Q1 2023 P10 Inc Earnings Call

Participants

Amanda Nethery Coussens; CFO & Chief Compliance Officer; P10, Inc.

C. Clark Webb; Co-CEO & Director; P10, Inc.

Mark C. Hood; Executive VP of Operations & IR; P10, Inc.

Robert Hudson Alpert; Chairman & Co-CEO; P10, Inc.

William Fritz Souder; COO & Director; P10, Inc.

Adam Quincy Beatty; Equity Research Analyst of Financials for Brokers and Asset Managers; UBS Investment Bank, Research Division

Benjamin Elliot Budish; Research Analyst; Barclays Bank PLC, Research Division

Christoph M. Kotowski; MD & Senior Analyst; Oppenheimer & Co. Inc., Research Division

John Robert Campbell; MD & Research Analyst; Stephens Inc., Research Division

Kenneth Brooks Worthington; MD; JPMorgan Chase & Co, Research Division

Michael J. Cyprys; Executive Director and Senior Research Analyst; Morgan Stanley, Research Division

Presentation

Operator

Hello, and welcome to the P10 First Quarter 2023 Conference Call. My name is Matt, and I will be coordinating your call today. (Operator Instructions). I will now hand you over to your host, Mark Hood, EVP of Operations and Investor Relations. Mark, please go ahead.

Mark C. Hood

Good afternoon, and welcome to the P10 First Quarter 2023 Conference Call. This is Mark Hood, EVP of Operations and Investor Relations. Today, we will be joined by Robert Alpert, Chairman and Co-CEO; Clark Webb, Co-CEO; Fritz Souder, Chief Operating 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 Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and 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 risks or other factors that are described in greater detail under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 27, 2023, and in our subsequent 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.
I will now turn the call over to Robert.

Robert Hudson Alpert

Good afternoon, and thank you for joining the call. I'm pleased to report that P10 delivered another excellent quarter of financial performance, meeting or exceeding all our key metrics. We are particularly proud that we were able to raise and deploy over $900 million of fee-paying AUM in the first quarter. The macroeconomic backdrop continues to be challenging.
Nonetheless, we delivered double-digit growth in revenue, adjusted EBITDA and adjusted net income. Since going public in October of 2021, we've proven the value of our model by demonstrating a differentiated business characterized by durability, resiliency and predictability. Because P10 has a diverse set of strategies, we have multiple tools to achieve our organic growth plans.
Shortly after our IPO, we gave guidance that we expected to raise $5 billion in fee-paying AUM over the course of 2022 and 2023. With this quarter's performance, we have raised over $4.3 billion with 3 quarters remaining to achieve our target. Last quarter, we laid out our objectives for 2023 that included double-digit revenue, adjusted EBITDA and adjusted net income growth. We remain confident in our ability to skillfully navigate difficult market conditions while delivering on our objectives.
Later in the call, Clark will discuss steps we are taking to strengthen our executive team as we continue to grow. Although we like to highlight our organic growth, we continue to evaluate M&A opportunities in new and existing strategies domestically as well as internationally. We don't feel any pressure to do a deal, but instead want to ensure we find the right partner.
As Clark likes to say, these are marriages. In the first quarter, we repurchased 100,000 shares and retained $18.9 million under our buyback program announced in December of 2022. We continue to believe our stock is undervalued, and we will be opportunistic with repurchases to take advantage of market dislocations. Finally, our Board of Directors approved a $0.01 per share or 8% increase in our annual dividend from $0.12 a share to $0.13 a share.
Our stable and growing business model gives us great comfort in increasing our dividend without the concern of limiting capital flexibility to continue to reinvest in our business and achieve our goals. With that, I will now hand the call over to Fritz to share some thoughts on the fundraising and deployment environment. I'm proud of our results and appreciate the hard work of our team. Fritz?

William Fritz Souder

Thank you, Robert. I think this quarter's fundraising and deployment performance demonstrates the attractiveness of our business model. Since 2017, we've assembled 7 premier strategies in their respective verticals, all of which focused on the middle and lower middle market. In our private equity vertical, despite headwinds, we added gross fee-paying AUM of $610 million during the quarter. While the denominator effect is still present and this continues to slow investors' decisions for allocations, we have every reason to retain our confidence, as we've been at this for over 2 decades with proven investment performance that wins and retains clients.
We also believe in innovation around our verticals, identifying new ways to package our investment manufacturing for clients. One of the new products you will see in our performance table is what we call Multi-Strat within private equity. It is a combination fund that blends our primary fund to funds with secondaries and co-invest. The result is a product that shortens the J-Curve and has the opportunity to deliver strong returns.
In the first quarter, we launched Multi-Strat II and is off to a good start with over $64 million in capital raised. RCP's Secondary Fund IV is also seeing good demand, and we've now raised almost $600 million. In our venture equity business, we believe we benefit from a flight to quality. There appears to be enthusiasm for venture equity with institutional investors, as high-quality managers continue to grow and raise capital.
In fact, according to a venture capital journal survey, roughly 80% of institutional investors intend to maintain or increase their exposure to the venture asset class in 2023. Although fundraising is happening more slowly because of market uncertainty, it is happening nonetheless, and we think the current market plays to our strength with a long track record of excellent investment performance in a variety of market cycles, we are optimistic.
In the quarter, we added $144 million in gross fee paying AUM spread across several products. Turning to our credit fleet. We continue to feel the wind at our backs. Hark, our NAV lending strategy has never been busier as the product is becoming more acceptable by GPs as a viable financing alternative. Deal flow is extraordinary as PE firms need more time and capital to achieve success in a market where exits are challenging.
We believe NAV lending is rapidly becoming an established asset class, and we're in the right place at the right time. For WTI, we're seeing excellent deal flow as a result of the Silicon Valley Bank exiting the market. Clark will speak more about this in a moment. Overall, the credit part of our business added $68 million of gross fee-paying AUM, and we are excited about our market position, as banks go risk off and prepare for more regulations.
We also see the potential for improved returns as a result of favorable market conditions. Turning to our Impact business. It continues to grow with secular tailwinds driving small business lending, climate finance and impact real estate. In the first quarter, the team added $89 million in gross fee-paying AUM. I'm proud of the efforts from all of our strategies, and it is exciting to see success across a wide range of investment products and strategies.
I will now turn the call over to Clark.

C. Clark Webb

Thank you, Fritz. I too have confidence in our ability to maneuver through what has become a challenging set of macroeconomic forces, including the recent upheaval in the banking sector broadly and SVB in particular. For much of the recent past, SVB was our largest competitor in venture debt. Their failure, combined with the pullback we're seeing from smaller banks, has created exceptionally favorable market conditions for our venture debt solution. WTI has been operating for over 40 years and has a business model that is time tested across market cycles. Our portfolio companies are in good condition and our pipeline of new high-quality opportunities is robust. We are working on WTI's Fund XI and hope to see strong demand, as we plan to launch early next year.
We like the WTI strategy as it combines a 40-year loss record that mirrors high-yield bonds with the ability to produce private equity-like returns. In other words, liquid high-yield credit risk alongside private equity-like returns. We look forward to telling the WTI narrative to our clients over the coming quarters. Despite a challenging global picture, we believe P10 is positioned to prosper with investment strategies that have performed well over decades.
Looking back when we went public 18 months ago, we laid out an intermediate 24-month target to raise $5 billion in new gross fee-paying assets under management. At that time, on a base of $17.3 billion, committing to a $5 billion target was no small ambition. Few would have envisioned what the ensuing 15 months would bring, with a global war, a record rise in interest rates, a 30% drop in the Russell 3000 and multiple bank failures.
Despite these conditions and with 9 months left to go, we are already standing today at $4.3 billion raised across our platform. And as Robert mentioned earlier, we expect to exceed our $5 billion target. This is quite an accomplishment, and we would like to publicly commend our team and thank them for their outstanding performance. But even with our success, we continue to believe that cross-sell across P10 is in its mere infancy, and we intend to continue investing in P10 marketing in the coming quarters.
As part of that process and as we lay the groundwork for our next intermediate fundraising target in 2024 and beyond, Jeff Gehl, our Head of P10 Fundraising, notified us of his decision to retire from his formal role at P10 after an incredible 22-year career. Jeff co-founded our private equity solution over 2 decades ago, and his contribution to P10 has been invaluable. Jeff is a large P10 shareholder, a large investor across P10 funds and a large owner of carried interest. While his retirement marks the end of his executive leadership with the firm and concludes his tenure in a formal role with P10, his allegiance to and support of P10 is expected to endure, and we're hopeful he'll find ways to be helpful to P10 in a new informal way in the future.
As a result, we are actively searching with the help of a professional firm to bolster the P10 executive team with a specific focus around fundraising and raising the P10 profile globally. We believe our investment manufacturing is second to none across asset classes and high demand. In short, we expect significant interest from outside parties. Jeff, on behalf of the P10 family, we want to thank you for your continued support at P10, and we wish you and your family all the best.
With that, let me hand the call over to Amanda.

Amanda Nethery Coussens

Thank you, Clark. Fee-paying assets under management were $21.6 billion, a 23% increase on a year-over-year basis. In the first quarter, $911 million of fundraising and capital deployment was offset by $516 million in step downs in expiration. Most of the expirations during the quarter related to WTI Fund VII, which stopped charging fees on $362 million of fee-paying AUM.
For the remainder of 2023, we expect $830 million in additional step-downs in expirations. Step-downs in expirations are a normal part of our business and typically takes place at the end of a fund's life or when a fund has reduced fees after a period of full fees. Revenue in the first quarter was $57 million, a 32% increase over the first quarter of 2022. Average fee rate in the quarter was 106 basis points, driven by continued expansion of our direct strategies, such as WTI, Bonaccord, Hark.
Operating expenses in the first quarter were $52 million, a 65% increase over the same period a year ago. The increase is primarily attributable to additional compensation, benefits and noncash stock-based compensation expense related to the acquisitions of WTI, Bonaccord and Hark. GAAP net income in the quarter was $769,000. Adjusted EBITDA in the first quarter was $28.4 million, a 27% increase over what we reported in the first quarter of 2022. As we have discussed on prior calls, the acquisition of WTI brought a higher average fee rate and a lower operating margin.
Moreover, we continue to generate strong growth in our direct strategies, which share a similar financial profile. Ultimately, this should lead to more revenue and adjusted EBITDA dollars with margins in the low 50% range on an annual basis. For the first quarter, adjusted net income or ANI, was $25.5 million, a 14% increase over the $22 million reported in the first quarter of 2022.
We continue to efficiently convert $1 of adjusted EBITDA to adjusted net income due to small amounts of capital expenditures, cash interest and minimal tax leakage due to our tax assets. As a reminder, our tax assets are composed of 2 distinct assets, a $177 million net operating loss and $388 million in tax amortization. Cash and cash equivalents at the end of the first quarter were $25 million.
At quarter end, we had an outstanding debt balance of $275 million and $98 million available on the current credit facility. Since quarter end, we paid down an additional $12.9 million of debt. In the first quarter, we repurchased 100,000 shares of stock at an average price of $8.51 per share. We had $18.9 million available under the buyback program for additional repurchases.
We also continue to pay our quarterly dividend. As Robert mentioned, we are increasing our annual dividend by 8%, taking the dividend from $0.12 per share to $0.13 per share annually. We declared a dividend of $0.0325 per share on May 15, 2023, to stockholders of record as of the close of business on May 30, 2023, and payable on June 20, 2023. Finally, at March 31, 2023, our Class A shares outstanding were 43,088,962 and Class B shares outstanding were 72,831,689 shares.
Finally, as Robert noted, we reaffirm our guidance and continue to expect double-digit growth in revenue, adjusted EBITDA and adjusted net income for the calendar year 2023, all the while achieving our $5 billion group fee-paying AUM fundraising target. We believe this puts us in a distinct class among our peers, showing strong growth in the face of a difficult market environment. We also expect to lay out our next intermediate fundraising targets for 2024 and 2025, alongside our Q4 earnings call early next year.
I will now pass the call back to Robert for closing remarks.

Robert Hudson Alpert

Thank you, Amanda. Now let's turn it over to the operator for a few questions.

Question and Answer Session

Operator

(Operator Instructions) The first question is from the line of Kenneth Worthington with JPMorgan.

Kenneth Brooks Worthington

Maybe first on Hark and WTI, as we think about the banking crisis, how are the opportunities playing out in terms of both deployment as well as getting the message to investment clients? So in terms of deployment, what sort of lead time is needed for Hark and WTI to reach the maximum deployment from the benefit from the banking crisis? And then in terms of fundraising, how is the message on the opportunities from the banking crisis sort of being received by your investors? And does the retirement of Jeff Gehl impact your ability to capitalize here?

C. Clark Webb

Ken, those are great questions. And it's one question, which is impressive. So we'll take each one...

Kenneth Brooks Worthington

And in 1 breath. I didn't breath the entire time, sorry.

C. Clark Webb

The express version, I love that, yes. So let's take it. So Hark is lending to private equity GPs who have a lower middle market private equity fund. They have deployed most of the capital in that fund. They are not ready to harvest those investments and they would like to raise additional capital to make add-on investments or to play defense.
This environment is perfect for that kind of capital stack and because we are focused on the lower middle market, there are not a whole lot of players that are sourcing the way we source and doing what we do. We would occasionally see a bank in the competitive arena. I would say that was occasional. I think that's probably going to be even less occasional than it was.
But right now, our pipeline is as full as it's been. And as you said, the key really is bringing in more LP dollars relative to the deployment of capital. Our Fund IV, you can see in the table, I think we've closed on just over $300 million of capital, of which $100 million has been deployed. So we do have dry powder there. We also have a capital call line facility, but that is an open fund, and we are actively spreading the message because it is a very unique risk-adjusted return with investment-grade type risk yet generating a low double-digit to mid-teens type return.
So that's the opportunity there. On the WTI side, SVB was the primary competitor, and we believe that, that has been a -- that's a structural shift in the market. We are still deploying Fund X. The pipeline has expanded since SVB's downturn. And so we are actively getting everything ready for Fund XI. If you think about what WTI does, they are deploying capital across hundreds of portfolio companies per fund.
And so we are constantly drinking from a fire hose. It's one of the reasons why we think we do something that most people can't do. It is hard to populate a fund with a few hundred positions and do it well. And as I think we talked about in last quarter's call, this is a 40-year track record that has a loss rate that literally mirrors high-yield credit. So we're very excited about that fund. It is early days on getting the message out. We're still getting all the documents ready.
We are on pace for an early next year launch, and we do believe that there is real front end demand. As it relates to fundraising, first of all, Jeff was -- I mean, he cofounded our private equity solution in 2001. He has had an extraordinary 22-year career. We owe him nothing but thanks for all that he's done on behalf of P10. We love the alignment that the P10 model brings.
Jeff is a large shareholder. Jeff has a lot of accrued carry that would be paid out over the next 10 years. These are not hedge funds, these are long-term locked-up vehicles. And Jeff is a large owner of LP interest in the funds because as you guys know, we -- the P10 does not seed the funds in terms of GP commit, it comes from the operating partners. So Jeff has a ton of financial reasons to continue to help us. I was on a fundraising call with him today.
So we think he will continue to be helpful, but as we talk about our next intermediate fundraising target, again, we went public, we laid out a $5 billion target. We are $4.3 billion of the way there in 5 quarters, and that's despite a macro environment that is quite difficult.
As we look to the next iteration of our intermediate fundraising goals for 2024 and 2025, and we're prepping for that, Jeff, and we all agreed that it was the right step. He had laid a great foundation, let's bring some other folks in and continue to plant seeds. So we wish him all the best. He is a friend of the firm, and we think this is a net win for Jeff and also a win for P10.

Kenneth Brooks Worthington

Great. And then I guess, a quicker one. You have a $5 billion target for '22 and '23, you're $4.3 billion so far. To get $5 billion -- to get to just $5 billion, it would suggest a pretty big slowdown in the next 3 quarters. Should we feel confident that the pace that you've been raising can continue and that your target of $5 billion is pretty conservative? Or should we really expect a big slowdown?

C. Clark Webb

So I wouldn't read anything into the comment other than we do expect to exceed the $5 billion target. When you look at -- I think we said in the script, we had roughly a dozen funds in the market. And these are lots of -- we have a Fund XVIII in the market. We talked about a Fund XI that we think will be coming to market. We've got Fund IVs, Fund Vs, Fund VIIIs. These are funds that have a lot of re-up and are well known in the market.
And so we really don't think about our business in terms of quarterly fundraising. We think of it as an engine that is constantly going to the next iteration of a flagship series that's been very successful over 10, 15 and 20 years. We feel really good about our business, but we also recognize that there are headwinds out there. I think our view is we've got a great slugging percentage, if we can increase the number of it fast, when we go sit in front of LP, there are not a lot of folks that offer what we offer, and we do believe that our 20-year track records are second to none.
So we recognize it's a tough macro environment out there. We continue to put up results. We are going to be investing in the marketing engine because we think we've got a great story to tell. And we'll see when the money comes in, whether it's Q2, Q3, Q4, but we do believe that it is business as usual at P10.

Operator

The next question is from the line of Michael Cyprys with Morgan Stanley.

Michael J. Cyprys

Maybe just to dig a little further into the bank retrenching. I guess, how would you sort of size the opportunity? How much capacity would you say you have within your investment strategy? And how much bigger could those strategies be in 3 or 5 years' time as banks pullback? And then the second part to that question would be, clearly, the banks also provide lending into parts of your business so maybe you can remind us where and to what extent you guys borrow from the banks and parts of your business? And how do you navigate to what extent banks will be retrenching from pulling back from the sponsors?

C. Clark Webb

Yes, great questions. I'll start and then others feel free to jump in. There are 4 buckets within P10 that I would argue are benefiting from what's going on in the bank retrenchment. We talked about our NAV lending franchise. We talked about venture debt, and we do believe both of those are significant beneficiaries in Impact credit because we are in the lower middle market, and we are doing things like climate finance, Impact real estate and small business lending to women and minority-owned businesses.
We do believe that, that is a direct beneficiary of the banking pullback. And then we do have an SBIC credit fund where our primary competition is actually -- are actually banks. So we have 4 business lines that are direct beneficiaries of the banking pullback, the question on how big could it be? I think we'd rather see as opposed to project. All 4 are humming. They are getting bigger by the day.
And we actually do believe there's a great narrative around it. I think the real determinant on how big those can be or how well we deliver the message of what we do to prospects around the world because it does feel like there's a good runway. It's incumbent upon us to get the message out. And that's why we're talking about investing in our marketing engine because we do believe these verticals, the things I'm talking about, most institutional GPs do not have these kinds of products. And so we think it's a unique message.
On the leverage part, it's actually -- I think it highlights our benefit in the lower middle market. Our average portfolio company in private equity is levered at 3 to 3.5x. That's a far cry from what we read about in the larger part of the market, where leverage can be double that or more. We think that actually provides a great ballast when you have rate rises and when you have a downturn in the economy.
The other thing is because we are North American-focused in lower middle market businesses, we can really focus on [seems] of growth, structural changes within a large domestic economy. We don't have as much macro risk. I would argue from things that are going on in Europe or Asia or whatever it might be. So we actually think that the business, you can look at our 20-plus year track record across private equity, and you can see how we do through cycles, but it's pretty consistent.
And then in venture equity, there's really not a lot of debt used. And if there is debt used, that's in our venture debt platform. So we don't feel like we have the same kind of exposure on the venture equity side that your question pertains to.
On GP stakes, we have a very diversified portfolio. We -- if you think about Fund I and Fund II, we are in private equity, we are in private credit, we're in real estate, and we're in infrastructure. And so we think we've got as many pluses as we might have minuses. And we're with great GPs. And again, we feel like this is a very rare group of folks, who can even do a deal like this. So I would say across the board, in times of stress, a model like this should shine, and I think Q1 is an indication of that.

Michael J. Cyprys

And just to follow up there on those 4 buckets, I think you mentioned areas where you guys could benefit from bank retrenchment at lending, venture debt, the Impact credit and the SBIC credit strategy. Can you just maybe quantify what sort of pace of deployment you guys have been putting capital out against like over the last 12 months? Any sort of commentary, color on how those pipelines look today? How do you sort of expect that to trend? And if you're successful, would you be surprised if that deployment could triple or quadruple in, call it, 3 or 5 years' time?

C. Clark Webb

Yes. The pipelines are as robust as they've been. That is both structural and cyclical. I think that looking at our published financials is probably the closest that you'll get in terms of incremental growth, but it is -- if you put all 4 together, it is certainly in the billions of dollars in terms of. Whether it can triple or quadruple, we would say the market opportunity is there. It's incumbent upon us to get the message out and raise the capital behind it. But we're -- every day we're in the market, and we think we have something unique to offer.

Operator

Next question is from the line of Chris Kotowski with Oppenheimer.

Christoph M. Kotowski

Amanda, you were going just a little fast on all your guidance. I wonder just -- I missed the amount of the step-downs coming at us for the remainder of the year. And I was wondering also, did it have any implications for fee rate because fee rate was a little higher this quarter than I thought. And then I was also wondering if there are still any further merger costs or earnouts to be to be recognized in either '23 or early '24, from the acquisitions that have already been closed?

Amanda Nethery Coussens

Okay, yes. The additional step downs were $830 million for the year, step downs in exploration.

Christoph M. Kotowski

Okay. And does that have any effect -- come on. I was just -- what should we expect from fee rates? Does that impact it? And then also the -- your guidance on the EBITDA margin, I think you said this time, low 50s or previously, it was 51% to 52% million. Is that new or different?

Amanda Nethery Coussens

Right. No change on margin. So we're still expecting 51% to 52%. That's correct.

C. Clark Webb

And then on the fee rate, yes, there was -- I think we've guided to 105 basis points for the year. Obviously, we're trying to give you a specific number, but as I think we noted, we've got a dozen funds in the market, and some have fee rates well north. Not many have any well south, but we guided to 105 basis points on the year.
There was a large roll off of an old WTI fund in Q1. That was baked into the guidance when we purchased WTI, when we talked about what their contribution would be in calendar year 2023. So we're sticking to the 51% to 52%. We are sticking to the 105 basis points of an average fee rate. And in terms of future earn-outs, we do have the potential earnout of WTI flowing through this number.
I think you can read what that hurdle is, but it's a very [early hit ahead] and ruling for that current quarter and future, even though it hasn't been hit yet, but we think it's a win for everybody if and when that's hit.

Amanda Nethery Coussens

And, Chris, sorry, just to add to Clark's comments, the earnout is shown on our adjustments page, on a reconciliation. So you should be able to see the impact of that at earnout related compensation. And we actually will not end, we will continue, Chris.

Operator

Your question, the next question is from the line of Ben Budish with Barclays.

Benjamin Elliot Budish

Clark, you talked about cross-sell sort of being in its early infancy and that you expect to keep investing a lot in marketing. Can you maybe talk salesforce productivity and sort of how that's evolved over the last couple of years? And how much more do you think is there to go? What are the sort of step function changes that we might see over the next couple of years as the efforts you're kind of putting in start to pay off?

C. Clark Webb

Yes. Great question. So I would say that the beautiful thing about our 20-year track records that are, we think, second to none, is the re-up rate is very high. And so we hold on to most of the capital that comes into the funds, which just gives us a lot of confidence as we launch the next vintage.
And we're also always giving money back to LPs at a good return. So I think the core fundamental basis of P10 is we've got great verticals with high re-up rates. As we look at our LP base, I think we've said publicly, fundraising, it really is a barbell. They're the large LPs on one end, and then there's retail on the other. Those are the 2 deepest pools. And then there is the skinny part of the barbell, which is the endowment foundation, family office, small pensions.
We actually think we do really well on the skinny part of the barbell, and we are focused on planting our flags in the deeper parts of the pool. On both cases, those are long sales cycles, and that's without a cyclical downturn. And so we are out trying to tell our story to the large pools of capital and retail platforms, as we do believe if we can get our products and our returns in front of them that it will be hard to say no.
We have invested in the P10 team. I think you saw a year ago, we made a strategic hire internationally in the Middle East, and that's a seed that we planted 12 months ago, and we do think that's going to start bearing fruit here in the next 6 to 12 months, and we are looking at planning additional flags. The ramp is a 12- to 24-month ramp. So nothing we do today is presumably going to move the needle for a while, but we are benefiting from the seeds we planted 12 and 24 months ago.
And then there's also just the plain and simple cross-sell. We've got 3,300 LPs around the firm. A lot of these are $3 million, $4 million, $5 million type LPs, and they love one of our verticals. And as we have additional verticals come to market, we are gingerly trying to introduce them to our other verticals. We do track that number internally.
It is in the hundreds of millions of dollars of cross-sell. But as we noted in the script, we think that we're in the bottom of the first inning. We think there's a long way to go. And it's one of the reasons why we are focused on building out the marketing function within P10. It's -- we believe we have something very unique. And the more at bats we get, we think that, that will benefit the firm over the long term.

Benjamin Elliot Budish

Great. And then a follow-up. It looks like a lot of the fund families are scaling pretty nicely, but I wanted to ask about RCP advisers. It looks like the most recent fund is kind of a bit smaller than the predecessor fund. So I'm wondering if there's any kind of color you can share. How should we think about like the longer-term trajectory of kind of the core fund-to-funds offering from RCP?

William Fritz Souder

Yes. This is Fritz. I can handle that. You're correct, the Fund XVII was a little bit smaller than the other funds. Most of that has to do, though, with this launching of a Multi-Strat fund, which, as we talked about, includes the primary funds. And what you're seeing is a lot of sort of line item consolidation is what I call it, in the LP universe in wanting to have one fund that will give them primary, secondary and co-investment.
So you're not actually seeing the number of investors investing in our primary funds go down, you're just seeing them now spread out into 2 different vehicles. And I think that will continue. We're seeing a lot of interest in the marketplace as we're in with Multi-Strat II and we're in with primary Fund XVIII. We are seeing a lot of interest now in this multi-strategy vehicles.

Operator

The next question is from the line of John Campbell with Stephens Inc.

John Robert Campbell

Amanda, on the catch-up fees, I think I might have missed that, but on my math I was getting to a little over $3 million. Is that right?

Amanda Nethery Coussens

Yes, that's correct.

John Robert Campbell

Okay. And then when you guys talk to the 105 fee rate this year, is that on an adjusted basis, basically excluding the catch-up fees?

C. Clark Webb

That includes the catch-up fees.

John Robert Campbell

That does include the catch-up fees. Okay. And then on the step downs in exploration, Amanda, I think you said $830 million for the balance of the year. Any rough sense for the timing or roughly how that's going to phase throughout the year?

Amanda Nethery Coussens

Most of that will actually be next quarter.

John Robert Campbell

Okay. Majority of it in next quarter. Okay. And then last one for me, just another housekeeping. On earn-outs. As those are paid, I guess, particularly for WTI, that's adding support to your tax assets. Is that right?

C. Clark Webb

Yes, that's right. So the earn-out -- we're accruing for it. It is not being paid. And again, I'd refer to the 8-K when we signed the deal on the EBITDA threshold, where that earnout is actually paid out. And yes, as that's paid, that will add to the tax asset. And so that will be a win for P10 long term, not only in the EBITDA we get, but also in the tax shield.

Operator

The next question is from the line of Adam Beatty with UBS.

Adam Quincy Beatty

First, just a quick follow-up on the fee step downs. I think the full year guide on that may have gone up a little bit. So just curious what might be moving around there. And also wondering whether additional step-down suggests potentially a faster cadence toward the next round of vintages. So has anything done -- happened to accelerate the overall fund rollout process?

C. Clark Webb

Yes, there is no change in the step down guidance. We're obviously trying to fine-tune a couple of dozen funds. And so it may be plus or minus by a couple of dozen million, but it's very much in line with the original forecast. As for the cadence of when the new funds are launched, that with the exception of a few of the ones we've talked about, the cadence is almost annually or biannually.
So I wouldn't say that anything has been accelerated other than some of the specific opportunities within credit, where we see an opportunity either to raise sooner or to raise more. Obviously, that will be incumbent upon us to go do it. But apart from some of those credit strategies that are opportunistic, it is very much in line with the original forecast.

Amanda Nethery Coussens

For the large part...

Adam Quincy Beatty

Sorry, Amanda?

Amanda Nethery Coussens

I was just going to say that a large part of the step downs in expirations in this quarter was related to -- specifically to a WTI fund. And so that may be part of the -- yes.

Adam Quincy Beatty

Okay. Okay. I appreciate it. And then I just wanted to turn t Enhanced and the Impact franchise and just get the latest on what you're seeing around potential regulatory and law making tailwinds there? And how -- what kind of time line we should think about in terms of some of the newer legislation feeding through to deployment opportunities?

C. Clark Webb

Yes. No, Adam, it's a great -- it's one of the few verticals where regulation really is a tailwind. The Inflation Reduction Act was a structural shift and improvement in the underlying business. But we're still waiting for some additional rulemaking around that, just to clarify exactly what some of the tax equity components are going to look like.
But we have definitely seen a greasing of the skids with respect to things like solar finance and impact real estate. And we are certainly seeing it in our backlog in our pipeline and the opportunities that we see. Again, that was before the banking crisis. When you think about our small business vertical, we are the counter to what banks normally provide.
So we've had the additional cyclical benefit of the banking retrenchment, but we feel great about the opportunity to deploy impact credit across all 3 of our verticals. And I should say, generating very good returns, but also generating real impact. There is no white washing in terms of what we're doing. The key for us is going to be continuing to go and raise additional capital to get that done.

Operator

Thank you for your question. There are no additional questions waiting at this time. So I'll pass the conference back to Robert for any closing remarks.

Robert Hudson Alpert

Well, thank you. Thank you, everyone, for joining us, and we look forward to speaking with you next quarter and call if you have any questions. Thanks.

Operator

That concludes the conference call. Thank you for your participation.