And so we’re seeing more repeat activity with LPs than we’ve ever seen. I think as it relates to our flagship fund, we’re certainly where we want to be. We remain unchanged in our guidance around the third flagship fund. And I think it’s exciting that we got Credit II launched earlier than we thought. So that strategy is now in flight a little earlier than expected. And certainly some of the co-investment vehicles are having a very strong quarter as well as we form capital around great companies like Switch and like Vantage. And some of our other companies that we’re out forming capital for right now as we continue to build into the AI strategy. So we’re legging in. Our LPs are legging in. Certainly some of the commitments related to flagship as I inferred on the call are tied to some other investment vehicles.
So we slowed them down a little bit and now we’re getting them over the goal line. But again, I want to reiterate, no change to our guide. We feel really good about our ability to raise the capital. The clients are happy with what we’re doing and we anticipate a strong year. Your second question, Ric, I don’t think I fully appreciated it. Can you reframe it for me?
Ric Prentiss: Well, just there’s some return of capital involved too, right? I mean, you have the Vantage.
Tom Mayrhofer: Yeah, yeah, so absolutely. You are correct. So in the first quarter, we did return some capital. We had some exits, and we created some DPI, good outcomes for investors. And at the same time, we formed capital. So part of the magic is we do return capital from time to time. And I mean the great news about Vantage is we return capital but we then put capital to work with our friends at Silver Lake. And as I intimated, we have a big co-investment vehicle that’s getting ready to close there, which is exciting. And we love the fact that we retain that management team, we retain that asset, and we’re deploying new capital that bears economics. So on a net basis we actually think much like Vertical Bridge, our exposure in terms of fees will rise over time, but here’s the best part.
We’re getting US public investors get carry now on Vantage. It now sits in our fund product And so investors now get to participate in the success of what’s happening at Vantage with Sureel and the team. And that should be a really good day for public investors. I know Ric, you like Sureel. I know every analyst on the street likes Sureel and likes what Vantage does. So, now our public shareholders get to ride sidecar with us and get to enjoy the profits of that hard work. And Sureel is absolutely doing a great job for us.
Ric Prentiss: Great. And the final question for me is obviously reaffirming the capital formation targets. Tom, you’ve made some changes in the way you present the financials and report. You mentioned the company-wide fee. How should we think about where you’re headed on helping the street understand financial guidance and what are you looking specifically to benchmark against the peer group because obviously this change, I think, sounds like you’re trying to line it up so it’s much more comparable to the peer group?
Tom Mayrhofer: Yeah, I think, we’ve tried to make it quite simple to follow. I think our financials are fairly almost self-explanatory. They drive, as Marc talked about, the fee raising, that converts directly into fee revenue and the expense side of the equation is relatively simple and straightforward as well. So, we hope we’ll be able to deliver really clear, clean, and kind of results that you can follow and model and predict.
Ric Prentiss: And I think you called out the margin improvement. What was that slide? Let me see, I’m there. Is there a target of where you want to get the FRE margins? And is there important size of scale that you want to try and achieve also? That’s one for me as well.
Tom Mayrhofer: Yeah, I think, look, I think the scale is not kind of binary. I think it is kind of gradual. And as we continue to grow, we’ll continue to achieve scale. I don’t think there’s a step function change. I think as we continue to grow, particularly when you have multiple products in a family. So, you get DBP III, DBP II, DBP I, that gives you a lot of scale. So I don’t think we’re going to set a target on FRE margins, but every new dollar of revenue that we bring in, we feel like improves the margin.
Marc Ganzi: Yeah, and I’ll just come behind you on that, Tom. I think we are seeing, as that incremental capital dollar comes in on flagship III and incremental dollars come in on Credit II, we do see the opportunity for margin expansion. I think in the first quarter we had some new FTEs that came on. We did some hiring as we are expanding into some other strategies, which we’ll certainly talk about Investor Day. But we’ve been really good at sort of being able to home grow our own best ideas around products. And as those products scale, we ultimately, they turn the corner and they create efficiencies and we get margin expansion, not margin compression. So I think as the year goes on, Ric, in the second, third, and fourth quarter, as we close capital, again, it’s kind of like a wedding cake.
That capital comes on with very little to no incremental G&A. And so I think what you’ll see is not only the revenue contribution expands on a run rate basis throughout the year, that’s where business works, but also you’ll see a revenue contribution expansion as well because there’s not a lot of incremental heads, Tom, associated with our second credit strategy nor our Fund III. And the co-investment vehicles that we’re raising right now, and certainly some of the other products we’ll be unveiling this year. So I think in large, we remain very convicted about the guide. And more importantly, we remain convicted about the ability for us to improve revenues and margin as the year goes on, Ric, much similar to what happened last year.
Ric Prentiss: Okay. Thanks, guys.
Marc Ganzi: Thanks, Ric. Appreciate it.
Operator: Our next question comes from Richard Choe of JPMorgan. Please go ahead.
Richard Choe: Hi, thank you. I just wanted to follow up on Ric’s questions a little bit. With the FEEUM guidance being reiterated, is the fee revenue guidance also being reiterated and how much of that is coming from catch-up fees? And then following on with that is the FRE guidance, I guess now that it’s a consolidated number, not digital, I am related, is that $150 million to $165 million still a good number for the year?
Tom Mayrhofer: Hey, Richard, how are you? First of all, thank you. One, I think I would just go yes, yes, yes, if we just want to be quick about your questions. Let me give you a little more color behind it. I think on the fundraising piece, there will be inevitably be catch-up fees, right? That always happens. There’ll be catch-up fees in Q2, Q3, and Q4. And the timing of that always is a little bit tricky. So some quarters may have a little more catch-up fees than others. I don’t think we’re exactly going to handicap how much catch-up fees we’re going to have over the three quarters at this point in time, but suffice to say your assumption is correct. And the assumption remains accurate as we bring on that $7 billion to $8 billion of incremental capital this year.
You can anticipate that all three quarters coming will have catch-up fees and flagship and certainly to a lesser extent, credit. Obviously, continuation funds and co-investments, we get the fees immediately. So we do anticipate there being some velocity in that, it’ll pick up as we go throughout the year. I think the other two answers to your questions were yes and yes. We’re not changing the guidance. And obviously now that everything’s all rolled up in a one consolidated number, hopefully it’s easy for you guys to all digest, and if it isn’t, we’re always available to talk about it and give you any more granular information you need.
Marc Ganzi: The guidance was created on a company-wide basis. So it’s not a — does not change.
Tom Mayrhofer: It’s not an IM versus operating, it’s all just one company now.
Richard Choe: Great, just wanted to clarify that. And then going back to the strategy presentation earlier, do you expect to just benefit from kind of the data center growth, or can there be, I guess, incremental returns being generated from, I guess, the transmission and power solutions that you come up with? And how big could that be? And would that require, I think you’ve talked about in the past, kind of different maybe teams or funds or can this all be captured in the existing, I guess, with the existing infrastructure?
Marc Ganzi: Yeah, it’s a great question. I’m going to break the answer down into three components. One, applied learnings over the last 36 months have been really happening at our portfolio companies. And so the good news about having a global footprint and having six powerful platforms is we do business literally with every power provider on the planet. So we have great insights into what’s happening in Campinas and Tambore, what’s happening in Kuala Lumpur, what’s happening in Tokyo, what happens in places like certainly like Berlin or Cardiff or London and then of course here in the US and Canada. So it’s been great to have these great management teams that have been out executing some of these renewable solutions like at Switch and Scala which are a hundred percent renewable already.
It’s really exciting what we’ve done at Scala that’s all hydro, we lease transmission infrastructure, we have our own substation, we’ve created our own grid in Campinas. We sell power, obviously, to ourselves. We certainly could sell power to other data center operators. We don’t. But that was a great learning experience for us, Richard, over the last three years. Really exciting what we’ve been able to do at Switch. Certainly, the Reno campus is a model for the future, given the amount of exposure to solar there and hydro. Our partnership with the Nevada Power and Light and a few other utility companies has taught us a few things. And the best way to really drive this stuff, Richard, is to drive it at the portfolio company level and drive those experiences with customers.
And that’s what we’ve been doing. And so having exposure to great management teams, great customers, creating great solutions has been what it does. And that stuff percolates back up to us here at the asset manager level. Now, no accident that we bought AMP Capital, no accident that we renamed it InfraBridge, and that we decided to put a team focused on renewable energy. We’ve done that. We have a dedicated group of folks that are working on that. And we believe there is a really big, big opportunity not only to deliver power at scale for our data centers, but even to some of our friends that are in the business. And so we’re working on a bunch of ideas and solutions. Those ideas and solutions will manifest themselves quite soon. What I can tell you is we’ve never shied away from developing new strategies at DigitalBridge.
We’ve gone out and hired, we think, the best team to go prosecute these ideas. We’ve been working on it for two years. This has been a lot of hard work. And I think what you’re seeing is, again, at the portfolio company level, we’re creating these ideas and creating these solutions. Is there something to do that’s bigger? Of course there is, right? If you think about how much power remains on the US grid and on the European grid, we’re down to less than 7 gigawatts on the US grid, we’re probably down to less than 2.8 to 3 gigawatts in Europe. And as I said earlier in the call today, we think we run out of transmission infrastructure for power dedicated to data centers in 24 months. And so to go to the next place is we’ve got to be proactive.
We’ve got to work hard down the portfolio company. We’ve got to work with other utility providers that are our friends, that we’ve worked with in the past, and we have to create those good outcomes. So it’s a little bit of foreshadowing, but that’s what we’re doing. And we do think it’s a huge opportunity. Given our backlog, we’re executing on 2 gigawatts and our backlog is over 5 gigawatts. If we were to execute 5 gigawatts of leasing, that’s $50 billion in AUM in terms of data center spend. Talk about $0.50 on the dollar in creating new renewable power, that’s another $25 billion of AUM that we could produce in renewable energy if we chose to go that path. So we have a lot of alternatives. We have a big backlog. We’ve got great customers.
We’ve got great CEOs. And we’ve got great partners in the power industry. So I would just tell you there’s a lot to be done there. And we absolutely anticipate being a part of the narrative.
Richard Choe: Great. Look forward to the Investor Day where we can go over this stuff in more detail. Thank you.
Marc Ganzi: Looking forward as well. Thanks, Richard. See you up in New York.
Operator: The next question comes from Eric Luebchow of Wells Fargo. Please go ahead.
Eric Luebchow: Great. Thanks for taking the question. So, Marc, maybe I just wanted to get the latest pulse on the M&A market where you’re finding maybe some relative value today. It seems like data centers and kind of developed market towers are still priced pretty aggressively. So are you finding any better value in Fiber, whether it’s residential or enterprise?
Marc Ganzi: So yeah, I would say look, the value proposition on Fiber is, you are correct, is initially starting in residential. Resi fiber has got some really interesting Platforms that you know we think some sponsors perhaps paid too much, put too much leverage on them and so there’s an opportunity to play either through our credit fund or play through our third flagship fund. I think we have got a significant amount of new pipeline of ideas. We’re prosecuting over 20 new ideas in our third flagship fund. A couple of those ideas are in the fiber space where we are seeing significant value. I think the deals that were once priced in the 18 to 25 times EBITDA range are now pricing in the, call it, 10 to 14 times range and we’re even seeing some interesting opportunities in other verticals of residential fiber where we think those could price down into the single digits.
So I think there’s value to be found, but you have to be careful, right? There’s pitfalls with that. The entry price is just one part of the proposition when you’re an investment committee. There’s follow-on CapEx. You’ve got to continue to invest in these networks. And some of these businesses in the residential fiber space are under-invested because they’re competing against well-capitalized cable companies or [R Box] (ph). So we’ve looked at a lot of stuff, we’ve said no to a lot of stuff, we’ve green lit one deal already in the fiber space. We’re looking at another one in our third flagship fund, but again, there’s a lot to do out there. It’s not just in the fiber space, not in the resi fiber space, But we also see opportunities certainly in the enterprise fiber space.
And then most importantly, we really like the data center connectivity space. So that’s really long haul, metro rings and data center connectivity or AI connectivity where we’re integrating that with a data center solution and a power solution to a customer. There’s a lot happening in connectivity right now. But one thing is for certain, as we said on the call today, fiber is critical. Fiber is critical to AI, fiber is critical to ultimately connecting the edge, and fiber is critical to bringing ultimately low latency, high speed solutions to IoT networks, small cells, everything we’re doing and everything we’re touching does involve that connectivity in the fiber. So we don’t see the vertical going away. We do see value. But I actually think some of that value will be more pronounced next year.
