Ridgepost Capital Aktie

So let's get started here. I think this is our final session for today. So you're in the way of cocktail.

On the way of cocktail and air conditioning.

Exactly. Well, thanks, everyone, for staying with us. I'm Mike Cyprys, Equity Analyst covering brokers, asset managers and exchanges from Morgan Stanley Research.

And I'm excited to welcome Luke Sarsfield, Chairman and CEO of Ridgepost Capital, also formerly known as P10, just for a little hope there for folks. Ridgepost Capital is a multi-asset class private market solution provider in the alternative asset management industry with over $30 billion of fee-paying assets under management.

So Luke, thanks so much for joining us here today.

It's great to be here. We always love your conference. So thank you.

Great. So Ridgepost describes itself as a private market solution provider, which is a little bit different from the standard large-scale GP providers that we see across the marketplace, the KKRs, the Blackstones. So maybe just unpack what it means in practice to be a solution provider and where you sit in the broader alternative ecosystem.

Well, look, great question. And as you mentioned, we have $30-plus billion of fee-paying AUM. We operate in many of the most attractive segments of the private markets, including a swath of alternatives in private equity, a swath of alternatives in private credit and venture capital as well. And when we think about the franchise, we're really, really focused on the middle and lower middle market. That is our raison d'etre. So unlike some of the peers you mentioned who focus on the upper part of the market, we really focus on the middle and lower middle market.

And I think what's important to understand about that part of the market is there's a lot less capital, but it's very opaque and it's often very hard to navigate if you're not really a deep expert in that. And we've been capturing data. We've done analytics. We have 20 years of data in that part of the market. We've literally been operating many of these businesses for multiple decades. And so that gives us a real unique and differentiated perspective to be able to drive insight on behalf of LP clients. And so when we talk about a solution provider, it's a client or a prospective client who says, look, I really think that there is alpha. I really think there is, as we sometimes call it, riches in the niches in that middle and lower middle market.

But it's really hard for me to access that. And I need a partner who is broad-based, who can act across asset classes, who can act across strategies on my behalf to help me get that access, but also help me find kind of where the real opportunity sets are, because it's complicated, it's diffuse, it's opaque. It's not something you read about in the Wall Street Journal every day. And so you really need an expert who can help guide and deliver a solution and a result for you.

And so our raison d'etre is to be that partner, whether you're a family office, whether you're a pension, whether you're a sovereign wealth fund to say, what's it -- what's your portfolio use case? How are you thinking about the middle market as part of that portfolio use case? And then we can be your partner to help craft a solution to address that use case. And so when we talk about ourselves as a solution provider, that's what we mean by the terminology.

And why would you say that matters more today than, say, a decade ago?

Yes. So I think what happened, right? I think there has really been -- as markets have gotten, I would say, more professionalized and more scaled. I think one of the things that happened was in the earlier days, 10 years ago of private markets, there was a real desire on behalf of many allocators to try to say, I want to find that unique niche solution provider, whether it's the leading manager in Southeast Asian private credit or the leading manager in the Seattle small-cap private equity market or whatever may be your area of expertise and try to build a portfolio and build expertise that way.

And then I think what happened was a lot of these large allocators looked at their roster of managers. And it was pages and pages long of folks who were acting for them in this particular thing or that particular thing and they said, we just don't have time to manage all these counterparty relationships. This can't stand at some level. And so what we need to find is people that bring that depth of investment excellence, that consistent persistent alpha generation, but also kind of have an institutional scale to them, right? And so once I assess the platform and decide it's scaled, I don't have to worry about reunderwriting it, right? I don't have to worry about the kind of existential stability of that platform.

And I think that's the raison d'etre for somebody like us, because when you look at it, we have world-class investment expertise, consistent persistent alpha generation in every one of the unique strategies that we execute on, on behalf of our clients. But we can package it and deliver it at an industrial scale and at a scale that's appropriate for a larger allocator of capital who might want to write a larger check as opposed to saying, well, look, we're raising a very small fund, and so we can only take a very small percentage in it. And so with that, I think, that shift in allocator psychology is something that I think has really sort of accrued to our benefit in many ways, and we exist to serve.

Now 5 years ago, I think many investors would have described Ridgepost as a collection of specialist boutiques, whereas today, you're increasingly presenting it as a unified solutions platform. So what's changed?

Well, I think that is -- I think what has changed is exactly that at some level. The foundational story of Ridgepost was that it was sort of an M&A rollup, right, or P10 at the time. To your point was that it was an M&A roll-up. And the beauty is they acquired generally best-in-class managers in whatever the asset class or whatever the area of investing focus was. And so obviously, I like to make a kind of glib one liner. I say that if you want to be a great asset manager, it really helps to be great at managing the assets. And it turns out that in all the different sort of areas that we serve, we have consistent persistent track records of alpha generation.

In many cases, our earlier strategies founded in 1980. We have strategies that were founded in the early 2000s. So they've been doing this across cycles, across market environments, across all sorts of economic conditions, and they've been able to deliver that on a consistent persistent basis. But I would say just putting that together, it's a necessary but not sufficient condition. What do I mean by that? Well, Part of the power we're trying to harness is the power of the platform, the power of the combined, what we can bring to clients, what we can bring to each of our strategies, how we can engage more broadly and more comprehensively around what we do. How do we bring all the incredible data together that we have across all the various sundry strategies and really leverage that to make us even better investors to bring even better insight on behalf of clients.

And so we embarked when I got here on sort of a very dedicated strategy of basically saying the thing that has always made our investing teams great is they're investing autonomy. And we want them to preserve that for all time. We never want to impair or impinge on that investing autonomy. But on most other things, right, whether it's distribution, whether it's human capital management, whether it's data and technology and cybersecurity, whether it's legal and compliance, whether it's vendor management, there's a lot of benefit to acting collectively, to leveraging economies of scale, to sharing best practices. And so how do we integrate all of that without upsetting that kind of app la carte, which is the core of it, which is this great investing autonomy that yields the great results.

And so we've built out all these functions. The rebrand to your point, from P10 to Ridgepost was an important component of that as we just thought about how we talk about ourselves. And so take our largest strategy is our RCP advisers. And for many, many years, RCP advisers went to market as surprisingly, RCP advisers, right? Now if you were at their latest AGM, which was a few weeks ago, you would see the branding is RCP Advisors, a RidgePost Capital strategy. And so in everything we do, we're now talking about the power of the collective. We're talking about that in terms of how we brand ourselves, how we hold ourselves out to clients, but most importantly, how we operate many of these core shared service functions every day. And I would say probably most important for us are the data and technology function and the distribution function.

On that latter point around adding by Ridgepost Capital sort of a by line, would you envision adding that across the other...

I was using that as a for instance, it will be everywhere, right? So it will be across all of our strategies in the reasonable near term.

Okay. Pivoting here to the macro. Headlines this year are focused on software disruption, private credit concerns. I saw some of the wealth channel volatility, geopolitical, it goes on and on. How exposed is Ridgepost to these themes? And where do you think the market is getting the start wrong?

Well, look, here's the really good news. Let's take some of those in turn. The answer is little to none in terms of our exposure to most of those themes, right? And so take them in turn and some of the volatility, right? People talk about, to your point, private credit was a thing and continues to be an area of concern and disruption, right? And so first of all, I start with our private credit portfolio, right? And it's only about 25% of our overall assets, even pro forma for the Stellus transaction that we're hoping to close here soon.

But I think importantly is how we go to market. And the vast majority of those strategies, we're going to market in traditional delayed draw closed-end vehicles. right? So this whole concern about what is going on with redemptions and where goes the retail investor relative to others, it just doesn't have a lot of impact on us. And then I'll just give you another anecdote. In the one place that we do or that we will shortly, which is in Stellus, they have relatively small evergreen vehicle. We've all seen these rumored redemption rates of low double digits that many others are talking about. In the last 2 quarters, their redemption requests were 2.9% and 3.0%, right? And so we just have not seen that manifest itself in our portfolio in the same way.

You mentioned software. Obviously, that's a concern for a lot when we look at our portfolio. And remember, we do have a venture portfolio, and that venture portfolio is leaning very, very heavily into AI and next-gen technologies. But when you take that aside and you look at the rest of our portfolio, our software exposure is less than 10%. Stellus is private credit software exposure is less than 8%. But then the other thing I would say is, remember the middle market. When we're talking about our software exposure, this is not the large enterprise software and solution sort of SaaS thing that everybody else is worried about. These are very niche applications for regular way sort of middle market operating businesses.

You talked about -- you mentioned kind of the geopolitics and the upset with geopolitics. Obviously, it's a concern. It's something we're monitoring closely. But when we look at our portfolio, given our middle market focus, we just don't have broad-based exposure to things that generally will be disruptive. Energy inputs are not a massive driver of any of our portfolio performance. And then even your point on retail, right, I know in certain pockets, there have been concerns around retail. About 1/3 -- a little more than 1/3 of our LP base is what you would call ultra-high net worth. But it generally has an institutional bent, because it tends to be either very ultra-high net worth investing in traditional closed-end vehicles, so more of an institutional bent or high net worth coming in through some sort of aggregator vehicle that really has kind of more of an institutional flavor to it.

And so in every way, we feel great about our portfolio. If you look at our results, by the way, in the first quarter, I think they bear that out. And you hope over time, again, I can't perfectly predict where markets will go, but you hope over time that investors understand that.

And in your conversations with institutional clients, how would you describe the mood today? And are allocations simply just more constrained? Are they simply becoming more selective the LPs in terms of who they back? And how much of the current environment is an allocation issue versus more of a liquidity issue?

Yes. We're not seeing what you would call an allocation issue in the traditional sense. One of the benefits we have, I think, and any other large diversified manager will have is we have multiple products that are kind of in the market at any given time, right? At any point in time, we have 15 to 20 or more products in the market, right? And so you hope that with a diversified product base, you will find products that are resonating with clients, and we find that to be the case.

I mentioned our venture solution business before, it's called TrueBridge. Within TrueBridge, they're out raising a number of different funds. They have a secondaries offering. They have a direct offering. They have their main flagship fund. And you can imagine, in light of what's going on in the world, there is a lot of receptivity to venture right now, right? And so that has seen massive uptake, and it was one of the big drivers in our strong first quarter kind of distribution results. Similarly, we're out in the market with some credit products. NAV lending is one that seems to have a lot of resonance.

We have a number of secondaries products. Secondaries have a lot of resonance right now in that sort of vein of liquidity that you mentioned. And GP stakes. We're out with our GP stakes product, Vintage III, and that has a lot of resonance. And so I think, certainly, if you're in a, what I would call a core private equity business, right, which we are not in generally. But if you were in a core private equity business, I would imagine that was your flagship product and you went out to try to raise a fund right now and you had sort of the average track record of DPI success that seems to sort of be prevalent right now, it might be a little harder to raise that fund, I would imagine. But that's not our experience because that's not our product portfolio.

On fundraising more broadly, I think you've said it's not going to be linear, but the recent pace has been quite robust.

Knock on what?

And I think you've provided some near-term guide of $10 billion growth in fee-paying AUM.

Over the next 2 years.

Over the next 2 years, '26 and '27, aspirations for $50 billion of fee-paying by the end of

'29. That was from your Investor Day number a year ago.

Can we stand by that? I will reiterate again here today.

Already said. Making news. So to what extent might there be upside to those targets given the strong growth we've seen in the first quarter? And where would you say are some of the biggest drivers of capital formation that you're seeing across the platform?

Yes. So look, I would say we hope -- we work hard every day to execute, right? And that's to execute on behalf of clients, but that's also to execute on behalf of our shareholders, right? And so we want to do right by our clients, and we feel like if we do that, good things will happen for our stakeholders and in particular, for our shareholders. And I think we've seen that in the last period of time. I would say, right, we have when we go to market, we have expectations for how large funds will be. Some of our recent experience, if you look last year, we actually got passed the stated cover number and we have the hard caps. If we're so fortunate to be able to continue to do that, I think that could well yield upside for us.

Secondly is we're always trying to think about new product opportunities. A great example of that. We bought Qualitas, which is a private equity business in Europe, which is kind of the analog to RCP advisors, which I mentioned. And it turned out there was demand for a Qualitas distributed and wrapped product in Europe, but with RCP mixology inside it. And so we launched that product and the early client feedback is very good. And my guess is there are multiple other kind of client intersections and things we can do that will be client enhancing, but will also help us potentially achieve upside.

And then I think the big one and something we've talked a lot about is how can we do more with existing clients and how can we broaden our client base. And so we talked about at Investor Day, you'll remember this, that less than 5% of our clients, of our 5,000 clients were clients across multiple strategies. The good news is we've already made a lot of progress on that. One of the thing we talked about in the last earnings call is more than 10%, close to 15% of the capital we've raised since Investor Day has been from a client of one strategy investing into another strategy. But I still think there's a big growth opportunity for us. And if we execute on it right, I think it creates upside.

And then the last one is doing more with some new clients. And we talked last year, we had achieved one really big SMA with a large sovereign wealth fund. This year, we talked about within our TrueBridge Venture strategy in the first quarter, they had some success with some SMAs. And so I think to the extent we can bring that SMA expertise to more clients who are looking for the investment acumen that we bring to the table, that's another real driver of upside.

I want to dig in on the cross-sell, and that's quite encouraging that statistic you just shared there that near 15% since Investor Day on the capital raise. I guess what have you learned about client behavior as you're cross-selling additional strategies? And what are some of the hurdles that you may need to overcome as you try and take that cross-sell even higher?

I wish I could tell you the impediment to it was client driven. It was actually not. The impediment to it was how we had captured data, how we had organized ourselves and some of this branding conversation we had, how we approach the client. And so first thing was when I got there and I hired somebody to come in as our Head of Global Client Solutions, we discovered that across the different strategies, it was -- we could figure out who the common clients were, but it was a very intensive exercise, because we had 7 different at the time, CRM systems that each coded the clients differently.

So you literally had to take it all download it into Excel and literally do like a lookup to figure out who the clients are. We went back. We retrofit, used AI, used a lot of technology, great new CTO team. We retrofit all the technology, so that now we have a single Ridgepost-wide data lake, codes all the clients, looks across strategies. We know who our clients are now, step 1.

Step 2 was then how do we think about getting things in front of them that are most relevant, right? So it doesn't feel like we're just product pushers, but we're really being thoughtful and creative about what they're trying to accomplish. So again, we can use data. We're really good with data. So what we did was we looked at all of our clients with one strategy, which of the competitors of another one of our strategies had they become a client of? And then we understood, okay, you're a client of ours in Strategy X, but instead of investing in our strategy Y, you're investing in somebody else's analog to strategy Y. So maybe we ought to talk to you about our strategy why, right?

And so then we had that list. It was a targeted list. So it wasn't like, hey, we're throwing stuff against the wall to see what sticks. We're really doing it in a customized way that reflects our understanding of your business and of your investing needs. And that was really important.

The third thing was we needed to create kind of this culture of coordination and collaboration. And so we revamped sort of how we talked about it. We talk about a one Ridgepost Capital approach. We've augmented incentive systems to reward collaboration, to reward sort of acting in concert and acting for the great of the whole. But then -- and this was this branding discussion we were talking about before. When we actually started approaching clients, it was interesting. You're concerned that the piece of feedback you're going to get is, oh, yes, we thought about that, but we decided to go with your competitor instead for the following reasons.

The feedback we actually got is we didn't even know that, that strategy was part of the same enterprise as that's really interesting. That's a new fact. And so tell us more. And so on the one hand, frustrating. On the other hand, heartening in many ways, right? And so part of the thrust of the rebrand is to do exactly that, right, as we start talking about the fact that we're all strategies of Ridgepost Capital that will build client knowledge, client awareness, client affiliation and will able to -- it will enable us to accelerate this deepening and broadening of the client relationships.

And so that's what we're up to. I feel very optimistic about our ability to do this. We've also, by the way, continued to, in a targeted but appropriate way, invest in our sort of core distribution client-facing function, and we've got some great folks out there who -- this is what they do all day. I feel very good about our ability to execute on this.

Now ultimately, these clients are coming in for performance, and that's what's going to drive.

We always do exact.

And I like your comment earlier around the riches in the ...

Riches in the niches.

I love that. So question is, what is the excess return that these investors are looking for? What's needed from the private markets to drive investors to come in, particularly given the DPI limited liquidity experience over recent years? And to what extent has that impacted that excess return expectation?

Yes. Look, and to your point, right, the reason you take illiquidity is that you think you're going to generate a superior risk-adjusted return. Otherwise, why would you do that? And to your point, probably unsaid point, it's gotten harder in a world where public markets, at least sort of the headline, maybe not under the surface, but at the headline, probably driven a lot by tech and Mag 7 and some other things have really ripped higher, right? And so that's been something.

So look, I think it's really important to have conversations and understand what clients' returns expectations are, right? Some of them think about it much more in a relative fashion. Some of them think about it much more in an absolute fashion, right? Like I have to pay my pensioners X and to achieve X, this is the return I need, right? And so I'm threshold driven at some level. The one interesting thing we look at when you think about excess returns is why people should be in the middle market relative to the upper part of the market. And if you look across time, and obviously, there's a distribution. And so great -- there are going to be great managers who outperform and there are going to be many who underperform.

But at the midpoint, when you look at the middle market relative to the upper market over the last number of decades, at the median, the middle market has outperformed by about 200 basis points on average, the upper part of the market in terms of returns, right, meaningful outperformance. And so I think that is one of the reasons why -- and by the way, we aspire to do better than just the average return. But if you just were to be wildly average, you would do better, all things equal, being in the middle market relative to the upper part of the market and then if you can add real manager selection alpha on top of that, obviously, you continue to do better still.

And the other interesting phenomenon is if you look at the distribution returns in the middle market, there's a much higher probability of sort of finding those first quartile returns in the middle market. It tends to skew a little bit if you can find those best-in-breed managers. And so when you think about that, I actually think that's why allocators are increasingly coming to us and saying, okay, like I sort of started -- I started with whatever it was 80-20 or 75-25 public versus private. But now I'm really thinking about what are the components of that 20 or 25. And how do I think about that, not just at the macro level, but at a more targeted level.

And so yes, I should have some private equity. I should have some private credit. I should have some real assets. But I think increasingly, you're seeing people think on other metrics like geography and like things size. And so I think that's a real benefit, because unlike in the upper part of the market where we can point to a number of great institutions who can probably execute on your behalf if you're an LP. I think that number is much smaller if you want sort of a diversified, scaled professionalized manager in the middle market, and we can be that solution provider.

And as you look out from here, how do you think about the durability of that excess return, whether it's the middle market relative to the larger that 200 or relative to public markets? And how do you think the components of that excess return may evolve over the next decade versus the prior couple of decades?

Yes. I mean, look, at the core, the reason it has existed has been like everything else, it's sort of simple economics, supply and demand, right? And so what you've had in the upper part of the market, and we've looked at this, when you look at companies in the upper part of the market, that's about 15% of the companies by count, you define it as companies with greater than $250 million of revenue. But somewhere between 80% and 85% of the private capital deployed goes against that 15% of the opportunities.

So what's the corollary? In the middle and lower middle market, companies between, say, $30 million and $250 million of revenues. By the way, that's about 80% of the companies that exist, and it's about 15% or 20% of the capital that goes against those. Why is that? One, I think it's harder in many ways, right? The upper part of the market, it's very visible. It's very transparent. There's a lot of great data sources you can analyze. The financing packages are public. Everything is well known, right? And so if you want to educate yourself in that part of the market, you can do so in a pretty comprehensive way.

In our part of the market, you're generally buying something that's private. You're generally buying it from the founder. You're generally buying it at some very reasonable multiple. By the way, entry multiples in our part of the market tend to be high single digits versus low mid-double digits at the upper part of the market. Leverage packages are much more moderate in our part of the market. 3, 4, 5x versus 6, 7, 8x in the upper part of the market. Their deals generally much less intermediated, right? You generally don't have the Morgan Stanleys of the world retained to sell in the middle market. They're focused on the upper part of the market, and they do a really good job extracting that value. Here, it's either direct or maybe it's a business broker.

And so less competition, lower value, you're buying from the founder, so the opportunity to professionalize is there, and you're using less leverage. So you're not winding the capital structure is tight. So when you put that all together, that advantage exists. So then the question is what might erode that advantage? Well, obviously, more capital and new entrants would be the thing that would erode that advantage. But the benefit we have and we will continue to have, as I talked about, is we've been collecting data in this part of the market for the last 20 years.

So we can tell you -- if you want to look at health care services buyouts in the Southeast in 2008, we can tell you who did them. We can tell you what multiples were paid. We can tell you who was the lead partner on the deal, what was the leverage level, what was the growth, what was the margin. That's just invaluable to be able to drive that, right? And so in 10 or 20 years, could somebody else create that? Conceivably, they're willing to make the investment. But we have -- and by the way, we're still augmenting our data set and accelerating our data set. And so we have not just like a head start, we have a multi-decade head start in this part of the market. And I think that's why we view it as so defensible.

That's a great segue to my next question on data and also AI. I guess you mentioned data. It's helping drive sourcing, underwriting, client development. You've mentioned that in the past. What would you say is your most valuable data set today? And how might you quantify the sort of tangible impact that it's having on improving outcomes?

I would bifurcate our data because I'll answer your question, but I would bifurcate it. I think there is what I would call client and LP data and then there is investing data, right? And I think you have to think of them as 2 different things. And I'm not going to say one is more valuable than the other. If you're trying to sort of partner with a client, that LP data is pretty valuable and the investing data, maybe a little less so in the first instance. But if you're trying to generate consistent persistent alpha, that investing data is pretty darn important because that's the secret sauce.

And as I said, we have hundreds of thousands of data points going back 20 years. We have it in the U.S. also now through the acquisition of Qualitas, we have about 10 years' worth in Europe. They had a very similar data-centric philosophy to RCP in the U.S. and to our other strategies in the U.S. And so what does it do? Number one, it makes us better investors because we can do pattern recognition, right? I mean when people talk about AI and all these models and doing it, we use all those to power and inform us. But ultimately, the human judgment, right? We've had professionals who have been doing this 20, 30, 40 years. Those professionals informed by that data are the category killer combination, right? And so that's the first thing we think a lot about.

The second thing we think a lot about is it actually makes us -- what's interesting is we often have GPs we work with invest alongside come to us and say, "Hey, we're looking at this deal". Here are the parameters of the deal. Can you actually put the deal through your algorithm with all your data and tell us how will the deal do in this kind of macro environment. And we've -- that makes us a really attractive partner, but it also helps us drive better investment performance in our underlying managers, and that's really compelling.

Where I would say it really helps you, it's not necessarily going to help you decide this is a fifth percentile deal versus a seventh percentile deal. It's really going to help you avoid the 65th, the 75th, the 85th percentile deals, right? We can really derisk that tail, and we know what's going to work. And so I think that, that data and that ability to use the data in that way is really central to what we do. Because to your point, you've got to be a great investor. You've got to generate alpha. And the only way you do that consistently and persistently over a period of decades, you have to have that insight edge, and we have that insight edge to the data.

Let's turn to Stellus. The acquisition is expected to close this year.

Midyear.

Midyear.

Hopefully soon.

What made that business fit strategically for Ridgepost? And does it change the calculus, the types of firms you might consider to acquire going forward?

So I'll answer the second question first. No, it does not change the calculus. When we did our Investor Day, we laid out a road map of the kind of things we would look at from an M&A perspective, and we identified 3 areas. And by the way, our first 2 deals that we've done and have both been very much in line with what we laid out. Number one, we said we would look for international analogs of our U.S. strategies. So that was Qualitas was right on strategy, because that's an international analog of our U.S. private equity strategy.

The second thing we said is we think there's a real opportunity in middle market private credit, and we would look for different parts of that spectrum. We talked about direct lending. We talked about asset-based lending. We talked about distressed and opportunistic. So Stellus, middle market, private credit, direct lending, exactly on the road map that we laid out. And the third thing we talked about that we haven't done anything in yet is real assets, middle market focused, again, real estate infrastructure.

But so far, our M&A deals have been exactly on the road map that we talked about. So -- but then your obvious question will be why? Why did you design the road map that way? And so one of the things we thought a lot about in middle market private credit is the opportunity to leverage the existing strategies and the existing set of relationships we have on our platform to be able to make whoever the private credit provider was better, increase their sourcing flow, top of the funnel, expanded expansion and also obviously allow us to go deeper with clients. And so when you look at sort of how we approached the private equity business, right, we started as a fund of funds. And so we got to know all the great middle market private equity firms.

And then the first thing that happened was because we got to know them and we were one of the key investors, they would show us deal flow. And they would always show us or try to show us 3 kinds of deal flow. The first kind was co-investments, right, the most obvious. They would do a deal, they would say, would you like to look at it? We started, we used to put that in the core fund, and then we said we're seeing some of this flow. We actually need to raise -- we need to raise a co-investment strategy. We've done that very successfully. Last year, we raised our fifth co-investment fund. It was $1 billion.

The second thing we saw, secondaries flow, right, because people want to be in the business with people they know and trust. And so they wanted to show us their secondary flow. Again, it got to the point where we were seeing so much secondary flow that we started raising the family. We call it SOF to invest in that. Last year, we raised SOF V, again, $1 billion in a quarter, very successful.

The third thing that all of the GPs in our ecosystem would always try to bring to us was whenever a portfolio company was acquired, they would say, "Hey, we just did this deal, would you like to look at the credit? We would say, because we were coming at it through an equity lens historically, thanks, but no thanks, right? But there's a lot of great folks in the world. But we always knew that our ability to turn that dial to really source a ton of stuff would be really profound if we could find the right team and the right platform to do it behind. So we spent a lot of time thinking about who was the best at this, who is just an absolute world-class team. And we kicked a lot of hires.

And ultimately, we spent more than a year getting to know the team at Stellus. And we just got a tremendous amount of conviction based on their track record, like all of our track records is extraordinary in terms of what they've done. So they're great investors. They've been at it a long time. These guys were investing together at D.E. Shaw and then they've been doing this together for 29 and 20 years. And then we saw the cultural simpatico, right? They had the shared vision. They thought about the world we did. They had this singular focus on the middle market, as we did. So culturally and strategically, we were fully aligned.

And then we thought about this opportunity to really unlock this massive sourcing opportunity given the centrality we have in this middle market GP stakes ecosystem. And when we put that all together, we just thought the deal was incredibly strategic, and we're really, really excited about what we're going to do together.

So we're just about up on time. So final question here in the last 30, 60 seconds. We look out over the next 5 years, which parts of Ridgepost have the greatest chance to scale disproportionately from here? And what will surprise investors most about Ridgepost in 5 years?

Look, I think a lot of our businesses have opportunity to scale in a big way. I talked about sort of what's going on in the venture ecosystem. I talked about what's going on in terms of secondaries. And I think we can do much. I think that is a nascent market that is very fast growing. I know, I'm not the first to observe that. But we have, again, this privileged real estate in middle market secondaries. And I think as that market grows, we're going to be a massive beneficiary of it. I think about so many of the businesses that I would say in one way or another are providing GP solutions, right? So maybe you need an investor, we can do that, come invest in your fund. Maybe you need an equity capital provider. We can do that through our GP stakes business. Maybe you need some credit, we can do that through NAV lending or through other lines.

I could imagine a whole kind of GP financing solutions business. And that's just with our existing businesses, right? And then you think about that M&A road map that I laid out and all that still exists. We talked about analogs of our U.S. strategies internationally. We did one deal in one part in one place, right? There's a lot of -- the world is a pretty big place. There's a lot of opportunities, a lot of white space in Europe, a lot of white space in Asia. We participate in none of it. So I think that global expansion opportunity to leverage what we do, but broaden it geographically to clients is huge. I'm excited about that. And by the way, all the dynamics we talked about in the U.S. middle and lower middle market, they're the same or even more amplified in the European and Asian middle and lower middle market as we've looked at it. So that's a really big opportunity.

And then I think the other thing that's really important is we've put the team in place to execute, and we've driven this culture, as I said, of one Ridgepost. So I think what hopefully people will take away is that -- we're no longer just a collection of sort of boutique managers who are really great at what they do. We are an integrated comprehensive category killer platform in the middle and lower middle market, and we have the opportunity to execute against that. And I think we're decades ahead of anybody else who might try to challenge that.

I'm very exciting. I'm afraid -- very excited.

Thanks so much Luke.

Thanks so much for having me. Really appreciate it. Thank you.

Hello, and welcome to Ridgepost Capital's First Quarter 2026 Conference Call. My name is Latif, and I will be coordinating your call today.[Operator Instructions] As a reminder, today's conference call is being recorded. I will now pass the call to your host, Mark Hood, EVP and Chief Administrative Officer. Mark, please go ahead.

Thank you, operator, and thank you all for joining us. On today's call, we will be joined by Luke Sarsfield, Chairman and Chief Executive Officer; Amanda Coussens, EVP and Chief Financial Officer; and Arjay Jensen, EVP, Head of M&A and Strategy. After our prepared remarks,Sarita Jairath, EVP, Global Head of Client Solutions, will also join our Q&A session. Before we begin, I'd like to remind everyone that this conference call, as well as the presentation slides, may include forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures that, we believe, can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is included in the presentation slides posted on our website and our filings with the SEC. I will now turn the call over to Luke.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. I'll first recap Ridgepost Capital's first quarter 2026 financial and operational highlights and then spend a few minutes reflecting on the attractive and durable nature of our LP base. Arjay will provide an update on our acquisition of Stellus Capital Management. Amanda will dive deeper into our financial performance, and then I will provide some closing thoughts.

Ridgepost Capital had an extremely strong start to the year, hitting several key milestones. Importantly, our fee-paying assets under management crossed $30 billion for the first time, and we experienced a record quarter in terms of fundraising and deployment. Additionally, we continue to observe strong investment performance across our strategies. In particular, this quarter, I would highlight increases to the already strong results for the flagship funds at TrueBridge, our venture capital strategy, most of which have achieved 3 to nearly 6x net ROIC as of December 31, 2025. Our fee-paying assets under management increased to approximately $31 billion, representing 18% year-over-year growth. Since June of 2024, the as-of date we used at our Investor Day, fee-paying AUM has grown at a 16% compound annual growth rate, keeping us on track to achieve our long-term target of $50 billion by the end of 2029. Turning to our fundraising activity. We delivered a record quarter with gross fundraising and deployment totaling approximately $2 billion. This level of fundraising was in line with our expectations and included in our 2-year guidance discussed on the fourth quarter 2025 earnings call. We had a total of 19 funds in the market this quarter. We are extremely proud of this fundraising performance, which we think reflects the growing LP demand for the solutions we offer our clients. It also reflects a number of favorable elements coming together at once in the quarter, in particular, at our venture capital strategy, TrueBridge, which Amanda will cover in greater detail. I would also point out that fundraising will not always follow a linear path, and we, of course, expect some variability between quarters. Turning now to a few points I wanted to make about our business, which I think are important to highlight. The first few months of this year were eventful for the firm.

On our fourth quarter earnings call, we covered our 2025 year-end results, our announced acquisition of Stellus Capital Management and our rebranding as Ridgepost Capital. There has also been a good deal of news flow regarding the alternative asset management space, including around software and AI disruption concerns around private credit, driving a general focus on credit quality and related high levels of redemption requests. This has directly and negatively impacted public market valuations. Importantly, Ridgepost has very little exposure to these trends, and we wanted to take the opportunity to double-click on a few areas, in particular, aspects of our business that we believe are truly differentiating and demonstrate that the franchise is progressing on both the organic and inorganic initiatives we outlined at our Investor Day in 2024. Next, I want to touch on the durability of our LP investor base. Our products and vehicles are predominantly structured as commingled funds or SMAs with long-dated, locked-up capital. The majority of our fee-paying assets under management use committed capital as a fee base, providing a stable locked-in source of revenue that typically lasts for 10-plus years. This product and investor profile provides us with highly durable future revenue, reflected in a weighted average remaining duration of approximately 7 years across all of our strategies and vehicles. The corollary to this is that semi-liquid products for retail investors have not been at all meaningful to our historical growth. As a consequence, we have not been directly impacted by the news around redemption requests and debate around the merits of alternatives for retail investors. Now this may seem counterintuitive, considering that over 1/3 of our LP investor base has been sourced through the wealth management channel. However, our high net worth investor base has more of an institutional orientation with several high net worth aggregators making up the majority of this channel for us, providing a drastically different LP profile compared to the typical retail-oriented products that have been the subject of many of the recent headlines. So, I've touched on the durability of our LP base as well as how our high net worth channel differs from others. I would also point out that nearly 3/4 of our LP base falls under our 3 largest categories: one, wealth and high net worth; two, pensions; and three, endowments and foundations. We're particularly proud of this breakdown and are continuously working to expand the level of investor overlap across our strategies. And we are clearly seeing that work pay off. We flagged on our fourth quarter call that over 10% of our capital raise since Investor Day stems from successful cross-marketing efforts. To put a finer point on that, approximately $1.2 billion of the capital we've raised since our Investor Day reference date of June 2024 is a result of clients investing in the strategy beyond their initial Ridgepost Capital investment. This progress represents roughly 300 basis points of our 15% fee-paying AUM compound annual growth rate through the end of 2025. And this is just the beginning as we continue to accelerate capital formation, collaborate on new business development opportunities and leverage our proprietary data capabilities across the broader platform. Finally, I would also like to remind you that our differentiated investment strategies are focused on the middle and lower middle markets where we see considerable advantages. We believe this space presents far more opportunities than the larger sponsor segment with lower valuations, less competition for assets and more disciplined use of leverage. When you combine these dynamics with our team, culture, and data advantage, we think it uniquely positions us to generate strong returns for clients as we grow our franchise. I'll now turn it to Arjay to provide an update on Stellus .

Thank you, Luke. In February, we announced our agreement to acquire Stellus Capital Management, a leading direct lending business that provides senior secured loans to lower middle market sponsor-backed companies in the U.S.

On our fourth quarter earnings call, we discussed Stellus' exceptional history, its 20-plus year track record and its complementary fit with our other strategies, given its focus on the lower middle market. Stellus represents a fantastic fit for our entry into the direct lending space, and we are excited to build with them as a Ridgepost Capital strategy. To expand on Luke's commentary, I'll provide additional context on Stellus' financial profile and the expected financial impact of the transaction.

As of December 31, 2025, Stellus had $3.8 billion in assets under management and $2.6 billion in fee-paying AUM. From a fee rate perspective, Stellus' weighted average management fee rate was approximately 120 basis points of average fee-paying AUM in 2025. So had Stellus been a part of Ridgepost Capital for all of 2025, our core fee rate would have increased from 104 to 105 basis points. We noted in February that the announcement valuation of $250 million of upfront consideration represented approximately 12x Stellus' 2025 estimated FRE. In addition, as Stellus' FRE margin is in the mid- to high 50s, we would expect modest accretion in our FRE margin.

From an earnings impact perspective, I would note that we anticipate approximately $2 million in annual tax savings as a result of the additional amortization from goodwill and intangibles from the $125 million in cash consideration, which Amanda will cover in greater detail shortly. As you'll recall, with respect to the stock consideration in the transaction, the number of units issued was fixed at signing with the units issued priced at $10.62. These metrics we provided will allow you to validate the impact guidance we provided at announcement, modestly accretive to ANI per share in the first full year post closing and modestly accretive to FRE margin, both relative to Street estimates at the time and with no synergies included.

Now I'd like to highlight some recent developments in Stellus' business. First, Stellus closed its fourth vintage private fund at approximately $775 million that will pay fees as deployed, inclusive of commingled fund commitments and SMAs, slightly ahead of the $750 million cover we had communicated in our initial announcement. Including the impact of Fund IV's final close, dry powder sits at approximately $450 million. This represents the sum of uncalled capital as well as related leverage for the private BDC, both additive to the fee base once the capital is deployed. As a reminder, Stellus' private BDC has approximately $400 million in gross assets or approximately 15% of fee-paying AUM. It was launched in 2021 with institutional seed investors who comprise approximately 75% of the capital. Quarterly redemptions averaged 1.0% in 2025 were 2.9% in the first quarter and just 3.0% in the second quarter. Redemption rates that stand in stark contrast to what we're seeing at the upper part of the market, and we think reflect Stellus' very strong investor support, its differentiated focus on the lower middle market and its disciplined approach to underwriting and strong historical credit performance. As we've previously discussed, we believe Stellus' unique focus on the lower middle market contributes to its strong credit portfolio with a lower leverage profile than is typical for the upper part of the market. This structurally lower leverage, coupled with Stellus' disciplined investment and underwriting process has driven a 1.1% annualized default rate and a 14 basis point annualized loss rate since inception through year-end 2025 across all loans. Stellus' lower middle market focus and portfolio granularity also help insulate it against some of the recent volatility and headlines surrounding SaaS and software. To reiterate, no single Stellus position represents more than 2% of the overall portfolio and its total exposure to SaaS and software is less than 8%. Importantly, this exposure is not to the large-scale software sector, but rather to companies better described as industry-specific tech-enabled solutions providers. These businesses leverage AI to enhance their services while maintaining proprietary data advantages. Another important point I want to make about the Stellus transaction is that their decision to combine with Ridgepost demonstrates that both our value proposition and our business model are resonating.

At our Investor Day, we outlined what we offer to potential new strategies and Stellus' choice reinforces that vision. Stellus brings a robust brand and excellent market reputation and had other alternatives as its team considered its strategic options and next steps for the business. They chose to join Ridgepost based on our shared vision and focus on the lower middle market, their ability to retain investment autonomy and day-to-day operational control and the opportunity to enhance both their loan origination funnel and our combined fundraising capabilities. Equally important, we each identified a strong cultural alignment between our teams. In terms of timing, we continue to be on track for a midyear 2026 closing of the transaction. With that, I will turn it over to Amanda.

Thanks, Arjay. I'll now cover our financial results in greater detail. As Luke mentioned, we had a strong start to 2026 in the first quarter, crossing $30 billion in fee-paying AUM for the first time and hitting a quarterly record of approximately $2 billion in fundraising and deployment. We also continue to deliver strong operating results with core fee rate and FRE margin in line with the guidance we provided on our last earnings call.

I'll start by giving a bit more detail on fundraising in the quarter. As Luke discussed, our record fundraising in Q1 was driven by a number of elements coming together at once, most clearly at our venture capital strategy, TrueBridge, which accounted for approximately $1 billion of the fundraising and deployment level this quarter. This was the result of multiple funds being in the market concurrently with that $1 billion driven by both the latest vintage of the flagship fund, the second vintage of the venture secondaries fund and incremental fee-paying AUM from two large strategic SMAs. Additionally, we raised approximately $872 million across our private equity strategies, largely driven by the activation of fees for the next vintage of our GP stakes flagship fund at Bonaccord. This record fundraising quarter brought our fee-paying AUM at the end of the quarter to approximately $31 billion, an almost 18% increase on a year-over-year basis. The average core fee rate, excluding direct and secondary catch-up fees was 97 basis points in the first quarter and 103 basis points on an LTM basis. As a reminder, we anticipate the core fee rate to expand in the second half of the year due to the seasonality of our tax credit business. We continue to anticipate 103 basis points in core fee rate for the full year 2026, excluding the impact of Stellus acquisition. Our total fee-related revenue of approximately $75 million in the quarter represented approximately 11% growth from a year ago. Our FRE margin in the quarter was approximately 44% and consistent with the guidance we provided last quarter. As a reminder, FRE margins are expected to grow throughout 2026 as we begin to see additional operating leverage for an overall mid-40s margin for 2026 and continual margin expansion from mid-40s to near 50% over the next few years, excluding the impact from acquisitions.

Moving down the income statement. Our Q1 cash tax rate was 2.5%. Our cash tax rate will be higher in Q2, resulting from two cash tax payments being made in the quarter as has been our historical practice. As we discussed in 2025, we continue to expect to fully utilize the NOL and become a federal taxpayer in 2026. In addition, as Arjay mentioned, we anticipate $2 million in annual tax savings resulting from the $125 million in upfront cash consideration for Stellus. As a reminder, the equity consideration of the deal is in the form of about 11.8 million units that represented $125 million in value at the time of the deal signing. The equity consideration will be additive to our tax shield when the units are converted into common shares of Ridgepost Capital, Inc. We are also pleased to announce that our Board of Directors has approved an increase in the quarterly cash dividend with a cash dividend this quarter of $0.04 per share payable on June 18, 2026, to shareholders of record as of the close of business on May 29, 2026. Additionally, we repurchased 701,000 shares in the quarter at an average price of $8.55 for a total repurchase of $6 million, leaving $15 million available on our share repurchase program. Following the closing of Stellus, we anticipate allocating capital to a combination of debt paydown and share repurchase. I'll now turn it back to Luke for a few closing comments before we open it up to Q&A.

Thanks, Amanda. Before I open it up to questions, I wanted to summarize some key takeaways from today's call. First, Ridgepost has built a differentiated private markets platform with a unique focus on the middle and lower middle markets and a diverse and extremely durable LP investor base.

Second, our middle and lower middle market focus results in a meaningful opportunity set that has insulated us from many of the market dynamics that have owned the headlines thus far in 2026. The middle and lower middle markets have more than 5x the number of GPs compared to the upper segment of the market, and more than 10x the number of companies. This represents immense opportunity for our platform as both these sponsors and LP investors, generally, are looking for strategic solutions that our platform can provide across private equity and private credit.

Finally, we've established Ridgepost as a destination of choice for like-minded investment firms that are seeking to grow their franchises while also continuing to drive investment decisions as evidenced by our Stellus acquisition, as Arjay discussed. To close, I wanted to spend a minute on capital allocation and state strongly that while we continue conversations in the market regarding potential new strategies, in line with the proactive M&A effort Arjay and I have talked about since joining, Ridgepost will not be issuing our stock at recent levels in new M&A transactions. Simply put, our recent trading levels are not reflective of the progress we've made on the business since I took over. What we are focused on is building our platform, driving returns for our LP investors and seeking additional ways to provide our client base more investment opportunities across our strategies.

As I mentioned, we think the franchise is working on both our organic and inorganic initiatives, and we look forward to the opportunities in front of us as we continue to execute on our strategy. Thank you for your time today. I'll now pass the call over to the operator to begin the Q&A session.

[Operator Instructions]

Our first question comes from the line of Kenneth Worthington of JPMorgan.

This is Alex Bernstein on for Ken. You spoke about some of the differences in your business, the exposures. It sounds like as we expected, you avoided some of the evergreen issues, also not really exposed to software. Another theme we've seen this quarter from some of your larger cap GP peers has been softer performance in private equity to start the year and as of late in general. I wanted to check on how performance is holding up for you and if there's also a potential differentiation there.

Well, thank you. It's a great question, and it actually is reflective of what we're seeing. And I don't want to speak on our peers. I will just speak on our own experience and what we're seeing in the business. But when you look across our private equity strategies, our performance continues to be incredibly strong and incredibly resilient. I'd point to a number of factors for that. Factor one, as we talked about, is the fact that we play in the part of the market, the middle and lower middle market. And that part of the market has continued to see a robust opportunity set, and we've been able to deploy against that opportunity set. And it is both differentiated and protected for all the reasons we talked about. It's a broader opportunity set than the upper part of the market. It is less intermediated. We have the ability to be more selective. We're generally buying these businesses not from -- in a primary -- in a secondary or tertiary transaction, sorry, but in a primary transaction from a founder owner. And as a result, we have the opportunity to drive meaningful value creation in that portfolio. We're buying them at lower levels of kind of overall purchase price, and we're using less leverage in the transactions. And all of those things accrete to our benefit and the benefit of the GP sponsors that we're backing to do that. The second thing I would point to that I think is truly differentiating is when you look at kind of the disposition and makeup of our private equity business. I think for many of the folks you're referring to, they're really investing in what I would call a direct private equity business. And as a result, they're obviously seeing a tremendous sort of some volatility that goes with that. Remember, we are selecting best-of-breed managers that we're investing behind. And so I think our opportunity to be more selective and targeted is differentiated. And the second thing is when you look at the disposition of our portfolio, the direct investments we're making are in places like co-investments, like secondaries. And that, I think, provides some real insulation and protection given the skew of our portfolio in private equity relative to some others. And then obviously, we have a great GP stakes business focused in the middle and lower middle market. And the opportunity in that space, I would say, is very attractive and emerging quickly. And so we really like our portfolio. And when you look at the performance results and you can see them, they're in -- we proudly publish them every quarter. The performance continues to be very resilient and very strong, and we're very opportunistic in the environment that we see and continue to see on the forward. So that's what I would say on your question, Alex.

Thank you. I would now like to turn the call over to Luke Sarsfield for closing remarks. Sir?

Well, thank you so much. Thank you for the thoughtful questions and for your continued support. We look very much forward to updating you on our second quarter results in August. Thanks for joining us, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Hello, and welcome to Ridgepost Capital's Fourth Quarter and Full Year 2025 Conference Call. My name is Kevin, and I'll be coordinating your call today. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now pass the call over to your host, Mark Hood, EVP and Chief Administrative Officer. Mark, please go ahead.

Thank you, operator, and thank you all for joining us. On today's call, we'll be joined by Luke Sarsfield, Chairman and Chief Executive Officer; and Amanda Coussens, EVP and Chief Financial Officer. After our prepared remarks, Arjay Jensen, EVP, Head of Strategy and M&A; and Sarita Jairath, EVP, Global Head of Client Solutions, will join us for our Q&A session. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995.

Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by the forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC. I will now turn the call over to Luke.

Thank you, Mark. Good morning, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call, which also marks our inaugural call as Ridgepost Capital. Our name and brand usher in an exciting new chapter for our company. The Ridgepost Capital name and branding represent the work we've done to expand our platform, more fully integrate our strategies and reinforce our enduring commitment to delivering durable alpha for clients. Before I discuss our financial results, I'd like to provide some background on our new company identity, which aims to capture our growth trajectory as a cohesive integrated enterprise.

Over the past 2 years, our broad leadership team has embarked on a significant strategic transformation that continues to drive meaningful improvements across our platform. During this time, we doubled down on our strengths and further evolved into a world-class firm with more than $43 billion in assets under management. Over the past 2 years, our fee-paying assets under management have increased by 27%. Importantly, our robust growth is not attributable to a single asset class. Rather, it reflects a cohesive synergy across our private equity, private credit and venture capital strategies, resulting in robust and consistent year-over-year expansion.

As we've executed on the strategic growth initiatives outlined at our 2024 Investor Day, we felt it appropriate and timely to adopt a new name that better informs who we are today and where we are headed in the future. For your awareness, a Ridgepost is a marker on higher ground, symbolizing stability, perspective and protection. From this vantage point, Ridgepost Capital sees opportunities that others miss, reflecting our distinct positioning at the nexus of the middle and lower middle market, an underserved segment that presents abundant opportunities and secular tailwinds.

For our employees, the new identity reflects the progress we've made integrating our strategies into one collaborative platform with a shared purpose and direction. For limited partners, it reinforces our commitment to always putting clients at the center of everything we do while delivering consistent access to differentiated strategies across a scaled global network. And for our general partners, Ridgepost Capital offers a world-class complementary partnership with a robust set of capabilities across the capital stack.

Next, I would like to discuss the Stellus acquisition we announced last week. Stellus is a leading direct lending platform, providing senior secured loans to sponsor-backed lower middle market companies in the United States. They have approximately $3.8 billion in assets under management, including $2.6 billion in fee-paying assets under management. You've heard us talk about our organic growth strategy and where we are focused. We've discussed wanting to do transactions that extend our capabilities where there is a shared culture and vision and that are value additive from a shareholder perspective. In terms of asset classes, you've heard us talk about our goal of adding broader direct lending capabilities and particular interest in places where we think we can help drive transaction sourcing given our middle and lower middle market sponsor ecosystem across our platform.

We think this transaction hits all those areas and is a fantastic addition to our platform. The Stellus team has invested more than $10.3 billion of capital across more than 375 companies over its 20-plus year history. They have grown fee-paying AUM at a 17% CAGR since 2020 and have a proven track record of launching new vehicles. They started with a publicly traded BDC, Stellus Capital Investment Corporation and have subsequently launched multiple private funds as well as a private BDC. In materials available on our website, we show the very natural fit of Stellus' sponsor relationships with our other strategies.

In particular, the profile of RCP's sponsor relationships maps very well with Stellus'. The median last fund size of sponsor relationships at both is about $600 million. We think this has the potential to help open greater sourcing opportunities for Stellus. We've also talked about the significant benefits of the middle and lower middle market, in particular, how supply-demand imbalances help drive attractive risk-adjusted returns, and we see that in Stellus' profile, where their disciplined underwriting process combines with structurally lower financial leverage in the lower middle market to drive low historical default and loss rates.

From a financial profile perspective, we think the transaction is compelling for our shareholders with modest ANI per share and FRE margin accretion in the first year. Both measures do not consider revenue or cost synergies, including the potential sourcing opportunities I mentioned. We are truly thrilled to welcome Rob, Josh, Dean, Todd and their team to the Ridgepost family. They've built a fantastic business. We think they are a tremendous fit and that their addition to our platform will help grow our franchise in a strategic, culturally aligned and financially accretive way.

Now I want to turn to our 2025 financial performance and platform-wide accomplishments. In 2025, we continue to make meaningful progress across our strategic growth initiatives. Over the course of the year, we raised and deployed a record $5.1 billion in organic gross new fee-paying assets under management, finishing the year at $29.4 billion in fee-paying AUM. We exceeded our initial annual organic fundraising guidance by over $1 billion. For the full year 2025, fee-paying AUM increased by 15%, fee-related revenues, excluding direct and secondary catch-up fees, increased by 13% and FRE margins came in a bit better than expected at 47%.

This robust asset growth demonstrates strong demand for our primary, direct and secondary funds, of which we had 24 total in the market over the course of the year and around 20 in the market as of December 31, 2025. There is another important 2025 achievement I want to highlight. One of the topics we discussed at our Investor Day in September 2024 was the ability to leverage our cross-marketing capabilities across our global client base. Since then, we've made meaningful progress expanding our data integration capabilities across the strategies, augmenting our cross-selling efforts. We saw existing clients invest incrementally across Ridgepost Capital into other strategies at an accelerating pace and over 10% of our capital raised since Investor Day were successful cross-sales.

As we continue to hire high-quality fundraising professionals and strengthen the Global Client Solutions team, we are confident in our ability to broaden our reach across all strategies and deepen our client relationships to attract even more capital from existing LPs. Further, we believe the key to continuing this consistent growth is strong fund performance, coupled with ongoing product innovation across geographies and asset classes. Ridgepost expanded its product set in 2025 to better meet investor demand for increased exposure to private markets while preserving transparency, alignment and downside protection.

To that end, we created our first evergreen product, landed a significant SMA and launched our first fund that is directed exclusively at European investors who want to invest in the North American middle and lower middle market. Also noteworthy in 2025 was the completion of the acquisition of Qualitas Funds this past April. Qualitas Funds is a Madrid-based private equity fund of funds manager and its addition to Ridgepost Capital established our presence outside the U.S., which we have since augmented with the opening of our new Dubai office. As we continue to expand globally, we will look to partner with exceptional firms like Qualitas Funds to give us structural advantages in key markets.

In addition to our financial and operational successes, we have made meaningful enhancements to our governance profile and broaden the reach of our brand. In April, we appointed 2 new independent directors to our Board. Stephen Blewitt, an accomplished private markets investment professional, joined the Compensation Committee; and Jennifer Glassman, a private market seasoned professional in CPA, is now our Audit Committee Chair. Further, in August, we announced our dual listing on the NYSE Texas as one of the exchange's founding members. Finally, we continued our commitment to returning capital to shareholders in 2025. Since the beginning of 2024, we repurchased nearly 11 million shares at a weighted average price of $9.69, representing over $105 million in aggregate.

Looking ahead, the future for Ridgepost Capital is very bright. During our Investor Day presentation in September 2024, we said that we intended to more than double fee-paying AUM to $50 billion by the end of 2029, with the vast majority coming from organic growth. We are committed to executing on value-creating M&A, and we guided organic FRE margins, excluding M&A, to the mid-40s in the near to intermediate term to closer to 50% in the out years. It is clear to us as we report 2025 results that we are well on our way to meeting or exceeding our long-term guidance. With respect to fundraising, specifically over calendar years 2026 and 2027, we expect to organically raise and deploy at least $10 billion of gross fee-paying assets under management.

This target is consistent with the fundraising profile we have established since my appointment as CEO with capital formation expected to be distributed roughly evenly across both years. Importantly, this target excludes the positive impact of Stellus and other potential acquisitions. In a moment, Amanda will provide additional detail around our financial guidance. In closing, we're off to a fast start in 2026. We've successfully executed on our rebrand, announced the strategic acquisition of Stellus and opened our new office in Dubai, strengthening our presence in the Middle East. Another noteworthy announcement is our new collaboration with CAIS, a leading alternative investment platform for independent financial advisers.

As a result, Bonaccord, our GP stake strategy, will join the CAIS platform, which serves over 2,000 wealth management firms and 62,000 financial advisers. This collaboration comes amid surging demand for alternative investments among financial advisers. A recent CAIS Mercer survey revealed that 9 in 10 financial advisers are currently allocating to alternatives and 88% of advisers plan to increase their allocations to alternatives over the next 2 years. Our CAIS relationship represents an important step in expanding Bonaccord's footprint across the wealth management ecosystem. Together, these milestones reflect a firm that is scaling with intention and positioning itself for durable long-term growth. And we're doing this in what we believe is the best part of the market, the middle and lower middle market.

We think of ourselves as the growth engine for America's small businesses, and we're proud of the positive impact we are having on our nation's economic growth. We believe this momentum, combined with our differentiated focus and expanding global footprint, positions Ridgepost Capital well for the year ahead. With that, I'll turn the call over to Amanda to provide a deeper look at our financial results and guidance for the year ahead.

Thank you, Luke. At the end of the quarter, fee-paying assets under management were $29.4 billion, a 15% increase on a year-over-year basis. In the fourth quarter, $841 million in organic fundraising and capital deployment was offset by $535 million in step-downs and expirations. As Luke mentioned, we expect strong fundraising from 2025 to carry into 2026 and 2027 as we are targeting $10 billion of gross organic fundraising and deployment over the next 2 years, excluding impact from acquisitions. In 2026, we have multiple funds in the market from each of our 3 core verticals: private equity, private credit and venture capital.

Step-downs and expirations for 2025 exceeded our initial expectation of 5% to 7%. As discussed in our third quarter earnings call, the increase is primarily attributable to 2 factors. First, there were early paydowns in our credit business, which reflects the high-quality nature of our loan portfolio and underwriting. A portion of the credit step-downs consists of recyclable capital, which is actively being redeployed. Next, a large separately managed account expired in 2025, which was replaced by a larger commitment from the same LP in 2025. Although these 2 factors increased our step-downs and expirations for the year, they reflect the strength of our portfolios and demonstrate long-lasting relationships with valuable clients.

Looking forward to 2026, we expect step-downs and expirations in the midrange of 5% to 7% for the full year. AUM, which includes NAV, uncalled capital commitments and capital committed since the NAV record date was over $43 billion across the platform as of December 31, 2025. We continue to view fee-paying AUM as the best proxy for Ridgepost's current economics, but believe AUM helps illustrate the breadth and scale of our multi-asset class platform. FRR in the fourth quarter was $81 million. When excluding the effect of direct and secondary catch-up fees, FRR increased 20% from the fourth quarter of 2024. For 2025, FRR was $297.3 million. When excluding the effect of direct and secondary catch-up fees, given the outsized catch-up fees in 2024, primarily attributable to Bonaccord II's final close, FRR increased 13% from 2024.

The strong growth of our core business highlights the durable nature of our attractive revenue model. The average core fee rate was 109 basis points in the fourth quarter and 104 basis points for 2025. We anticipate the core fee rate to average 103 basis points for 2026. The core fee rate is expected to be lower than 103 basis points in the first half of 2026 and expand in the back half, in line with our historical fee rate dynamic. The core fee rate expands in the back half of the year due to the seasonality of our tax credit business. In addition to revenue from our core fee rate, we expect to earn direct and secondary catch-up fee revenue in the range of $6 million to $8 million during 2026, with the majority of these catch-up fees in the back half of the year as our large direct and secondary products close on additional capital.

In the fourth quarter, we had about 20 commingled funds in the market. Our private equity strategies raised and deployed $325 million. Our venture capital solution raised and deployed $178 million and our private credit strategies added $338 million to fee-paying assets under management. Throughout 2026, we expect to have about 20 funds in the market as well. We will continue to pursue attractive SMA relationships and expect to develop new products in addition to our commingled funds. Operating expenses in the fourth quarter were $55.2 million, a decrease compared to $62.2 million for the prior year's fourth quarter and in 2025 were $231.8 million, a decrease compared to $235.8 million for 2024. Operating expenses decreased in 2025 as we had certain adjustments related to prior acquisitions that included a reversal of a reserve within compensation costs.

GAAP net income in the fourth quarter was $11 million, an increase compared to $5.7 million for the prior year's fourth quarter and in 2025 was $23 million, an increase compared to $19.7 million for 2024. For the fourth quarter, adjusted net income, or ANI, was $30.2 million, representing a decrease of 14% from the fourth quarter of 2024. For the quarter, fully diluted ANI per share was $0.26 compared to $0.30 in the prior year. The decrease in ANI is a result of historically high catch-up fee revenue of $19 million in the fourth quarter of 2024. FRE was $39 million in the fourth quarter, a decrease of 9% year-over-year.

In the fourth quarter, FRE margin was 48%. For 2026, we anticipate FRE margins in the mid-40s for the year, but may be slightly lower than mid-40s during the first quarter of the year due to the additional investments made across our platform in 2025 and early 2026, primarily in fundraising. FRE margins are expected to grow throughout 2026 as we begin to see additional operating leverage for an overall mid-40s margin for 2026 and continual margin expansion from mid-40s to 50% over the next few years. Our Board of Directors approved a quarterly cash dividend of $0.0375 per share payable on March 20, 2026, to stockholders of record as of the close of business on February 27, 2026.

Cash and cash equivalents at the end of the fourth quarter were approximately $28 million. At the end of the quarter, we had an outstanding debt balance of $377 million, $321 million on the term loan and $56 million drawn on the revolver. Our strong balance sheet, free cash flow and ability to draw on the revolver position us to complete the latest acquisition and prepare ourselves for additional inorganic growth. Thank you for your time today. I'll now pass the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question comes from Ken Worthington with JPMorgan.

The topic du jour for private markets managers is AI. Can you talk about, given your venture exposure and direct lending exposure, what your exposures are? And ultimately, what are your thoughts on the AI risk to private markets managers?

Well, thanks, Ken. It's Luke here. And you're right, that certainly does seem to be the topic du jour. I'll say a few things about it. The first is, and I'll separate our portfolio in a couple of ways. The first is, obviously, you mentioned the venture portfolio where we have across venture equity and venture debt. And in that part of the portfolio, we're actually leaning in and actively investing into AI and other economic trends that we think are going to be net long-term positives for the economy, for the global economy and ultimately for our investors. And so it won't surprise you to hear that we have a meaningful exposure through our venture portfolio to AI. But the reality is that design. And I will tell you, those investments have and continue to go exceedingly well as we invest in the future economic drivers.

When you look at what I would call the more regular way parts of our portfolio that are not consciously designed to be oriented in a specific way, we have, I would say, relatively modest exposure across our portfolio to SaaS and software and other places that there have been concerns that will be disintermediated by AI. I would say across our portfolio, generally, we have less than 10% exposure to SaaS and software. We disclosed, I think, as part of the Stellus acquisition that Stellus' exposure was less than 8%, just to put it in context. And the other thing I would just hasten to add is when you think about the SaaS and software exposure we have, these are not the large cap names that you've been kind of reading about or have been kind of promulgated in the popular press.

Ours are really business enablement focused on advancing what I would call traditional industrial and industrial-like businesses in the middle and lower middle market. And so I think we're very comfortable with that. The last thing I would say is we engage regularly in a rigorous review of all of our portfolio, our credit portfolio, our equity portfolio, our venture portfolio, and we feel exceedingly good about how we're positioned right now, Ken.

Okay. Great. And then maybe secondly, I wanted to ask about the private markets wealth strategy build-out. When you and I spoke, I don't know, I want to say, 18 to 24 months ago, it seemed like private markets was not the priority for you and you had focuses other places. And yet you have an enhanced product. Bonaccord is now working with CAIS. So maybe talk about wealth and the priorities that you're seeing there? And to what extent can the Bonaccord CAIS relationship be expanded to other Ridgepost managers over time?

Again, great question. I'd say a few things. I would say, at the core, maybe I misspoke when I said we weren't focused on private wealth. Recall that something like 36% of our clients are actually private wealth clients in some incarnation, whether ultra-high net worth individuals or otherwise, groupings of ultra-high net worth individuals. What I think I said was we're probably not going to pursue a real aggressive feet-on-the-street approach to the private wealth channel as some of our competitors have into places like the big wires in a comprehensive way, into places like the IBDs in a comprehensive way. But certainly, when we see opportunities, given our product mix, given our portfolio and given our historical client orientation, we're going to take advantage of that and try to maximize that distribution and maximize our throw rate in the channels. And so you're right, we're looking at all features of our product design.

As you mentioned, we did launch the Evergreen product. We think that Evergreen product, by the way, is going to have appeal both in private wealth channels, but also in institutional channels. But we will certainly look at more alternatives around creative and innovative product design where we think there's going to be commercial uptake for it. And then I do think, to your point, one of the ways that we will probably manifest our interest and desire to grow that private wealth channel is through some sort of partnership or collaboration. And so CAIS, I think, is a great example of a collaboration with a platform that has a lot of relationships across private wealth and particularly those advisers in the private wealth channel who are more aggressively allocating to alternatives as a general matter.

And so I think that's a great example of something we would do. I think over time, we would like to do more of it. We think there are other parts of our product offering that we think will have a lot of throw weight and a lot of appeal and appetite for private wealth for both the advisers and for the end clients. And so we'll want to do more of that. And then there -- as well, there are other potential partners or collaborators we think that can help us kind of accelerate and facilitate that entrance into it. And so what I think I would say is, as we approach it, we're unlikely to build a broad-based Ridgepost Capital distribution team solely focused on the wealth channel. That's probably beyond our ken right now. But we want to get access to that wealth channel. We're probably just going to do it in more creative ways and with partners along the way.

Our next question comes from Chris Kotowski with Oppenheimer.

I wonder if we could talk -- give a bit more color on Stellus as we see like $1.4 billion in BDC money. And I assume that the Part 1 incentive fees will be in the base management fees and that should take your blended average fee rate higher. So let me start with that. What would their blended average fee rate be?

So I think what we'd like to do, Chris, if it's okay, we gave some very high-level guidance as it relates to the Stellus acquisition. We talked about that it will be modestly accretive, both to margin and to ANI EPS per share in the first full year. We've obviously done and engaged with them on a very robust and detailed modeling exercise. But I think what we're going to do right now is we're going to hold giving greater guidance on Stellus until we get closer to the closing of the acquisition. There is a closing time line that we have to abide to in terms of obviously getting the Boards, the BDC boards to recommend the transaction and then having a shareholder vote. And so we will come back, trust me, I promise, we will come back with -- as we get close to close, much more robust guidance around how Stellus will impact every part of the P&L from the fee rate on down, but we're going to do that when we get a little closer to closing.

Okay. So that's fine and fair. And then I was just wondering, is there -- in the -- on Page 19, we see a private BDC. Is that kind of -- can you -- if you can say, how is that distributed? And what is their reach into retail distribution? And does that help?

So I'm going to turn it over to Arjay, who is going to talk just very briefly around this. Again, I think at a high level, we will dive into Stellus in a much more detailed way as we get a little closer to closing, but we'll give you a couple of high-level thoughts. So Arjay, over to you.

Yes. So the private BDC does focus on the RIA channel. They've got a distribution team working on that, growing that business. It was started with really 5 seed investors, and that's been the foundation, but they've continued to grow it as a -- with a focus on the RIA channel.

Our next question comes from Michael Cyprys with Morgan Stanley.

Just wanted to ask about Stellus. I was hoping you could elaborate a bit on their sourcing funnel and origination edge. And while on the topic of Stellus, maybe you could also elaborate on some of the steps you're going to be looking to take to accelerate their growth? And what's the scope for this to maybe be a faster-growing part of the P10 family versus the rest?

So great question. And I think this is something that we are laser-focused on. We think there is already an amazing fit between what they do and the sponsor ecosystem they get after between the sponsor ecosystem that we have the ability to access. And we think together, collectively, we can do even more together. So just a reminder, right, they are primarily focused in a middle and lower middle market GP sponsor ecosystem. Most of their sourcing comes through that channel, obviously, very focused on high-quality first lien type credits, but direct lending across that sponsor ecosystem. And they have built, I would say, a very highly functioning sourcing engine with many of the top quality GPs across the U.S. middle and lower middle market. So they start from a real position of strength.

Now I think what we bring to it is the broad-based sponsor ecosystem that we're touching across a number of our strategies, obviously, primarily RCP, given the history, given the track record, given the lineage, but also in many other parts of the ecosystem like Harc, like Five Points, like Bonaccord and then potentially over time internationally, like Qualitas, we think we have the ability to really increase that sourcing funnel in a meaningful way. We've talked about, and I mentioned on the call, the overlap between the types and the sizes of GPs and funds that RCP has historically and continues to target and how that interlaces very nicely with the areas of focus for the Stellus framework.

And so we think one of the things that we can do and we can do reasonably quickly by leveraging the overall Ridgepost Capital presence in that middle and lower middle market sponsor ecosystem is to really, a, get the word out that this is now important and relevant to us. Recall, it wasn't in the past in the same way because we didn't have a broad-based direct lending strategy where we could actually put the investments. Now we do or now we will, I should say. And so the opportunity to do that, I think we can amplify in a very meaningful way. And so we're doing -- we're going to be doing over the next 4 months. And then obviously, once we close the deal and otherwise, a lot of work as we think about how we really drive that, how we create great outcomes, how we leverage our throwaway, our presence, our positioning in that ecosystem to really accelerate that selling and that sourcing at Stellus -- sorry, that's a tongue twister.

And I think putting that together, we do believe that together, we can do more than either one of us could do apart. We haven't modeled that in. We haven't factored that in, in any of the financial analysis we talked to you about, but it's our hope and our expectation that we can execute on that together.

Great. And then just a follow-up question more broadly on capital management. I was hoping you could elaborate a bit how you're thinking about that here in terms of allocating between buybacks, debt paydown, maybe post close and then more broadly on M&A. Just curious how you're thinking about the business today. Any gaps remaining? You've done a whole host of deals over the last number of years. How you're thinking about filling in anything at this point?

I'll turn it to Amanda to take the first part on capital allocation, and then Michael, I'll come back and take the second part on the M&A opportunity set.

Thank you, Michael, for the question. So although we do intend to buy back stock to offset dilution from new issuances, we are also mindful of our debt leverage ratios and really intend to pay down debt after we close on the Stellus acquisition.

And then as it relates to kind of the M&A landscape, I would say at a strategic level, obviously, we view this as a real advancement in terms of what we've done on the portfolio and in the platform. But I would say that the guidepost that we laid out at Investor Day are really unchanged in terms of our areas of strategic focus. So just to go back to those, we talked about, number one, international analogs of U.S. strategies. We think the dynamics in the international lower middle and middle market are very similar to the ones here in the U.S. middle market in terms of why it's such an attractive place to be.

Obviously, Qualitas was a very specific manifestation of that. But if you look across all of our strategies, we think international analog still represents a real opportunity for us, and we'll continue to build in a global fashion where we can. The second thing we did talk about is private credit. And when we talked about private credit, we identified a number of important potential focus areas for us. Direct lending was obviously at the very top of that list. But there are a lot of other really interesting and attractive areas within the private credit landscape.

I would say asset-based lending is one I would particularly point to as something we think that might be very relevant for our portfolio. And so again, if we could find the right partner for that, that would be very interesting to us. And then the third thing we've talked about and did talk about at Investor Day, which would really be the pure white space is something in the real assets ecosystem, whether that's something in the infrastructure world, something in the real estate world, either from an equity or a debt perspective, we have really nothing there, and we do get a lot of client inquiry around those spaces. And so that road map that we laid out at Investor Day is really unchanged, and we continue to, I would say, focus and execute in earnest against that opportunity set. And the good news is I think there's a lot of great franchises out there, and I think that our value proposition is really starting to resonate.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Luke for any further remarks.

Well, I'd just like to close by thanking everybody for the thoughtful questions and for your continued support. We're extremely pleased with the progress we've made to date. We're confident in the durability of our platform, and we're excited at the prospect of uniting under our new Ridgepost Capital name and brand, while we remain laser-focused on executing our strategy as we enter the next phase of our growth. We look forward to updating you on our first quarter results in May, and we thank you for joining us today.

Thank you. Ladies and gentlemen, we thank you for your participation in today's call. This does conclude the presentation. You may now disconnect, and have a wonderful day.

Hello, and welcome to the P10 Third Quarter 2025 Conference Call. My name is Latif, and I will be coordinating your call today. [Operator Instructions] As a reminder, today's conference call is being recorded.

I will now pass the call to your host, Mark Hood, EVP and Chief Administrative Officer. Mark, please go ahead.

Thank you, operator, and thank you all for joining us. On today's call, we will be joined by Luke Sarsfield, Chairman and Chief Executive Officer; and Amanda Coussens, EVP and Chief Financial Officer. Sarita Jairath, EVP and Global Head of Client Solutions; and Arjay Jensen, EVP, Head of Strategy and M&A, are also in the room with us today.

Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995.

Forward-looking statements reflect management's current plans, estimates, and expectations, and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by the forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC.

The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law.

During the call, we will also discuss certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC.

I will now turn the call over to Luke.

Thank you, Mark. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. Our third quarter demonstrates the strength of our diversified platform and the attractive fundamentals of the market segments that are core to our differentiated investment strategies, namely the middle and lower-middle markets.

Before discussing our quarterly financial results, I want to share a few observations around recent headlines regarding private credit and concerns some have raised about the credit market in general. As it relates to P10, private credit represents less than 20% of our fee-paying AUM today. We view this as an asset class with a meaningful opportunity set where disciplined managers can consistently deliver strong, stable performance, and attractive risk-adjusted returns. We have stated on previous calls that private credit is an area we would like to further expand.

Having said that, in our existing private credit franchise, we continue to see a strong and robust opportunity set in the middle and lower-middle markets, and we are not seeing deterioration in our credit portfolios. Our underlying business remains incredibly strong. We have a time-tested and rigorous underwriting process, and our investment returns reflect this approach.

Now, on to our third quarter results. We raised and deployed $915 million in organic gross new fee-paying assets under management. Investors may recall that we previously mentioned that in the second quarter, we pulled forward approximately $300 million in fundraising from the third quarter. Were it not for these accelerated capital commitments, we would have delivered a third consecutive $1 billion gross fundraising quarter. The fundraising and deployment environment continues to be resilient with compelling opportunities across our diverse franchise.

Our expanding business continues to benefit from secular tailwinds in private markets, supporting global demand for difficult-to-access investment opportunities. We believe the market is moving in our direction as clients seek better returns and more exposure to the middle and lower-middle markets. Our distinct business model is a strong foundation upon which to fuel our organic and inorganic growth aspirations.

We ended the third quarter with $29.1 billion of total fee-paying assets under management, an increase of 17% year-over-year. The momentum in our business is especially noteworthy when comparing fundraising and deployment in the first 3 quarters of 2025 to the same period in 2024. In the first 3 quarters of 2025, we raised and deployed $4.3 billion of organic fee-paying assets under management, an increase of 48% when compared to the capital raised in the same period of 2024. Other KPIs demonstrate progress over the same 9-month period. Our fee-related revenue, or FRR, has grown 5% year-to-date. And additionally, our FRR is up 11% year-to-date when excluding direct and secondary catch-up fees.

We've exceeded our annual organic gross fundraising guidance of $4 billion for 2025. Consequently, we are raising our full year 2025 organic gross fundraising target and expect to finish the year closer to $5 billion. And we are well on our way to achieving the long-term guidance we provided at our Investor Day in September of 2024. All of the materials from our Investor Day are prominently featured on our Investor Relations website, and we invite you to review those materials to get a better sense of how we are thinking about the opportunities in 2026 and beyond.

In the third quarter, we had a number of noteworthy accomplishments that support the ongoing momentum in our business. During the quarter, we had 17 commingled funds in the market. RCP's Secondary Fund V closed at $1.26 billion, exceeding our target of $1 billion. We've seen strong demand for our secondaries products, and this fund was no exception. We closed Secondary Fund V in 13 months.

The predecessor, Secondary Fund IV was $797 million and took 25 months to close. The takeaway is that our commingled fund business continues to thrive and has achieved significant momentum. In addition, we launched 4 funds in the quarter, Bonaccord Fund III, RCP Small and Emerging Manager Fund IV, RCP Multi-Strat III, and Qualitas Funds US I.

We continue to see LPs expanding their allocations across P10's franchise. We recently saw several wealth managers who were invested across our private credit and venture capital strategies commit to RCP's latest secondaries fund for the first time. Additionally, a large multifamily office that has invested in TrueBridge expanded its venture capital allocation by investing in WTI.

Finally, in August, we announced a dual listing on NYSE Texas. Being recognized as a founding member of NYSE Texas provides us with a larger platform upon which to engage with the investment community. The NYSE continues to be an important partner, and we are excited to expand our relationship.

Given our continued fundraising momentum, we want shareholders to understand the factors driving our long-term growth. First, we provide access to a specialized part of the market in the middle and lower-middle markets. This part of the market is difficult to navigate without a trusted partner. We offered a deep dive on the middle and lower-middle market opportunity in our second quarter earnings deck that demonstrates, through data, the structural advantages of our market focus compared to the larger, more crowded segments.

Second, our firm is comprised of renowned investment franchises that have delivered durable alpha over decades through good and bad market environments and economic cycles. Returns continue to be strong as indicated in the slides in our earnings deck. Franchise diversity means we can compete for global mandates and win business in a variety of structures. We expect to drive more non-commingled opportunities over time.

Third, we have a large growing LP base with a distinct selection of products and structures. We expect to have 19 funds in the market for the remainder of 2025. We are also continuing to engage with larger pools of global capital that want customized solutions.

Fourth, our M&A pipeline is active, and we continue to evaluate attractive situations. We are active in our conversations and diligence. We're going to remain disciplined and on strategy as we consider adding new strategies to the platform. These core components drive our optimism in the forward of our franchise.

Before I hand the call off to Amanda, I want to highlight that our share repurchases in the third quarter slowed as we have pulled forward capacity into the second quarter. During the third quarter, we repurchased approximately 110,000 shares at a weighted average price of $11.34 for a total repurchase of $1.25 million.

With that, Amanda will discuss the third quarter financials.

Thank you, Luke. At the end of the quarter, fee-paying assets under management were $29.1 billion, a 17% increase on a year-over-year basis. In the third quarter, $915 million of organic fundraising and capital deployment was offset by $673 million in step-downs and expirations.

We expect step-downs and expirations for full year 2025 to be slightly above our initial expectation of 5% to 7%. Increased step-downs were driven primarily by early paydowns in our credit business, demonstrating the quality of our loan portfolios and underwriting. In addition, a portion of the incremental step-downs consists of recyclable capital from our credit businesses that we expect to redeploy and continue charging fees in future periods.

Another component of the increased step-downs and expirations was a large separately managed account that we expected to expire in the first half of 2026, which instead expired during 2025 and was replaced with a larger commitment from the LP following the expiration. We continue to expect step-downs and expirations to return to our historical average of 5% to 7% during 2026.

FRR in the third quarter was $75.9 million, a 4% increase over the third quarter of 2024 and a 13% increase, excluding direct and secondary catch-up fees. The average core fee rate in the third quarter was 103 basis points due to strength throughout our product offerings. We continue to expect the core fee rate this year to average 103 basis points.

In the third quarter, we had 17 commingled funds in the market. Our private equity strategies raised and deployed $711 million, our venture capital solution raised and deployed $12 million, and our private credit strategies added $192 million to fee-paying assets under management. Fundraising in the third quarter was driven by robust demand for secondary products as well as LP demand for multi-strategy and co-investment products.

Total catch-up fees in the quarter were $370,000. The timing of fund closings drives catch-up fees. And in the third quarter, they were primarily attributable to our primary funds, which only impact our core fee rate. With many of our commingled funds early in their fundraising lives during 2025, we expect to see catch-up fees expand in 2026 and 2027.

Operating expenses in the third quarter were $65.2 million, remaining flat compared to the third quarter of last year. GAAP net income in the third quarter was $3 million, an increase compared to $1.3 million for the prior year's third quarter.

For the third quarter, adjusted net income, or ANI, was $28.6 million, representing a decrease of 7% from the third quarter of 2024. The reduction in ANI is primarily attributable to lower cash interest paid in the third quarter of 2024 compared to the third quarter of 2025, as a result of the debt refinancing in early August 2024, which moved cash interest paid into future quarters as well as additional borrowing costs associated with the recent Qualitas acquisition. For the quarter, fully diluted ANI per share was $0.24 compared to $0.26 in the prior year.

FRE was $36 million, an increase of 3% year-over-year. In addition, our FRE margin was 47% in the third quarter. We continue to exercise cost discipline throughout our business to maintain peer-leading FRE margins in the mid-40s.

Our Board of Directors approved a quarterly cash dividend of $0.0375 per share payable on December 19, 2025, to stockholders of record as of the close of business on November 28, 2025.

Cash and cash equivalents at the end of the third quarter were approximately $40 million. At the end of the quarter, we had an outstanding total debt balance of $398 million, $325 million on the term loan and $73 million drawn on the revolver.

Following the end of the third quarter, we paid $11 million down on the revolver. As of today, we have roughly $113 million available on our credit facilities. Our strong balance sheet and ample borrowing capacity position us to execute disciplined M&A with confidence.

Our AUM, which is calculated similarly to our peers and is the sum of NAV, drawn and undrawn debt, uncalled capital commitments and capital commitments made to the platform since the NAV record date. AUM was $42.5 billion across the platform as of September 30, 2025. We believe AUM shows the breadth and scale of our business as a leading multi-asset class private market solutions provider as we continue to execute on our growth plan.

Thank you for your time today. I'll now pass the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question comes from the line of Ken Worthington of JPMorgan.

This is Alex on for Ken. For the first one, I wanted to double-click on the SMA-driven step down. I understand you mentioned it came earlier in '25 rather than expected in '26, but that was also matched with a larger commitment from the same client. When talking about the commitment, does that already appear in the fee-paying AUM? Or is that capital that needs to be deployed? Or are there other considerations there?

Thanks, Alex. It's a good question. That does already appear in the fee-paying AUM. So we had a discussion with the client around the structure of our relationship. They added some -- they added a new mandate as part of an SMA, and that is included in the fee-paying AUM. And then as part of that, the -- one of the previously existing older mandates stepped down and stepped down just probably 6 months before we had initially expected it to.

And then for the next question, just about your point being more of a global solutions provider, understand Qualitas is helpful there, potentially win the incremental mandates. First part of that question, you mentioned they're launching a U.S. fund. Just want to understand if that's a fund for U.S. investors in their international products or what the deal is there? And then looking at channel mix, I'm seeing insurance company contributions to fee-paying AUM going up over the past handful of quarters. I wanted to check if that's just noise or variability, or if there may be a concerted effort that's flowing through the P&L of targeting the opportunity set as well.

So 2 great questions. So first, on the Qualitas U.S. Fund, it's actually kind of the opposite of how you described it. So effectively what it is, is a fund that will invest primarily in the U.S. and will be marketed primarily -- virtually exclusively, I would say, to European investors. And I think this is a great example actually of synergies across our platform of being able to do things kind of in a pan-strategy way. And here in particular, this involves Qualitas and RCP. So one of the things that happened -- many things happened, but one of the very positive things that happened when we announced the Qualitas RCP deal, and remember, they had -- sorry, the Qualitas P10 deal, and remember, Qualitas and RCP have been working together for a long time, Qualitas got a lot of inbound from many of their existing LPs saying, gosh, we would love to have equivalent lower-middle market and middle market exposure that you afford us in Europe into the U.S. but it needs to be in a wrapper that works from the perspective of retail and ultra-high net worth investors in Europe. And so getting it wrapped in the right format was incredibly important, but obviously, having the right investment mixology was incredibly important.

And so the beauty of this was it's really -- think of it as a joint venture product, though it's marketed as a Qualitas product, where Qualitas is really going to handle the structuring, the wrapping and obviously, primarily the distribution and the investor relations, and RCP is going to handle a lot of the portfolio mixology and the investing into the U.S., obviously, in close coordination and cooperation with Qualitas. And so it's a great example of the synergies that we talk about. So I'm actually really glad you asked the question. And I think we think there's a lot of other things like this we can do across the platform. But I think this is a great example of a synergy that we found, and I'm sure we'll continue to find many more as we continue to work and grow and execute together.

The second question you asked was on insurance and the growth of insurance assets. And I would say we are not focused exclusively on insurance, but we are focused generally on expanding, as we've talked about with Sarita and team and others. We are focused on expanding our footprint and deepening our relationships with large pools of capital and large pools of capital allocators. And clearly, insurance is one of those important pools. I wouldn't say it's exclusive to insurance. It includes pensions. It includes sovereign wealth funds and it includes large endowments and foundations. It will include retail platforms and other retail aggregators. But certainly, insurance is a big part of that.

And we have some funds in the market, I would say, that I think are particularly useful and appealing to insurance companies as they think about things like their return profile and kind of their broader capital allocation and obviously, doing things that are capital friendly from an NAIC perspective. And so I think we've been very lucky and very fortunate as part of this broader push to engage with larger pools of capital to have seen some real success and traction in the insurance channel. We don't think it will be unique and exclusive to the insurance channel, but it's certainly a focus of ours, Alex.

And great to see the cross-sell with Qualitas.

Our next question comes from the line of Michael Cyprys of Morgan Stanley.

I appreciate the commentary on the credit trends. I was hoping you could maybe elaborate a little bit on the steps you guys are taking to support accelerated growth across your credit platform, how you envision that contributing over the next couple of years? Which parts of the market do you view as most interesting for P10? And when you look at the capability set in the platform today, where is there scope to lean in via inorganic initiatives versus more organic builds?

Yes. These are all great questions. Thank you, Michael. Great questions, things we think about every day. So I'll take 3 parts of it. The first is just to underscore our relentless disciplined focus on making sure that we're always doing quality underwriting. And I will tell you, this is not some debt bed conversion we had in the last quarter because of the noise in the broader markets. This is something that we've done in a disciplined and diligent fashion since the very genesis of these platforms.

And obviously, we have had -- you look at the returns, we've seen great returns across the cycles, and that's because we really focus on risk-adjusted return. We do a lot of internal work. We also engage with third parties who assist us in evaluating and marking the portfolio. We consistently go back and re-underwrite. If there are loans that are not even necessarily problematic, but not performing to our expectation or our underwriting case, we are engaged for quarters, if not years, on sort of engaging with the underlying portfolio company and making sure that they're doing all the right things to enhance that credit quality. And so we feel really, really good about our robust disciplined underwriting process. This is not something that we've come to recently. This is something we've been engaged with since the very start of the platform.

I would then say, as it relates to our existing platform, we certainly see opportunities in many cases to grow the platform. And so I'll just give you kind of a few examples of things that we're really excited about. We continue to grow and expand our NAV lending franchise. That's through our Hark subsidiary. We've seen a lot of traction in that space. We obviously have a great, by the way, underwriting history in that space. But we've seen a lot of traction, a lot of uptake. It's clearly becoming a more broadly accepted and mainstream product. We're out marketing our next vintage of the core Hark product. And we just see a lot of engagement generally across NAV lending and what I would call NAV lending adjacent kind of strategies that I think are becoming just a more embedded part of the fund finance ecosystem these days. And so I think we have a lot of optimism around how that strategy plays out.

We also mentioned in Enhanced, which is our impact credit strategy, we're out with an evergreen product. And we see a lot of interest and sort of engagement around that. And I think we're really, really excited for what that looks like.

And then obviously, we have our WTI venture debt strategy that continues, I think, to deliver really attractive risk-adjusted returns in certain investor types, particularly those who are engaged in the venture ecosystem, but maybe want some structural protections really like that venture debt solution.

And then finally, obviously, within our Five Points franchise, we do a lot of SBIC lending, and that certainly has appealed to banks and others who are seeking CRA credit as part of their underwriting and investing mandate.

I would say more generally, and we've talked about this, we think there are ample opportunities within private credit. We've talked about areas like being much broader in direct lending. We've talked about areas like being much broader in asset-based lending. Clearly, there are other places like distressed and opportunistic credit.

One of the real benefits that we think we have in our platform, particularly if you took something like direct lending, and this kind of goes back to that discussion we just had around Qualitas and RCP, what are some of the potential synergies across our platform. One of the real powerful things in our ecosystem is our relationships with many of the middle market sponsors through RCP in the U.S., through Qualitas in Europe. We're generally one of the top LPs in some of the best world-beating middle and lower-middle market financial sponsors. And as those sponsors do deals, and particularly as they do buyouts and those buyouts generate credit opportunities, we think we would have a really unique and differentiated sourcing engine as it relates to those. Obviously, sourcing is both a challenge and an opportunity for many direct lenders. We really have the organic built-in sourcing engine already. And so if we could kind of marry that with the right team that had the right kind of underwriting, risk assessment, disposition, we think that, just as an example, could be a really compelling place to grow the platform.

And then just as a follow-up question, if I could, more bigger picture. When you look at the mid- and lower mid-market focused managers that you're investing capital with, what challenges do you see those GPs facing, whether it's larger GPs just garnering more share of flows or tougher exit route through IPOs for smaller companies or less ability to access private wealth? Just how do you see the sort of broader trends in that part of the market for those GPs? And how do you see the opportunity for P10 to lean in and provide a broader set of solutions to help and support these GPs?

Look, great, great, great question. And we think about this in so many ways, right? But the first is -- look, this is part of the broader -- this part of the market, the lower-middle market is part of the broader private asset ecosystem. And I would say no part of the broader asset ecosystem has been immune to the macro trends. What we did highlight, and I think, hopefully, you saw the slides in our second quarter earnings release, we would say we think we are in a relatively more protected and sheltered part of the market relative to some of the big trends in the upper part of the market. And so for all private equity firms engaged in buyout, whether at the upper part of the market or in the middle part of the market, DPI has been down, low these last few years. But it's been down meaningfully less in the lower-middle market than it's been down in the upper part of the market. And so we think there are some real structural advantages.

You also mentioned, by the way, the prospect of some of these exits and the prospect of exit via IPO. We think that's another structural advantage in our part of the market. Most of these companies, the vast lion's share of the companies that are in kind of our GPs portfolios don't end up going public, right? They end up getting sold in some sort of transaction, whether it's a trade sale to a strategic or whether it's a sale to, frankly, one of these larger financial sponsors or one of their larger platforms that they own within their portfolio. And so we think that while certainly a robust and vibrant capital market environment, IPO environment is good for everybody, and I suspect it would be good for us and for our GPs. We're kind of a little less sensitive to it than folks playing at the upper end of the market because they obviously had a much more meaningful part of their exit via IPO. And so we continue to like and value our part of the market.

Then you're asking what do we do for our GPs. And it's a really great question. And I think one of the advantages that we have in really getting folks to want to engage with us is the franchise, the history, the track record, the imprimatur, frankly, we give because of who we are. And a lot of that is informed by our data insights, right? And so when we work with our GPs, we can obviously give them through our GPScout, through our data solutions, tremendous insights around everything from macro trends in the market, trends in their space, trends in the geography they play in, and even kind of insights on specific deals, how have similar deals done historically, what are the things to watch out for, what has worked, what has not. And they often come to us in sort of an anonymized way and say, hey, we're looking at a deal that has XYZ parameters, can you help us think through this, what are the benefits, what are the detriments, what are the risks we ought to consider. And so you're not just getting capital from us. You're getting strategic advice. You're getting real insight.

And then I think one of the other advantages is given the RCP platform, given the kind of brand and stature that RCP has in the marketplace, and I think very similar with Qualitas in Europe, when somebody -- when other LPs or prospective LPs see an RCP, see a Qualitas in the cap stack, they know that these are high-quality managers, that these are folks that have demonstrated good performance metrics, and that these are people who have been diligenced by kind of the best in the business, so to speak, and we're really proud of that. And so those are kind of some of the things I think we're super helpful with in that part of the business.

I would also just highlight, and just to knit one other thought together, I think we're building as well a broader ecosystem of capital solutions for GPs. And so for instance, if you're a GP and you want to raise capital for one of your flagship funds, obviously, we can do that. We do that through RCP. We do that through Qualitas. And you can engage with us in that way, and we're very happy to, and we can provide all that information and insight that I talked about. If you then -- if that fund is now out of its investment period and there's a really attractive bolt-on opportunity and you need more capital through Hark, through being in that ecosystem, we can work with you to provide some sort of NAV loan that will help kind of boost the returns in that portfolio or enable you to do a tack-on deal or what have you. And if ultimately then you decide maybe I want more permanent embedded capital in my capital structure, and I want to embark at a GP stake sale, we can obviously engage with you through that via our Bonaccord business. And so I do think that that kind of platform synergy is another really powerful thing as we engage with GPs, Michael.

Our next question comes from the line of Benjamin Budish of Barclays.

Luke, you alluded to what I wanted to ask about a little bit in your prior response about P10 being a little less levered to kind of the broader M&A environment. But I'm just curious, when we listen to a lot of your peers who are much more tethered to that, whether it's through realizations or much bigger exposures to net credit deployment, we do hear more about an excitement that IPOs that M&A is going to pick up meaningfully. So just curious what could that mean for P10? Obviously, your model is less tethered to that, but where do you maybe see opportunities accelerating should the M&A environment pick up as rates are coming down? Where is there potential near-term upside just from that macro perspective?

Well, look, it's a great question. And when I say -- when you say we're less tethered to it, I guess what I would say is, I think we are a little inoculated on the downside is maybe how I would say it, right? But look, let's be clear, a good market is good for all participants regardless of size they play and regardless of segment. And so if we have a more accommodative backdrop with better M&A volumes, with more capital markets activity, with more financing and origination, that's going to be good for all players in the private asset ecosystem. And by the way, it will be really good for P10.

And I think to the point that you mentioned where people are seeing and talking about more optimism, I think we are seeing more activity as well across our businesses. Generally, you obviously see it kind of manifest itself first in transactions at the kind of GP level and then what does that origination bleed through into credit and then the opportunities for monetizations and so on and so forth. And I think, like others have observed and opined on the calls that have happened and are going to presumably continue to happen, we see a more benign and accommodative macro environment than we have for probably at least a few years, if not longer. And that will augur well for our business. That will accelerate deployment opportunities in our credit businesses in the short run. That will amplify, I'd say, returns across the private equity ecosystem we're engaging in. And I think as people get more risk on, they really want to lean into places where there's the potential for magnified returns. And there's no place like venture, if you want to express a view on magnified returns in a more robust and risk-on growth environment. And so we think a broader positive accommodative macro trend is good for virtually everything across the platform, and we're hopeful and optimistic that we're getting to a better part of the cycle here, and we think it will be really good for P10 then.

Maybe just one maybe more kind of narrow technical question. You mentioned that some buybacks have been, I think, pulled forward in -- earlier in the year and the absolute number was a little bit lower in Q3. What's the current level of your capacity into Q4? Do you need to sort of re-up your authorization? Just any kind of tactical details around that would be helpful.

I'm going to let Amanda take that one, but good question.

Thank you, Ben. So we have $26 million remaining on our buyback authorization. And I will say that while we continue to see share repurchases as an important tool for us to return capital to shareholders, we will continue to repurchase as it makes sense. Our long-term capital allocation priorities are to pay our dividends, which we've grown since -- 25% since instituting it in May of '22, M&A opportunities and share repurchases as it makes sense along with debt paydown.

I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir?

Thanks, Latif, and thank you all for joining us today and for the great questions. We look forward to reviewing our fourth quarter performance with you in February. On that call, we will review full year 2025, outline an exciting 2026, and provide financial guidance for the year. We are aligned with you, our fellow shareholders, and remain deeply committed to the long-term interest of our franchise. Thank you, and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. We [ are at ] good afternoon by now? Good afternoon, everyone. Welcome to our next fireside chat here with P10. If anyone doesn't know me, I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges. And we've got from P10, Luke Sarsfield, CEO; and Mark Hood, Chief Accounting Officer -- Administrative Officer, sorry. Gentlemen, welcome...

Thank you for having us. It's great to be here.

Thanks, Ben.

Just to kick it off, Luke, it's been nearly 2 years since you were appointed CEO. Could you reflect a little bit on your tenure? How would you describe the firm's progress? Where do you see the greatest opportunities for continued growth?

So a great question. And you're right, I'm getting a little introspective myself because it will be 2 years in October. And I really -- it's a great time to just look back and reflect on I think the tremendous progress we've made, and I think the opportunity that we think is still really robust that exists ahead of us.

And so when I came in, I always kind of talk about how one of the things that really attracted me to P10 and the P10 story was the incredible investing prowess across the platform, the consistent and persistent track record of alpha generation across all of the different strategies that existed at P10. At the time that was 7. Subsequently, we've obviously done the Qualitas deal and added an eighth. And I always feel like when you're an investment manager, you need to start with great investing performance. There's a lot of other things you can optimize in terms of platform, in terms of infrastructure, in terms of industrializing, but you start with that great investing prowess.

And one of the things that I'm really excited about is we've been very successful in continuing to maintain the team and maintain that investing prowess. And we've really gone from strength to strength on the alpha generation side, acting on behalf of our limited partners. And so I feel really, really good about that.

When I came in, what I was focused on was really optimizing and upgrading all the enabling functions to allow, enable and frankly, accelerate that investing prowess across the platform. And so we wanted to make sure we had all the right infrastructure in place. And so I envisioned a structure where we would have kind of 4 different spheres of excellence. The first focused on finance, accounting, legal, compliance and other oversight across the platform. And we've built that out very ably under our CFO, Amanda Coussens.

The second was everything operationally in terms of data and technology, in terms of human resources, in terms of operations and shared services. And Mark as our CAO and EVP of Ops has just stepped into that role and done an amazing job of building out and running that team.

The third thing that I thought we needed that we didn't have was a true strategy and business development function. And so I was very lucky to be able to hire Arjay Jensen onto the platform. Arjay runs that team, has really built a systematized process-driven approach to M&A, focusing on our areas of interest and then really a proactive outbound focused cultivation approach to find the right opportunities to continue to add to the platform.

And then ultimately, it's about partnering with clients. That's what this business is about. It's about having clients trust us with their capital. And so we built out a whole client solutions team under the leadership of Sarita Jairath. She joined us from Blackstone about a year ago. She's been a tremendous add. She's building out her team. They're focused on capital formation. At the broad level, they're focused on coordination across the platform, working with the existing strategy teams to go deeper with our existing clients and also cultivate new clients and then thinking about things like new product design, new product development and all the things that we can do there to be able to better meet our clients where they are.

And so the really good news is I feel like we've put the right structure in place. I feel like we've assembled a world-class senior leadership team. We've also done some great work, I feel like, in terms of enhancing the Board of moving to a majority independent Board, very excited about that. I see one of our directors in the room today, glad he could join us. And really focused on making sure that we have a world-class governance structure and that everybody knows we are just laser-focused on the clients and laser-focused on executing against the platform in a world-class way.

Now we're doing a lot of the work in each of those verticals, right? Whether it's this year, we're going to have to be -- we're going to have to meet the standards for 404(b). We came out as an emerging growth company, and Amanda and her team are laser-focused on that. We've built a great compliance infrastructure around that to boot.

In Mark's team, we've hired a new Chief Technology Officer. We've just appointed a new Head of HR.

And so I think all of our strategies are really seeing the power of the platform and the power that we can deliver to them to help them enable and accelerate their businesses. Obviously, in Arjay's team, we announced our first M&A deal in Qualitas. We closed on that back in April. That has just gone great gangbusters. We can talk about how that integration works and some of the very positive upside we're seeing there, but really excited about that.

And then finally, in Sarita's world, we integrated all our CRM systems. We've reconciled and sort of made sure that all the data is now in a way that we can query all the CRM and client data across the platform. And we're looking at ways we can deepen and broaden client relationships. We're looking at new product design and ways we can meet the clients where they want to be met. And I think you're really seeing that in terms of our engagement across capital formation, which feels like it's very positively accelerating. And so I feel great about what we've done across the platform to date, but obviously very, very focused.

Now that we've laid the strategy, now that we've built the frame, now that we have the team in place, it's about executing and it's about holding ourselves accountable for execution. And so we wake up every morning, go to bed every night thinking about how do we execute on behalf of our shareholders.

Great. Maybe talking a little bit higher level, talking about the macro environment. On your last earnings call, you highlighted some structural advantages you see for the middle and lower middle markets. There's a common perception that small companies are more vulnerable, more risky than large. Can you remind us, why do you think this is a misconception? What's your current outlook for the segment where P10 is most active?

Yes. So it's a great question, and it's one we get asked a lot. We are dogmatically focused, I would say, in a very disciplined way on executing in the middle and lower middle market. It's who we are. It's what we do. It's the lineage and legacy of all the component strategies, and it's really something that we think has held us in really good stead.

And you're right. I think there is this archetype at times that, oh my gosh, big companies, they're larger, they're more stable, they have more resource. And so definitionally, smaller companies must be less stable and more risky. And I would tell you that might be true at the individual company level, but you've got to look at the dynamics of the marketplace.

And so when you look at that upper part of the market, what do you have? You have a lot of capital chasing a limited number of opportunities. There are not that many large companies, and there is an enormous amount of capital that's been raised and looking to be deployed against that opportunity set. Generally, those deals tend to be very competitive. They're often intermediated by sophisticated advisers or otherwise, and that makes them more difficult to access.

Oftentimes, they've either been owned in context where their operations have already been optimized, either they've been public companies or they've been owned by other large sponsors who have done a lot to professionalize the operations of those companies, and so you'd argue a lot of the low-hanging fruit has been picked. Generally, they tend to have pretty aggressively wound capital structures with a lot of leverage. And because of all those dynamics, lack of competition, intermediation, they tend to have come to the market and been purchased at pretty robust multiples.

Now let's look at our part of the market, right, which I think is really differentiated. The first thing I would say when you look at the lower part of the market, there is a lot less capital, a lot less capital, like 5 to 10x less capital chasing 5 to 10x more opportunities. So you just have a very target-rich environment to start, and you don't have large, sophisticated entrenched competitors like you see in that upper part of the market. We're actually one of the big players in this part of the market, and so we have the competitive dynamic of size and scale and insight and longevity in this part of the market.

The second thing, these are generally founder-operated businesses, so you're buying them from the founder. So there's just definitionally tends to be more opportunities for value creation across that platform, investing in technology and infrastructure and operations in ways that a founder can't do. The transactions tend to be less intermediated. Maybe there's nobody involved, maybe there's a business broker involved. But if there's not some large, sophisticated institution looking to extract the last dollar of value, so you tend to buy them at lower multiples.

And you can see that durably over time, middle market transactions happen at lower multiples than transactions in the upper market. And they tend to happen with much less leverage. If you look at the upper part of the market, 6 to 7x leverage, you then become very sensitive to the rate cycle. And since we've been in a rising rate cycle, capital structures have gotten repriced, have gotten more expensive. That's put a burden on the equity holders.

In our part of the market, typically, it's about 3x leverage. And so obviously, things have gotten more expensive, but they're just not wound. Those capital structures are not wound to the same degree that they are in the upper part of the market. The net effect of all of that, if you look across the cycle, is two things. One is the returns over the last period of time, last several decades have been better in the lower middle market than they have been in the upper market to the tune of about 200 to 300 basis points on average. So that's just the average to the average.

And when you look at the opportunity for real outperformance because we'd like to think our job is to select the best-in-breed managers, the ones that are going to outperform and really be in that top quartile, top decile, there's a much greater chance that they are generating meaningfully higher returns in the middle part of the market than the top managers in the upper part of the market. And so you have a wider tail with a higher middle to start in the middle of the distribution. It's just more -- and it's a more attractive place to be investing.

And if you have the team, the track record, the data, which we have over a period of decades to be able to pick the best of the best in this more attractive part of the market, it's going to lead to a great investing outcome. And that's why we're so passionate about the middle and lower middle market.

Great. Bringing back to P10 more specifically. At your first Investor Day last year, you talked -- you introduced a $50 billion AUM target by 2029.

Free-paying AUM. Free-paying AUM.

On your most recent earnings call, you kind of started elaborating a little bit about engaging with new and larger pools of capital. Can you unpack this a little bit more? How much of this opportunity lies with existing LPs versus new business development to attract new LPs?

It's a great question. And I would say, simplistically, the answer is yes. We need to do both of those things, right? And so when you really think about the opportunity for us to continue to grow and scale our businesses, it's going to happen on multiple vectors. It's not an either/or, it's a both.

But clearly, let's start with our existing LP base. We have a very robust group of now almost 5,000, over 4,900 LPs. And these are institutions, these are pensions, these are insurance companies, but these are also a lot of very wealthy individuals, E&Fs and groupings of other wealthy individuals, whether it's in an RIA structure or otherwise.

And so -- and what we have right now is, and we talked about this at Investor Day, well less than 5% on of our LPs are LPs across multiple strategies. So they tend to be LPs of one of our strategies. They're an LP of TrueBridge or of Hark or of WTI, but they're not -- and they have not historically been LPs across the platform. I think one of the big opportunities for us, it's always easier to grow your relationship with somebody who already knows and likes you than it is to find a new client and convert them to be a client of the franchise in the first instance.

And so these are -- a lot of these are allocators who have looked at our platform and have decided, proactively, they really like what we do. They like our focus on the lower middle market. They like our structure and operationally, how we can execute and deliver on behalf of them. And hopefully, they've had a great investing experience with us already. So they're feeling favorably inclined to the platform, given our track record of alpha generation. And so the ability to engage with them in an appropriate and client friendly way to introduce them to the breadth of the P10 platform, not just a single strategy they currently have a relationship with, but the other 7 strategies across the platform.

And it's not a one-size-fits-all thing. It's not like, hey, here's all the things we can do. It's really getting -- making sure we're leveraging our knowledge and insight on that client to know, look, they're interested. They're investing with us in Strategy A. We happen to know, based on our knowledge and privity, that they're invested with some of the other things that we can do across the platform.

And so it's simply introducing them to the P10 alternative to whatever that strategy is that they're doing maybe with a competitor or maybe with somebody away from us and really looking to deepen and broaden that already great client relationship that we have in the first instance.

And so I think that's a big opportunity. We're using data and insights from the data. As I mentioned, we took the time to really integrate our CRM platform across the P10 entities. And now we can really look at it and query it and look at who's doing what with whom, both with us and away from us, and then really go in, in a very customized and client-friendly way to make those connections and introductions. And so that opportunity to deepen our existing client relationships is a big opportunity and one that the team is really focused on executing against.

But there are other parallel opportunities, as you know. One of those opportunities as well, if you look at how we built our client base and why we have 4,900 clients, we've kind of built our client base with folks who write checks, many in the $5 million to $25 million or $50 million range, really important clients. They've been great fans of the platform. We're very lucky to have them on the platform. But as we've gained breadth, as we've gained scale, as we've gained now global remit, we can do things certainly for those clients now and in the foreseeable future, but also with potentially a new set of larger global clients.

And so one of the opportunities for us is to cultivate some of those larger global clients who, as I just talked about, I think, are waking up to all the positive differentiated attributes in the middle market and say, I've got lots of exposure and lots of partners in the upper part of the market, but maybe I don't have as much here. And oh, by the way, it's a more complicated, opaque, fragmented market segment to begin with, and I need somebody who's really going to help me navigate that journey who's going to be my partner and my guide along the way and work with them. And we've talked about some of the early wins in that.

We partnered with a very large sovereign wealth fund. We talked about that on our first quarter earnings call where we were able to help them navigate kind of that lower middle market equity space. And I hope that that's something like that we can replicate in many places.

And then I think the third vector of this is making sure we have the product offering to meet our clients where they are, right? And if you look at the historical kind of P10 product offering, it had been 85-plus percent traditional delayed draw commingled funds. Now I want to make sure everyone understands. We think there's a big growth opportunity in traditional delayed draw commingled funds. We're seeing real growth in many of those offerings. We can talk about some of that.

But we think there are things in addition to growing that, and we think it's very much in addition, there are other vehicles that others have used very successfully and we believe we can use, whether it's insurance wrappers, whether it's some certain client-friendly wrappers, whether it's evergreen or other kind of long-lived vehicles to meet our clients where they are with what our clients want matches our investing ability and our investing prowess.

And so we're thinking about that. We announced, obviously, in our Enhanced strategy. We launched our first evergreen fund within the 4 walls of P10. And I think there are many more opportunities, not necessarily just an evergreen fund, whether it's a BDC, whether it's an access fund, whether it's something else, to really marry our investment prowess with where our clients want to be met.

And so I think we're really excited. And so if we do all those things, we go deeper with our existing clients. We find great new clients who want to come on the platform and benefit from our strength, our expertise, our investment insight and we design products to meet our clients where they are. I think we now have the team and the capabilities to do all 3 of those things, and we're really focused on executing against that.

Luke, a great example in this last quarter was we saw some new RFPs from RCP that we would have never seen before because now we've got the European business. So clients that would like exposure to U.S. middle market as well as European middle market, that's net new for us. So that's a business we never would have had a chance to be a part of. I think it's very exciting.

Luke, you answered -- I mean it was a very robust answer. You answered a number of my questions. But one of the things I wanted to ask you about, so you talked about moving upmarket to LPs that write bigger checks and new fund structures to serve them.

I want to be careful. I don't think of it as upmarket. I think of it as larger, larger. Love our existing LPs. I wouldn't want them to think [ we think of ] anything other than upmarket.

But you have a big family office business today. What are your thoughts on going the other way? What we've seen from your publicly traded peers is that the products that are more appropriate for the smaller retail investor tend to be more of these evergreen style products. Is that part of the strategy with Enhanced? Are you thinking about that in terms of like other kind of new product creation? How does that sort of fit into the strategy?

Look, I would say at the very highest level, we want to meet as many clients as we can with what we believe are incredibly positive investment opportunities wherever they are. But -- and there is a but here. We are a smaller enterprise. We have finite resources. And so we need to make prioritization decisions, right? Some of our friends in the industry can do a lot of things at any one time. We can do a lot of things in any one time, too, but we need to prioritize, right?

And so we've always had a very robust ultra-high net worth business generally referred in many cases by relationships and word of mouth, right? Somebody becomes a client of ours, we deliver great investment returns for them, and then they phone a friend or 2 or 3 or 4 friends over time, and they become client of ours. It's the power of the platform. It's the power of the ecosystem. And increasingly, then that's led us to other places, right? RIA is, particularly ones focused on the alt space, wherever we -- family offices and multifamily offices, wherever we see groupings of these people who've seen what we can do. And so we want to continue doing that.

Your point is, there is another part of the retail market, probably more in what one would call the mass affluent, high net worth to mass affluent part of the market where there are real opportunities. And I think some of our competitors have the wherewithal to really execute on that by themselves, right? Because they can invest in the distribution infrastructure, obviously. You're probably talking about a lot of human beings. There's probably a whole knowledge and information part of it. You probably are going into a lot of different offices and different venues where you're meeting with these people, whether it's through a wirehouse or otherwise and you're engaging with that client base.

And we do do some work in that part of the market. But as we think about resources and where we spend our resources, it's probably not in our near -- it's definitely not in our near to intermediate-term blueprint where we're going to build a retail distribution force with tens, if not hundreds of people who are calling on corner offices at different -- whether it's the IBDs or the wirehouses or otherwise. And so we're going to do it the way we've always done it, which is focusing on the legacy strength of our client base and then the groupings of those clients. And if we do go broader based, we're probably going to need to find a partner who is going to be able to help us do that.

And so we think about are there ways we could partner either with one of the platforms on a particular product offering or maybe with somebody whose model is focused on this high net worth mass affluent distribution. And so that would very much be for us. What I think we're probably not going to do at least in the near to intermediate term is build a lot of that infrastructure ourselves. We think we have so many other high value add, high ROI opportunities to go after where we can just see the opportunity and the need, and we're going to prioritize those first.

Got it. Makes sense. Maybe moving back into something else you touched on earlier, this idea of kind of expanding to new fund structures, new fund styles. Thinking about the sort of the drawdown fund of funds business, which is sort of the historical bread and butter of RCP and a few of your franchises, there was another alternative asset manager, I think, maybe an earnings call or 2 ago, talking about some structural headwinds facing that model, specifically the drawdown fund of funds model. What's your perspective here? I think you've kind of indicated that it's perhaps a little bit less of the future. But is there -- do you see any other like issues with that model? Is it becoming less in favor with LPs? Or is there simply more growth elsewhere, but it is also still important...

No. So like everyone will have their own views. I don't know specifically what that competitor was referring to. I guess everybody kind of talks to their own book at the end of the day and they see their own experiences. But let me start here. As I said, we're going to do both. And by both, I mean, we think there are meaningful, robust ongoing growth opportunities in the traditional commingled fund of funds business. We see them every day. We manifest them. We just announced that we've closed on RCP XIX, which was our 19th fund, and we're launching RCP XX.

In other places, we've seen it at our Qualitas business. We've seen it in our TrueBridge business. I would say, what's that old thing they say, rumors of my demise have been massively overstated. We don't see any impact. We see clients continuing to come back. If you want to get broad-based exposure to the very best lower middle market and middle market buyout firms around the world, if you want to get broad-based exposure to the very best venture firms across the world, people are continuing to come to us and continuing to manifest that investment thesis through our comingled fund of funds.

And we see no slowdown. We see no impairment. We're continuing to grow those businesses. We've raised them historically. As I said, RCP, we raised Fund XIX, we're on to Fund XX, and we continue to see real client interest there. What we're going to do is in addition to growing the business, as we've always grown that business, we're going to do new products. We're going to do new wrappers. We're going to meet our clients where they are.

So I don't think -- I want to be really careful and clear on this. This is not a reaction to some slowdown, either real or [ threatened ] that we're seeing, perceiving or even worried about in this part of the business. We have a lot of conviction in this part of the business. We continue to see allocators, and we continue to see our LPs put money against those strategies as they have in the past. We actually are continuing to broaden our LP base in many places. And so if anything, there's a secular growth trend in that part of the business. And then in addition to that core secular growth, in doing what we've done historically very successfully, we think we can add new growth vectors on top of that. But I want to be clear, we see no slowdown whatsoever in that fund of funds business.

Pardon me, maybe changing topics to the M&A side, which you've mentioned -- touched on a few times. So earlier this year, you completed the acquisition of Qualitas. How is that integration progressing? Mark, you mentioned earlier and as you guys have talked about before, sort of already opening up new opportunities. So how would you describe the current state of the integration, how else may new opportunities emerge now that, that business is part of P10?

Well, look, I got to tell you, you always have a view going in of what things will look like. You do a lot of planning, you spend a lot of time road mapping it and scenario planning for different things. And I will tell you on this one, it's even gone better than we could have hoped.

I mean, culturally, we always knew it was a great fit. And I think they've just come in and they've hit the ground running. They've been here since April, which I guess is just 6 months, but it feels like they've been there forever. And I mean that in the very best sense of the phrase. They're culturally aligned. They're working together with the other strategies. They help us kind of drive kind of this collective one P10 vision of how we can win together.

And when we did it, when we analyzed the deal, we obviously had plans about what we thought we could do together in ways we could grow it. They had great relationships and had done work historically with RCP. They had done a lot on the NAV lending side with Hark, where they would do sourcing and Hark would do some of the credit underwriting. But we've actually already seen some new opportunities for collaboration specifically with RCP that we hadn't anticipated.

And I'll give you 2 examples of that. One is there's an RFP that happened recently for an adviser on a global middle market solution. I can tell you, historically, 1 of 2 things would have happened. Either we wouldn't have gotten called that at all -- gotten called to that RFP because we were just viewed as a North American manager or we would have gotten called and they would have said, well, submit your proposal for North America, someone else will submit a proposal for Europe, and we'll try to pair you off, but your odds of winning go down meaningfully because how do you work together, where -- there's always kind of the intersection points and the friction points when you have 2 parties versus 1 where you just say, here's what we want, you guys figure it out.

Now the LP said to us, here's what we want. You guys figure it out, and we have figured it out. And by the way, I think that is just a single example, but my guess is we're going to see multiple analogs of that where clients are coming to us and saying, "I want more of a global solution and now I know you, P10, through what you have with Qualitas and through what you have with RCP could potentially provide that on their behalf, so put your best foot forward." And so I think that and the future incarnations of that are really exciting.

And then the second thing is we actually realized that we think there's a really big opportunity to -- we have great expertise in fund structuring and client relationships in Europe through the RCP team. And they continue to invest with RCP to get European exposure. But many of those European LPs want to get some U.S. exposure, but they want to do it not -- by the way, we talked about wrappers -- not in a traditional U.S.-style wrapper, but they want to do it in a wrapper that preserves tax and other attributes that one would have is a European investor investing in some of the European funds they've historically invested in like Qualitas.

So guess what? Qualitas has the expertise in structuring the fund and the overlay and the fund administration. RCP has obviously the U.S. and North American investing chops and history and lineage. And so why don't we marry those 2 things together in an integrated product? And that's something we're working on right now.

We have that probably further down the road map, we thought it might come someday. It came almost immediately. Like when we went out, when Qualitas went out and talked to their LPs, their LPs said, "This is awesome. Here's what we want from you." We said, "Great. We're hearing the client demand, we're going to accelerate that product offering, super exciting."

Mark, I don't know if you want to spend a minute. We've also had -- they really share much of our philosophic approach to the business, which is being data-driven investors. And so the data we've been capturing in the U.S. around the broader market and the opportunity and leveraging that to be better investors, they've been doing very similar things in Europe. I don't know if you want to talk about some of that data [indiscernible].

So we've been so impressed with what they've built. They have an incredible platform. I think there's an awareness in that business of the power of that data. And I think in the same way that RCP built something special in North America, they're doing the same thing in Europe. I think we feel very good about that.

In terms of the back office and the things that we're doing with integration that's gone better than expected. We've been very impressed. They're a great team. I think they over-index technologically to the things that we're trying to do, and they've been very helpful to us.

The one thing I want to go back to that Luke was talking about, the other area, I think, that's been surprising for us is these guys have built such a great reputation in Europe. And I think for us, there's also M&A opportunities that come as a result of that great reputation. I think the second thing is we've got great private banking relationships. And I think we see the opportunity there to expand those across Europe as Qualitas Funds grow. So that is a really important business for us in Europe. We think there's a lot of opportunity for us, and I think that we're very excited about it.

Segueing into broader M&A, how you -- you've obviously been building out the team with Arjay and the work he's doing. How are you thinking about future opportunities, top priorities? Is it asset class? Is it geographic expansion? Is it moving -- we're not going to call it upmarket, but sourcing different new LPs? Or is it all of the above that you're looking for the right fit to kind of solves for multiple things?

Great question. So I would say, fundamentally, our framing approach to M&A hasn't changed. And we've always said it's got to check 3 boxes. And I'll come back to each one of them. It's got to be a strategic fit, right? It's got to be in areas that are relevant to us and relevant to our clients.

Secondly, it's got to be a cultural fit. We have a very specific way we do deals. Others do deals in different ways. That works for them. But for us, one of the things we're really focused on is we want to buy great investing platforms and have the teams that have historically run those platforms continue to run those platforms. So if somebody just wants to hand off the keys and move on to something else, that's great. I'm sure there's a match for that, but it's not with P10.

And then the third thing is, we are accountable, and we are stewards of capital on behalf of our shareholders. It's got to make economic sense for everybody, right? If it doesn't, it can be the best strategic fit, it can be the best cultural fit. But if we can't do it in a way that's accretive and value enhancing to our shareholders, we're not going to do the deal. And it's got to check all 3 boxes. It's not a 1 or 2 thing. It's got to check all 3.

In terms of the strategy, we laid out at Investor Day, our areas of strategic focus in terms of M&A, and those have not changed, right? So one of them you mentioned, Qualitas is a great archetype of this, is the international analogs of our U.S. strategies. And so I really think about Qualitas as a great example of sort of the European RCP in many ways. We have 7 other -- we have 6 other strategies in the U.S., and I imagine for many of them, there are international analogs.

And I also imagine there are analogs in Asia and other parts of the world, right? And so we still see a really, really robust international opportunity. And I think once you do your first deal that then makes you relevant and makes you kind of local in those geographies, you're better positioned to do your second and your third and your fourth deal. So we continue to think about that as an M&A strategy priority.

The second, and we've talked about this, is we have a great private credit platform, and we have great kind of strategies within private credit. But we certainly have no monopoly across the waterfront of private credit. And we think there are big opportunities in certain parts of the private credit landscape that we have a real right to play and win in that we're just not in right now. But I think there's a lot of great firms out there focused like we are in the lower middle market and play in those spaces, and we're having a lot of really robust dialogue in that space.

And then the third area we mentioned is real assets, both on the real estate side and also on the infrastructure side. And as Mark mentioned, if we can find something that has that kind of strategic manager approach that fits with our platform and fits with where we're going but also bring some distribution expertise, whether it's private banks or something else that will allow us to accelerate our working capital formation, more is the better.

But our philosophy around what's attractive hasn't changed. It's got to meet strategy. It's got to meet culture. It's got to meet kind of economics. It's got to be in these core strategic areas we've identified.

And the good news is, I would tell you, although I know there's all these questions about where is the broader M&A environment, has it picked up and everything else, I would have observed in alternative asset management, I'm not sure it ever really slowed down. And so we've continued to see really, really attractive opportunities. I think we've gotten our name and our reputation out there as an acquirer of choice. And I think for people who like our model, we're kind of at the top of their list. And so we're always looking at multiple opportunities and assessing them, and we're eager to find more attractive franchises to bring on to our platform.

With a little bit of time left, I wanted to ask about a few of the franchises that you've had. So before Qualitas, your most recent acquisition was WTI. The old venture space follows quite a bit of disruption following the collapse of Silicon Valley Bank and the broader slowdown in deal activity. So maybe can you provide an update on the current deployment environment and LP appetite maybe for venture debt? And then maybe we'll touch on TrueBridge afterwards [indiscernible] starting with WTI.

So look, we have always thought, and we continue to think that the venture debt space is a really attractive one, and it's incredibly attractive from a risk/return profile. I know sometimes people think, well, gosh, like the simple but incorrect narrative is, aren't you taking kind of -- if you're taking venture risk, shouldn't you get venture returns? And the reality is you're not taking venture risk. If you look at this on a risk-adjusted basis, we're running a diversified portfolio of best-in-breed companies with legion structural protections to be able to protect our return.

And so -- and the beauty of WTI, by the way, is they have been the innovator in this industry of many of the structural protections that allow you to on one hand, be a good partner to the portfolio companies, but also allow you to protect that return, protect and enhance that return profile on behalf of your investors, whether that's taking warrant coverage or having other structural protections built into the deal. And so they've been a real innovator in that.

When you look at their risk-adjusted returns, they're very, very compelling, and they continue to be very, very compelling. And then you're right, what you saw was, over the last couple of years, a real dislocation in the venture landscape, I think, both on the broader macro, but also particularly in the venture debt space with one of the large competitors going through a period of uncertainty. And so we've been in a position to really take advantage of that.

And we've always -- our investing philosophy has always been, it's not about -- we're never going to be kind of the very best pricing terms lender. It's about a relationship. It's about all we can do on behalf of our portfolio companies. And so if you want that kind of relationship and if you want that kind of partnership, you come to WTI. If you just want to maximize last dollar, you tend to go to somebody else. And the industry, I would say, bifurcates probably fairly naturally in many ways. And so we've had a network of relationships with some of the leading venture firms.

They continue to refer to us because they view us as a partner of choice for their portfolio companies. That's been very powerful and very successful. We're in the market with WTI Fund XI, and we continue to raise there. And I would say, if anything, over the last 6 months, we've seen an increase in both the volume and frankly, in many cases, also the size of really attractive investment opportunities. So we're really excited about what that platform is, and we're really excited to see how it plays out over the next few years because we think we've got a lot of clear water in front of us.

We've got just a minute left. I've got a bunch of questions. I'm going to try to group a couple of them together that are similar in theme. So there's a couple of strategies where you've seen very meaningful fund over fund scaling that perhaps doesn't suggest that you need open-ended vehicles to keep growing, at least for now, TrueBridge, RCP, secondaries, Bonaccord Fund I to Fund II. I guess how do you think about -- maybe there's the questions. How do you think about sort of the limits to scale for Bonaccord Fund I to II to III to -- at what point you sort of max things out? Or do you just see like a very, very long runway? I mean those funds aren't particularly large, but what are the constraints maybe to be considered of?

I mean, again, we always come back to -- one of the other things that I maybe didn't talk about in my middle market answer was people say, oh, middle market, it must be small. If you look at kind of the appendix we added in our latest quarterly presentation, we talk about the size of that middle market. We think we're executing against a $3 trillion market opportunity. And I remind you, we have about $40 billion of assets under management. So we think we can grow and grow meaningfully in the categories we're in.

That doesn't mean there's a lot more categories we can expand into. But we are by no means even scratching the surface of being capacity constrained in virtually every one of our strategies. And you're right, Bonaccord Fund I to Fund II, meaningful, more than 2x increase while maintaining great returns, by the way, right? I know that sometimes size can be the enemy of return, not in this case.

You talk about some of the things we've seen at RCP in terms of our direct strategies. You talk about all the things we're doing inside of TrueBridge in terms of their successor funds have been meaningfully larger. You look at Hark, Hark IV over Hark III. In virtually every instance, we think that there is a robust market opportunity out there for us where we stay focused on our knitting, but we can grow meaningfully doing what we're doing. And then you layer all these other growth vectors on top of it, going deeper with existing clients, garnering new larger clients, working with different wrappers and different strategies. Those are all incremental and additive to the core growth rate of continuing to execute.

Unfortunately, we need to leave it there. Gentlemen, thanks so much for being here...

Thank you so much for having us. We really appreciate it. Good to be with you.

Thanks, Ben.

Thanks.

Hello, and welcome to the P10 Second Quarter 2025 Conference Call. My name is Latif, and I will be coordinating your call today. [Operator Instructions] As a reminder, today's conference call is being recorded.

I will now hand the call over to your host, Mark Hood, Executive Vice President and Chief Administrative Officer. Mark, please go ahead.

Thank you, operator, and thank you all for joining us today. On today's call, we'll be joined by Luke Sarsfield, Chairman and Chief Executive Officer; Sarita Jairatht, EVP, Global Head of Client Solutions; Arjay Jensen, EVP, Head of Strategy and M&A; and Amanda Coussenss, EVP and Chief Financial Officer.

Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates and expectations and are inherently uncertain.

Actual results for future periods may differ materially from those expressed or implied by the forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law.

During the call, we will also discuss certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC.

I will now turn the call over to Luke.

Thank you, Mark. Good morning, everyone, and thank you for joining our second quarter 2025 earnings call. Before we begin today's call, I want to take a moment to acknowledge the tragic events that took place in Midtown Manhattan last week, just a few short blocks from our office in New York. We extend our deepest condolences to the families and loved ones of the victims and to our friends and colleagues at Blackstone, KPMG, the NFL, Rudin and others who work at 345 Park Avenue. We also want to thank the brave members of the New York Police Department who lost a fellow officer. Our thoughts are with you all, and we remain in firm solidarity as a community as we seek to support one another.

P10 has continued to execute on all cylinders in Q2, advancing the growth plan we laid out last year at our Investor Day. In the second quarter, we raised and deployed $1.9 billion in organic gross new fee-paying AUM, marking our second consecutive quarter of record organic growth. When combined with the $1 billion in fee-paying AUM from the Qualitas Funds transaction and moderate FX tailwinds, our gross fee-paying AUM increased by $3 billion in the quarter. Our overall fundraising pace continues to be strong. The products we have in the market are examples of resilient, durable investments that have enduring track records of alpha generation.

Further, we're meeting LP demand head on, particularly in areas like co-investments and secondaries. Fundraising results in this quarter were also positively impacted by approximately $300 million of commitments recognized earlier than expected, which we view as a real testament to the accelerating pace of our capital formation efforts. This happens from time to time as LPs evaluate their investment allocations. Additionally, we had some operating expenses that were delayed in the second quarter, which we expect to be recognized in the second half of the year. We ended the second quarter with $28.9 billion of total fee-paying assets under management, a 21% increase year-over-year.

Our fundraising momentum points to the demand for P10 strategies in the key market segments we target. And while we do not necessarily expect the same volume of fundraising in the third quarter, we are encouraged by our continued progress on the fundraising front to date. With the benefit of our Q2 fundraising efforts, we've achieved over 80% of our annual organic gross fundraising target of $4 billion with half the year remaining. Now we want to take a moment to share some of the highlights across the P10 platform this quarter. Noteworthy accomplishments in the second quarter include: first, the strong momentum on RCP's Secondary Fund V with almost $1 billion raised as of June 30. This is a fantastic demonstration of our commitment to the secondary space and RCP's market leadership.

Secondaries continue to be a terrific growth opportunity, both for RCP and also across the broader P10 platform. Secondly, and continuing with the theme of secondaries, TrueBridge launched its Secondaries Fund II in the second quarter. We're seeing interesting deal flow, and we're excited to see TrueBridge continue to broaden and expand its product offerings. Additionally, RCP closed on its 19th primary fund with $314 million. Our fund-to-funds business continues to be strong, and it feeds the platform with complementary investment opportunities such as direct and secondary deal flow. We're also making great strides in credit. Our credit business contributed $568 million to fee-paying AUM.

Our enhanced capital strategy launched its first ever evergreen fund. We're starting with just over $100 million, and we have big aspirations to grow that asset base over time. And finally, we drove measurable progress in enhancing collaboration and coordination across the platform, particularly regarding fundraising and deal flow. These highlights are enabled and underpinned by our focus on the middle and lower middle markets. Now I want to discuss some of the compelling underlying market dynamics propelling our success and why we firmly believe that long-term shareholders will be rewarded.

Then I'll turn the call over to Sarita, who will provide an update on the progress we're making as we expand and deepen our already strong client franchise, followed by Arjay, who will share an M&A update. And finally, Amanda will run us through the Q2 financials. With that, let's dive in. As we've continued to see news flow around the so-called challenging private equity fundraising and liquidity environment, I thought we should take a moment to remind ourselves of the structural benefits and secular tailwinds that we continue to observe in our target segments of the market and how those benefits manifest themselves in the current environment.

As a reminder, our strategies operate in specialized and fragmented markets with a particular focus on the middle and lower middle market segments. So let me take you through the long-term structural advantages that we see in our target markets. Please note that we've added some pages on this topic to our earnings materials posted on our website. First, we firmly believe that our market opportunity is both larger and less competitive than the large sponsor market segment, and the data we've provided in our earnings presentation clearly supports this assertion. When you consider the data, you'll clearly see why we are confident in our ability to grow and strengthen our market position.

Two key points drive this home. One, our opportunity set has approximately 1,000 GPs managing approximately $3 trillion, more than 5x the number of GPs at the upper end of the market. Two, if you drill down into the opportunity set for the smaller managers, those in the middle and lower middle market have more than 10x the number of companies on which to focus relative to managers in the larger part of the market. So with more than 5x the GPs and more than 10x the number of companies, you can see why we think our segment of the market is especially attractive and why investors should have confidence in our strategic focus. Additionally, I would like to highlight a few key financial characteristics we see in our market.

Consistently, over the past 15 years, we have observed lower upfront valuations in the middle and lower middle market by about 1 to 3 turns compared to the broader private equity ecosystem. The chart we've provided on EBITDA multiples by deal size clearly demonstrates this favorable dynamic. Lower levels of financial leverage are also a defining characteristic of our market segment, and this has been true for many years and through several economic cycles. You'll see in our slides the advantages our market space has with respect to leverage with middle market and lower middle market transactions generally having approximately 2 turns less leverage.

Another structural advantage of our target markets is the rich opportunity to create value and drive growth. We see this demonstrated in higher revenue and EBITDA growth rates, which combined with multiple expansion from investment to exit drive outperformance. When you look at the fund performance in the market, what we see is stronger overall performance at the median, but also a greater potential for outperformance. And importantly, in this current environment, these smaller funds continue to outperform while delivering superior liquidity. We point you to supplementary slides we included in our earnings deck, which highlight the attractive fundamentals that I've just mentioned and make the case that we're operating in the best part of the market.

We believe that this all culminates in durable alpha generation over long periods of time, but with greater dispersion, highlighting the importance of manager selection. You've heard us say over the past few years that we offer access to access-constrained opportunities. By doing so, we've created sustainable franchises that continue to thrive even in less than ideal macro environments. In terms of how we're seeing all these positive dynamics play out in our market today, the main point I would make is that fundraising in our part of the market is healthier than in the larger part of the market. That's driven by smaller fund sizes where LPs can make smaller commitments.

Further, the M&A market in the middle and lower middle market has not slowed to the degree we see in the larger part of the market. Earlier, I mentioned dispersion. What we are seeing with the best managers is that they continue to be oversubscribed and are able to have one-and-done closes. And much of what we invest in is oversubscribed as investors continue to turn to us for elite access-constrained investment opportunities. To close, the main point I want shareholders to understand is that we continue to see terrific opportunities in our market space. Our opportunity set is massive and supported by secular tailwinds, impressive investment performance, long-tenured and trusted relationships and a large and growing global LP base. We remain confident in our ability to grow the business and see a lot of opportunity ahead.

With that, I will hand the call off to Sarita.

Thank you, Luke. I'm excited to be here with you today. As you know, my role was a new one at P10 when I joined in the fall of 2024, and it's been so rewarding to build out the infrastructure for our platform. I have now had the pleasure of working with my partners for nearly a year. And as I approach my first work anniversary, I'm excited about what we have accomplished so far and especially for what's ahead. Broadly, my mandate consists of the following: first, increasing our distribution capabilities and growing our existing investor base. We are cultivating and engaging with larger global pools of capital in the vein of creating strategic partnerships that can allocate across the P10 platform. Second, utilizing our proprietary data and analytics to encourage collaboration and introducing our investors to the entire investment platform to deepen and broaden our existing client franchise.

And finally, expanding our product offerings in vehicles, both domestically and abroad. Our goal is to increase the breadth of our products outside of traditional commingled funds and better serve our investors. We have some exciting growth initiatives that I want to share with you. First, as you heard from Luke earlier, we experienced another phenomenal quarter of record organic fundraising. We leveraged this momentum and led an effort to streamline how P10 categorizes LPs making it easier to engage them with compelling opportunities across our broad platform. With the integration of Qualitas Funds, P10 now has over 4,900 investors globally with a particularly strong presence in the wealth manager and high net worth segments. Over time, we expect our institutional presence to grow as we build on these strategic relationships and develop a wider scope of product offerings.

Additionally, our efforts to collaborate across the platform are already bearing fruit. During Investor Day last September, we noted that fewer than 5% of our LPs were invested in more than one strategy. Since then, we've had success helping clients gain exposure to other parts of the platform. For example, we had a Bonaccord Capital Partners LP, a Middle Eastern family office, invest in RCP advisers during the second quarter, highlighting their conviction across our private equity strategies. Additionally, we have a prominent RIA investing across both our private credit solutions and private equity solutions verticals. From our vantage point, we see myriad opportunities to introduce our investors to attractive investment opportunities across the breadth of the P10 platform.

Lastly, our data insights and investor confidence helped us lean into areas where we can continue to be nimble. This allows us to offer more than just closed-end funds and be flexible when opportunities arise. For example, at Enhanced Capital, we recently launched an evergreen fund that finances projects eligible for tax credits or other incentives upon project completion. At Hark Capital, we are providing our investors access to NAV lending capabilities, both in the U.S. and Europe as part of our integration of Qualitas Fund. We will continue to flex our product management muscle as we seek to broaden and diversify our LP base across client types and geographies. As Luke mentioned, our market segment has structural advantages with secular tailwinds and LPs are generally underallocated to the middle and lower middle market.

We have an appealing value proposition to investors, which is why we are now engaging with new and larger pools of capital, such as insurance companies, pension funds, endowments, foundations and sovereign wealth funds. We believe P10 is at a strategic inflection point in our organic growth, and the best is yet to come.

With that, I will hand off the call to Arjay for an update on our M&A strategy.

Thank you, Sarita. As you know, we closed on the Qualitas Funds acquisition on April 4. Integration has been going well, and you will notice that we now have the Qualitas data included in our earnings presentation for key operating metrics such as our LP breakdown. I would like to specifically highlight an entirely new product that the Qualitas and RCP teams are working on together, which will allow Qualitas LPs to invest through Spanish investment vehicles in U.S. lower middle market private equity opportunities. The underlying assets will be sourced by RCP teams, but brought together using an asset mix designed by Qualitas, similar to their European funds. We are calling those Qualitas Funds US1 and it launched in early July.

This is not a product or potential expansion opportunity that we had assumed in the transaction, but we think it's a great example of why our strategies are more powerful together and underscores the potential opportunities that our global private markets ecosystem helps to facilitate. We are also now better positioned on global RFPs to provide a more complete and integrated solution to clients. The RCP and Qualitas teams recently submitted proposals on several potential mandates looking for a manager who could make investments in the lower middle markets across the U.S. and Europe.

These are mandates that prior to the transaction would have been difficult for each to compete for, and the teams have worked together to provide a complete and integrated solution covering the U.S. and Europe within P10, and we are excited about the opportunities we are seeing in that regard. In terms of additional inorganic growth opportunities, as we mentioned last quarter, despite the slower overall M&A environment, alternative asset management and private markets continues to be an active M&A area, and we continue to see that in terms of the flow of opportunities. We are in the market as an active participant, and we continue to prudently exercise our M&A muscle. As we've said consistently, we are going to remain disciplined and focused on situations that are on strategy, have great teams, are strong cultural fits and that create value for our shareholders.

I will now hand the call back to Luke.

Thank you, Arjay. The growth initiatives we presented at Investor Day are gaining momentum, and I'm really pleased with the alignment and collaboration we see across the platform. During the second quarter, we saw the stock dislocate, and we took the opportunity to repurchase about 2.5 million shares at an average price of $10.49. For the year, we have repurchased over 3.7 million shares at an average price of $11.09 for a total of $41 million. The amount repurchased in the second quarter was more than we had anticipated, but with the stock trading at such depressed levels, we decided to pull forward some of our planned repurchases. We continue to see share buybacks as an important tool to return capital to shareholders. Since we ended the quarter with about $2.3 million on our current authorization, our Board of Directors authorized an additional $25 million on the repurchase plan.

Now over to Amanda for a recap of our Q2 financials.

Thank you, Luke. At the end of the quarter, fee-paying assets under management were $28.9 billion, a 21% increase on a year-over-year basis. In the second quarter, a record $1.9 billion of organic fundraising and capital deployment was offset by $435 million in step-downs and expirations. In addition, due to the Qualitas acquisition closing last April, fee-paying assets under management increased by an additional $1 billion during the quarter. FRR in the second quarter was $72.7 million, a 6% increase over the second quarter of 2024 and a 12% increase, excluding direct and secondary catch-up fees. The average core fee rate in the second quarter was 104 basis points due to momentum in our tax credit business.

We continue to expect the core fee rate this year to average 103 basis points. In the second quarter, we had 15 commingled funds in the market and saw broad participation across our investment platform. Our private equity strategies raised and deployed $1.25 billion, our venture capital solution raised and deployed $114 million, and our private credit strategies added $568 million to fee-paying assets under management. The quarter was bolstered by the growth in our secondaries products in private credit, including SBIC funds and a significant increase in deployment from Hark, our NAV lending business.

To give you a sense of the momentum of the growth in Hark, we deployed twice as much in the first half of 2025 than last year. Total catch-up fees in the quarter were $1.7 million. The timing of fund closings drives catch-up fees. And in the second quarter, they were primarily attributable to our primary funds, which only impact our core fee rate. With many of our commingled funds slated to be early in their fundraising lives during 2025, we expect to see catch-up fees expand in 2026 and 2027. Operating expenses in the second quarter were $55 million, an increase of approximately 1% over the second quarter of last year.

Additional costs related to the Qualitas Funds transaction primarily drove the increase in professional fees, offset by lower compensation costs. GAAP net income in the second quarter was $4.2 million, a decrease compared to $7.4 million for the prior year second quarter. For the second quarter, adjusted net income, or ANI, was $26.7 million, representing a decrease of 7% from the second quarter of 2024. The reduction in ANI is primarily attributable to increased interest expense driven by additional borrowing associated with the recent Qualitas Funds acquisition. For the quarter, fully diluted ANI EPS was $0.23 compared to $0.24 in the prior year.

FRE was $35.4 million, an increase of 5% year-over-year. In addition, our FRE margin was 48.7% in the second quarter. The increase in margin this quarter was a combination of cost discipline and the delay of certain expenditures that we will incur in the back half of the year for compensation expense and G&A. We continue to expect peer-leading margins in the mid-40s for the year. Our Board of Directors approved a quarterly cash dividend of $0.075 per share payable on September 19, 2025, to stockholders of record as of the close of business on August 29, 2025. Cash and cash equivalents at the end of the second quarter were approximately $33 million. At the end of the quarter, we had an outstanding total debt balance of $377.5 million, $325 million on the term loan and $52.5 million drawn on the revolver.

Following the end of the second quarter, we paid an $11.5 million down on the revolver. As of today, we have roughly $134 million available on our credit facilities. We are excited to report that WTI reached their first earnout hurdle. The earn-out payment was previously accrued and will be paid by the end of September in the amount of $35 million. As a reminder, we introduced a new KPI last quarter, AUM. Our AUM is calculated similarly to our peers and is the sum of NAV, drawn and undrawn debt, uncalled capital commitments and capital commitments made to the platform since the NAV record date. AUM was $41.9 billion across the platform as of June 30, 2025, now including Qualitas funds, which was officially integrated into our platform during the quarter.

Again, historically, we have focused on fee-paying AUM and will continue to do so as this measure correlates directly to P10's economics. However, we believe adding AUM will show the breadth and scale of our business as a leading multi-asset class private market solutions provider as we continue to execute on our growth plan. Thank you for your time today.

I'll now pass the call over to the operator to begin the Q&A session.

[Operator Instructions]

Our first question comes from the line of Christoph Kotowski of Oppenheimer & Company.

I think it's kind of interesting that you had Arjay on the call, and he talked about that you're actively pursuing opportunities and that is consistent with everything you've said and makes a world of sense. But I'm trying to think about how you think of your financial capacity for doing additional acquisitions at this point. What kind of leverage multiples would you be comfortable taking the company up to achieve that? Because given that you've been so active on the buybacks, it doesn't seem like you'd be that keen on using a lot of stock to do an acquisition. Can you just kind of flesh out how you think about all those considerations?

Sure thing. Chris, it's Luke here. I'm happy to start, and then I'll turn it over to Arjay to jump in. But I'd just say a few things. One is we've always said as it relates to M&A, we're going to be disciplined, prudent on strategy and find things that have a strong strategic and cultural fit, and none of that changed. The second thing we've talked about is that we're in, as we called it, kind of a crawl, walk, run phase. And so I think we're really focused on what I would call appropriate M&A given sort of the size, given our financial capabilities, given the size of our franchise. And we're not going to stray from that.

That's a focus for us right now. And obviously, as we continue to build that M&A engine, we'll be focused on that. As you mentioned, we obviously are always balancing how we think about uses of capital. And on the one hand, when we see dislocations in the stock as we did in the second quarter, we obviously want to support that share price. and be supportive of our shareholders as we think prudently they would want us to be. But on the other hand, maintain financial capacity.

And so we think when you look at it, as we mentioned, we have ample financial capacity in the range of the M&A that we would look at, both from a perspective of our credit facilities and also from the perspective of the ability to use stock in the deal. And as we've always done, we have used stock in our deals to create that alignment, to create the focus on all of us being aligned together, both internally and with our public shareholders. And so without going into specific constraints, we think for the kind of M&A that we're focused on for the pond we're fishing in, so to speak, we think we have ample capacity to do it and to do it in a prudent way.

And so I'll stop there, and I'll turn it over to Arjay just to amplify.

Yes, I would just amplify, look, we have capacity under the revolver. We have an accordion component of that. You look at our previous cash stock mix, and think about our leverage levels, I think we have ample capacity for the types of sizes of transactions that would be on the road map at this point.

Our next question comes from the line of Ken Worthington of JPMorgan.

I wanted to start on the Evergreen fund at enhanced. For many in the industry, maybe most of the industry, the Evergreen fund really means targeting the wealth channel. And sorry for like a sort of simple first question. Is this what it means to you as well? Is the Evergreen product really going after the wealth channel? Or is it going after some of the existing client base in just a different form?

Ken, this is Sarita. I'm happy to answer that question for you. So as Luke mentioned, Enhanced Capital launched its first evergreen fund, and this is something I'm actually super excited about. As I mentioned, as part of my mandate is building out the global client solutions effort, it's not only to increase our global distribution capabilities, but also to build out our product management capabilities and expanding our types of funds and offerings that we have. And I think this is actually emblematic of this specific type of offering. Enhanced Evergreen Fund is intended to offer our credit investors more of an open-ended format.

And as you can imagine, this is something that we are seeing across the landscape and in response to a lot of our not only institutional investors, but also the high net worth segment as well. We are fortunate to have an institutional client as our anchor investor for this, and we are also continuing to look for other investors interested in a differentiated credit product. We are having active discussions across the landscape, and this does include the wealth manager and high net worth segment that we mentioned. And as now that we have over 4,900 investors in our investor base, as you can imagine, we have a dominant presence within the wealth manager and high net worth segment, and we'll look to capitalize and deepen those relationships there.

Okay. So this leads to a whole bunch of other questions. So what's next on the Evergreen product road map? How does your wealth internal distribution look like? And what sort of partnerships on the wealth side do you have now? And sort of what do you see building over the next, I don't know, call it, 12 to 24 months? And sorry if I'm putting the cart before the horse here, but it's a big deal for many of your peers, and it seems like you're building the -- or have the building blocks here to maybe make the same push.

So thanks, Ken. It's Luke here. I'll jump in and make a few comments and then see if Sarita wants to add anything. So first, we have the slide where we show the mix of our investor types and recall that something like 1/3 -- a little more than 1/3 actually of our investor base is already in the wealth management and high net worth channels. So this has been an area of focus for us. We've accessed it both directly in many cases, with the high net worth individuals, family offices, other groupings, but we've also accessed it through different platforms as well, right?

And that's an increasing part of it. I'd make a few observations. Observation one, which is what Sarita said, is that we're very focused on sort of meeting clients where they are and where they want to go. And so if that includes things like evergreen funds, which obviously we think it does, that would be emblematic of that. And I suspect you'll see over a period of time, more things along this vein. We're obviously going to be very careful and disciplined and prudent. We're not out to proliferate products just for the sake of proliferating products, but we do want to be able to meet the market opportunity that we see. The next thing I would say is we're going to do this in many cases through partners, right?

Those partners could be some of the platforms that we have relationships with, the RIA platforms or otherwise. It could be with others who have specific capabilities in this part of the market. It could be in fairness with consultants or others who are force enablers in this part of the market. What I don't think we're going to do, and we've talked about this, we're not going to build a broad-based kind of retail distribution force. That's not our focus. That's not our thrust. That's not where we're going.

And so we're going to access this market either through the direct relationships that we already have formed over multiple decades through some of the platform relationships we already have and through partnered with others. And so we think that's going to be a force enabler for us as we think about it. So look, I think the answer is prudent product management, meeting the clients where they are, leveraging the existing base and using partners to help us kind of force multiply feet on the street and presence to really get that access to the client base in a more broad-based way.

Sarita, I don't know if you'd add anything.

Yes. I would just echo that as we continue to engage with the larger pools of capital, they are probably going to have specific needs, and we're looking to help grow and tailor those needs with them. And so this is, I think, how we'll continue to grow and scale the business.

And just maybe one separate topic. Fee-paying AUM, you had about $500 million of capital deployed, 2.5x sort of your average over time. So a big deployment quarter, and you called out credit and sort of Hark. So I guess maybe the question here is, given the environment we're in, is this elevated level of capital deployment at Hark and credit more broadly likely to persist? Or was there something particularly unusual about the second quarter that led to that unusually high capital deployment number? And then what does Hark have in terms of dry powder if they're deploying so quickly, do we have to start to think that they're going to come back to market to raise more?

So all great questions. So I'll take a couple. I think the answer is a little bit of yes, and there are obviously some important nuances in the quarter. So nuance one is that's a combination of both capital deployed at Hark, and we'll remind ourselves at Hark we charge on deployed capital. And remember, in the first quarter, we actually saw some repayments at Hark, right? And so that business will naturally ebb and flow a little bit in terms of the capital. And then the second point I would make is in some of our other credit strategies, where we actually charge on committed capital, we had successful fundraises and growing fundraises in the second quarter, and that also contributed to some of that.

So it's a mix of deployment at Hark plus committed capital raised in other places. I would say in terms of the Hark deployment, we obviously talked about the fact that last year, we raised our largest fund at Hark ever, our Hark IV fund. It was about $650 million. That's the fund we're primarily investing out of at this point. We still have the capacity to do some tack-ons in Hark III, but we're largely investing out of Hark IV at this point. And we do have, we think, ample capacity there, but we are seeing a real moment and a real opportunity in NAV lending, as I know many others are, but particularly in our part of the market, I think this has become much more broad-based.

It's become much more accepted among the GP community generally. And I think LPs are much more comfortable with appropriate use cases to really play offense around attractive portfolios that are past their kind of investment period, whether it's to do bolt-ons, whether it's to lean into broader kind of tack-on M&A or otherwise. It's a real market opportunity, and there's a real time for it right now. And so as we've signaled, we will be back out in the market later this year with the successor Hark Fund, Hark V. We're really excited about that. We think it's going to be a great opportunity. And obviously, that will provide incremental capital for what we see as a very attractive market opportunity in NAV lending.

Our next question comes from the line of Ben Budish of Barclays.

Maybe one for Amanda. You talked about a step-up in expenses in the back half of the year. Could you unpack that a little bit? I mean it looks like the expected margins in the back half should be quite a bit lower than the first half just to get you to kind of that mid-40s range. And I'm just curious on comp and benefits in particular, it looks like that line has been kind of flattish for the past 4 or 5 quarters, but you added Qualitas this quarter. Anything else going on there we should be aware of as we're thinking about modeling the next few quarters?

Yes. I would say, generally speaking, Ben, our run rate, excluding the impact of Qualitas, we expect to be similar to prior quarters, given our active monitoring of costs and reinvestment in the business to build out our marketing team, which we've been talking about. And so overall, we still expect margins to be in the mid-40s, including Qualitas.

Got it. Maybe just one more housekeeping question. Just stepdowns and expirations. I think previously, the guidance was 5% to 7% of fee-paying AUM with 2/3 happening in the first half. Is that still the case? I would assume so, but just confirming that what we saw in Q1 and Q2 represents about 2/3 just to, again, help kind of fine-tune things for Q3 and 4.

Yes. We still expect, I would say, the upper end of that range.

Our next question comes from the line of Stephanie Ma of Morgan Stanley.

Maybe with the closing of Qualitas now, could you touch on some of their flagship funds? Where are they in that process? What's the size of their predecessor? And how much can we expect from them this year? And then beyond the existing business, you talked about the new first-time fund. Just broadly curious, any other cross-sell opportunities or new revenue opportunities that you could explore with Qualitas in-house now?

Sure. This is Arjay. I'll start with that. So I think we have Qualitas now in the tables in the performance in the presentation. You'll see that their previous primary fund was Fund VI. That was at $250 million. So they've started on Fund VII that would be, I think, a natural step-up from where you see the $250 million relative to their previous primary fund. That would be, I think, the expectation. You also noticed, I think one of the things we talked about with them is their natural evolution into direct and other products similar to the evolution we've seen at RCP over the years. So you'll see there in the way of investing direct 2.

They've also launched Continuation Finance One, which is a commercial arrangement with our Hark business in the U.S. And so that's actively launching where they're working together collaboratively and is going very well. So I think in terms of going forward, look, I think continued -- they focus on a very similar market to where we focus. If you look at our presentation on them, it's very much similar to the things we talked about in terms of our supplement and materials today. That impacts us in terms of their work with RCP, their work with Hark. They're very much down the middle of the GP ecosystem in which we're playing. So I think a lot of great collaboration to date, and we expect a lot more to come.

Great. Maybe one more for me on inorganic. That's an important strategic angle for you guys. But we're also seeing other asset managers pursue different forms of M&A through JVs, strategic partnerships, minority investments. Just curious if you would consider other structures or forms and what scenario may that make sense or not?

So Stephanie, great question. It's Luke again. I'll come back and say, look, I think we have a model. And so obviously, things we do have to work within our model, right? And one of the kind of premises of our model generally is that we want coordination and collaboration across the platform. As long as we can get that and get that in a place that's on strategy with the right cultural fit, I think we're very open to kind of form and structure. And so look, if somebody said, well, I might be interested in joining the platform in a staged fashion over a period of time, I think we'd be open to something like that.

If somebody said there's a great strategic partnership that we could embark on initially, maybe that involves some initial cross investment. And then over time, we can see if we can broaden that. I think we'd be very open to that. If there were the ability to access some sort of capital formation effort through a partnership, right? I think we'd be very open to that. It obviously would have to be on strategy. It would have to fit with our kind of fundamental focus and how we're trying to operate the business. But if we could find those things, I think, obviously, the deals we've done historically have been more of the traditional kind of control deals, but we would be very open to other types of deals insofar as they were facilitating and helpful with what we're trying to accomplish strategically.

I don't know, Arjay, if you'd add anything.

No, I totally agree with all that. I mean I think we talked about it a little bit at Investor Day. I mean Sarita and I are working together a lot on strategic distribution-related opportunities that aren't necessarily always M&A transactions, but there can be an element to that, but where there's interesting distribution angle that we might be able to leverage across the syndicate. So I think that's a key part of time. Those things are not easy to get done, but we're spending time there, and we think there's really interesting opportunities out there.

Thank you. I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir?

Well, thank you, and thank you all for joining us today. I want to thank our entire P10 team, our strategies and you, our investors. We are focused on advancing our growth plan, and we look very much forward to updating you on our third quarter performance later this fall. Thank you, and good morning.

This concludes today's conference call. Thank you for participating. You may now disconnect.