GCM Grosvenor (GCMG) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01An investment in our Class A common stock is not an investment in any of our funds and is not linked to the historical or future performance of our funds. However, the success and growth of our business is highly dependent upon the performance of our funds
2. 02The industry in which we operate is intensely competitive. If we are unable to compete successfully, our business and financial condition could be adversely affected
3. 03A decline in the pace or size of fundraising or investments made by us on behalf of our funds may adversely affect our revenues
4. 04We could suffer losses if our reputation or the reputation of our industry is harmed
5. 05We are subject to numerous conflicts of interest that are both inherent to our business and industry and particular to us. Our failure to deal appropriately with conflicts of interest could damage our reputation and have a material adverse effect on our business, financial condition and results of operations
6. 06Conflicts of interest could arise in our allocation of co-investment opportunities
7. 07Our entitlement to receive carried interest from many of our funds could create an incentive for us to make more speculative investments and determinations on behalf of a fund than would be the case in the absence of such arrangement
8. 08Conflicts of interest could arise in our allocation of costs and expenses, and increased regulatory scrutiny and uncertainty with regard to expense allocation may increase the risk of harm
9. 09Certain policies and procedures implemented to mitigate potential and actual conflicts of interest and address certain regulatory requirements may reduce the synergies that may otherwise exist across our various businesses
10. 10A significant portion of our consolidated financial statements include financial information, including net assets and revenues, that is attributable to noncontrolling interests holders and not attributable to us
11. 11Our international operations subject us to numerous risks
12. 12Our indebtedness may expose us to substantial risks, and our cash balances are exposed to the credit risks of the financial institutions at which they are held
13. 13We may be unable to remain in compliance with financial or other covenants contained in our debt instruments
14. 14The loss of experienced and senior personnel could have a material adverse effect on our business and financial condition
15. 15We intend to expand our business and may formulate new business strategies or enter into new geographic markets, which may result in additional risks and uncertainties in our business
16. 16Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business
17. 17Operational risks, including system failures or disruptions, can disrupt our business, damage our reputation, result in financial losses or limit our growth
18. 18Failure to maintain the security of our information technology networks, or those of our service providers and other third-parties, or cybersecurity incidents could harm our reputation and have a material adverse effect on our results of operations, financial condition and cash flow
19. 19Rapidly developing and changing privacy and cybersecurity laws and regulations could increase compliance costs and subject us to enforcement risks and reputational damage
20. 20Extensive government regulation, compliance failures and changes in law or regulation could adversely affect us
21. 21failure by us, our funds or the companies in which they invest to comply with them could expose us to significant penalties, sanctions, loss of future investment opportunities, additional regulatory scrutiny and reputational harm
22. 22A 1% U.S. federal excise tax could be imposed on us in connection with redemptions
23. 23Federal, state and foreign anti-corruption and sanctions laws create the potential for significant liabilities and penalties and reputational harm
24. 24Misconduct by our employees, advisors or third-party service providers could harm us by impairing our ability to attract and retain clients and subject us to significant legal liability and reputational harm
25. 25We may face damage to our professional reputation and legal liability if our services are not regarded as satisfactory or for other reasons
26. 26Risks related to emerging and changing technology, including artificial intelligence, could have a material adverse effect on our business, financial condition and results of operations
27. 27Our failure or inability to obtain, maintain, protect and enforce our trademarks, service marks and other intellectual property rights could adversely affect our business, including the value of our brands
28. 28The increasing scrutiny on, and differing points of view regarding, human capital programs and considerations could result in litigation, increase our costs, harm our reputation and adversely impact our financial results
29. 29Our inability to obtain adequate insurance could subject us to additional risk of loss or additional expenses

Risks Related to Our Funds

1. 30Inflation may adversely affect the business, results of operations and financial condition of our funds and their investments
2. 31Increased interest rates could have a material adverse effect on our business and that of our funds’ portfolio companies
3. 32If the investments we make on behalf of our funds perform poorly, we may suffer a decline in our revenues and earnings, and our ability to raise capital for future funds may be materially and adversely affected
4. 33The success of our business depends on the identification and availability of suitable investment opportunities for our clients
5. 34Competition for access to investment funds and other investments we make for our clients is intense
6. 35The due diligence process that we undertake in connection with investments may not detect all facts that may be relevant in connection with an investment
7. 36Dependence on leverage by certain funds, underlying investment funds and portfolio companies subjects us to volatility and contractions in the debt financing markets and could adversely affect the ability of our funds to achieve attractive rates of return on their investments
8. 37Defaults by clients and third-party investors in certain of our funds could adversely affect that fund’s operations and performance
9. 38Our failure to comply with investment guidelines set by our clients could result in damage awards against us or a reduction in AUM, either of which would adversely affect our business
10. 39Valuation methodologies for certain assets in our funds can be highly subjective, and the values of assets established pursuant to such methodologies may never be realized, which could result in significant losses for our funds
11. 40Our investment management activities may involve investments in relatively high-risk, illiquid assets, and we and our clients may lose some or all of the amounts invested in these activities or fail to realize any profits from these activities for a considerable period of time
12. 41Our funds make investments in companies that are based outside of the U.S., which may expose us to additional risks not typically associated with investing in companies that are based in the U.S
13. 42Our funds may face risks relating to undiversified investments
14. 43Our funds make investments in underlying funds and companies that we do not control
15. 44Investments by our funds may in many cases rank junior to investments made by other investors
16. 45Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks
17. 46Climate change, climate change-related regulation and sustainability concerns could adversely affect our business and the operations of portfolio companies in which our funds invest, and any actions we take or fail to take in response to such matters could damage our reputation
18. 47The short-term and long-term impact of the Basel III capital standards on our clients is uncertain
19. 48Hedge fund investments are subject to numerous additional risks
20. 49Our fund investments in infrastructure assets may expose our funds to increased risks that are inherent in the ownership of real assets
21. 50Our historical financial results included elsewhere in this Annual Report on Form 10-K may not be indicative of what our actual financial position or results of operations would have been if we had been a public company

Risks Related to Our Organizational Structure

1. 51We are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements
2. 52The multi-class structure of our common stock has the effect of concentrating voting power with our Chief Executive Officer, which will limit an investor’s ability to influence the outcome of important transactions, including a change of control
3. 53We cannot predict the impact our multi-class structure may have on the stock price of our Class A common stock
4. 54We are required to pay over to the GCMH Equityholders most of the tax benefits we receive from tax basis step-ups attributable to our acquisition of Grosvenor common units from GCMH Equityholders and certain other tax attributes, and the amount of those payments could be substantial
5. 55Our only material asset is our interest in GCMH, and we are accordingly dependent upon distributions from GCMH to pay dividends, taxes and other expenses
6. 56In certain circumstances, GCMH will be required to make distributions to us and the GCMH Equityholders, and the distributions that GCMH will be required to make may be substantial and may be made in a manner that is not pro rata among the holders of Grosvenor common units
7. 57and no adjustments will be made to the consideration provided to an exchanging holder in connection with a direct exchange or redemption of Grosvenor common units under the A&R LLLPA as a result of any retention of cash by us
8. 58We may bear certain tax liabilities that are attributable to audit adjustments for taxable periods (or portions thereof) ending prior to the Business Combination, or that are disproportionate to our ownership interest in GCMH in the taxable period for which the relevant adjustment is imposed
9. 59If we were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business
10. 60A change of control of our Company could result in an assignment of our investment advisory agreements
11. 61Because many members of our senior management team hold most or all of their economic interest in GCMH through other entities, conflicts of interest could arise between them and holders of shares of our Class A common stock or us
12. 62Provisions in our organizational documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third-party
13. 63In the event of a merger, consolidation or tender or exchange offer, holders of our Class A common stock will not be entitled to receive excess economic consideration for their shares over that payable to the holders of our Class B common stock
14. 64The provisions of our Charter requiring exclusive forum in the Court of Chancery of the State of Delaware and the federal district courts of the U.S. for certain types of lawsuits may have the effect of discouraging lawsuits against its directors and officers
15. 65If we were to convert into a public benefit corporation, our status as such may not result in the benefits that we anticipate
16. 66We currently pay dividends to our stockholders, but our ability to do so is subject to the discretion of our board of directors and may be limited by our holding company structure and applicable provisions of Delaware law
17. 67We may change our dividend policy at any time

Risks Related to Being a Public Company

1. 68Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price
2. 69Prior to their anticipated expiration on November 17, 2025, warrants are exercisable for our Class A common stock, which may increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders
3. 70Registration of the shares of our Class A common stock issuable upon exercise of the warrants under the Securities Act may not be in place when an investor desires to exercise warrants
4. 71We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless
5. 72The valuation of our warrants could increase the volatility in our net income (loss) in our consolidated statements of income and consolidated statements of comprehensive income
6. 73Purchases of shares of our Class A common stock and warrants pursuant to our stock repurchase plan may affect the value of our Class A common stock, and there can be no assurance that our stock repurchase plan will enhance stockholder value
7. 74The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations
8. 75The market price and trading volume of our securities has been, and may continue to be volatile
9. 76We may be subject to securities class action litigation, which may harm our business, financial condition and results of operations
10. 77An active trading market for our securities may not be maintained
11. 78Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline