P10 Inc

NYSE:PX

Earnings Call Analysis

Building Momentum and Fundraising Plans for Growth

The company anticipates a solid surge in asset collection, targeting over $2.5 billion of organic growth in gross new assets across the platform. This fundraising is a part of a larger strategy for expansion, aiming to stimulate double-digit revenue growth, underpinned by this fundraising effort and favorable fee rate dynamics. For 2024, they have also set their sights on what they hope will be at least one strategic transaction. Margins are projected to average in the mid-40s when adjusted EBITDA margins are considered, though this excludes the impact that acquisitions might have on these figures.

Assets Under Management and Revenue Trends

Fee-paying assets under management have demonstrated a healthy year-on-year growth of 10%, reaching $23.3 billion. A dynamic fourth quarter saw a collective growth and deployment of $860 million although this was partially counterbalanced by $297 million in strategic step-downs and expirations. Looking ahead into the first part of 2024, approximately $1.2 billion in step-downs and expirations is anticipated, and another $300 million in the latter half. Revenue trends mirror this growth, with a commendable 22% year-over-year increase to $241.7 million. A noteworthy contribution to the increase was the average fee rate in the final quarter, standing at 109 basis points, a reflection of more lucrative, higher fee rate direct strategies in the Fee-Paying AUM mix. Despite a one-time event affecting the performance of the venture equity strategy, the overall trajectory points to robust financial health.

Operational Highlights and Dividend Announcement

On the operational front, expenses in the fourth quarter showed a 10% increase from the previous year, indicating a controlled expenditure aligned with growth. A significant uptick of 43% for the year was primarily due to acquisitions. A noteworthy outcome is the consistent adjusted EBITDA margins which stood at 48.7% for the quarter and 51.1% for the year. Shareholders can look forward to a dividend of $0.0325 per share, suggestive of the company's continued commitment to delivering returns. As the fiscal year ended, the share count was recorded, with 57,622,895 Class A shares and 58,474,267 Class B shares outstanding.

Strategic Plans for Expansion and Enhanced Tracking

The management envisions a dual-path growth strategy - one that is both organic and inorganic. They plan on recruiting a Head of Marketing and a Head of Distribution to drive organic growth more effectively. Simultaneously, they aim to pursue strategic value-enhancing deals, leveraging their platform's scale and breadth to optimize investments. To ensure that stakeholders can track this progress accurately, they intend to augment their key performance indicators (KPIs), allowing for enhanced measurement and monitoring of the company’s achievements as they unfold.

Fiscal Stewardship and Investment Prudence

Fiduciary responsibility remains a cornerstone of the firm's principles, emphasizing a strategy that is 'smart and opportunistic.' This philosophy applies to managing step-downs in assets, which are projected to average 5.3% in 2024, a decrease from 7.1% in 2023. Further, the company continues to guide towards a fee rate of approximately 105 basis points, indicative of their commitment to maintaining stable revenue streams from asset management.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to the P10 Fourth Quarter and Year End 2023 Conference Call. My name is Josh, 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, EVP of Operations and Chief Administrative Officer. Mark, please go ahead.

[Mark Hood, executive]

Good afternoon, and welcome to the P10 fourth quarter and year end 2023 conference call. Today, we will be joined by Luke Sarsfield, Chief Executive Officer; and Amanda Coussens, 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 these forward-looking statements due to a number of risk factors and uncertainties and 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, which 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.

[Luke A. Sarsfield, executive]

Thank you, Mark. Good afternoon to everyone, and thank you for joining us. On our call today, I'm going to provide an overview of our 2023 performance, share some key observations from my first 4 months as CEO and lay out our plan for the year ahead. P10 delivered strong fourth quarter and full year operating results in 2023, which demonstrated the strength of our strategies and our position as a leading specialized private market solutions platform. In 2023, we generated double-digit top line growth and strong profitability.

For the full year, Fee-Paying AUM increased by 10%, revenues increased by 22% and adjusted EBITDA rose by 16%. It bears repeating, P10 surpassed its 2-year gross fundraising expectations of $5 billion 6 months early. And by the end of 2023, we had raised an incremental $2 billion above our original target. Despite the underlying strength of our platform and our positive financial results since going public in 2021, we continue to face pressure on our valuation. Across most metrics, we trade at a meaningful discount to our alternatives peer group.

While we believe this presents a compelling entry point for investors, today, we are focused on closing that relative valuation gap through strategic execution underscored by transparent communication. We believe that as we articulate and execute on our new strategic initiatives, the market will take notice and reward shareholders. When we talk about our ownership base, it's important to note that P10 employees make up the largest ownership position in our shareholder register. This is a reflection of our collective conviction in the intrinsic value of our platform.

We are firm believers that this ownership stake results in strong alignment between the company and our broader shareholder base. During the fourth quarter, we bought back 859,600 shares at an average share price of $9.74. Further, our Board of Directors has approved a $40 million expansion of P10's current share repurchase program. With $10.6 million remaining on our previous $20 million buyback authorization, we now have over $50 million available for repurchases. We have never been more confident in the franchise and its future and are evaluating every possible avenue to deliver long-term value for our shareholders.

Since being appointed CEO in October, I have had the opportunity to holistically engage in almost every aspect of P10's operations. That has allowed me to gain a deeper understanding of the organization. It was important for me to get to know our teams and equally as critical for them to get exposure to me. I spent the last 2 months of 2023 on a listening tour across a broad array of important constituencies, visiting with them in person, hearing their perspectives and gaining insights as to what P10 does well and learning how we can continue to enhance the organization and its processes.

In addition to visiting with each of our strategies in-person and engaging with our employees, I had the privilege to spend time with many of our clients and limited partners, both current and prospective as well as our investors and analysts. With the benefit of that insight, I can say with confidence that P10 is a world-class business made up of the leading minds in the middle market alternative investment space. Moreover, our managers all have a world-class track record of investing excellence that has resulted in high levels of trust with our LPs.

Trust is not something we can buy or create in the short-term. I take that trust very seriously, and we plan to build on the immense credibility our managers have achieved in this next chapter of our growth. The solid foundation that has been built to-date will form the basis of our success going forward. As we look to 2024 and beyond, our strategic priorities are as follows: first, institutionalize our platform and optimize our corporate level organizational structure; second, drive increased organic growth by expanding our existing client franchise through programmatic cross-selling and strategic partnerships; third, implement a robust, disciplined and process-driven approach to inorganic growth; fourth, generate operational efficiencies through incentivizing collaboration and leveraging data insights; and finally, enhance our shareholder communications with an eye to greater visibility and transparency.

These priorities set the stage for an exciting 2024 as we invest to accelerate profitable growth in 2025 and beyond. We have aggressive goals with a roadmap to achieve them. Executing on our plan will not occur overnight, but progress will be evident as we report each quarter. We also plan to share more about our long-term strategy at P10's first Investor Day in the fall of this year. As I said at the beginning of the call, P10 employees are firmly aligned with our shareholder base. When we execute on this strategy, all P10 stakeholders benefit.

Now let's dive a bit deeper on each of our priorities. First, we are going to institutionalize our platform and optimize our corporate level organizational structure. In a trust and performance business, our people are our greatest asset, and we must set up an appropriate structure to drive success and accountability in this next phase of our growth. With that in mind, I would like to thank our retiring Chief Operating Officer, Fritz Souder, for his contributions to P10. He was a founding partner at RCP and has done an outstanding job for our limited partners, our shareholders and our employees.

We thank Fritz for all he has done and wish him the very best. Our go-forward corporate level organizational structure has 4 key functional areas, each led by a Senior Executive Vice President level leader reporting directly to me. Our outstanding EVP, CFO and CCO, Amanda Coussens will continue to lead the finance, audit, accounting, legal and compliance teams. Amanda's contributions to P10 cannot be overstated as she has helped build the strong financial and compliance functions that have positioned P10 for continued organic and inorganic growth. To further augment our legal and compliance framework, she will lead the external search to identify and recruit a General Counsel and Chief Compliance Officer to further enhance our P10 control framework.

Mark Hood has been elevated to the role of EVP of Operations and Chief Administrative Officer. In this newly created role, Mark will oversee our operations, data and technology, human resources, public relations and communications, and he will continue in his oversight of our Investor Relations function. Mark has been foundational to P10 since its IPO, and I am incredibly excited about his expanded role. Next, I'm thrilled to report that we have hired a world-class professional to serve as our EVP, Head of Strategy and M&A.

Arjay Jensen is an incredibly talented seasoned professional with over 20 years of experience at Goldman Sachs, Guggenheim Securities and Perella Weinberg Partners. Arjay will oversee our corporate strategy and lead our corporate development and M&A activities. Inorganic growth will be a core growth driver for P10. Arjay will be instrumental in building a scalable M&A blueprint, identifying key strategic opportunities for P10 and executing on M&A transactions. Additionally, we are going to continue to invest in our client franchise.

To lead this effort, we are seeking an experienced industry veteran. This person will oversee our client organization, including client relationships, distribution, marketing and product development, and will work closely with client leaders across our various strategies. As we scale the platform, we're going to build a best-in-class distribution network for our products across strategies. We strongly believe the Head of Distribution will be critical to maximizing the value of each client relationship. Given the importance of finding the right person for this role, we have retained a leading recruiting firm with deep expertise in this area, and we are working closely with them in earnest to find the right leader for this function.

Second, we plan to drive increased organic growth by expanding our existing client franchise through programmatic cross-selling and strategic partnerships. P10 is fortunate to have a large and growing global LP base and we need a scalable and replicable process for expanding our influence with current and prospective LPs. Our new Head of Distribution will be responsible for building this framework to demonstrate progress against our goals. We intend to provide additional details on this topic throughout 2024, culminating at P10's inaugural Investor Day this fall.

Third, we are implementing a robust, disciplined and process-driven approach to inorganic growth. My background is in deal-making and in Alternative Asset Management. I've spent decades doing those 2 things at the highest level and strongly believe that we are positioned to execute deals on a global scale. We plan to increase our footprint, which will also enhance our relationship network. This will mean navigating new jurisdictions and regulations, and that's where we're going to be selective, but opportunistic in this pursuit. As our Head of M&A, Arjay Jensen will leverage his vast experience to reaccelerate our M&A engine.

Fourth, we plan to drive operational efficiencies through incentivizing collaboration and leveraging data insights. As we focus on accelerated growth in 2025, we need to ensure our operational structure is optimized and designed to encourage efficiency and collaboration across our strategies. We also plan to share more data with the investment community in a format more aligned to our peers. We will communicate how we are leveraging the collective strengths of our platform more regularly. Finally, we plan to meaningfully enhance our shareholder communications with an eye to greater visibility and transparency. I believe that in order to assess the progress we are making against these previous 4 initiatives, the investment community needs a clear and understandable framework through which to evaluate P10's performance, both on an absolute and a relative basis.

As such, we are going to begin rolling out KPIs that allow our key stakeholders to get their arms around the huge opportunity we're capitalizing on. We will have more to report in future quarters as we work through specific details with our audit partners and Audit Committee, and we look forward to updating you appropriately. Now let's turn to our outlook for 2024. Starting with Fee-Paying AUM, we anticipate we will organically raise more than $2.5 billion of gross new assets across the platform. We expect double-digit revenue growth that is driven both by this fundraising activity as well as positive fee rate dynamics.

We also hope that in 2024, we will announce at least one strategic transaction. As it relates to adjusted EBITDA margin, we expect margins to average in the mid-40s, excluding the effect of acquisitions. There are 2 dynamics at play here that I'd like to highlight. The first is an ongoing mix shift within our existing portfolio of strategies. As we have previously noted, some of our newer and faster-growing businesses, such as Bonaccord, Hark and WTI have lower core adjusted EBITDA margins than other parts of our business, and the overall margin will continue to reflect this evolution.

The second influence on margins is the critical and foundational human capital investments we are making in the business. We expect these investments to drive core growth and provide a high ROI for investors. As we move into the New Year, we will begin using the common descriptor FRE or Fee-Related Earnings in our financial reporting. Before I hand the call over to Amanda, I want to acknowledge some of the recent noise in the marketplace regarding a previously disclosed related party transaction with Crossroads. In step with enhanced transparency, we want to speak directly and clearly on this matter.

The transaction was reviewed, approved and disclosed in keeping with the appropriate governance controls P10 has in place. P10 did not invest any capital in Crossroads. The institutional investors who did invest in Crossroads did so on a nondiscretionary basis and conducted their own rigorous due diligence. The transition of our founders and former Co-CEOs had absolutely nothing to do with the related party transaction. Robert Alpert and Clark Webb will continue in their current roles as Executive Chairman and Executive Vice Chairman, respectively.

Finally, a committee of our Independent Directors commissioned Willkie Farr & Gallagher, a third-party law firm to conduct a comprehensive investigation of the transaction. The committee, the broader Board and the law firm, all found our governance provisions were properly followed. To close, I want to remind shareholders that the fundamentals of P10's business remain exceptionally strong. While we view this year as a table-setting year ahead of acceleration in 2025 and beyond, we are a world-class platform that has momentum across world-class strategies. We are committed to transparency and delivering our investors transparent disclosure.

With that, I'll turn the call over to Amanda to further review our financial results.

[Amanda Coussens, executive]

Thank you, Luke. In the fourth quarter, fee-paying assets under management were $23.3 billion, a 10% increase on a year-over-year basis. In the fourth quarter, $860 million of fundraising and capital deployment was offset by $297 million in step-downs and expirations. For the first half of 2024, we estimate $1.2 billion in step-downs and expirations. For the second half of 2024, we estimate an additional $300 million. Revenue in the fourth quarter was $63.1 million, an 8% increase over the fourth quarter of 2022. Year-over-year revenue increased from $198.4 million to $241.7 million, up 22%, Average fee rate in the fourth quarter was 109 basis points, driven by higher fee rate, direct strategies becoming a larger part of our Fee-Paying AUM mix. Before I continue with our results, I'd like to provide insight into a one-time event that impacted the performance of our venture equity strategy, TrueBridge in the fourth quarter.

If not for this event, we would have recognized an additional $3.1 million of revenue and $2.7 million of adjusted EBITDA. TrueBridge Global Premier I, or TGP1, was raised in 2022 with the objective of investing in all funds raised by an undisclosed manager's global platform across 2 vintages, 2022 and 2024-2025. The TrueBridge closed TGP1 with a total of $275 million of external LP capital; $250 million, we were confident of deploying and $25 million for reserves. TGP only charged management fees on the $250 million at a 1% rate. TGP1 deployed just under 40% of its total fund size and the 2022 vintages with the remaining 60% planned for 2024, 2025 vintages and reserves.

In late 2023, the undisclosed manager announced it would be separating its global platform by spinning out its India and China operations into their own independent firms. The TGP1 mandate did not allow investments in these new independent firms. As a result, we recommended that LP's vote to release all TGP1 LPs from their uninvested capital, and we distributed a consent election to that effect. The management fee from inception will be revised based on this new smaller fund size. In addition, to preserve goodwill with our limited partners, we have waived 50% of the recalculated management fee from inception, June 2022 to December 2023.

Turning now to our other strategies; in the quarter, we had 12 funds in the market and saw broad participation across our platform. Our private equity strategies raised and deployed $324 million. Our venture equity strategy raised $299 million. Our credit [indiscernible] raised and deployed $209 million, while our Impact team contributed $28 million. P10 continues to benefit from strategies with long track records of generating durable alpha and offering best-in-class investment opportunities to our global investors. Operating expenses in the fourth quarter were $57.7 million, a 10% increase over the same period a year ago.

For the full year 2023, operating expenses were $220.8 million, a 43% increase over 2022. The increase was primarily driven by additional compensation, benefits and noncash stock-based compensation expense related to the acquisitions of Bonaccord, Hark and WTI. GAAP net loss in the fourth quarter was $1.9 million, a 139% decrease when compared to the year ago period. On a year-over-year basis, GAAP net income decreased from $29.4 million to a net loss of $7.8 million. The GAAP net loss is primarily attributable to compensation expense and non-cash stock-based compensation related to the CEO transition and the acquisitions of Bonaccord, Hark and WTI.

Adjusted EBITDA in the fourth quarter was $30.7 million, in line with $30.8 million in the fourth quarter of 2022. For the year, adjusted EBITDA grew from $106.8 million to $123.6 million, a 16% increase. For the quarter, our adjusted EBITDA margin was 48.7% and for the full year, was 51.1%. For the fourth quarter, adjusted net income or ANI was $25.5 million, a 7% decrease over the $27.3 million reported in the fourth quarter of 2022. For the year, ANI increased from $97.9 million to $102 million, equaling a 4% increase. Fully diluted ANI EPS on a year-over-year basis grew 2% to $0.82 per share. Cash and cash equivalents at the end of the fourth quarter were $30.5 million.

At December 31, 2023, we had an outstanding debt balance of $292.6 million and $71.8 million available on the revolver. As of today, we have $273.6 million in outstanding debt with $90.8 million available on the credit facility. We also continue to pay our quarterly dividend for Class A and Class B common stock. We have declared a dividend of $0.0325 per share payable on March 26, 2024, to stockholders of record as of the close of business on March 11, 2024. Finally, as of December 31, 2023, our Class A shares outstanding were 57,622,895 and Class B shares outstanding were 58,474,267.

Thank you for your time today, and we look forward to building strong momentum in 2024 as we seek to accelerate growth in 2025. I'll now pass the call over to the operator to begin the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Michael Cyprys with Morgan Stanley.

[Michael Cyprys, analyst]

Luke, I'm hoping to come back to your commentary on the listening tour. I was hoping you might be able to elaborate on some of the key takeaways that you had from your listening tour over the past couple of months. Curious what stood out, what areas could you enhance the organization in terms of processes? And as you think about accelerating growth, what do you see as some of the key levers to pull? Where are you looking to lean in and invest more as you look out over the next couple of years for P10?

[Luke A. Sarsfield, executive]

Thanks, Michael. Appreciate the question. So I would say, as I mentioned in the script, I think from the listening tour perspective, the first and most compelling thing that came away almost universally was the incredible strength of our investing franchises and the incredible kind of talent that we have in every one of our investing strategies. That was first and foremost. The second thing I would say was kind of the trust and confidence that LPs have and continue to place in us and our ability to continue to drive and grow that LP base is really compelling.

And the third, I would say, is the broad-based desire and alignment across our organization to do the foundational work that we've talked about here, and obviously, with the hope that the end result in that will be a meaningful uplift in our share price over time as we talked about and sort of the diminution or the elimination, frankly, at that discount that we've had relative to the peers. And so as we think about the growth perspective, right, just sort of fundamentally, there are 2 main areas where we want to drive fundamental growth. One is organic.

And as I mentioned, we're going to be leaning in hard in terms of being able to do that in a more comprehensive way. And we really need kind of a foundational leader to work with me to help us do that. And so as I mentioned, we're out aggressively looking and recruiting for a Head of Marketing, a Head of Distribution that's going to help us drive that. And then I think from there, probably, we'll continue to evaluate how we do that in the best, most impactful and highest ROI way. But I think really having a key leader in that effort is foundational and critical.

And then you heard me talk about inorganically, how we really want to drive the machine and really kind of live up to the promise that we made at the time of the IPO that we would do the right appropriate value-enhancing strategic deals. And obviously, I have a background in that. I'm thrilled that we were able to recruit a world-class talent like Arjay to help with that. And I think collectively, we're going to drive that.

And then I think the third place we're going to continue to look is just across the breadth of our platform. Obviously, we have the benefit of scale, breadth, and we want to leverage those economies, and we want to use that in a way that's sort of enhancing for each of our individual strategies and also for the P10 platform as a whole. But those are kind of my high-level takeaways. And those are kind of the high-level things, as I mentioned on the call that we're going to do to really invest to reaccelerate growth.

[Michael Cyprys, analyst]

Great. And just a follow-up question on fundraising. I think you mentioned $2.5 billion expectation for fundraising here in '24. Just hoping you could help unpack some of the key contributors for that? What are you expecting in terms of funds scaling at this point? Any sort of contribution at this point from SMA that you're expecting embedded in that $2.5 billion number? And then what can we expect in terms of deployment that I imagine would be incremental to that $2.5 billion relative to current dry powder levels?

[Luke A. Sarsfield, executive]

Yes. So all good questions and so just to give a little more flavor on it, right, we are out in the market with a broad-based group of funds this year as we are most years, right? And so we're kind of out with a fund in virtually all of our strategies. I think actually this year in all of our strategies, 15 funds in total. Some cases we're raising one large flagship fund. In other cases, we're raising multiple funds targeted across the platform.

And I would tell you, although I think it's probably too early to call the turn. I think the dynamic in the marketplace among LPs feels a little bit better right now than it probably has over the last couple of years. I think that's both a recognition that there are some attributes of the space we play that are protected and attractive and probably also just a broader view on the capital markets generally are doing better. And so that probably leads into kind of a better fundraising environment. But we're really excited about what we're going to be out with.

We do think, to your specific question, that there is really an ability of ours to do kind of broader-based things across the platform and whether that comes to your question in SMA format or otherwise, the specific form to be determined. But I think the opportunity to engage more broadly with more LPs in a more diverse way across the P10 platform is a big opportunity set for us. It's something we're really orienting ourselves towards. And I think the whole idea of how you measure our success on that, Michael, we're going to be coming back out, as we mentioned, with what I would call augmented enhanced KPIs so that you and we can measure, monitor and track that progress.

[Michael Cyprys, analyst]

Great. And just any views on the scaling of funds in '24 and views on deployment, which is -- is that incremental potentially to the $2.5 million?

[Luke A. Sarsfield, executive]

Yes. Look, I would say, look, we always think about opportunities to scale things. And as you know, many of our funds, we recognize on committed, but some we recognize on deployed. And so obviously, if we find ourselves in a more robust deployment environment, that will create some upside as it might in any scenario. I would say, look, I don't think our orientation to deployment has fundamentally changed.

We are very focused on being smart and opportunistic. And to the extent that there are dislocated opportunities, and we see things that we can take advantage of, we're clearly going to lean in on those. Clearly, some of our strategies are also what I would say, somewhat attuned to the type of market environment we're in. I think about some of our credit strategies, I think of our GP stake strategy as clearly things that are a secondary strategy as well as clearly things that are very attractive in terms of the market opportunities we're seeing. And in those cases, we're obviously not going to be shy about appropriately deploying capital in a way that generates value for our LPs.

[Operator]

Next question comes from Kenneth Worthington with J. P. Morgan.

[Kenneth Worthington, analyst]

Maybe two first for Amanda. One on the fee rate. Fee rate was 109 basis points this quarter. I think you mentioned some mix changes influenced the fee rate here. Given the funds kind of rolling on and rolling off, what is sort of the range of fee rate we could likely expect for 2024?

[Amanda Coussens, executive]

I believe that the fee rate that we're continuing to guide towards is about 105 basis points.

[Kenneth Worthington, analyst]

Okay. So no change here despite the pop-up in the fourth quarter?

[Amanda Coussens, executive]

Yes.

[Kenneth Worthington, analyst]

Okay. And then you mentioned the $1.5 billion of step-downs in '24. That's not that different than the level of step-downs we saw last year. And I think last year was negatively impacted by the step-down of like the older, the more recent vintage of WTI. So I guess, why so large in '24? And is this really kind of the right pace for step-downs as we look forward into the future?

[Amanda Coussens, executive]

We would expect overall that our step-downs will be about 5.3%, which for 2024 versus the 7.1% of overall Fee-Paying AUM for 2023, if that helps kind of explain the difference.

[Kenneth Worthington, analyst]

Okay. And is 5.3% sort of the right pace generally more or less into perpetuity or is there anything unusual good or bad about the pace in '24?

[Amanda Coussens, executive]

No. I believe that is the correct pace going forward, yes.

[Kenneth Worthington, analyst]

Okay. And then one last one for Luke. So you started in your prepared remarks, you mentioned the stock had struggled. I guess this is in part due to the perception of Crossroads by P10 investors. To what extent has Crossroads made its way into conversations with your investment customers? So like the customers of RCP and Hark and WTI and sort of the individual managers. Is it just kind of a public shareholder issue or is this also kind of coming up in the fundraising or relationship conversations you have with your customers?

[Luke A. Sarsfield, executive]

And just so I understand the question, you mean has it come up in our dialogue with the underlying LPs of our various strategies. Is that the question?

[Kenneth Worthington, analyst]

Yes, that's what I was really trying to say. I just asked it poorly.

[Luke A. Sarsfield, executive]

No, no, no. You asked it fine. I got the point. Look, I would say, thankfully, in many ways, it really hasn't come up. We had, I would say, a couple of inquiries around it that we responded to in a way that was very consistent with the way that we responded to it in other forums, including with our public investors. And I think the good news is our LPs have known us for a long time. They put a lot of trust in us. And I think they really know our individual managers and in most cases, have been with us for a long time across multiple years across multiple vintages. And so I think they know that we do world-class business in a world-class way and they're focused on that. And so I think, again, that's -- it really has not, in large part, Ken, and I hope the goodness it stays that way.

[Operator]

Our next question comes from Mike Brown with KBW.

[Michael Brown, analyst]

I wanted to expand on the capital allocation strategy here. So I'm trying to parse through the buyback and the M&A commentary. I guess my question would be how do you get back into the M&A market at your current valuation levels? Is that effectively on hold until you start to narrow the discount that you mentioned versus peers? And I guess, if that's the case, does that mean you'll be leaning on the buybacks more significantly near-term? And I guess what would be kind of the right point where you feel like your currency is back to a level that could be more effective for M&A?

[Luke A. Sarsfield, executive]

Well, let me -- I'll start, if I could, Mike, thanks for the question. I'll start just with on what I would call the broader M&A philosophy, and then I'll turn it over to Amanda to go through sort of how we would think about the capital allocation waterfall. But your question is the right one, does our current valuation impact our ability to do M&A. And I would say I think it would, in certain instances, but it would not in many other instances, right? And so the good news is, point one, we have broad and robust access to capital.

Equity capital is one part of that, but we have -- as Amanda went through a meaningful access on the revolver, and I think just meaningful credit capacity more broadly that's untapped at this point. And so that would create our ability to do M&A. I would say the second thing is not all M&A is necessarily going to come at valuations that are going to be somehow prohibitive to us. I suspect there are parts of the M&A market, given how robust it's gotten in the alternative space where that would be more of an impediment.

But I think we're looking broadly. We're really focused. I think there are places where that would not be the case as much, and we think we will have ability to execute there. I also think it sort of depends on the size of the M&A deal you're looking at, right? And so we may look at larger deals, but we may also look at a string of targeted kind of string of pearls acquisition that would allow us to really drive incremental value in ways where we wouldn't have to pay into that kind of frothy part of the market.

And so I want to be clear, we are really focused on doing M&A, but we're really focused in doing it in the right value ROIC creating way for our shareholders. We're not going to do something frivolous with our hard-earned capital. We're going to be really disciplined, but we do think there are opportunities out there in the near-term even given where we trade. And with that, I'll turn it to Amanda just to hit on some of the kind of broader capital allocation points.

[Amanda Coussens, executive]

Yes. So in general, our priorities of capital allocation remain -- our priorities for cash flow remain the same: first dividend, M&A, buybacks and then paying down on the revolver to free up capital for future M&A. And as we said, as of today, we have $90.8 million on the revolver available. And given our free cash flow profile, we really are comfortable with a higher leverage ratio than where we sit today as well.

[Michael Brown, analyst]

Okay, great. And then maybe another one for you, Amanda. On the margin outlook, margin came in at 51% for the year. If I heard correctly, you guys are guiding to a mid-40s adjusted EBITDA margin for 2024. So it sounds like it's a pretty large delta there, and it sounds like you guys are considering maybe some more infrastructure investments. But I was wondering if you could maybe put a little finer point on that delta, what's driving that difference?

[Amanda Coussens, executive]

Yes. It's really, it's -- there's an ongoing mix shift within our existing portfolio of strategies. Some of our newer and faster-growing businesses such as Bonaccord, Hark and WTI have a lower core adjusted EBITDA margins than other parts of our business. And the overall margin will continue to reflect this evolution. I would say the second influence on margin is the critical and foundational human capital investments we are making in the business. We expect these investments to drive our core growth and provide a high ROI for our investors. So it's really a mix of those 2 factors.

[Michael Brown, analyst]

I guess is there a point at -- a certain point as you continue on your growth trajectory where the margin will actually begin to inflect higher again?

[Luke A. Sarsfield, executive]

Well, I'd answer it this way. And I'd say it depends, right? And it depends on a few things. One is, obviously, it would depend on M&A. This all presumes that we're running the platform as it is for the foreseeable future. As we've talked about, we imagine that will probably not be the case. And so anything we did from an M&A perspective would obviously have some impact and largely likely to be at least initially a margin-dilutive impact.

I would say it also then depends on this question of relative growth rates, right? And so the question then becomes, how is that relative growth rate? On the one hand, you want your fast-growing businesses to grow faster and growth is valuable, even if that comes at a relatively lower but still high margin versus the wider world and the wider opportunity set, we do think I want to be clear that some of the foundational investments we're making, obviously, they will be most impactful in the first year that you make them. And then over time, you will see the accretive benefit of those investments bearing fruit.

The question then will be that accretive benefit relative to the ongoing mix shift that will still be happening on the forward -- how does that trade off? I don't know, frankly, today that we have perfect visibility on that. Some of it will depend on the relative growth rates, and we're investing to grow everywhere. And so in some places, we're looking to reaccelerate growth. And so look, I would tell you, I think the foundational investments we're making are going to be highly accretive to the franchise, highly ROI generated to the franchise and will help us drive accelerating growth and margin on the forward with some of the offsets I just noted.

[Operator]

Our next question comes from Benjamin Budish with Barclays.

[Benjamin Budish, analyst]

I was hoping to revisit the revenue guidance, if we could. I just want to make sure I kind of have the details right. So it sounds like $2.5 billion plus of gross assets, $1.5 billion of step-down. So that's about $1 billion of net Fee-Paying AUM growth with maybe some upside from deployment. So that's like a little less than 10%, and it sounds like if the fee rate in aggregate is going to be 105 basis points, can you just kind of maybe explain how the -- work out the double-digit revenue growth maybe to start?

[Amanda Coussens, executive]

I'm sorry, Ben, can you repeat that, the last part of your question?

[Benjamin Budish, analyst]

Sure. With the gross raising of $2.5 billion and the outflows of $1.5 billion over the course of the year, it looks like about like $1 billion from Q4 to Q4 of Fee-Paying AUM growth, so maybe like a little under 10% in terms of average Fee-Paying AUM growth. And Amanda, you mentioned earlier that the average fee rate should be about the same year-over-year. So I'm just trying to [indiscernible] from that, if I have that right to the double-digit revenue growth you're expecting.

[Amanda Coussens, executive]

Yes. I think then the difference is in catch-up fees. We have some funds in the market that we would expect larger catch-up fees in 2024.

[Benjamin Budish, analyst]

Got it. That makes sense. And then any details on -- in terms of like pace of debt paydown, I think you talked about M&A, obviously, being a top capital priority. But just thinking about getting from the top line to the bottom line, you talked about the EBITDA margin. So just wondering what the interest rate or interest expense outlook looks like and maybe anything you can share on your expected cash tax rate.

[Amanda Coussens, executive]

Yes. I would expect our cash tax rate to be very similar to what it has been in 2023. And generally, I would say, for interest, other than additional M&A, I would expect our interest to be a bit lower. Of course, it depends on how much stock buyback we have during the year. But otherwise, just the rate would be the only thing ultimately impacting in stock buybacks.

[Operator]

Our next question comes from John Campbell with Stephens.

[John Campbell, analyst]

Just wanted to go back to the catch-up fees. By my math, I'm showing maybe a $10 million benefit or so from 2023 to '22. Obviously, that's 500 points or so of growth or 500 bps of growth, pretty big impact to margins as well. So first, I guess, is that math correct? And then secondly, Amanda, you talked to expectation that it would be a little bit higher -- catch up fees will be a bit higher in '24. I was just going to see if that was relative to 2023 or if that's relative to kind of historical averages?

[Amanda Coussens, executive]

So, John, yes, you are correct in the $10 million. And just to be really clear, I think we typically state the catch-up fees for the quarter, which they were $4.6 million for this quarter for Q4. And then for 2024, we expect them to be about $16 million.

[John Campbell, analyst]

Did you say 6 or 16?

[Amanda Coussens, executive]

$16 million.

[John Campbell, analyst]

Okay. So that would seem to be pretty impactful to margins. I guess, given your commentary about some pressure on margins this year on mix shift, I guess it's not going to be mixed from the catch-up fees. So I guess that's just product mix. And then to some extent or maybe it's to a larger extent just the investments across the board. Is that the right way to think about it?

[Amanda Coussens, executive]

Yes, that's correct.

[John Campbell, analyst]

Okay. And then one more quick one for me. I don't know if you have this on hand, I think you guys do typically put this in the 10-K, but what was your weighted average duration of remaining AUM exiting the year?

[Amanda Coussens, executive]

About 7 years.

[John Campbell, analyst]

Okay. So a step up from about 6 last year.

[Operator]

I would now like to turn the call back over to Luke Sarsfield for any closing remarks.

[Luke A. Sarsfield, executive]

Well, thank you, and thank you all for joining us today, and we really appreciate the opportunity to be with you. As we've tried to underscore in this call, we're building upon P10's solid foundation to deliver accelerated growth in the coming years. You've heard about our strategic priorities on today's call, and we look very much forward to updating you on our progress incrementally throughout the year. I want to thank our entire team at P10, our employees, our managers and ultimately, our LPs who all contribute to making this a world-class platform. We're incredibly excited for what's to come. And we very much look forward to speaking with all of you in May. Thank you.

[Operator]

Thank you for your participation. You may now disconnect.