Galaxy Digital Holdings Ltd. (BRPHF) CEO Mike Novogratz on Q1 2022 Results – Earnings

Galaxy Digital Holdings Ltd. (OTCPK:BRPHF) Q1 2022 Earnings Conference Call May 9, 2022 8:30 AM ET

Company Participants

Mike Novogratz – Founder & Chief Executive Officer

Damien Vanderwilt – Co-President & Head, Global Markets

Chris Ferraro – Co-President

Alexander Ioffe – Chief Financial Officer

Conference Call Participants

Deepak Kaushal – BMO Capital Markets

Chris Allen – Compass Point

Devin Ryan – JMP Securities

Owen Lau – Oppenheimer

Mark Palmer – BTIG

Jamie Friedman – Susquehanna

Rich Repetto – Piper Sandler

Operator

Good morning, and welcome to Galaxy Digital’s First Quarter 2022 Earnings Call. Today’s call is being recorded.

At this time, I would like to turn the conference over to Galaxy’s Investor Relations Team. Please go ahead. You may begin.

Unidentified Company Representative

Good morning and welcome to Galaxy Digital’s First Quarter Earnings Call.

Before we begin, please note that our remarks today may include forward-looking statements. Actual results may differ materially from those indicated or implied by our forward-looking statements as a result of various factors including those identified in our filings with the Canadian Securities Regulatory Authorities on SEDAR and available on our website or filings we may make other securities regulators.

Forward-looking statements speak only as of today and will not be updated. In addition, none of the information on this call constitutes a recommendation, solicitation or offer by Galaxy Digital or its affiliates to buy or sell any securities including Galaxy Digital securities.

With that, I’ll now turn it over to Mike Novogratz, Founder and CEO of Galaxy Digital.

Mike Novogratz

Hi, good morning, everyone. It is a literally gorgeous morning here in New York City, which is exactly the opposite of what the markets feel like. You know we’ve been talking this whole year about macro headwinds and institutional adoption tailwinds to the crypto blockchain space and that story continues.

I’m going to start a little bit talking about the macro headwinds right now I mean since the last call we had with you guys right crypto is down roughly 30%. Not great performance for the asset class that’s in line with the NASDAQ being down about 20% overall risk assets being pummeled. It’s a pretty straightforward story. It was clear early on, it was difficult to maneuver right and the Fed is taking liquidity out of the system. There was a lot of liquidity in the system, asset prices had appreciated because of it. And we’re having this adjustment and adjustments are painful.

Want to know when the federal stop raising rates? It’s when inflation will come down? And your guess is as good as mine. I said jokingly recently when we could look our employees in the eye and say you’re lucky to have a job. Do you want cheese flavored popcorn or salted popcorn on the three days a week you want to comment on this. I’d be a little sluggish here but right now labor has had the upper hand and wage pressures have been up in every single facet of industry from low skilled jobs to high skilled jobs. That will shift relatively quick as the economy moves into recession.

What does that all mean for crypto? It means crypto probably trades correlated to the NASDAQ until we hit a new equilibrium and that equilibrium could stop at 12,000 and bounce. My instinct is there’s some more damage to be done. And that will trade in a very choppy volatile and difficult market for at least the next few quarters before people are getting some sense that we’re at an equilibrium.

At that point I’m actually quite optimistic because of everything I’ve seen in crypto gets me optimistic. I went to institutional conferences, three or four different conferences meeting with all kinds of accounts. Let me some of are the biggest names in traditional finance BlackRock, Blackstone, Citadel, Apollo all making big efforts in this space having not been here like that. That’s a wonderful tailwind for the space. It makes us really focus the Galaxy to collaborate with them when possible and know we’re going to compete with them at times.

And so when I stepped back, I haven’t wavered at all on our medium-term plan. We are — we raised capital last year with the idea that we were going to use it to build out infrastructure and build out our teams. We’re continuing to do that. We’re managing the balance sheet best we can, I think our first quarter results and I’ll let Damien and Chris speak to that. We’re quite good results. Our operating businesses were positive, our mining and banking team had their best quarters ever. The balance sheet team did an excellent job of outperforming the drawdown in the overall market, lost some money but minimal relative to the volatility we saw.

And so with that I’m going to leave it to Chris and Damien to give you the details of the other quarter. I’ll be around for Q&A. But the message I want you to take for me is we expect the tough markets. They are tough markets, though we’re unwavering in our belief that you’re going to see institutional adoption both in crypto as an asset class and as use cases in the media space in the corporate space.

Damien Vanderwilt

Alright. Thank you, Mike. Before I jump into performance highlights for our asset management and investment banking segments, I want to underscore Mike’s comments about the unbelievable excitement and engagement level we are seeing on the ground with our institutional clients and counterparties, despite these very tough macro headwinds.

Since we last spoke to you, we’ve been on the road participating in a number of conferences to meet with our stakeholders, clients, partners and regulators. Several of these such as Bitcoin Miami, FTX Bahamas and Medici out on the West Coast are digital assets focused conferences.

The most notable way from these conferences was the really significant participation from traditional financial firms, spanning from traditional asset managers, non-digital corporations as well as investment banking and technology firms from outside the digital asset sector.

All of these firms are trying to figure out how to connect with their customers both existing and future, who are spending an increasing amount of their time in the Metaverse, owning NFT’s, gaming and experimenting more with digital representations of themselves.

Turning internally to our business segments, and beginning with our asset management business. We are aggressively expanding our product line-up across the asset management platform, from passive to liquid, active to multi manager, to venture offerings, to meet the diverse and evolving continuing needs of our customers.

Starting with the passive side, as I mentioned in our last call, within the first quarter we launched the CI Galaxy Multi-Crypto ETF. And just last week building on our partnership with CI, we announced the launch of two ETFs focused on investment opportunities in blockchain, technology and the Metaverse that will track underlying indexes created by Alerian.

Moving to our active products, which serve as an important role in investor portfolios particularly as the market experiences bouts of volatility we continue successfully fundraise within both our Galaxy Interactive Venture Franchise and our Galaxy Vision Hill business.

Within the quarter, the Galaxy Interactive Venture Franchise grew AUM to $735 million. And last month we had our first close for the Galaxy Vision Hill Venture Fund of Funds II at over $70 million, bringing our Fund of Funds platform AUM to above $200 million across four strategies.

As more-and-more clients demand solutions that generate differentiated alpha over the long-term we are continuing to invest in our active platform to innovative new strategies, but also by bringing in top tier talent.

In March we welcomed Chris Ryan to the team as a new senior portfolio manager. Chris brings more than two decades of investing experience to Galaxy having previously invested at both BlackRock and Cohen & Steers and will be critical to the build out of our active business.

Regarding assets under management in the first quarter, despite a down crypto market, we saw net inflows of $33 million driven by strong demand for our diverse range of investment strategies.

We ended the quarter with $2.7 billion in assets under management, down 5% quarter-over-quarter up more than 100% year-over-year driven by robust organic growth and the positive impact of crypto market data over the past 12 months.

All-in-all we’re proud to offer customers 17 different fund products to choose from across our passive and active strategies and will continue to expand and evolve our offerings to ensure we are providing clients with institutional quality exposure to the growth of digital assets, blockchain and interactive technology.

Turning now to our investment banking business, we continue to build on the momentum we’ve demonstrated over the last few quarters and are executing against an active pipeline of mandates representing more than a billion dollars in transaction value.

Team is also currently working on several mandates for leading companies in the blockchain and crypto currency ecosystem. In the quarter, we advised on the successful close of four transactions most of which we mentioned the last quarter.

This include — included serving on two fundraisings for Qredo and Compute North’s on the equity financing and acting as exclusive financial advisor on Blockdaemon acquisition of Gem in March of this year.

In addition, we also announced the close of one business compensation involving one special purpose acquisition company. We were also finance [Technical Difficulty] to Thunder Bridge Capital Partners for a spec on its business combination agreement with Coincheck and as late…