RITM - NYSE

Good morning, and welcome to the Rithm Capital Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Emma Hoelke (sic) [ Emma Bolla ], Associate General Counsel. Please go ahead.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Capital's Third Quarter 2025 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; Nick Santoro, Chief Financial Officer of Rithm Capital; and Baron Silverstein, President of Newrez. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website, www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone, and thanks for joining the call this morning. Our company had a great quarter with all of our business lines performing extremely well. Our market-leading business lines that enabled us to get here, Newrez, our mortgage company, which is one of the largest mortgage companies in the U.S.; Genesis, our construction lender, which is one of the largest nonbank construction lenders in the U.S. and our investment portfolio and team all had a really good quarter. As we look at all the business lines that we built or acquired, this enabled us to generate approximately $300 million in earnings for our shareholders, generating an 18% ROE. We ended the quarter with $2.2 billion of cash and liquidity. During the quarter, we announced 2 acquisitions: Crestline, which is a credit manager based out of Fort Worth, Texas; and Paramount, which is a large real estate office REIT here based in New York City with properties in 2 of the gateway cities in the U.S., both New York and San Francisco. So we are clear, we will not be raising equity in the capital markets to fund these acquisitions. We will fund these acquisitions with a combination of balance sheet and third-party LPs and partners. The capital created by these business lines help us expand our platform. When we see an opportunity to acquire a company or an asset that helps expand our product offerings to our LPs, we try and take advantage of these types of situations. We are really excited with these acquisitions. Crestline is an $18 billion to $20 billion asset manager with great people, great investment professionals offering direct lending, NAV lending, credit products. They also have an insurance business and a reinsurance business. So now we're in the insurance business. The suite of products that we have across our firm at Rithm and our subsidiaries enable us to offer a wide spectrum of credit and ABF products to our LP base and quite frankly, put us on the stage to be able to compete against anyone. Our mantra of performance first will enable us to grow our platforms. We are not, to be clear, in an AUM race. More importantly, what we want to do is lead with results. When we meet with LPs, they want fewer managers with more products, and I believe we are in the middle of accomplishing that. During the quarter, as I mentioned, we also announced the acquisition of Paramount. Paramount is a Class A office REIT with a great portfolio of office buildings in New York and San Francisco. There's 13 properties there. We are seeing huge demand for office in both New York City and the recovery in San Francisco has already begun. Acquiring assets for a little under $600 per foot versus replacement cost of $2,500 to $3,000 a foot gets us really excited. In New York, this portfolio is north of 90% leased. And in San Francisco, it's in the low 70s, creating a huge opportunity for us to grow NOI. When you look at the Paramount portfolio, not only will we grow occupancy, we also believe in the ability to drive rents higher as the average rent is approximately $85 per foot. For example, when we think about the need for office space, Rithm and our affiliates have a need for 100,000 of new space. It's very, very difficult to find space and average rents are well above the $85 per foot that I quoted in most markets for A quality office space. During the quarter, Paramount released their earnings last night, and I believe there's a couple of other REITs that released earnings. We're seeing some of the highest leasing activity that we've seen, and this goes back to the pre-COVID days. As it relates to Paramount, they have an excellent team of professionals who have been running the company for many, many years and as well as the operations. I believe there's approximately 300 people between corporate and ops. We're very excited to work with the team, creating what we believe will be a terrific investment return for our LPs and shareholders. So as we look forward, our mission is still the same, put up solid results quarter after quarter, be able to offer more products to our LPs and partners and take advantage of opportunistic situations to generate outsized returns and grow the company. I'll now refer to our supplement, which has been posted online, and I'm going to begin on Page 3. If you look in the upper part of the page, Rithm by the numbers, balance sheet, $47 billion, Sculptor has $37 billion of AUM. Crestline has $18 billion of AUM and Paramount has a $7 billion portfolio. So when we think about this, we think about it in the context of having a little north of $100 billion in investable assets. And between the investment teams and that work on our balance sheet as well as putting up great results for our LPs, we're really excited where we sit today and where we're going. When you think about Rithm, very few companies have $8.5 billion of permanent capital. We're proud of that. We've grown this company in the public markets when we began this company back in 2013 at Fortress. The average investment team or the average age of the investment team, not age, but been working in the investment business has been 31 years. When you look at the bottom part of the -- you can see all the portfolio companies, Newrez, again, we're one of the top 5 mortgage companies in the U.S. Sculptor has been around for 30-plus years, great track record. The real estate team is just coming off a very successful capital raise, raising north of $4 billion for their business. Their brand is second to none in the real estate business. Crestline, super excited to work together and help support that organization. Paramount, I mentioned on the real estate side. Genesis Capital, just to give you on that one, we bought that company from Goldman Sachs in 2022. At that time, it was doing $1.8 billion of production. This year, I think we're going to either approach or do north of $5 billion of production and EBITDA numbers have gone from $40-odd million to $120 million this year expected. And then we have Rithm Property Trust, which was the broken REIT we took over last year, which was known as Great Ajax. We're still trying to figure out a way, quite frankly, to grow that and put the right assets there. As we look at financial highlights on Page 4, a really good quarter, and it's solid. All of our business lines contributing here. Earnings available for distribution, $0.54 per diluted share. This is the 24th consecutive quarter where EAD was greater than our dividends paid. GAAP net income, $193.7 million or $0.35 per diluted share for return on equity of 11%. Keep in mind, that includes all the mark-to-market stuff. Earnings available for distribution, again, $297 million, $0.54 per diluted share or 18% return on equity. Book value, we closed the quarter at $12.83, which is $7.1 billion; dividend, $0.25. And as I pointed out before, cash and liquidity on balance sheet, $2.2 billion. As you look at Page 5, quarter in review. Once again, we've demonstrated steady growth year-over-year in all of our segments. During the quarter, as I mentioned earlier, we entered into a definitive agreement to acquire Crestline on September 3. We're hoping that deal closes on December 1. We entered into a definitive agreement to acquire Paramount on September 17. That will go out for shareholder vote, and we're hopeful that closes in mid-December. These acquisitions continue, as I pointed out before, to expand the product offerings that we have to -- when we sit down with an LP, we have a larger suite of products because LPs want fewer managers. And now with between Sculptor, Rithm, Crestline and some of the real estate stuff we're doing, we have a large amount of products that we could offer to our different clients. Fundraising across the platform, we continue to work hard to build that during the quarter. In Q4, we expect to close our first evergreen ABF fund on a leading wealth management platform. And then when you look at inflows, Sculptor continues to see some good inflows into their business. Bottom part of the page, Genesis Capital during the quarter, originated $1.2 billion of loans. That's a 60% increase year-over-year. We saw 71 new sponsors in -- what I would say on that company, credit first is the mantra. It's not again just to grow, but credit first really matters. The mortgage company, Baron will take us through the mortgage company, but Baron and the team continue to do a great job there. And as the world changes and we think about AI and innovation, we're doing all we can to stay ahead of that. And then on the investment portfolio, during the quarter, we agreed on a forward flow to acquire up to $1 billion in home improvement loans. That's from upgrade. We did a securitization for a little under $500 million on non-QM, and we invested $2.6 billion in non-QM loans and residential transition loans, and that's through our Genesis brand. When you look at the -- hello. When you look -- I'm on Page 6 now. When you look at the -- our M&A update, what we wanted to do is put a page in here so you could have a sense for our liquidity walk. As I mentioned, cash and liquidity as of the end of Q3 is $2.2 billion. Here, it shows -- what are we showing here. Sorry, why don't you take it?

Sure. So at the end of the quarter, we ended with cash and cash equivalents on balance sheet of $1.6 billion. Then just rolling it forward, we have the Crestline acquisition and the Paramount acquisition. The amounts shown here are the expected cash outlays or uses at close, net of excess cash on the respective balance sheets of both Crestline and Paramount. Then we have our use of cash, which comes from -- our source of cash, which comes from drawing down on our financing facilities. The expectation is at close, we will have approximately $1 billion of financing available to us. bringing us down to $1.3 billion of cash and cash equivalents post both the Crestline and Paramount transactions. And that $1.2 billion is well north of our regulatory requirements as well as working capital and what we hold for margin requirements.

Thanks, Nick. On Page 7, as we look at the -- again, this is something that we talk about quarter after quarter, the valuation of our company. We try to show the sum of the parts. When you look to the top part of the page, Rithm gets valued similar to mortgage REIT peers. We think there's a huge amount of upside for us to be able to unlock value. That is going to be driven by our asset management business as well as by the mortgage company. If you look at most mortgage companies today or if you look at what I would call our peer group, they trade anywhere from 1.5 to 3x. Right now, Rithm as a public company is trading call it, something around upper 0.8 to 0.9x. If you think about the mortgage company getting valued properly, you think about the asset management business, even trading at 10x, the following slide on Page 8 will show you a range of outcomes, which we believe we will achieve over time of something between $16 and $23 as we compare ourselves either to different asset management firms or when we look at the valuation of our mortgage company and our Genesis business. With that, I'm going to now flip to Page 10, which is the so-called power of our platform. As we pointed out before, a little north of $100 billion in assets. You can see all the different product offerings that we have right now to show out to our LPs and clients in corporate credit. There's really nothing more that we need when we look at corporate credit. We will be exploring over time the energy space, obviously, a very important space. Right now, there's nothing for us to do there. At Sculptor, there's the multi-strat fund. Our real estate business continues to grow. And ABF is something that is near and dear to our heart, and that's something that we think is going to be extremely scalable for us as an organization across all of our business lines. As I mentioned earlier, we expect to close one of our first ABF funds here in the fourth quarter, and that's on one of the large wealth platforms. And then we have a couple of other things that we're working on there. Page 11, Crestline, just gives you a quick snapshot of that business. Again, $18 billion of AUM acquired in September, was founded in '97, headquartered in Fort Worth, offices in New York, Toronto, London and Tokyo. Really great brand. The team there led by Doug Bratton and Keith Williams, do a fabulous job. They have a great NAV lending business, a great direct lending business. They're really good on the credit side. And we think from a firm standpoint on the capability between Crestline, Sculptor, Rithm, the DNA of the firm and what we have to offer should put us really in a very, very good position with our LPs. From an employee standpoint, there's 175 employees. Average experience of the management team is 20-plus years, and there's 700-plus investors across all the strategies. On Page 12, just gives you a couple of snapshot on the different funds that we have to offer or that Crestline has to offer the investment professionals associated with them. The thing I mentioned in my opening remarks, we are now in the insurance and reinsurance business. That is a business that we intend to grow over time. Obviously, very, very competitive. But now that we have a licensed entity, we're super excited about where we could go with that. Page 13, Sculptor. This is our snapshot that we put in each quarter. Results have been great. Team is doing great. Real estate guys, guys and gals recently raised north of $4 billion in their latest fund, very well-received brand there in the markets with, again, great results and leading with performance first rather than just AUM growth. Page 15, we talk about the Paramount deal. The rationale for us here is pretty simple. One is, I think we're really good at developing a thesis or a theory around an investment strategy in a dislocated market. If we start with that, then when you have a Board that announces a process to sell a company that usually the way that we believe or we think about it, it creates an opportunity for us to have a hard look at that company. When you look at the job that the Paramount team has done and the portfolio of assets that they have assembled, our belief is the so-called return to office. And you could actually poke holes at that a little bit because when you look at New York, it's 90-plus percent leased up. So you could say, okay, that office, New York has already returned to office. I mentioned here that between Rithm and our affiliates, we need 100,000 feet. It's really, really hard to find good office at any kind of what I would call reasonable value. So we think about that. San Fran is in the middle of the so-called AI boom. You're seeing you have a new mayor there. You have a lot of folks coming back to the office. That portfolio is about low 70s from a lease-up perspective. We think we're going to be able to put in some amenities, put in some TI dollars, and we're going to see some really good lease-ups there. And we're seeing that now across all of our -- all the leasing activity. When you look at San Francisco, the demand for tenants right now is roughly 7.8 million square feet, which is the highest ever that we know of. So really excited about this. Buying assets that we think attractive or acquiring a company at an attractive value with great assets then being able to raise third-party capital around that and grow our asset management business is really where we want to go with this. Page 16, just a snapshot of the balance sheet. Pro forma after we do these transactions, you can have a look at that. I'm not going to spend time on that. Again, that's on Page 16. And now I'll just touch base on Genesis, and then I'll turn it over to Baron, who will talk about Newrez. On Genesis, as I mentioned, $1.2 billion, a record third quarter for the business, new originations yielding roughly 10% of funding, 71 new sponsors. When you look at the company year-over-year, our outstanding commitments have grown by 51% quarter -- year-over-year in the third quarter. Funded volume up 60%, sponsor growth up a little less than 50%. And from a delinquency perspective, as I mentioned earlier, credit first, total portfolio has only 4% that are 60-plus days. Just keep in mind, we do service our own assets. I think that is a huge edge, whether it be an ABF or anything else that we do. And for the most part there, we're able to control an outcome and work with borrowers where we have some brand recognition. When you look at Page 19, we just talk about a differentiated model versus so-called other peers in the business between construction, bridge and renovation. The business is led by Clint Arrowsmith and Clint is -- his background is really a bank credit guy, and he's -- and Clint and Joe and the team have done a great job there. So real excited about where we sit. I'm going to turn it over to Baron now, who's going to talk about the mortgage company, and then we'll open it up for Q&A.

Okay. Thank you, Michael. Good morning to everybody. Just turning to Slide 21. Another great quarter for our platform as we execute on our 2025 growth strategy, significant gains in recapture, non-agency originations, expansion of our client franchise and as Michael mentioned, exciting market-leading developments in our ReziAI stack. Our third quarter '25 pretax income, excluding mark-to-market, was approximately $295 million, which is up 7% quarter-over-quarter and 20% year-over-year and delivered a 20% ROE for the quarter, continuing our steady performance. These results continue to show the power of our platform and our ability to drive consistent earnings with the results first ethos. On Slide 22, we can also continue to deliver growth through our differentiated multichannel origination strategy that allows us to use capital efficiency efficiently and maximize our returns. The table on the left shows our direct origination production up 32% year-over-year and with a focus on supporting our homeowners and recapture is outperforming the industry. In our correspondent channel, we were able to increase production and materially improve margins quarter-over-quarter from 43 basis points to 53 basis points through our co-issue MSR acquisition strategy. And our product expansion fueled growth in non-agency assets, which are forecasted to be up approximately 120% year-over-year. Moving to Slide 24 (sic) [ Slide 23 ] and with the recent drop in rates, our origination business finished the quarter with our biggest month in lock volume since early 2022 and has already surpassed this month in October. But even with increased production, our technology is driving increased underwriting capacity and improved turn times. On margins, our weighted average margins dropped to 114 basis points, which is due to channel mix and a significant increase in government streamline refinances that have a lower margin. And while our market competition continues to drive margin pressures, our disciplined focus remains on profitable growth with an eye for market opportunities. As Michael said, performance first lead with results. Turning to Slide 24. We continue to deepen our connection to our 4-plus million customers with digital and brand investments driving our momentum and recapture. We have seen wins in increased digital application leads, better conversions through our ReziChat and our newest tool, ReziAssist, powering loan officer call automation and coaching. Customer retention remains a top growth strategy for Newrez, and we're committed to delivering exceptional customer experience and a broad suite of products that differentiate our platform versus our competition. On Slide 25, our servicing business continues to perform well with $260 million of pretax income, which is up 11% year-over-year. Our special servicing platform is the best in the business, and we continue to gain market share as shown by increases in our third-party UPB, which is up 4%. We're also excited about a new partnership with Wells Fargo, which validates our non-agency servicing leadership in the industry. Performance across the servicing platform is also driven by our operational efficiency and our expansion of our ReziAI platform continues to deliver cost leadership at a fully loaded $140 cost per loan. I continue to believe our business is as best positioned as it has ever been, and I look forward to sharing the next chapter of the Newrez growth story with all of you. Thank you. Back to you, Michael.

Thanks, Baron. Just real quick on Page 27, then we'll open up for Q&A. When you look at the investment business and the investment portfolio, obviously, we always have a lot of things going on here at Rithm. During the quarter, as I mentioned earlier, we put out -- we did about $2.6 billion in investing in non-QM loans and RTL loans. These 2 segments, when you think about the so-called ABF world and whether it be us marketing ABF funds and other folks marketing ABF funds, these are 2 of the hottest products where -- what LPs want to get access to. The fact that we could actually manufacture these products, we service these products. And when you look at the overall yields and returns on these assets is an area for us that we believe we're going to continue to grow. So I point that out from the Genesis side, I pointed out from the Newrez side. But overall, investment portfolio, a very good quarter. The firm overall had a really good quarter. And with that, I'll turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Crispin Love with Piper Sandler.

Just first, there's been a pretty wide divergence in share price between you and some of the originator servicer peers out there. It doesn't make up a whole ton of sense when you look at the sum of the parts that you lay out. So wondering if you could provide an update on the broader strategic vision and what time lines that could be, whether it's a Newrez spin, the REIT, anything with the asset manager. Just curious what's your focus? And then what are the key hurdles you need to get past to drive some of those changes?

Thanks, Crispin. I mean what I would say in our share price, and we say this quarter-over-quarter, I believe that fundamentally, when you look at the so-called sum of the parts that we are extremely attractive from a value standpoint. I think when we announced the Paramount deal and we did our Paramount call, I believe the stock traded towards $12.5. And then after that, I think the market thought we were going to come back and we rebooted our ATM. We did a pref offering, and I think the market thought we were going to raise equity. So when I look at the stock price today in and around $11, and I think it's extremely attractive, but that's just my thoughts. Being that we're really clear, we're not raising equity around this transaction for these assets. Nick went through the balance sheet. We'll end up with about $1.3 billion of cash and liquidity to the extent that we funded both of these on balance sheet, it's likely we will. And then we're in a ton of conversations, what I would say, with LPs and our asset management business continues to grow. We need to drive more, quite frankly, more FRE through our pipes to get revalued. That's something that we're very focused on. We think that the Paramount deal will help towards that a little bit. I mentioned that we have an ABF fund that will close -- most likely have a first close in the fourth quarter here on one of the wealth management platforms. Crestline, the Crestline addition that will drive more FRE to the platform. Sculptor is doing well. So I think all these things are going to help contribute. As you think about spins, sells, what have you, the mortgage company alone, when you think about it, if there's what, $5.5 billion of capital and that trades at 1.5 to 2x, you have 550 million shares, that gets you to kind of a mid- to upper teens stock price alone. So part of our thesis also is as we drive more -- as we make more money as an organization, we're in the build mode. And unfortunately, you don't get credit for the build mode than you do for, just saying, okay, the mortgage company, we're going to take it public. It's going to trade at 1.5 to 2x book, and that's a $17 or $18 stock price. I think we need to grow asset management business. We need to grow FRE. Once we do that, we could think about spins or taking the mortgage company public. It's something that we think about all the time. From a REIT perspective, and I've used this example before, when you look at, for example, Blackstone, right, they have their C-corp. They've dropped their REIT down below. They have funds, et cetera. We'd like to do something like that, but I think we need to grow a little bit more on the asset management side first, thus the 2 acquisitions in the quarter.

Great. And then just on the Paramount transaction, can you share how much third-party capital you've been able to raise there or just how conversations have been going? I believe you said originally, you'd fund it with $300 million to $500 million in cash at the Rithm level and then the rest from co-investors. So curious on progress there. And then are you not able to bring in capital until after the closing of the deal? I thought I saw something like that in the presentation, but just curious on an update.

So on that deal, we went out to say that we'll put in $300 million to $500 million of our own equity. I think the way that we expect that to be, it will be roughly -- I think it's going to be roughly $300 million from Rithm, possibly $50 million from RPT, which is our other externally managed REIT. The other, call it, $950 million or $1 billion were raised from third parties. We can raise all that money prior to close depending upon how much economics do we want to give away beforehand. I mean it's just that simple. The money is there. We've had a number of conversations with folks that want to give us the money now. What we're trying to do is really build our asset management business. We did set up from a liquidity standpoint prior to this acquisition and prior to Crestline to make sure that there is enough cash and liquidity on balance sheet. But just to be clear, if we want to fund this thing all with third parties now, we can do that. It's just a question of what do the economics look like for Rithm and our shareholders.

And the next question comes from Bose George with KBW.

Actually, a question on the Ginnie Mae streamline refis where you noted that took the gain on sale margin down. Are those loans just cheaper to produce as well? Just -- so the economics are similar, it's just that the top line gain on sale margin is different?

Yes. Yes. The answer to that is yes. They are definitely cheaper to produce, and that's the best way. They're also highly competitive as well, but they're cheaper to produce.

Okay. Great. And then actually switching to RPT. Given where that's trading, can you just discuss some of the options there for potentially growing that business? Could we see sort of an acquisition or a merger? Just curious what kinds of things you're thinking about there?

So on RPT, we have earnings tomorrow. So I mean, here's the way we think about it. It's a capital vehicle. The stock is -- again, it trades extremely trades poorly. While saying that, we got to give investors a reason to want to own the equity is what I would say. So when we look at this company, we are going to try to grow it. We're looking at direct lending options and things like that. To the extent that we don't, at some point, we'll likely tender for the shares and just clean up the vehicle. I think for now, we want to give it a good go. This is how BXMT has grown. This is how we've grown things during our Fortress days. But to the extent that we can't grow it because for whatever reasons, we'll likely tender for the shares.

Okay. Great. And actually, just going back to the earlier question, just on strategic actions. The partial listing of Newrez as opposed to a spin, but just a small, whatever, 15% listing for a mark-to-market. Just given that you could do that sooner versus the other strategic actions, which probably take time to sort of build out the AUM more, I mean, is that something worth sort of reconsidering or revisiting?

Yes. We explore that every day. So that is something that we are exploring.

And the next question comes from Eric Hagen with BTIG.

Fleshing out some of this other conversation here. We're looking at Slide 6 again. Is the expectation to raise the third-party capital for Paramount and pay down that $1.1 billion that you drew on the financing line? Or does this pro forma cash position assume that you've raised the third-party capital to fund that?

Yes. We will not -- I mean, if -- once we raise the third party -- we haven't drawn on the money because the deal hasn't closed yet. You still got to get shareholder approval. Once we do that, once we do close, to the extent that we do draw down, we'll pay that off once we raise the money. The money -- there's a ton of money for people that want to be part of this, whether that be LPs and/or, as I pointed out to Crispin, LPs and/or what I would call peers and partners in the business. It's just -- the question for us is maximizing economics. But from a brand standpoint, I would tell you that we're having anywhere from 5 to 10 conversations minimum a day with LPs. So not only doing the deal and not everybody wants to be in office, quite frankly, because a lot of folks have gotten smoked going in right after COVID or just before COVID. But the gist of it is the amount of conversations we're having as an organization with LPs and the amount of capital that's out there and real discussions we've had, where we feel really good about where we are on this one.

Got you. That's helpful. I mean there's a lot of attention right now on underwriting, even some fraud with these consumer lenders, regional banks and such. I mean do you see that driving changes in the market? I mean your entire business effectively is like underwriting focused at this point. I mean we wouldn't expect any bad underwriting in your portfolio, but do you see that having a spillover effect in any way to the rest of the market?

Yes. I think it's something that when we talk about our ABF funds, it is a question we get asked all the time. When you look at First Brands or you look at Tricolor, what really happened there. One thing that's different about Rithm versus other folks, we have what, 10,000 employees across the firm. The mortgage company has between employees and consultants, probably 10,000 people alone, quite frankly. You look at Genesis, there's a couple of hundred people there. We're underwriting first, and we don't just go out and buy pools of assets unless like I pointed out, many times where we have the ability to hopefully control an outcome, and that outcome is driven through our underwriting and servicing business, and that makes a big, big difference. While saying that, ABF kind of LPs are -- they want to know what happened with First Brands. They want to know what happened with Tricolor. Tricolor was classic fraud, right? They pledge assets twice. You look at First Brands, it's a liquidity issue, but I'm sure there's some other stuff that's going on there. And so -- but for us, underwriting first. We've seen these kind of events happen. I don't think they're systemic, quite frankly, for the broader world or market, but we have to keep our eyes and ears open here and lead with underwriting first.

Good stuff. One more, if I may. The falloff in interest income from the investment portfolio quarter-over-quarter, it looks like it went from $82 million to $52 million. What was the driver of that?

Sure. So Eric, we held lower agency balances. And in addition, we had a retrospective adjustment in interest income that was offset in unrealized gains, losses. So when you look at that line, you will see the pickup.

And the next question comes from Jason Weaver with JonesTrading.

For the initial ABF fund you're targeting with the wealth management platform, can you talk about the initial size you're targeting for that as well as the expected life of that vehicle?

I don't think -- I mean, here's what I would say. From an asset, I don't think we can talk about -- we can't talk about the marketing of the so-called fund. What I would tell you is we do have a couple of things that we're working on. We mentioned that so-called fund. Are we allowed to talk about this? I'm looking at counsel. Okay. So the size is likely going to be upwards of [ $500 million ] and then the average duration of something like that. It's -- think about the typical products that we produce. I mentioned earlier, non-QM and RTL are kind of the in flavor as people like the diversified risk there, those average cash flows think of something in the kind of the 3-year area. And then we -- I mentioned earlier, and it's not just us, but there's a lot of managers like us that are out there with different ABF funds. And it's -- when you think about the product suite there, it could be ABS, it could be mortgage, it could be CLO type, it could be -- you'll have aviation finance, all kinds of different things that can go into these different buckets.

All right. That's helpful. And then next, as it pertains to the dividend, you've been covering for, I don't know how long, 5 years as far back as I remember. How do you think about the payout policy right now, whether you can see it expanding given some possible capital needs for integrating these acquisitions or building more of a buffer against market headwinds?

What I would say from -- obviously, it's a Board decision. I would say pretty definitively from the team here inside the walls of Rithm that we're not going to raise our dividend. Quite frankly, if we had our druthers, if you think about it, we're paying out something between, call it, $600 million a year if you reinvested that capital at a 15% or 20%. We mentioned the company generated an 18% ROE. If we redeployed the capital there, it's going to be highly accretive from an earnings standpoint, and that would enable the stock to grow. So I would say definitively, there's no desire to increase the dividend at this point. If we go the other way, we would.

And the next question comes from Trevor Cranston with Citizens JMP.

Another question on the kind of valuation of the company and closing the gap to the sum of the parts level. Can you talk about how you guys think about share buybacks as a tool to sort of help bridge that gap or if the focus is really just more so on kind of continuing to grow and increase revenue streams to get there?

So share buybacks, people talk about share buybacks. I think our path is going to be continued growth as long as we think we can deploy capital at, call it, 15% to 20% returns. I would say while we have all kinds of policies in place, whether they be share buybacks, ATMs, et cetera, based on the 2 acquisitions, I would assume that we're not going to be doing any share buybacks here. I think the question around a potential IPO of the mortgage company is always something that we wrestle with. So at some point, if that's something we do, that would potentially raise a little bit of capital for us. But there's no -- I would say, right now, and this is, again, my view, we're not going to be doing share buybacks. We're funding $1 billion-something acquisition on Paramount and Crestline. And as we continue to grow earnings and grow FRE, I think you're going to see a huge reval of the company. That's what we're all playing for.

Got it. Okay. That's helpful. And then on the Sculptor business, you guys have had a pretty good year of fundraising. I think the number you gave is $4.6 billion so far this year. Can you give us an outlook on kind of how you're thinking about fundraising heading into 2026, if you think that kind of pace is sustainable? And just generally, how you think about the organic growth potential of the asset management side over the next year or so?

Sure. So when we look at the asset management business, we are going to be making capital investments in people as we continue to grow our, what I would call our capital formation/strategy group. So there'll be some significant investments there. We have -- I'm hopeful over the next kind of 60 days, we have some big announcements there around some personnel. When you look at the growth, the $4.5 billion or so, the Sculptor raised, a large amount of that was in the real estate business. The underlying performance in like the credit business, the multi-strat business continues to be very, very good. You look at Crestline, their performance continues to be very, very good. When you look at across our firm and you think about Rithm, Sculptor, Crestline, you could assume at some point that the capital formation groups come together and things really start to synergize and we're able to raise a lot more capital. So when I look at a $4.5 billion or $5 billion capital raise for '25, do I think that's repeatable in '26? Absolutely. I mean you look at the bigger all players, and they've done a fabulous job raising tons and tons of capital. There's no reason why we can't surpass the numbers that have been done in '25.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks.

Well, thanks for the thoughtful questions. Thanks for listening to us this morning. As I wrap up again, very excited where we sit. From a company perspective, things are going, what I would say, extremely well right now. Earnings, the strength of our earnings continues to be robust, driven by the businesses that we bought or built to get us here. Those very same businesses are going to enable us to continue to grow our platform. Obviously, very focused on the asset management business, very focused on getting the proper reval of the company. The mortgage company is something that we always -- we look at and say, do we take it public or not? Quite frankly, it's sometimes it's easier not to be in the public markets as you think about every asset manager talking about going public to private when you look at assets going even into the wealth channels. But overall, things are clicking on all cylinders here for us, and we look forward to updating you throughout the quarter and into next quarter. So thanks again. Have a great weekend.