Executive Summary / Key Takeaways

• Great Elm Group has completed a radical transformation from a diversified conglomerate into a pure-play alternative asset manager, building a scalable platform across private credit and industrial outdoor storage real estate that is now reaching an inflection point in fee generation and operating leverage.
• The company has demonstrated exceptional capital formation capabilities, with its BDC (GECC) raising over $147 million in calendar 2024 and a transformative Kennedy Lewis partnership committing up to $150 million in leverageable capital to the real estate platform, directly translating into 9% year-over-year growth in fee-paying AUM to $594 million.
• Management has architected a high-value integrated real estate platform through the Monomoy Construction Services acquisition, enabling end-to-end development capabilities that capture more value per project and support a robust pipeline of build-to-suit properties, evidenced by two successful property sales generating over $1.5 million in gains within 15 months.
• The private credit strategy is delivering institutional-quality returns of 15.2% net year-to-date through September 2025, positioning GEG to attract third-party capital and scale fees, though the First Brands bankruptcy and CoreWeave volatility demonstrate the inherent risk in concentrated credit exposure.
• Trading at $2.78 per share with a price-to-book ratio of 1.20 and $53.5 million in unrestricted cash, the stock embeds modest expectations, creating potential upside if management successfully executes on its operating leverage thesis while navigating execution risks inherent in its small-scale operations.

Setting the Scene: The Making of a Niche Alternative Asset Manager

Great Elm Group, incorporated in Delaware in 1994, spent most of its existence as a diversified holding company before executing a strategic pivot that culminated in fiscal 2023 with the divestiture of non-core businesses. This wasn't a simple portfolio pruning—it was a fundamental reimagining of the company's identity. Today, GEG operates as a pure-play alternative asset manager focused on two distinct but complementary segments: Alternative Credit and Real Estate. The company makes money by generating management fees on assets under management, incentive fees on performance, and realized gains on proprietary investments in its own funds and development projects.

The Alternative Credit segment centers on Great Elm Capital Corp. (GECC), a publicly-traded Business Development Company, and the Great Elm Credit Income Fund (GECIF), a private credit vehicle launched in November 2023. This segment generates income through base management fees (typically 1-1.5% of assets) and incentive fees (15-20% of profits above hurdles). The Real Estate segment, built around the Monomoy REIT platform, focuses on industrial outdoor storage (IOS) properties—an increasingly critical asset class serving equipment rental companies like United Rentals (URI) and Sunbelt Rentals. Revenue here comes from property management fees, construction management fees through Monomoy Construction Services (MCS), and gains on property sales from build-to-suit development projects.

GEG sits in a competitive landscape dominated by larger, more diversified players. Silvercrest Asset Management (SAMG) manages $37.6 billion with a focus on high-net-worth individuals, offering broader distribution but less specialization in illiquid alternatives. Heritage Global (HRTG) operates in asset liquidation, providing rapid monetization but lacking recurring fee streams. CaliberCos (CLBR) competes in real estate fund sponsorship but faces deconsolidation challenges and revenue volatility. GEG's niche position as a sub-$100 million market cap player with specialized expertise creates both opportunity and vulnerability: it can move quickly on targeted opportunities that larger firms ignore, but lacks the scale to compete for major institutional mandates and faces higher relative customer acquisition costs.

The industry backdrop favors GEG's positioning. Private credit assets under management are projected to grow from $1.7 trillion in 2024 to $2.7 trillion globally by 2028, driven by bank retrenchment and institutional demand for yield. The IOS real estate sector is expanding at 10-15% annually as e-commerce logistics and equipment rental demand drive need for specialized storage facilities. GEG's integrated approach—combining investment management with in-house construction capabilities—positions it to capture more value per transaction than traditional fund sponsors or property managers.

Strategic Differentiation: Integrated Platforms and Specialized Expertise

GEG's competitive moat rests on two pillars that reinforce each other: institutional-quality private credit execution and a fully integrated real estate development platform. The private credit strategy has delivered a 15.2% net return calendar year-to-date through September 2025, with income distributions exceeding 15% of original invested capital since inception. This performance demonstrates GEG's ability to source, underwrite, and manage complex credit investments in a market where many small managers struggle to generate alpha. The returns aren't flukes—they reflect a disciplined approach to specialty finance, factoring, asset-based lending, and healthcare credits that larger firms often overlook due to size constraints.

The real estate platform's differentiation is more recent but potentially more valuable. In February 2025, GEG acquired Greenfield CRE and integrated it with existing Monomoy BTS Construction Management to form Monomoy Construction Services (MCS). This creates a turnkey solution for IOS development: GEG can identify tenant needs, acquire land, manage construction, and operate properties through a single integrated entity. Because it captures margin that would otherwise leak to third-party contractors while providing tenants with a single point of accountability. The $700,000 in revenue MCS generated in its second full quarter demonstrates immediate traction, but the strategic value lies in the platform's ability to accelerate development timelines and improve project economics.

This integration creates network effects within GEG's limited ecosystem. GECC's $5 million preferred financing in CoreWeave, a cloud AI startup, showcases the company's sourcing capabilities through its board network. While CoreWeave's volatility created unrealized losses in Q1 2026, the investment has already returned over 100% of initial capital in distributions, illustrating the asymmetric return potential of GEG's proprietary deal flow. Similarly, the Monomoy REIT's ability to deploy $13 million in a single quarter to acquire seven properties and a land parcel for tenant expansion demonstrates the platform's responsiveness to market opportunities.

The technology stack, while not software-based, is embedded in processes and relationships. GEG's construction management capabilities enable it to offer tenants comprehensive turnkey solutions that competitors like HRTG (focused on liquidation) or CLBR (focused on fund sponsorship) cannot replicate. This operational depth translates into higher customer retention and the ability to command premium fees—Monomoy CRE's investment and property management fees increased 12% year-over-year, driven by both AUM growth and rising rental income.

Financial Performance: Evidence of Platform Scaling

The financial results for the three months ended September 30, 2025, reveal a company in transition—growing its asset base and fee streams while absorbing the costs of platform build-out and occasional credit losses. Total revenues increased to $10.79 million, driven primarily by a $7.4 million real estate property sale that generated over $0.5 million in gain. This top-line growth masks underlying dynamics: Alternative Credit segment revenue declined 36% to $1.58 million due to reduced incentive fees, while Real Estate segment revenue exploded from $1.52 million to $9.21 million on the property sale.

The Alternative Credit segment's performance reflects the timing mismatch inherent in incentive fee recognition. GECC's base management fees grew over 40% year-over-year to $1.3 million in Q3 2025, demonstrating solid AUM growth, but incentive fees couldn't be recognized until performance hurdles were met. This creates quarterly volatility that obscures the segment's true earnings power. The segment posted a $0.51 million loss before taxes in Q1 2026, but this included $0.20 million in increased non-cash compensation and $0.10 million in higher legal and recruiting expenses—investments in the platform that should generate future fee income.

The Real Estate segment's $1.27 million loss before taxes, despite the property sale gain, reflects deliberate investment in scale. Compensation and benefits increased $1.60 million due to the Greenfield acquisition, while SG&A rose $0.50 million from expanded activity. These aren't inefficiencies—they're the fixed costs necessary to build a national IOS development platform. The $0.5 million gain on the second build-to-suit property sale, following the $1 million+ gain in June 2024, validates the development model's profitability. With construction nearing completion on the third property and a robust pipeline behind it, these gains should become more regular contributors to earnings.

Consolidated results show a net loss of $7.03 million for the quarter, but this includes $6.6 million in unrealized losses, primarily from the First Brands bankruptcy and CoreWeave volatility. The First Brands exposure is particularly instructive: GECC's syndicated loan position was placed on non-accrual after the company filed for bankruptcy in late September 2025, creating a material unrealized loss that negatively impacted NAV. While management emphasizes that GECC remains well-capitalized with ample deployable cash, this event demonstrates the risk of concentrated credit exposure in a BDC structure.

The balance sheet tells a more optimistic story. Unrestricted cash increased from $30.6 million to $53.5 million in Q1 2026, providing strategic flexibility. GEG holds 1.36 million shares of GECC common stock valued at $13.6 million, representing both an investment asset and a fee-generating relationship. The company's debt structure is conservative: $26.9 million of 7.25% notes due 2027 and $35.1 million of 5% convertible notes due 2030, with a net debt-to-equity ratio of just 0.10x, well below the 2.0x covenant limit. This liquidity positions GEG to opportunistically repurchase shares (5.6 million shares for $10.9 million at an average $1.93) and invest in growth initiatives without diluting shareholders.

Outlook and Execution: The Operating Leverage Thesis

Management's guidance centers on a compelling operating leverage story. As CEO Jason Reese stated, "We have spent a lot of time and effort building all the back office infrastructure. This business is a high fixed cost and then low marginal cost going forward. We have the bulk of our fixed costs in place, and now the strategy is all about growing." It frames the recent expense increases not as runaway costs but as deliberate investments that should generate incremental margins as AUM scales.

The capital formation trajectory supports this thesis. GECC raised approximately $28 million in equity in Q1 2026 through a $15 million private placement and $13 million at-the-market offering, building on the $147 million raised in calendar 2024. Each dollar of equity raised at GECC translates into fee-paying AUM that generates base management fees for GEG. With fee-paying AUM growing 9% year-over-year to $594 million, and the KLIM partnership committing up to $150 million in leverageable capital to Monomoy REIT, the pipeline for fee growth is visible.

The real estate platform's outlook appears particularly strong. Monomoy BTS is nearing completion on its third build-to-suit property with a robust pipeline behind it, while MCS is generating $700,000 quarterly revenue in its infancy. The KLIM partnership is described as "transformative," bringing not just capital but "deep institutional expertise in scaling real estate platforms." This validates GEG's strategy of partnering with larger institutions to accelerate growth without sacrificing control.

Management's confidence in reversing unrealized losses is explicit but requires scrutiny. Regarding the CoreWeave position, Reese noted, "We remain highly confident in these investments and fully expect the losses to reverse over time as market conditions stabilize." On the First Brands loss, he emphasized that "the capital initiatives executed in the quarter leave GECC in a position of strength." These statements reflect management's belief that recent setbacks are temporary, but they also highlight the key execution risk: GEG's small scale means a single credit loss or market dislocation can materially impact quarterly results, even as the underlying platform strengthens.

The guidance for fiscal 2026 focuses on three priorities: growing fee-paying AUM, scaling the credit and real estate platforms, and translating strategic progress into sustained financial performance. The at-the-market offering for GECC shares is expected to provide an additional avenue for AUM growth, while the strong performance of GECIF (13.9% net returns since inception) positions it to attract third-party capital. The critical assumption is that the heavy lifting of platform construction is largely complete, and incremental revenue will flow through at high margins.

Risks and Asymmetries: What Could Break the Thesis

The investment thesis faces material risks that stem directly from GEG's small scale and concentrated exposures. The First Brands bankruptcy demonstrates how a single credit loss can create a $6.6 million unrealized loss that overwhelms quarterly fee income. GECC's exposure to syndicated loans, while diversified across a portfolio, remains vulnerable to idiosyncratic credit events that larger BDCs can absorb more easily. If credit losses become more frequent as the economic cycle matures, GEG's thin capitalization relative to its AUM could pressure both NAV and fee generation.

The CoreWeave investment illustrates a different risk: valuation volatility in proprietary positions. While the investment has returned over 100% of capital in distributions, recent stock price volatility contributed to unrealized losses and GEG's net loss for Q1 2026. GEG's model relies on both fee income and balance sheet gains; volatility in the investment portfolio can mask underlying operational progress and create earnings unpredictability that investors penalize.

Execution risk on the operating leverage thesis is substantial. Management claims fixed costs are largely in place, but the Greenfield acquisition added $1.60 million in quarterly compensation expense and $0.50 million in SG&A. If revenue growth disappoints—due to slower AUM formation, weaker real estate sales, or credit market disruption—GEG could find itself with a cost base that is too heavy for its revenue scale, compressing margins and burning cash. The company's small size means it lacks the diversification of larger competitors like SAMG, which can offset weakness in one segment with strength in another.

The KLIM partnership, while transformative, introduces counterparty risk. If Kennedy Lewis fails to deploy its committed capital or the strategic alignment falters, GEG's real estate growth trajectory would slow materially. Additionally, the partnership structure may limit GEG's flexibility in pursuing certain development opportunities that don't fit KLIM's criteria.

Competitive pressure from larger players could erode GEG's niche. If SAMG or other asset managers decide to compete more aggressively in private credit or IOS real estate, their scale advantages in distribution, branding, and cost of capital could make it harder for GEG to win mandates and maintain fee rates. The company's 15.2% private credit returns are impressive, but they may attract competition that drives down future yields.

On the upside, asymmetries exist if execution exceeds expectations. If GECC's at-the-market offering raises more capital than anticipated, or if the KLIM partnership accelerates real estate AUM growth beyond the $150 million commitment, fee income could scale faster than the cost base, creating meaningful earnings leverage. The IOS real estate market is fragmented; if GEG can establish a leading position in key markets, the platform value could exceed current estimates.

Valuation Context: Modest Expectations Embedded

At $2.78 per share, Great Elm Group trades at a market capitalization of $91.7 million and an enterprise value of $28.2 million (net of $53.5 million cash and $13.6 million of GECC stock). The valuation metrics reflect a company in transition: price-to-book ratio of 1.20, price-to-sales ratio of 3.97, and negative operating cash flow multiples due to the platform investment phase. These multiples suggest the market is pricing GEG as a modest-growth asset manager rather than a platform with operating leverage potential.

Comparing GEG to direct peers provides context. Silvercrest Asset Management trades at 1.00x sales with 7% revenue growth and 34% operating margins, reflecting its mature, diversified business. Heritage Global trades at 1.02x sales with 18% operating margins but lacks recurring fee streams. CaliberCos trades at 2.46x sales but is unprofitable with negative cash flow. GEG's 3.97x sales multiple appears rich relative to these peers, but this reflects its higher-growth real estate development activities and the embedded value of its investment portfolio.

The balance sheet is the strongest element of the valuation story. With $53.5 million in unrestricted cash, $13.6 million of GECC stock, and only $62 million in total debt, GEG has net liquidity of approximately $5 million. This net cash position, combined with a debt-to-equity ratio of 0.75x and interest coverage that is positive on a cash basis, provides strategic optionality. The company can weather quarterly volatility, invest in growth, or return capital through its expanded $25 million share repurchase program (with $14.1 million remaining capacity).

The key valuation driver is fee-paying AUM growth. If GEG can grow AUM from $594 million to $1 billion over the next two years while maintaining its fee structure, base management fees alone could increase from approximately $5 million annually to $8-10 million. With fixed costs largely in place, this incremental revenue would flow through at high margins, potentially justifying a higher multiple. Conversely, if AUM growth stalls or credit losses mount, the current multiple could compress sharply given the lack of profitability.

Investors should focus on enterprise value-to-revenue and price-to-book as the most relevant metrics for this stage. The 0.26x enterprise value-to-revenue ratio (using EV of $28.2 million and TTM revenue of $16.3 million) suggests the market is valuing the operating business at a significant discount to sales, implying skepticism about sustainability. The 1.20x price-to-book ratio indicates modest premium to net asset value, reflecting the market's wait-and-see approach to the platform strategy.

Conclusion: Execution at an Inflection Point

Great Elm Group has engineered a remarkable transformation from a forgotten conglomerate into a focused alternative asset manager with two scalable platforms and a clear path to operating leverage. The evidence is compelling: $147 million in capital raised at GECC in 2024, a transformative $150 million commitment from Kennedy Lewis for the real estate platform, and integrated capabilities that capture value across the investment lifecycle from construction to property management to disposition.

The central thesis hinges on whether management can convert this platform investment into sustained fee growth and margin expansion. The 15.2% private credit returns and successful property sales demonstrate investment acumen, but the First Brands bankruptcy and CoreWeave volatility reveal the fragility of a small-scale operation where single positions can dominate quarterly results. This asymmetry cuts both ways: downside risk is concentrated, but successful execution on the KLIM partnership or GECC capital formation could drive disproportionate upside as fixed costs are absorbed by growing fee streams.

For investors, the critical variables are AUM growth velocity and credit loss experience. If fee-paying AUM can scale beyond $750 million in the next 12-18 months while maintaining credit quality, the operating leverage thesis will prove valid and the current valuation will appear conservative. If capital formation stalls or credit losses mount, the company's small scale and high fixed cost base could pressure the stock even from these modest valuation levels.

Trading at 1.20x book with net cash and a visible pipeline of development projects, GEG offers an asymmetric risk-reward profile for investors willing to underwrite execution risk. The platform is built; now we see if it can scale.