus on operational excellence, process efficiency, and scale continues to drive our cost leadership, as evidenced by our $140 cost of service that significantly outperforms the industry. Turning to slide 25, you see our owned MSR performance, which, not surprisingly, is reflective of current market conditions, including higher interest rates, low speeds, and strong consumer performance. Delinquencies and associated advance balances also improved, with 60-day delinquencies down 30 basis points to 3.1%, reflecting the high quality of our overall portfolio. Lastly, on slide 26, we have an incredible third-party servicing client franchise. Our platform advantages allow us to deliver a differentiated value prop to our partners' success. We have over 100 clients, right?

Our capabilities have enabled us to retain 98% of the customers we have done business with since 2015. I believe our business is the best position it has ever been. We're well positioned to grow market share in our third-party servicing, whether through wallet share with our existing customers, adding new clients, or taking advantage of ongoing servicing dislocations. I look forward to telling the NewRez growth story throughout 2025. Thank you. Back to you, Michael. Thanks, Baron. Why don't we turn it back to the operator for some Q&A? We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Bose George with KBW. Please go ahead. Hey, everyone. Good morning. Actually, first, let me start off with the question on the Cooper Rocket transaction. Now, given that, any changes in how you see the opportunities or the growth at NewRez, and then the related question, does that change anything in terms of potential listing or other ways you're looking to real show the value of NewRez a little better? Thanks. Hello? I'm sorry, Bose. What I would say on the NewRez side, it's going to be business as usual as we go forward.

While saying that, I do think as a result of the Cooper Rocket deal, there'll be an opportunity to pick up some servicing as a result of the sheer size of the combination of those platforms. If you look where, what, $850, and I think Cooper is, I think the combination is what, something about $1.5 trillion or so? Is it still? Yeah, a little over that. Yeah. There'll be some stuff to do and add there. The main thing for us is how do we, and Baron, I think, hit the nail on the head. We don't want to just buy market share for the sake of market share to get bigger. What we really want to do is figure out a way to grow earnings, and I think we're on the right path with the company.

As it relates to listing, what I would say is when I look at how we trade, and if you look at the sum of the parts page on page seven, and these are real numbers, right? I mean, there's a print. Cooper Rocket did this deal at two times the book. If you really look to the right side of the page on page seven, we need to figure out a way to unlock value, whether that's taking the company public, whether that's externalizing Rithm, whether that's C Corp. There are a number of different things that we look at daily. What I would think is I'm hopeful that we'll have some kind of capital action by the end of 2025 that unlocks a lot of value here.

Because I do think the equity is extremely undervalued, and we're excited to actually get it to the right place, which if you take the mid-range of, call it, $14 and $23, there's no reason we shouldn't be able to get to something like that. Okay. Great. That's helpful. Thanks. Could we just get an update on book value quarter to date, just given all the volatility? Yeah. I think it's in and around $12.60, so it's up a bit from the end of Q1, is what I would say. In the bond markets, when you look at where we are in rate, right now, I think tenure rate is give or take $4.30. The front end is in and around $3.75. We are as close to home as we've probably been in many, many years.

I think our belief is if the economy does slow down, we should be in a really good place. If it does not slow down, we will be in a good place as well. Risk discipline right now is something that I think we are very good at. Okay. Great. Thanks. Our next question comes from Doug Hodder with UBS. Please go ahead. Thanks. Michael, how are you thinking about potential acquisition opportunities, whether that is at the Rithm level or Rithm Acquisition Corp? Is the dislocation we have seen in April kind of enough to shake loose some opportunities at more attractive prices? Yeah. What I would say, the hope is yes. Our M&A pipeline is extremely active, and that could be whether it be in the mortgage space or in the asset management space.

What I would say is valuations, when you look at what's happened with the equity markets, valuations overall are lower when you look at, again, the asset management business. I've been pretty vocal that I believe we're underscaled in credit, and we need to get bigger in credit. So that's an area that we're very much focused on. Again, when I look at the asset management space, now that we have an energy and infrastructure business, we're really excited about that. Hopefully, at some point in this quarter, we'll come out with some news on that business. I expect us to be active on the M&A front. This is not just to do deals.

This is to figure out how we play on a much broader and bigger scale because I do think you need to be bigger to compete with some of the very best asset management firms out there. I think the long-winded short answer is that we need to be, we're going to be more active, or we are active, and we hope to get a couple of deals done here in the near future. Got it. It was a solid fundraising in the first quarter. Any early sense as to kind of LP appetite for continuing to invest into this volatility? Is there a pause? How should we think about fundraising activity given recent volatility? I would say across the platform, we are all extremely active. I believe our brand is very good and resonates with folks.

As you know, before we internalized here at what we now know as Rithm, all of our capital is raised in the public markets, and it's a must that we raise our money in the private markets. Again, I think the key to success for us is going to be to have partnerships and relationships with LPs who are part of our life and not just fund investors. We look forward to that as well. I mean, I would tell you that we're extremely fired up and really excited on the prospects of where we're going with our company. If we could turn where we trade like, whatever, five, six times EBITDA to where we should trade, which is a double-digit multiple, I feel like we're going to be off to the races. Very excited. Thank you, Michael. Thanks, Doug. The next—sorry. Go ahead. Nope.

We're good. Thank you. The next question comes from Rick Hagen with BTIG. Please go ahead. Hey, thanks. Good morning. Can you guys maybe share some of the performance that you've seen develop at Sculptor and where you've seen maybe the strongest returns, where you expect to maybe attract the most AUM from this point forward, and even the segments within Sculptor where you expect the AUM to be the stickiest from this point? Thank you, guys. Thanks, Rick. Performance has been good. I mean, across the board, obviously, the credit business is doing well. When you think about the multi-strat business and you look at what's happened to the equity markets, they're so positive on the quarter. What I would say is things are going well. When you look at the real estate business, I mentioned before, $3.2 billion of commitments.

Steve Warbuch and Nick Hecker and their team have done a great job over the past 20 years. Great brand. Quite frankly, I don't think it's easy for any real estate firm to go out and raise $3.2 billion. There is really very little to no legacy assets, opportunistic investing with a great track record. We are really excited about that, and it's long-dated money. When you look across the so-called ABF space, I do believe there's going to be a fair amount of capital that's going to come into that part of the world. Across the platforms, we have ABF funds that we're working on. When I look at the opportunity in the so-called energy and infrastructure space with our new teams that we've added here at Rithm, I'm excited where that business is going to go.

What I would say, in general, very focused on, again, relationships, partnerships, excuse me, and where we're going with the business. I think returns overall have been very good. Great to hear. Good stuff. I think you mentioned rolling out third-party MSR funds. Can you maybe share some of the fees that you expect to earn on that capital or those assets and what's the total return that investors are maybe expecting from that vehicle? Finally, I mean, are some of the LPs in that vehicle also contributing to other sources of AUM at Sculptor? What I would say on the MSR funds, not out yet. We'll be out with them. They'll be typically on there will be teens returns is the way that we're viewing that business.

It's an effort and an opportunity to get more stuff off balance sheet into what I would call longer-dated funds. I think there's a lot of demand in the marketplace for those types of funds. As it relates to fees, I think it's TBD right now. Gotcha. If I could just ask one more here. I mean, it looks like almost $400 million of valuation changes for the MSR in the period. How does that maybe align with your expectations? Is the hedging offset coming from the investment portfolio, or what's the best way to think about how that $400 million was maybe offset with hedging? The net number, I believe, was about $185 million overall, and that's offset with hedges, whether we're long mortgages, treasuries. We have swap receivers on. As I pointed out earlier, we are as close to home as we've been in many, many years.

The market volatility really, while it's looking at screens, is not always fun. I do believe that we're in a very good place no matter what direction the market goes right now. Yep. Thank you, guys. Appreciate you. Thanks, Eric. The next question comes from Jason Weaver with Jones Trading. Please go ahead. Hey, good morning. Thanks for taking my question. First, I was wondering if you could comment broadly on any credit events or, sorry, credit possible deterioration that you've seen within the Genesis portfolio into the first quarter. No, I mean, performance is here's what I would say about that business. We could chase market share and grow that business pretty significantly. We've seen others do that. And as a result, their delinquency numbers are up pretty significantly. When you look at our business, overall performance has been very, very steady.

If you look at a—I forgot what slide it is, but delinquency numbers are in and around 2% for the portfolio. So things are good there. Keep in mind, we also go to a different type of, what I would say, sponsor relative to others in that marketplace. Fair enough. Thank you. A follow-up to that, maybe just comment broadly on what you think the implications are for the securitization bid here given the amount of market volatility out there. There's a lot of deals getting done. I mean, values right now are great. I mean, if you're a buyer, you look at, for example, in some of the single-family non-QM space where there's a lot of demand both on the fund side and from the money manager side. AAAs with a couple of turns of leverage are in right now somewhere around 13-15% IRR.

I think one is the markets, while there's a lot of volatility, are open. Not everybody will like the spreads that you execute at. We've actually done a—I think we've done a couple of deals here recently in the space. In general, they're open. Wider spreads and wider spreads create opportunity for folks with capital. We've been doing some buying ourselves for our portfolios on a variety of what I would call ABF-type assets. That includes non-QM, that includes RTL, that includes—we just did some home improvement loans. We're very active right now in acquiring assets. All right. Thank you. Appreciate the time. Thank you. The next question is from Kenneth Lee with RBC Capital Markets. Please go ahead. Hey, thanks for taking my question. Just one on the Sculptor asset management side.

Wonder if you could just give us a sense of overall targeted fundraising levels for this year, or perhaps give us a little bit more color around any of the sizes of the previous or predecessor funds that are undergoing fundraising now. Thanks. I don't know the exact number of funds that are in the marketplace now. What I would say, there's many, and that includes both credit, that includes real estate, that includes ABF, both at the Sculptor level and at the Rithm level right now. What are the targets? You need to—and one of the things when you think about raising capital for funds, you need to be able to execute on the back end. Our story, and we're going to stick to that knitting, is performance first.

It's not just raising a fund, but it's actually how do we deploy capital and earn the trust and respect of LPs on that capital that they're allocating to us as a fiduciary. While we want to raise a lot of money in our funds business and have strategic partnerships, we got to execute on the back end. I'm very, very confident that we could do that. We'll be out with—we are, and we'll be out with multiple funds as long as we believe that we could raise the capital to be able to deploy it and deploy it at the proper return. I'll give you an example. Going back to when I was at Fortress and we were running MSR funds at Fortress, we'd raised $1.6 billion for MSR funds with a specific targeted return.

When we took a look at—and I looked at this, I said, "Okay, we're not going to be able to deploy the capital at those returns." I gave a billion dollars back. The point is, we're going to raise—I believe we're going to raise a lot of money, but we want to make sure that we earn the returns that we're going out to market with. I think some of it's going to be market conditions, but you'll see credit, you'll see ABF, you'll see real estate, and you'll see energy and infrastructure. I think those are the main funds from us now. Gotcha. Very helpful there. One follow-up, if I may, just on the SPAC vehicle, the Rhythm Acquisition Corp. Wondering what was the motivation behind raising it using such a vehicle? Were there other options that were considered?

You mentioned it's been a slightly different market than what it was back in the early 2020s. Maybe just further expand upon that. Thanks. It gives us the ability, one, to generate asset management fees for the house. It gives us the ability to generate an off-balance sheet vehicle. Quite frankly, if we could help make shareholders more money, that's really the logic around that. I don't think it's anything more complicated than that. You have two years to deploy the money. It's a relatively low-cost option in our opinion. From a valuations point, if you look back to, again, 2021 or 2022 when the SPAC market was in this silly frenzy, and we had looked at a ton of deals when we were at Fortress, we actually gave them our SPAC money back because there was no deal that made any sense whatsoever.

If you look at valuations today, there are some reasonable valuations on things we're looking at. Whether that be either in the energy and infrastructure space or whether that be in the so-called financial services space, we're excited about being able to deploy that and create more asset management fees. Ultimately, there could be something that's synergistic to our business, or it could be something that's just an off-balance sheet, a great investment for that vehicle. Great. Thank you very much. The next question comes from Giuliano Bologna with Compass Point. Please go ahead. Good morning. Perhaps on another quarter.

One thing I'm curious about is when you think about the topic of Capital Actions or the discussion around potentially listing the mortgage company, is there any kind of trigger event that you think would move you closer to moving forward with a plan, whether it's externalizing the manager or trying to do a partial IPO of NewRez? Or is there anything that would move that process along, or is it really just market conditions and perceived value from the different initiatives? Yeah. What's going to move it along? We're moving it along. I mean, quite frankly, like I said, it's a little bit frustrating to see how our equity trades and the results that we continue to put up. I would also say that part of this is we want to grow the so-called FRE in our asset management business.

That is one of the keys, and that's kind of held us back a little bit from where we are right now to be in a to moving forward with a different capital plan. While saying that, I think we're at a point where we're hopeful something's going to happen in 2025. That sounds good. I realize you kind of touched on roughly where your hedging position is. I'm curious, do you have any kind of target in the near term or intention to run around a certain hedge kind of ratio, or is that still somewhat flexible where you might be able to still be opportunistic around market conditions? I would say we are home. We're not taking a lot of what I would call duration risk right now just because I don't believe we have an edge.

The one thing I will say is we've had a steepener on, which has worked extremely well, where you've seen the front-end rally, the curve's steepened out, I think, what, 20 or 25 basis points, I think, it is since the end of last quarter. We're going to continue with the steepener with the belief that if the economy does slow down, the Fed's going to cut rates, front-ends will benefit, and I'm not sure the long-end rates actually go down. They potentially could go up because it could be inflationary. The way that we're viewing it is against the mortgage servicing right, we have mortgages and kind of long-dated receivers against the MSR book, and we have virtually no shorts on against the front-end. We feel like we're set up extremely well here. That's helpful. Maybe one last quick one.

On the mortgage side of the platform, obviously, there's encountering sub-servicing because of the Mr. Cooper deal. I'm curious if you've seen any opportunities in the market for large sub-servicing wins. Obviously, there's a limited number of large-scale sub-servicers out there, and it seems like that could spur some movement around the industry. I'm curious if you're seeing anything from an activity perspective out there in the market. Yeah. I mean, the answer is yes. There's no question about it. There continues to be a fair amount of movement, and our pipeline is active, I would say, overall. Certainly, the Cooper announcement, they had a lot of sub-servicing, and it's a matter of those clients are obviously evaluating their alternatives and options as well. That sounds good. I appreciate it, and I'll jump back in the queue. Thank you.

Our next question is from Randy Binner with B. Riley FBR. Please go ahead. Oh, hey, thanks. I have a couple. I guess the first is following up on other questions around kind of measures to unlock value, the potential spend of NewRez's cover. Are there any other structural changes that you might consider in that kind of closing the gap between where the value is now and some of the parts that's laid out? The answer is yes. I mean, it's like this is something that's kind of a thorn in our side. We continue to look at all options. We have views. We've been working with some of our different investment banking friends at different firms, and we're confident that we're going to do something. We're hopefully going to get something done here in 2025. Okay.

I mean, maybe it's a little bit of an obvious question or observation, but being a REIT, would that be changing that beyond the table? I mean, it could be. I mean, if you look, some of the success you've seen in some of the financial services firms have been where they've changed. It doesn't mean we would give up our total REIT, but there's the possibility you could create a C Corp. You could drop things down. For example, the REIT gets smaller down below. That's probably the most likely path. The one thing that's great about our business is if you take a step back and say, "Okay, what is Rithm?" Rithm has $8 billion of permanent capital, give or take. It's got $80 billion of assets under management between the asset management business and the balance sheet. It makes $1 billion a year.

Start with those three things, and then you turn around and say, "Well, you trade at $5.5 billion or $6 billion of market cap or whatever that number is." It's pretty shitty, to be honest. Then the question is, how do we extract value? The one thing that's very important, I think, is all the earnings that continue to come in the company. There's a ton of cash flow. That enables us to grow our business. Part of it's a patience thing, which, quite frankly, I don't have any. The other part is, how do we get there? I think the bones are there. We need to grow our FRE or grow our asset management business. Then you're going to get a true valuation on the asset management business.

It is kind of no different than what some of the bigger and larger asset managers have done over the course of the past three to five years. We want to get there as well. I do know one thing. You cannot compete on the global stage unless you grow. As I pointed out before, we need to perform before we grow. We do perform. If you look at our returns over the course of our life, when we started this company at Fortress in 2013, the returns have been great. That is the only thing we care about. We do not need another dollar unless we are going to make people a lot of money. That is the most important thing in having those relationships. I think you will see us unlock value this year.

It is very frustrating the way that we trade, and we got to figure this out. All right. That is very helpful. If I may, just because I think I am late enough in the order here to just throw another one in, just GSE reform, it came up in the prior call. Meanwhile, I mean, meaning your last quarterly call, and then there has been quite a bit of activity from FHFA around personnel changes and de-risking and just commentary that privatization efforts will most likely come forward. Is there any update on your side of kind of what you are looking for there and what any potential impacts to the business might be, assuming that the administration and polity move forward? It plays extremely well to our strengths.

If there is a privatization, I'm not sure how much that really affects the market, but to the extent there's the ability for us to deploy capital, and, for example, you go more, what I would say, non-government guaranteed type paper, I think that plays really, really well. Again, that feeds out the so-called ABF story as well, even more. Where we sit in that ecosystem, I think we're extremely excited. I don't think it's something that's going to happen right away. I think, obviously, there's probably a lot of talk there. Baron and I are off next week to have a bunch of meetings. We'll see what happens. I think it's something that's going to probably take a little bit of time, but it's something that my guess is that they want to focus on. Yep. I agree. Okay. Thank you. Appreciate it. Thank you.

The next question is from Crispin Love with Piper Sandler. Please go ahead. Thank you. Good morning. First, with the asset management business, Michael, you talked about adding partnerships. Can you just dig a little bit deeper there? What kind of partnerships are you looking to add over time, and then just how is that progressing in this environment? What I would say is the past couple of years, we've done what I would say is a lot of brand building without selling anything. I think that resonates extremely well with people. It's no different than dating or developing a relationship with somebody.

For example, if there is a large transaction or something that we'd want to do, I think it's highly likely, which is different today than going back in time, that we would look to bring in partners for those types of transactions. The same thing on the fund side. When you look at traditional fundraising, there's direct fundraising into funds, but there's also folks that want to partner with you and help grow your business. We are extremely keen to develop more partnerships and bring people into our world. A good example, and this was announced yesterday publicly, Mubadala owns 70% of Fortress. Mubadala made an announcement yesterday. They were putting, I think, $1 billion, I believe, into funds. Those are the kind of transactions or relationships that we want.

I'm hopeful that that will materialize over the course of as we continue to grow here. Great. Thanks, Michael. That's all helpful there. Just one second question for me on NewRez. How are you seeing residential volumes trend in April, just considering the significant rate fall that we've seen and just expectations as we look throughout 2025, especially with rates elevated here, but with some potential volatility ahead and episodic moves? I mean, certainly, you're seeing the spring buying coming in. You're definitely seeing some pickup in production versus what we saw in the beginning of the first quarter. As I mentioned, right, we remain opportunistic. It's still very competitive, but we definitely are seeing a pickup in volume overall, certainly in the month of April, and our expectation is going for into second quarter overall. Great. Thank you. Thank you. Thank you.

This concludes our question and answer session. I would now like to turn the conference back over to Michael Nierenberg for any closing remarks. Thanks for all the thoughtful questions this morning. Appreciate the support. Any follow-ups, we're here. Have a good spring. Have a good weekend. Thanks, everyone. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.