Release Date: November 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DigitalBridge Group Inc (DBRG, Financial) reported a 42% year-on-year increase in fee-related earnings (FRE) and a 500 basis point improvement in fee margins to 34%.
- The company is on track to exceed its $7 billion annual fundraising target, having already raised $6.1 billion year-to-date.
- DBRG has successfully deployed capital into existing platforms and new opportunities, particularly in the data center and tower verticals, with significant investments in companies like Databank and Vertical Bridge.
- The private wealth channel has shown early success, with expectations to raise over a billion dollars by the end of the year, which was not initially factored into the 2024 business plan.
- DBRG's global platform and growing investor base have enabled it to raise capital from around the world, with strong contributions from North America and Asia expected in the fourth quarter.
Negative Points
- The company revised its fee-earning equity under management (FEEUM) target downward slightly to $35 billion to $37 billion due to realizations and other offsets.
- Fee revenue for 2024 is expected to fall short of the original guidance, with a revised range of $305 million to $320 million, compared to the initial target of $335 million to $360 million.
- The composition of capital raised has skewed more towards co-investment and funds that charge fees on invested capital, resulting in lower fee revenue for 2024.
- There was a net carried interest reversal of $7.7 million in the third quarter, attributed to portfolio evaluations that were roughly in line with preferred returns.
- The timing of capital formation has impacted the ability to deliver in-period FRE as expected, with some fundraising activities rolling over into 2025.
Q & A Highlights
Q: Can you address the disconnect between the positive industry backdrop for digital infrastructure and the disappointing results, particularly regarding the mix shift in fundraising towards co-investment?
A: Marc Ganzi, CEO: Co-investment is integral to our strategy, linking up with flagship funds to scale and create outsized outcomes. It allows us to deploy capital immediately into growing our businesses, creating more scale and carried interest. While the fundraising mix has shifted, our fund products, including credit, flagship, and private wealth, are working well. We are a global alternative asset manager with multiple strategies, not a merchant bank. Despite the slower fundraising velocity earlier in the year, we are confident in our future growth and fundraising pipeline.
Q: What drove the carried interest reversal this quarter?
A: Thomas Mayrhofer, CFO: There wasn't any significant individual driver. It was more about portfolio evaluations that were appreciating or roughly in line with our preferred returns, leading to some ups and downs across different funds and products.
Q: Can you provide more details on the composition and timing of fundraising, particularly regarding catch-up fees moving into 2025?
A: Thomas Mayrhofer, CFO: Year-to-date, we've had about $10 million in catch-up fees, with expectations for an additional $5 to $10 million in Q4. Originally, we anticipated $40 million for the year, so roughly half may roll into 2025. The timing of capital deployment affects when fees activate, especially for co-investment and credit strategies, which are based on invested rather than committed capital.
Q: What is the status of Fund Three, and what is the hard cap for it?
A: Marc Ganzi, CEO: We are targeting $8 billion for Fund Three and have strong momentum with over 130 accounts in the data room. We are well on our way, with more than 50% of the strategy already committed, and we aim to hit the target by Q1 next year.
Q: Can you elaborate on the M&A environment and where you are finding value in acquisitions?
A: Marc Ganzi, CEO: We are actively investing out of our third flagship strategy, finding value in assets like Yondr and JTower. The M&A pipeline remains robust, with over $10 billion of new opportunities. We are cautious in data centers and towers, focusing on investment-grade customers and strategic locations. Fiber presents pockets of value, and we remain constructive on towers in Latin America.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
