AlTi Global Q4 2023 Earnings Call Transcript

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March 15, 2024

Key Takeaways

  • In 2023, Alti grew total AUM and AUA by 10% year-over-year, with Wealth Management up nearly 20%, and reported Q4 revenues of $92 million and full-year revenues of $251 million, 77% of which were recurring fees.
  • The firm identified and actioned $16 million in annualized run-rate cost savings initiatives during a comprehensive strategic review, which are expected to be fully realized in Q3 2024.
  • Alti’s Strategic Alternatives segment delivered robust performance, with its event-driven strategy up 5.4% in Q4 and 10.5% for the year—marking its 30th consecutive year of positive returns—and drove significant incentive fees in the quarter.
  • A transformative investment of up to $450 million from AllianzX and Constellation Wealth Capital will provide growth capital to execute strategic priorities, accelerate M&A and expand Alti’s global footprint.
  • GAAP results showed a full-year net loss of $319 million, driven by impairments related to restructuring and exiting unprofitable segments, although adjusted net loss normalized for one-offs was $8 million.
AI Generated. May Contain Errors.
Earnings Conference Call
AlTi Global Q4 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good afternoon. My name is Beau, and I will be your conference operator for today. At this time, I would like to welcome everyone to Altice 4th Quarter and Full Year 2023 Earnings Conference Call. During the call, your lines will remain in a listen only mode. After the speakers' remarks, there will be a question and answer session.

Operator

I Now at this time, I'll turn things over to Lily Arteaga, Head of Investor Relations for Ulti. Please go ahead, ma'am.

Speaker 1

Good afternoon to everyone on the call today. Joining me this afternoon are Michael Tiederman, our CEO and Steven Garrett, our CFO. We invite you to visit the Investor Relations section of our website at www.alti global.com to view our earnings materials, including our updated investor presentation. I would like to remind everyone that certain statements made during the call may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by the use of words such as anticipate, believe, continue, estimate, expect, future, intend, may, plan and will are similar words.

Speaker 1

Because these forward looking statements involve both known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements. Altium assumes no obligation or responsibility to update any forward looking statements. During this call, some comments may include references to non GAAP financial measures. Full reconciliations can be found in our earnings presentation and our related SEC filings. As I mentioned, we filed an updated investor presentation earlier today.

Speaker 1

With that, I'd like to turn the call over to Mike.

Speaker 2

Thank you, Lily. Good afternoon, everyone, and thank you for joining us today for our Q4 full year 2023 earnings call. 2023 was a pivotal year for the Alti team. In January of last year, we completed a business combination, which brought 3 companies together and culminated in our listing as a public company. Concurrent with the closing, we secured a $250,000,000 credit facility.

Speaker 2

And in the Q2, we increased our share liquidity and float through the registration of the Pipe shares as well as the successful completion of a warrant exchange. We also conducted a comprehensive strategic review of the newly combined operating structure. Through that process, we identified and actioned $16,000,000 in annualized run rate cost savings initiatives. We expect that these cost savings will be fully realized in our Q3 twenty twenty four results. As a firm, we completed key transactions across both of our business segments, Wealth Management and Strategic Alternatives.

Speaker 2

This included expanding our footprint in key markets like Singapore and Northern Italy and increasing our stake in managers of uncorrelated alternative strategies, which have continuously outperformed their benchmarks. A few weeks ago, we announced a strategic investment from AllianzX and Constellation Wealth Capital or CWC. Upon closing, this transaction will provide Alti with up to $450,000,000 to execute on our strategic priorities. We have a robust actionable M and A pipeline and believe these relationships will lead to significant momentum. We have a clear path to organic growth through new client wins given the expanded depth of resources, network and talent, which these partners bring.

Speaker 2

I'll expand more on this transaction after we review our operational and financial results. In 2023, we grew our total assets under management and advisement by 10%, mostly driven by portfolio performance and organic client growth in Wealth Management. Total assets in that business segment grew by nearly 20% in the year. In the 4th quarter, Ulti generated revenues of $92,000,000 and for the full year, we recorded revenues of $251,000,000 dollars Notably, 77% of revenues in the year were recurring for management and advisory fees. The 4th quarter reflected incentive fees primarily from the robust performance of the event driven strategy in our Strategic Alternatives segment.

Speaker 2

Despite these strong top line results, our GAAP results were impacted primarily by decisions taken to restructure or exit unprofitable transaction oriented businesses in our Strategic Alternatives segment. Consequently, we reported a loss $319,000,000 for the full year of 2023. We do not anticipate further significant impairments in 2024 as much of the work to streamline non core operations is behind us and our focus is to further invest in core operations that demonstrate strong recurring revenue fundamentals. Normalized for one off items, our adjusted net loss was $8,000,000 for the year. Quarter over quarter, adjusted EBITDA improved $13,000,000 to $10,000,000 for the 4th quarter and for the full year adjusted EBITDA was 29,000,000 dollars We believe our performance in the 4th quarter demonstrates the power of our diversified platform across wealth management and strategic alternatives.

Speaker 2

In wealth management, we had a record year of growth in the U. S. Driven by market performance where we had a risk on bias given our view that the U. S. Would achieve an economic soft landing as well as organic asset growth resulting from a combination of our business development efforts and asset increases from our existing clients.

Speaker 2

Internationally, the wealth segment benefited from the integration of the legacy businesses as well as the Singapore acquisition and the increased stake in the Lugano based multifamily office. As anticipated, our Strategic Alternatives segment generated robust incentive fees in the 4th quarter, resulting from a strong performance of the event driven strategy, which is up 5.4% in the quarter and 10.5% for the year. This marked the 30th consecutive year of positive performance for the strategy, a remarkable achievement. This healthy performance not only benefits 2023 results, but also creates positive momentum for fundraising in 2024. We are encouraged by indications of investor interest in the event driven strategy as well as our Asia credit strategy.

Speaker 2

Our credit strategy is gaining traction because of its strong relative performance compared to the Asia high yield index, initial expectations of a recovery in that region and the growing depth of the Asia credit markets. Additionally, after several quarters of abated activity in real estate given the rising rate environment, I'm very pleased to report that our private real estate team arranged the purchase of the GlaxoSmithKline corporate headquarters in London by an investor group, which will be an important restoration and repurposing project. For our role in structuring the deal, we earned origination fee in the quarter and importantly, we will receive recurring management fees going forward. To summarize, last year we achieved several operational milestones as the year was centered on inward strategic initiatives. This included the integration of our legacy businesses, reinforcing our focus on recurring revenues, streamlining entities, improving core operations and establishing best practices throughout the organization.

Speaker 2

With those initiatives taking hold, in 2024, our focus will be on external action. We're confident that our solid foundation will enable us to accelerate momentum through profitable organic and inorganic growth globally across both of our segments. Another key priority this year will be raising Altice's profile in the capital markets. This will include evaluating opportunities to increase our float, driving investor community interests and ultimately attracting long term institutional investors. To that end, we were pleased to recently announce a strategic relationship with AllianzX and CWC, a transformative transaction for Altice.

Speaker 2

These investments which total up to $450,000,000 will support our strategy to become the leading global independent multifamily office for the ultra high net worth segment with a targeted expertise in alternatives. Importantly, the relationships enable Altice to establish long term partnerships with experienced and well respected players in the global financial services sector. We believe we can expand and fortify Altice global footprint in key markets and execute on strategic acquisitions through disciplined deployment of this growth capital. We plan to deepen Altice reach and expand within our current markets. We also seek to enter new markets in the United States, Europe and Asia, where we can grow our client base as well as enhance our service offering to existing clients across multiple jurisdictions.

Speaker 2

As a global operation with local presence across 21 financial centers, Altice is uniquely positioned to serve single family offices. Our platform provides significant benefits to the investment and administrative teams who serve large families by enabling them to leverage our global infrastructure, scale, resources, deal flow, while significantly reducing overall costs. These benefits will only be enhanced by opportunity to expand revenue and lead generation opportunities across a larger and more globally diverse client base. All T can expand its tailored solution set through the co investment opportunities across alternatives, impact investment strategies and when appropriate partnering with Allianz to structure bespoke solutions. Finally, accretive M and A will be fundamental to our go forward strategy.

Speaker 2

We anticipate future transaction will be a significant driver of top line growth and margin expansion as we build off the existing platform. As I mentioned, we've identified a robust M and A pipeline. This infusion of growth capital positions us to continue our track record of attractive profitable deals across both alternatives and wealth. We always take a disciplined approach to our pipeline and acquisition criteria and consider the targets profile, footprint and operational fit as it relates to Altice positioning in the marketplace. These partnerships enhance LT's current strength to further differentiate the firm from the competition as client demands continue to evolve.

Speaker 2

As we've indicated, of the total of investment to be made by CWC, which is 150,000,000 dollars 115,000,000 is projected to close in the coming weeks. As such, we expect to begin executing on our pipeline in the short term. We will update you on the progress in a timely manner. This was an important year for our organization and we're excited about what Altice can accomplish in 2024. As we onboard strategic partners, deploy growth capital and expand our global footprint, we are positioning the platform for long term success.

Speaker 2

We look forward to demonstrating how our strategic priorities will lead to accelerated growth, profitability and notably create sustainable shareholder value. With that, I'll turn the call over to Steve to provide further details of our financial results.

Speaker 3

Thank you, Mike. Last year, we achieved many milestones that have already set the stage for continued top line growth in 2024 and importantly, increased profitability in the years to come. Before we review the results, I want to note the results in our regulatory filings are presented as a comparison between predecessor and successor companies as required by the accounting guidelines. In our case, TDM and Wealth Management Holdings is the predecessor company and Ulti is the successor. As such, the year over year results are not directly comparable and my comments will be focused primarily on the quarter over quarter comparisons.

Speaker 3

Ulti generated revenues of $92,000,000 in the 4th quarter, up 86% in the 3rd quarter, driven primarily by incentive fees generated in our Strategic Alternatives segment. The strong top line performance in the quarter also reflected increased management fees driven by the growth in AUM and AUA in the quarter and the realization of incentive fees in our Wealth Management segment and higher origination fees in our Strategic Alternatives segment. Given the significant incentive fee recorded in the quarter, recurring revenues were approximately 53% of total revenues in the Q4. Full year 2023 revenues were $251,000,000 77% of which reflects recurring revenues from management and advisory fees. These results highlight the diversification and strength of our platform, which we anticipate will continue to strengthen in 2024.

Speaker 3

Revenues in our Wealth Management segment increased 9% sequentially to $38,000,000 in the 4th quarter, reflecting 5% growth in assets resulting from robust market performance and net client wins as well as incentive fees recorded in the period. For the full year 2023, Wealth Management segment revenue was $138,000,000 Importantly, recurring revenues in the segment were 95% 99% for the quarter the year, respectively. Now Strategic Alternatives segment, revenue totaled $54,000,000 in Q4, an increase of $40,000,000 compared to the prior quarter, largely driven by crystallized incentive fees associated with the event driven strategy. The origination fee related to the London Real Estate deal also contributed to segment results in the quarter. For the full year 2023, strategic alternative segment revenue was $113,000,000 52% of this top line performance was from recurring management and advisory fees, including distributions from our alternatives platform.

Speaker 3

Despite pleasing progress in the top line results, we recorded a net loss of $87,000,000 in the 4th quarter, reflecting $51,000,000 of impairment and other charges in our Strategic Alternatives segment, higher incentive compensation accruals as well as certain other expenses, which we expect to be non recurring. Normalized for one off items, our adjusted net loss in the Q4 was $6,000,000 $34,000,000 of the impairment charges related to the termination of our management contracts for LXI, the U. K. Based publicly traded REIT in connection with LXI's merger with London Metric, which was completed earlier this month. In connection with the merger, we agreed to terminate the management contract for initial payment of $32,000,000 and potential future payments of up to £4,000,000 depending on London Metrics' future performance.

Speaker 3

The impairment charge recorded essentially reflects the difference between the initial consideration received and the carrying value of the intangible asset for the management contract that was recorded prior to the transaction. I would like to note that LXI contributed $2,300,000,000 to AUM at year end, which following the sale in early March will no longer be reflected in our assets at the end of the Q1. Further $17,000,000 of impairment and other charges were recorded related to our private real estate business, reflecting restructured arrangements with several partners, which resulted in adjustments to amounts recorded to certain equity method investments, carried interest and other receivables deemed non collectible. Normalized operating expenses for the 4th quarter, which exclude non cash compensation, expenses related to severance costs, depreciation and amortization and certain transaction and deal related expenses were $82,000,000 This represents an increase of $30,000,000 compared to the prior quarter, primarily driven by the higher incentive compensation accrual recorded in the 4th quarter, largely attributed to the strong performance of the event driven strategy. Excluding compensation expenses, normalized operating expenses were lower by $2,000,000 4th quarter adjusted EBITDA was $10,000,000 an increase of $13,000,000 compared to the 3rd quarter, driven by higher incentive fees, partly offset by the related incentive compensation accrual.

Speaker 3

Our adjusted EBITDA margin improved to 11% in Q4. On a full year basis, our adjusted EBITDA was $29,000,000 and our adjusted EBITDA margin was 12%. As growth and cost savings initiatives take hold in 2024, including those resulting from the strategic investments by Allianz X and CWC, we expect to see the impact of operating leverage, drive improvements and greater consistency in our GAAP results and adjusted EBITDA. Given that the Allianz X transaction is subject to regulatory approvals, which may take several months to obtain, we are reserving any updates to our financial targets until later this year after that investment is closed. With that, I will turn it back to Mike for concluding remarks.

Speaker 2

Thank you, Steve. We entered 2024 with incredible momentum on the heels of executing several key components of our strategic plan. I'm proud of our team and appreciate all of the hard work they've put in, particularly since they're listening to get us to where we are today. I'm confident that this progress combined with the valuable partnerships we've established position Altice to deliver long term profitable growth in the years to come. Finally, we want to thank our global client base who put their trust in our team day in and day out.

Speaker 2

We're grateful for your support and look forward to working with you in the year ahead. With that, we'd like to now open up the call for questions. Operator?

Operator

Thank you, Mr. We'll go first this afternoon to Wilma Bertis of Raymond James.

Speaker 4

Hey, good afternoon, everyone. Could you discuss the relative attractiveness of the wealth management deals versus asset management deals, especially as you're going into plenty of potential deployments this year?

Speaker 2

Thank you, Wilma. So first of all, it's important to highlight that there are both strategic and accretive deals in both business lines and they offer, in some cases, expansion geographically, in some cases, deepening of the product offering in the case of strategic alts. So they really do vary in terms of their specific relevance for the business lines. All of them are in valuation ranges that we believe can be driven from starting to when you look forward 3 or 4 years from the standpoint that these we expect these to be growth investments that we're making into businesses that we believe collectively we will be able to grow whether that be a wealth, a new jurisdiction or a deepening of a market that we're already in. But they so all of them bring that component.

Speaker 2

And then the valuations really vary based on everything you would imagine. So prior growth rates, scale of the business, margins of the business, our view on our ability to drive that business and drive margins going forward. And then anything perhaps that is additive strategically as well.

Speaker 5

Got it. Thank you. And maybe

Speaker 4

you could just touch on why you guys decided to change the name of the asset management segment?

Speaker 2

Strategic alternatives is much more related to the underlying businesses that we are investing in and have been managing. We believe there's also a great tie with the wealth segment from the standpoint of these are long term trends and ultimately have a lot of tailwinds, but our segments of the marketplace that we feel any long term pool of capital would be investing in them, whether that be a large family, an endowment foundation, multi generational pools of capital want to be and will be investing in these areas. And so this but it is more targeted and more specifically oriented around alternatives. So we felt that labeling of that was much more in tune with our underlying business.

Speaker 4

Thank you. And could you talk a little bit about the outlook for operating expenses in 2024? I know you guys mentioned that it's going to be a little bit tough to give guidance for this year given all the changes you have going on with the Allianz investment, but maybe just talk a little bit about that and the trajectory? Thanks.

Speaker 6

Sure. Hi Wilma, it's Steve Yarid. How are you?

Speaker 4

I'm doing well. How are you?

Speaker 6

Good. Thank you. So look, in terms of operating expenses, we're continuing to make progress. As we've talked about before, we are implementing the plans to deliver $16,000,000 of cost savings on an annualized basis, and that's working through, and we think that will be fully realized in the Q3 of next year, in the second half of next year. In terms of this quarter, excluding compensation, the normalized operating expenses were down a little bit, which we're really pleased with.

Speaker 6

Comp was up, but primarily revenue driven, formulaic. The compensation is formulaic based on revenue in the event driven business. So away from that, we were sort of down a little bit quarter over quarter, which was pleasing for us. So as we continue to move forward and continue to work on professional fees, those types of things, We do think that there's opportunities to further reduce operating expenses as we move ahead.

Speaker 2

Got it.

Speaker 4

Thank you. And could you talk a little bit about the net client flows in the Wealth Management segment?

Speaker 6

Sure. So I think in the U. S. Business, we had some really pleasing flows for the 4th quarter. Market driven, probably up around 5% or 6% in the quarter.

Speaker 6

Internationally, it was sort of flattish, but some good flows in certain areas. So overall, still pretty pleasing, but pretty much driven by market performance quarter over quarter.

Speaker 4

Got you. So mostly market performance, not necessarily a big volume of wins in the quarter?

Speaker 6

Yes, it's more market driven, Nick. That's right.

Speaker 2

Important, you have the prospect process and then conversion to clients moving into asset and billing on assets does take time. So there you can have a very good quarter from the standpoint of prospecting and verbal wins with clients that tend to materialize to contractual and then the assets moved in and fully built does take some time. So we're very happy with the pipeline that we have globally and the opportunities that we continue to see as we go into 2024.

Speaker 5

Thank you. And I think

Speaker 4

you guys highlighted some impairments on real estate. Could you maybe just go into a little bit more detail on that, what the drivers were?

Speaker 6

Sure, Wilma. So as we got into the Q4, we did some further restructuring. We've been repositioning the business to some degree throughout all of 2023, but particularly in the second half. And as we work through and try to simplify the business and restructure some arrangements with some of the partners, It has led to those arrangements as they get restructured, the need to write down some carried interest receivables, which wouldn't be necessarily wouldn't be recoverable going forward and also an equity method investment. So it was about $17,000,000 of impairments on those two items during the quarter.

Speaker 6

And we really don't think that that's going to be a feature of the results going forward. We've done a lot of work on that over the past 6 months or so, and we think that most of that's behind us now. So we wouldn't expect those types of impairments in the results in the Q1 and beyond.

Speaker 4

Got you. And then maybe just give a little bit of color on the M and A, the merger arbitrage fund and the outlook and just the environment for that business?

Speaker 2

Well, the event driven strategy just completed its 30th year of profitable performance, which is really an amazing and I referenced that, it really is an amazing history and the teams worked together for a very long time. The environment is, I would say, a good environment in terms of the fact that deals are being announced. There's interest rates having leveled off mid year last year, have at least allowed financial projections and modeling to be done for businesses. So then people are CFOs and management teams are able to make strategic decisions and begin to move deals forward. The event environment is off to a slightly slower start than the team expected.

Speaker 2

Spreads are, I would say, average from where they've been historically. So we are hopeful that the deal flow will continue to pick up and but you continue to see some regulatory and political interference at times, which create volatility in the space. But beyond that, I would say it sort of will track to a standard year for the strategy.

Operator

Thank you. And just a quick reminder, ladies and gentlemen, any further questions this afternoon, please press star 1 at this time. And gentlemen, it appears we have no further questions this afternoon. Mr. Tietaman, I'd like to turn things back to you for any closing comments.

Speaker 2

Okay. Thank you, operator. And thank you everyone for dialing in late on a Friday. And we invite you to contact us with any questions that you might have or to schedule any follow-up calls. And we're excited for 2024 and look forward to updating you further on our Q1 call.

Speaker 2

Have a great weekend. Thank you again.

Operator

Again, ladies and gentlemen, that will conclude today's conference call. We'd like to thank you all so much for joining us and again wish you all a great evening. Goodbye.

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