Q1 2020 Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily. Thank you for your patience and please standby.
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Ladies and gentlemen, please standby your conference call beginning approximately two minutes. Thank you for your patience. Please standby.
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Good morning, Thank you for joining us to discuss cowens results for the first quarter 2020.
How'd, you Should've received a copy of the earnings release, which can be accessed at www dot Cowen Dot com.
Before we began the company is asking me to remind you that some of the comments made on today's call.
Hi, good responses to your question may contain forward looking statements.
These statements are subject to the risks and uncertainties described in the Companys earnings release and other filings with the FCC.
Many of these risks are currently increased by and they will continue to be increased by the Covidien 18 pandemic.
Looking at least description of these and other risks and uncertainties and assumptions is included in the company's falling.
Yes, he see including the upcoming first quarter, 2020, 10-Q filing which will be available on the company's website.
No one has no obligation to update the information presented on today's call.
Also on today's call our speakers will reference certain non-GAAP financial measures, which the company. When we believe will provide useful information for investors.
Reconciliation of those measures to GAAP is consistent with the company's reconciliation as presented in todays earnings release.
Now I would like to turn the call over to Mr., Jeffrey Salomon, Chairman and Chief Executive Officer.
Thank you operator, good morning, everyone and welcome to Count first quarter 2020 earnings call. This is Jeff Solomon and joining me today on the call from his home is our CFO Steve Lasota.
As a reminder, we make available quarterly financial supplement in the Investor Relations section of our web site and we encourage you to review it in conjunction with our earnings release.
This morning, I would like to review the extraordinary events for the past several weeks in how we at Cowen have responded the new reality of the coping 19 pandemic.
Then Steve will review the financial results for the quarter and will offer some thoughts on where we stand today.
After that we'd be happy to answer your question.
Over the past few months I've been asked by a number of our clients not only to present our views on the health crisis and the current economic situation, but also how we've been managing our own organization through this time.
I started to each time.
Highlighting our management team made critical decision early and that there were.
A vision empathy sustainability and tenacious teamwork.
As I will detail in a bit more on this call.
When the enormity of dependent I became more evident we prioritize the health and safety of our team.
And our families in all decisions that we made.
We worked tirelessly collaboratively across the entire firm to ensure that we were able to continue delivering high quality engagement for our clients, even as we quickly implemented our robust business continuity plan.
Which enabled all of US all 1300 about to work effectively from our home.
It does it feel that none of us could have ever imagine having to accomplish and yet our organization swung into action without so much as a hesitation.
Before we go any further I just want to express my gratitude and my pride, everyone at Cowen who helped make that happen.
You already embodiment of our ideals and he asked is what makes US is strong as we are.
As we look forward to navigating the next several months well being of the Cowen team our clients our families and our communities will remain our top priority.
Looking back to the first quarter 2020, specifically the month of March It was the most challenging period in more than a decade, and we wrote the test with a very strong operating performance in our markets in investment banking businesses for the quarter.
To put in perspective, the first quarter 2020 would rank as the night most volatile year on record for U.S. equity.
March was the most volatile month ever and with the S&P 500 realized volatility over 93.
As equity prices fell trading volumes surge and economies worldwide downshifted almost to a hole.
Got one weather the storm well.
The operating company segment was profitable for the quarter, while the athletes company posted a negative performance due to write downs in some of our private investment.
I'm proud of the rapid steps we took in early March to reduce risk in our trading books, which resulted in the preservation of our tangible book value.
More importantly, however, we reacted quickly to cope with 19 situation by mandating work from home for some of our teams beginning on March nine and by the end of the week that week over 80% of our staff globally were sheltering in place well ahead of most of our peers.
[laughter] third week of March more than 98% of Cowen employees have been working remotely.
If he told me that we would do record volumes in our markets business in March well migrating to a work from home plan I might it take any other side of that bad, but not only do we pull it off we did so without missing a beat.
This is a testament to the dedication skill of our teams and operations in technology, we're grateful for their hard work and their expertise in making this happen so quickly and so seamlessly.
This decision to move to a fully remote workforce was not an easy one at the time or actions were well beyond the government's recommended precautions that arm and our management team debated whether or not we were taking too much risk to the continuity of our business relative to the perceived health threat.
The decision came down to one overriding factor keeping our people and their families healthy.
Given the escalation the crisis, particularly in cities were count has a major precedent, we're thankful to be the right decision early and for the foresight to have a robust business continuity plan.
Count employees have been healthy productive.
And again because of this work from home decision. Our strong culture has made it clear different enabling us to continue functioning at a high level, even though we're apart.
In time distressed like the one were in there's no question that entity has enabled us to be truly present for each other and for our clients.
As we were quick to shift to the work remotely we spring into action quickly to virtual engagement with our client, creating a well attended virtual conference on all aspects of Cobot 19, the continued for about a month.
We provided our clients with early information on diagnostic therapies vaccines and convene global experts to help make sense the pandemic.
For the market any economic impact in the fiscal and monetary responses.
That conference in a series of other online events have attracted more than 14000 participants over the past several weeks.
We may be working remotely, but we're as well connected to our clients as we ever had been perhaps even more so.
The Cowen team has remained extremely well coordinated amongst ourselves we successfully combined relevant content with increased client contact frequency, which we believe is further strengthen our client relationship enabled us to take market share.
Now I will give you a brief update on how our operating company divisions fared over the quarter.
In markets, we had a record quarter in terms of both revenues and trading volumes and importantly, we gained share as volatility spiked.
Our trading volumes in March were 120% above the prior 12 month average while trading activity from the buy side clients was over 140% higher.
In times of market arrest quite speak out Cowen for our ability to source liquidity and reduce market impact of treating on a non biased spaces and we've definitely seen this play out over the past couple of months.
During the first quarter, we aggressively provided liquidity to clients and reduced risk in our shares in our securities Finance in fact trading books.
Still generated record revenues, despite the impact of the losses in knees and these portfolios.
Revenues in options and non U.S. execution, we're extremely strong each of those were up 200% year over year walkouts treating electronic trading and prime brokerage revenues were up more than 35% versus the first quarter of 29 team.
In research our virtual engage with clients has gone very positive feedback beyond our cobot <unk> focused efforts. Our research team was very productive in the first quarter, what total reports published up 46%.
Fine engagement with our research also grew with a number of reports read up 11%.
In the quarter, we want to do best ideas your product and began building out of thematic research product to gain increased mindshare among portfolio managers family offices venture capitalists in private equity funds.
In investment banking.
We had the second best quarter on records for revenue.
Despite the market turmoil.
In a sharp drop in overall banking activity to work the quarter Ed.
Oh health care focus and expertise are beneficial as the new issue calendar with significant across biotech and tools and diagnostics.
Particularly in January and February and again starting in April.
Overall health care accounted for 75% of our banking revenues in the first quarter.
During the extremely volatile environment in March we stayed focused on our clients and completed 10 transactions across capital markets and M&A advisory.
It was a strong quarter for the equity capital markets because it but we had solid performance in other areas of banking is well it was our strongest quarter forget advisory and over five years, we invested in building out that capacity in over the past here and that is clearly paying off for us so far in 2020.
Its clients think about how to manage their balance sheets more aggressively.
M&A can compete compromised about 20% of banking revenue.
Capital markets Advisory, which includes private placement.
Pipes and private debt financings was 14% of total banking revenue.
Combined our our advisory business represented 34% a banking revenues in the quarter.
In investment management no market fell off resulted in declines in investment income and incentive income, but they were modest relative to the steep drops in most asset classes during the quarter.
Even if we took early steps to de risk the portfolios.
Right the volatile quarter, the management fee run rate hit its highest level in over four years.
Looking at our five indefinitely or five indefinite strategies, our newest strategy sustainable investing which launched in the third quarter of 2019 had approximately $210 million an asset to be ended the quarter.
The team runs he technology enabled process and focuses unclean transportation sustainable food production industrial efficiency and renewables and storage sectors.
Our health care investment strategy at approximately 660 million in assets at year end and this strategy is looking for meaningful investments at attractive valuations, particularly in the areas of oncology and rare diseases.
Despite the current disruption to the bio pharma industry from Cobot 19.
The strategy experienced negative incentive income investment income from a handful positions during the first quarter well, we remain optimistic about the outlook in the intermediate term.
The biotech indices have been among the strongest performers have all sectors and we even had an IPO of one of our recent investments in the first few weeks of April.
Healthcare royalty partners ended the quarter with about 3.4 billion an asset.
The volatility in the public markets has brought about increased opportunity for this strategy as companies are looking to finance there.
Their balance sheet with less dilutive financing opportunities like the ones done in healthcare royalty partners.
The merger arbitrage strategy had about $465 million in assets at quarter end [laughter]. This strategy underperformed your Jeff Rx merger Arb index in the first quarter as deal spreads move to their widest levels.
Into 2008 financial crisis.
The activist strategy, he had about 5.4 billion and assets at quarter end and while absolute performance in the quarter was modestly negative the strategy strongly outperformed its Russell 2000 benchmark in the first quarter and actually generated significant investment fee income.
Turning to the assay company as a reminder, this segment includes noncore investments, which we intend to monetize the global fell off in the first quarter resulted in write downs of asset co investments totaling $11.7 million.
We wrote down 7.3 million and Mr. side real estate investment and why we had received indications of interest from buyers earlier in the quarter. Those indications have paid is the result of the pandemic as such we do not expect renewed interest in the property in the current environment and we continue to work with a lender to potentially restructure [laughter], giving us more.
Time to realize value.
As you May remember this investment is the largest.
The very few remaining exposures, we have to commercial real estate.
As we exited the real estate investment strategy last fall.
The value of our stake in the Italian wireless company Lincoln, which is assessed each quarter by third party valuation firm was written down by $4.6 million or 6%. Despite the fact that link I'm actually had strong performance this past quarter.
The company has experienced increased demand for services.
Demonstrated by increasing new subscriber growth and a 50% spike in network utilization during the covert 19 shelter in place in Italy.
As a reminder, we intend to sell the noncore assets in Asacol as as soon as we're able to do so although we're not willing to sell them at a fire sale price.
Now I will turn the call over to Steve Lasota for a brief review of our financial results for the first quarter Steve.
Thanks, just for the first quarter of 2020, GAAP revenue was up 40% year over year to 313.8 million from 224.1.
We reported a GAAP net loss attributable to common stockholders of 11.6 million versus GAAP net income of 8.1 million in the prior year period.
The first quarter of 2020, GAAP compensation and benefit expenses were 124.4 million a decrease of 7.5 million from the prior year period.
Non comp expenses, which exclude caught up in DNA were 101.3 million for the first quarter and within non comp expenses operating general administrative and other expenses were 88.1 billion, an increase of 10.1 million from the prior year period.
DNA expense in the first quarter was 5.4 million in the first quarter income tax benefit of 1.2 million compared to an expense of 3.2 million in the prior year period.
Now turning to our non-GAAP financial measures, which we refer to as economic income.
In general economic income.
There's a pre tax measure that eliminates the impact of consolidation to consolidating bonds and excludes did will intangible impairment certain other transaction related adjustments for reorganization expenses in certain costs associated with debt economic income revenues also include incentive income during the period when incentive fees.
Not yet realized with GAAP reporting.
<unk> banking retainer fees collectible during the period that would otherwise otherwise be deferred for GAAP reporting economic income also records costs associated with starting to fund over the expected life of the fund the remainder of my remarks will be based on these non-GAAP financial measures.
Economic operating income represents economic income before depreciation and amortization expenses looking at her business segments as Jeff noted, we had a profitable quarter for our off go segment driven by strong revenues in markets and investment banking Opco and total revenues of 224.8 million economic income.
4.3 million, an economic operating income of 9.7 million in the first quarter of 2020.
That's a go head and economic.
Income revenue loss of 13.9 billion and an economic operating loss of 16.5 million in the first quarter.
On an overall basis, we reported economic income loss of 12.2 million for the first quarter 2020 compared to income of 15.3 million in the prior year period.
First quarter economic operating income was a loss of 6.8 million compared to income of 20.2 million in the prior year period.
First quarter economic income revenue decreased 10% year over year to 210.9 million.
At quarter investment banking revenue was up 19% year over year to 98.8 million second best quarter on record. It was a record quarter for brokerage revenues up 19% year over year to 132.7 million.
Management fees for the quarter were 14.9 million compared to 10.4 million in the prior year period. This is the highest level in four years incentive income was a loss of 4.9 billion in the first quarter versus income of 16.7 million in the first quarter of 29 team positive incentive fees generated by the <unk>.
Activist strategy in Q1, 2020 were offset by reversals or this is Bob incentive fees in the healthcare strategy if for some of the legacy asset co investments.
Investment income for the quarter was a loss of 31.1 million versus income of 10.3 million in the prior year period due to weaker performance in the event driven strategy healthcare strategy activist strategy as well as an 11.7 million and write downs in noncore asset co investments starting this quarter in our fee.
Natural supplement we have provided additional transparency into our investment banking revenues by breaking out our capital markets revenues into underwriting revenues and capital markets Advisory revenues. This break out in our financial supplement this provided for the first quarter Twentytwenty in for any comparative prior years Jones.
Also during the economic reporting and our financial supplement starting this quarter, we're presenting our brokerage revenues net of associated trading gains or losses, which previously had been reflected investment income. This adjustment has been Bates quarterly brokerage revenues and investment income revenues for the first quarter of 2020, and Friday comparative period show.
Turning now to our expenses.
Compensation and benefit expense for the quarter was 125.7 million compared to 131.9 billion in the prior year period, our overall comp to revenue ratio rose year over year from 56.5% to 59.6% of economic income revenue.
Overall comp ratio was higher due to write downs in asset co investments, we comp ratio for operating FFO was 55.6 in the first quarter.
Im wide, we are targeting annual comp to revenue ratio range between 56, and 57%, although it could remain elevated if revenues a weaker for the balance of the year fixed non comp expenses totaled 37.5 million in the first quarter up from 34.9 million in the prior year period. The increase was due in part to higher exposure.
And since we're trading software applications, which had to be variable component in times of elevated trading activity.
Variable non comp expenses in the first quarter 2020 were 43.3 million compared to 37.1 million in the first quarter of 29 team due to higher brokerage entry execution costs related to record volumes.
First quarter depreciation and amortization expense were 5.4 million compared to 5 million in the first quarter of 29 team.
Turning to the balance sheet at quarter end the company had invested capital in off go totaling 539.9 million that includes 330.5 million and broker dealer regulatory capital 160.5 million additional operating cash.
We had invested capital on asset code totaling 126.7 million.
During the quarter as the pandemic spread and volatility increased.
We reduced the balance you'd allocations to investment strategies merchant banking and trading books by more than 90 million our balance sheet position is strong with ample liquidity to run our business no long term corporate debt maturities until the end of 20.
20 to.
Turning to our equity common equity, which is stockholders' equity was preferred equity was 683.5 million compared to seven or 8.5 million as of December 31st 29 team.
Well I'm in book value per share, which is common equity divided by total shares outstanding decreased slightly to $24.74 as of March 31st 2020 compared to $24 in 77 cents as of December 30, Onest 29 team.
Tangible book value per share was 18 goes in 60 cents at quarter end down slightly from 18 goes and 72 cents at the end of 29 team.
Wide return on common equity was negative 7% in the first quarter 2020, whoever Opco had positive return on common equity of 2.6% for the quarter as we noted in the release. This morning, our board of directors maintained our quarterly cash dividend four cents per common share, which will be paid in June.
During the first quarter, we repurchased 1.38 million shares for $18 million highest quarterly share buyback them on for years.
For the remainder of 2020, we may opt to purchase additional shares in the open market on an opportunistic basis, However will weigh the impact of buybacks on our available cash flow as well as the prevailing marketing business conditions. Our core business is strong and our book value is solid.
As expected business operations, which has always been a backbone of the farm has held strong during these difficult times I would like to personally recognized the exceptional effort put forth by everyone in business offs. We appreciate all that you do.
With that I'll turn the call back over to Jeff.
Thanks, Steve before we take your questions I'd like to offer some insight into where we stand today at Cowen.
You probably know given the volume and deal flow dependent nature of our business.
We've never operating earnings guidance and now certainly not the time to start but we can offer you some thoughts for the current state of play given that we're done with them on to Maple practically.
First off things are definitely better which by by which I mean simply clear then there were several weeks ago to use the old Donald Rumsfeld categorization of known Knowns, known unknowns and unknown unknowns. We have moved over the last several weeks from unknown unknowns, which is truly a difficult place.
Are you more known unknowns.
Which is to say we know the virus exists and we know a lot more information about it we're still not necessarily certain on how what's the longer term economic impact will be.
That's really where market volatility list [laughter].
Well make no mistake coven 19 remains a dangerous element and the pandemic has re cabinet could cross economies markets and tragically People's lives.
But I don't like several weeks ago, we have a somewhat better idea of what we're up against and we continue to learn more every day.
The virus is our collective enemy.
Time in science, and the capital to fund that science our allies.
The social distancing, we're pricing now the testing strategies being rolled out and the antiviral treatment.
And vaccines racing towards development. These will be covered 19, and eventually allow us to return to our workplaces.
Seeing our colleagues in clients in person and most importantly, spending time with friends and family and social setting.
We believe it is a question of when not if.
As it relates to Cowen. We're also doing our part we are using our network to connect key Influencers scientist doctors and officials with important capital providers that can help accelerate important medical developments. We've also raised money for a number of organizations in support of medical professionals in frontline workers because it needs.
And the challenges we face are ones, we can overcome with collective effort collaboration and most of all empathy.
In spite of the challenge as we all face we remain a dedicated passionate and connected team of 1300 people.
Across the globe working safely remotely to help our clients.
When in every way they can.
The markets, we stepped up and provided liquidity clients in the insane leave all days in March and that is thankfully calm down, but our markets business actually remains quite strong with April revenues, averaging two and a half million dollars a day, even as market wide volumes have declined from the fever pitch reached in March.
In banking, we're encouraged by the solid pipeline and the high level of client engagement. So far this month banqueting revenues are running on par with 15 million dollar pace. We saw in March which does not include the $420 million lead left follow on offering we did this morning for immunomedics.
The capital market markets pipeline remains strong, particularly in healthcare and the M&A backlog is also held up fairly well.
While the current environment made to lay the timing of some of the M&A transactions history has shown the correction is like the one we saw in the first quarter can make sellers less valuation focus and more willing to transact.
In investment management, we continue to focus on private equity style strategies, where we have domain expertise.
The teams running those strategies will use their valuation skills.
And and look to make opportunistic investments in the current environment.
We believe that our prospects investment management remain positive for consistent management fees and some growth in assets under management during 2020.
And we have considerably de risks our balance sheet. So that our daily PNM volatility has been reduced although we are experiencing positive investment income so far in April on the Opco balance sheet.
This is due in part to strong performance in the healthcare investment area tightening spreads in event related investing as well as a number of positive alpha event in our activists portfolio.
Overall count as the solid financial and operating position after at tumultuous quarter.
We have strong balance sheet with $18 to 60 cents.
And tangible book value per share deep relationships with clients for whom we become more critical and a robust markets business that has become one of the go to organizations for the buy side when they need to seek liquidity.
While we don't know exactly what the shape of the recovery is going to take we believe that we're well positioned not only participate but to gain share and help our clients. He whatever challenges the market those their way.
And with that I will open it up to questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key one year Touchtone telephone. If your question has been answered or are you wish or move yourself from the Q. Please press the pound key once again to ask the question. Please press Star then one now.
And our first question comes from Devin Ryan from JMP Securities. Your line is open.
Great. Thanks, good morning, everyone.
Good morning Devin.
I guess first question here just appreciate.
The increase investment banking detail I'm, just just for clarification. The capital markets Advisory is that where you're receiving an advisory fee for transaction versus an underwriting fees I'm just want to make sure we understand that and then I've a follow up on that yeah that is exactly right. So private placement fees you know.
Privately placed a equity and debt transaction as a fall under capital markets Advisory.
It's really the convention Devon that most of our industry uses we used to lump that in with capital markets.
Underwriting revenues, but I think we he gets its easier and better for you to see a as a separate moniker. So we've adjusted that so you can get a better sense for the balance a and diversification the business away from just plain equity underwriting.
Yep.
Okay, great. Thanks to appreciate that.
I want to dig in a little bit more into the investment banking outlook and just to get some perspective. So it sounds like you're seeing kind of the window capital markets and underwriting window reopen in certain areas and I'm curious you know is this kind of purely health care dynamic where companies I'm just want to me.
Really need capital and so that's why being in health care Center, great place or is there something else kind of you're seeing within the business and then you know bigger picture you. How does this help pandemic potentially refocus more capital into the health care industry and what does that mean for the business I would think that there'd probably be more capital.
Flowing in coming out of this and so I'm just curious how you guys are thinking about that and advising clients around that yeah. [laughter] question. So there's no question that or the the market reopened reasonably quickly actually a in April for biotech companies and tools and diagnostics company.
It's actually access capital I would say the first you know area.
You know that we saw was tools and diagnostics is clearly is a number of company that our racing to use their technology to be doing more testing around covered 19. It wasn't just that but certainly you know we're involved in a number of situations our companies that actually have a pretty robust testing mechanisms are raising capital to look at coven 19 and waste.
They can they can bring a product to market very quickly.
And when we're helping them to raise money in that environment, but the biotech market is also hope and I think we saw a couple of IPO us and certainly the follow on you know off the back of good news that immunomedics had last week.
Is a is indicative of what this industry does you know these companies will move from a in early stage development companies and to commercial companies and increasing their ability to access capital is the is the is the elements it unlocks that for for their shareholders and so.
No that deal with a $350 million deal got upsize to 420 or so it shows that there's still significant capital flows into health care, a we have not seen that reverse at all and in fact, you look into biotech indices is the strongest performing indices in the entire time period, you should give you a pretty good indication.
I said, it's in fact, if the markets are open and for for companies with some opportunity sets. The financing is available for them and I I think that that remains a a if anything I think the big concern that we had coming into the year was <unk> with around drug pricing policy and some of the rhetoric that was being thrown around that.
The election towards the end of year and I actually think that has abated for the time being you know it's interesting. How this industry has gone from you know a whipping boy if you will in in the halls of of government to he wrote a in terms of their bill.
He to find cures for cover 19, it's something we've always known and with these companies are really doing amazing things for people, who have little hope and now a you know we're relying on companies their clients of ours frankly to help come up with cures for this and so I think you know that has helped a invest.
There is to really focus their allocations to the space until I I just feel like you know when you look at the regulatory environment.
And you look at the opportunity set in front of us a it remains incredibly robust and we are very fortunate to be in the center of that in a meaningful way.
[noise] drift color. Thank you maybe a follow up here on just the brokerage business. So you had a phenomenal quarter there lot of market volatility and it sounds like.
Yeah, the strength was across the board, but I heard the comments about April remaining strong I know that the activity and volume in the beginning in the month and volatility was still quite high but is maybe abated a bit. So I'm curious kind of are you seeing you know kind of did did it finished the quarter or finished the month with the same type of stuff.
Thanks, and it started and then what would you attribute you know that kind of continued momentum through my time to just trying to think about some of the puts and takes given that a one Q west are so strong it sounded like it was really across the board. So that Q1 numbers show you net of a of inventory losses.
So I think it's it's a little bit Miss misleading, we always show you net but generally speaking we don't have very many because there's just not a lot of volatility and more facilitating flow for clients, it's not a meaningful number.
The month of March was a more meaningful number so if I were to break out. The gross you know the gross commission dollars you see there were significantly higher than 132 million that we show and what's changed is that we're not incurring those kinds of portfolio inventory drawdowns, because obviously, we de risked early and.
And so there were not seeing those at all in the month in April. So in fact, we seen you know the remaining risk positions that we have on rally having said that it's it. It's just the lack of I I would hate the volumes continued to be strong, but we're not having any negative impact from that.
Filtration of trading or will that continue.
No I been pleasantly I I've been pleased with the efforts.
And the client engagement level and that's really the thing that we look at you know or we are continuing to engage at a high level with clients and ER and certainly that is the case in terms of our daily interaction. So you know will trade a little bit more with market volumes, but but I think from what we've seen in April and what we expect to continue.
Oh, we're gonna be transacting in a much higher level than we were coming into the crisis and the difference will be that we're not taking the kind of a drawdowns on inventory that we had in the month of March.
Got it okay, great and then just one on the balance sheet and then if it's possible understood to think about what the balance sheet looks like today relative to maybe the middle of a quarter or just the changes that were made there.
You are de risked did and then just bigger picture or kind of the calculus, you had a very strong quarter or stock repurchases and that's one of the stock is like from a lot People's perspective pretty attractive at these levels just given your pretty substantial discount the tangible book value and so.
I'm just trying to think about some of the puts and takes and maybe even ability.
To exit some of the non core investments I know, it's complicated, but maybe the calculus is changed here in terms of the urgency to do that just given that the stock is at this price that may not lastly, just trying to think about some of those puts and takes around the balance sheet.
Okay. So there's like three different parts of that question. So let me just take let me let me start with a risk on the balance sheet. So you know, we said over and over again that balance sheets are meant to be seen not heard and ER and certainly we did not have a significant amount of market directionality coming into the list because we just don't run the balance sheet that way anymore.
Obviously, you know when you have a multi standard deviation move in spread.
You know that that's something that will that it impacted us and I think there's one risk taker in the world. It doesn't look back and say man I wish I had less exposure even at a reduced exposure levels. We have we did not have significant market directionality exposure, we don't generally ever have that.
So our our pain really was felt primarily in spread widening and our view was that a you know if the fed hadn't really stepped in here to do certain things in a meaningful way to grease. The skids on liquidity that could have been problematic in well in advance of a of the fed doing that we had to take steps on her own to ensure that.
That does as as we reached a limit which are <unk>, which are very tight risk limits that we did exactly what you'd expect us to do you don't ask questions and we liquidate portfolios and reduced risk because we got to take care of ourselves a drawdown, we had was significantly less.
Than what you witnessed an S in equity in the equity markets I mean, just.
No. It was an amazing actually on a relative basis, an amazing performance and so the the lucky seem the operating company you know a division is largely a spread related and event related activities and we've taken that exposure down it continues to be at a lower level because honestly spread can.
You need to be why didn't we can make decent money without as much exposure.
So I think we it remains we remain opportunistic in and what ends up happening after times like this when all spreads widen as you get a significant alpha in the portfolio and we certainly have seen positive alpha events occur in the month in April that's allowed us to recover you know.
A decent portion of a what we lost in the beginning of March. So you know that even as we continue to keep the balance sheet. It added at a reduced risk level.
Your second question was more.
I will round out the ethic Asacol I think it was at the third part of the question I can't remember.
Yeah, I think that's the second part, but yeah. That's a just gets perspective on the ability to.
Potentially.
Monetize some of these investments just given where the stock is here and that now and then just been context, how aggressive you were on the repurchase of scores that yeah. So I'm not on the Asacol levels I think Weve G.
[laughter].
Sorry.
I think though.
You know dispositions I mean.
So the irony of this of course is as it relates to link of the operating performance at Lincoln has actually never been better.
You know I did not anticipate than we would be going through an offering process with weren't getting it early in the year into you know nothing has changed in terms of our timing you know we've talked about the possibility that we can act unilaterally here a bit but when you look at how things are teeing up for linking him in the strategic partnerships. It has in the timing that.
That are we in Jefferies had had talked about in terms of seeking liquidity.
Again this is companies in a much better position to do something you know whether that's the end of the year at the beginning next year will remain to be seen but but in terms of.
No our ability to seek liquidity I feel better about that investment than I have in years, just because you know ever everybody is staying at home and a in Italy and stressing the system.
And you know with an increase of 50% and bandwidth utilization in that on that network. It was one of the best performing networks in Italy, and so it gives you an idea that's a product capability, which was always too difficult to articulate to consumers [noise].
It's really strong.
So I think it actually pieces have to have a realization maybe along the same kind of timing we talked about.
You know as we head into a the entity or the beginning here beginning of the year next year, which was always sort of the timing around a potential public offering but we'll see.
Again, I I take a lot of comfort and the fact that that business executed it incredibly well and continues to do so I'm.
I'm disappointed that we thought we were going to get a sale done as Inserv side are we had bids we've been marketing that property I it would've been.
Okay outcome for us, but obviously you know a it's a property in North Miami Beach, and a and it was maybe two weeks into the the crisis. When you know those those bid faded now could they come back is still very attractive property, we're working with the bank.
C, but it's hard not to think that that has been impaired for the near term and obviously you see that in the markdown of that so that's those are the two big drivers or it's a shame because from an operating standpoint, you know if you look at our operating businesses is incredibly strong and honestly if you look at the first two months.
Record with a record revenues, we were having in banking and they're really strong performance, we were having in markets even outside the volume Spike in March.
We were on the on attractive to in credibly, well from a profitability standpoint, really validating a lot of the pieces that we put in place.
Towards the end of year and those are still very much at play for us and so when we looked at the opportunity to buy back stock on some early weaknesses. We were obviously aggressive in that because we were looking out over the first two months you know we can see what the earnings power of the organization it.
You know extenuating circumstances for the month of March notwithstanding and so we were aggressive at buying back stock and our goal has always been to buy back stock to not to meet and at a minimum meet the amount of stock that we issue in a in any in accordance with our or equity plan.
In a and we thought we used in early July this year. So I I would say we did get an early jump out of this year. It gives you an idea that as things start to prepare themselves.
Could we do that sure, but I think we need to see how this plays out.
And obviously, we did a really good job at keeping our tangible bounce a tangible book value at a very high level and we maintained significant amounts of liquidity that was extremely helpful. During the most stressful periods to have several hundred million dollars of liquidity to process clearing settled the trades that we did.
It shows you what we've talked about all along which is we build the business to be resilient.
As we value the opportunity to come in tomorrow on the Tomorrow and the next day and so when a lot of other firms were really I think in a difficult place. We we may not have been happy with what was happening in terms of Ah you know the markets overall, no nobody was that we weren't really worried ever about whether or not we could.
Doing the things, we need to do for our clients and a and that's because we're well capitalized and we have a lot of liquidity a and so again, if we look out over the over the course or the remainder of the year that liquidity is super important I don't expect to see going back to the way things were in March.
But it's nice to have it and we'll need to make sure that things turned back on again as we start to convert.
No parts of our backlog in M&A and things like that as they come into the end of year. The more that we're sure of that then then we can look at ways to continue to return capital to shareholders appropriately.
Okay terrific I'll leave it there thanks for taking all my questions Hey, Thanks.
Thank you.
Our next question comes from noting from Piper family. Your line is open.
Thanks, Good morning, guys.
Just wanted to or does it already asset management front I wanted to get an update on the pipeline for fund raising this here and maybe talk about the effect. The outbreak has had on client appetite for some of your alternative strategies. You know what will you guys have planned for raising this here and then and then maybe what kind of fee rate to expect on some of that.
Yeah. That's a great question. So we've had some very strong interest in Mcallen health care investments portfolio and even during the even during the month of March we continued to see opportunities to do all subsequent closing I, probably need and leave it at that because when we do the final.
Closing will make an announcement, but I was just say you know in that throws of some of the most difficult markets I've seen in my life people remain engaged and a and they continue to you know make commitments, which is I think a testament not only.
To the to the team but to the strategy in fact in at the right place for the right time and show and obviously, we're well known in that space.
So feel pretty good about that obviously, we just closed on.
On healthcare royalty partners. Most recent funds. So loved the fact that we have two funds in the health care space with a lot of dry powder that feels pretty good.
In terms of a baking investments you know I think.
When you look at.
Opportunities in the activists business is a in my conversations with them. Its their performance was exceptional during the first quarter.
And obviously this is significant amount of interest in that I think on the back end to that they'll on the back end of this though there will be a number of opportunity for them to make a decent alpha in the portfolio and in some of the new investments they've made so feel pretty good about that and they they continue to actually they they've reopened and and.
I've taken some incremental subscriptions and so I feel pretty good about where we are you I'm wise over the last one I would say is you know on the sustainability fried out you know people are a potential clients. There continue to remain engaged I would say if it's really a tail to cities. If you are a an allocator in private investor.
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You you actually have a lot of time to look at opportunities like the sustainability fun and like to health care Fund. If you were dealing with some of the challenges in the public portfolio, you'll probably be distracted. So for our clients who are who are you know asset allocators and are looking at that space. You know we continued to.
To move no further along in the queue and and we hope to have a you know additional closings and sustainability as we hit the back half of the year.
Great. Thanks, and then for appreciate all the color on investment banking and a lot of my questions that answer, but I think you're just one on a debt capital markets side I know its best quarter, you've seen it five plus years, maybe expand on that opportunity set there in the western Europe, considering if that's something we've talked about much last couple of years, just talking about the capacity you guys have yeah.
Keep that ball rolling in this environment, that's I know last last quarter you talked about.
That being a little bit locked up but maybe just an update there in terms of capturing what's out there now.
Yeah. So let me start with Europe actually we actually saw a number of transactions close in court in Europe during the first quarter and and even in March and beginning of April or you know they actually one of the strongest quarterly performances and you know that we've seen you know and I think it is endemic of what were.
We're seeing in M&A generally, which is if you have transactions that are pretty much on the rails and their signed and ready to go there they're going to close I fear about the launch of transactions to do a sale process, you're probably waiting and so you know the ones that we have some of which are public some of which are large and public both important and.
In a historical Cowen we expect those two could tick to close a if we're just waiting for time to pass and so I feel on the M&A front, that's actually a a real positive.
On the debt from Yeah, I mean listen we part of what we the investments. We made you know coming into 2018, where to bring on this team and we brought on a full fledged team with a number of people and it shows that the integration of that team.
Into the dialogue or the banking dialogue has been extremely successful obviously in the times of a of distress up.
The financing dialogue.
Moves from the Treasurer CFO.
Into the CEO suite and the board room.
And our ability to be able to articulate to clients multiple ways to finance their businesses in difficult times has actually been a very strategic dialogue that I feel really good about so our ability to sign up.
You know and getting mandates.
Has increased significantly even as we head into it into April.
Because companies or thinking about how to finance through the trough and then that's health care companies to not healthcare companies are trying to figure that out number of companies are doing private placements and they're doing a somewhat dilutive financings and so part of the private placement effort. We have is about aligning strategic investors.
Or a growth equity investors with our clients who were <unk>, who may have been can who may not even been thinking about financing their business, but now they are because they've got topline challenges and they recognize that are getting a financing duncan enable them to execute on their business strategies as we head into 2021 and so I.
The pipeline for our debt advisory business and that includes sort of our private placement business is actually never been more robust and the conversations around execution continued to move up at a fairly rapid pace that's different for cowen than it was sort of at the beginning of year last year when.
You know that team is just getting you know integrated into our platform. So I feel really good about that.
Great. That's a that's all I had for you guys. Thanks for taking my question.
Thanks, Jamie.
Thank you and that does conclude the question and answer session for today's conference I'd now like to turn the conference back over to Jeff and Salomon for any closing remarks.
Well. Thank you operator in closing I'd, just like again to express my gratitude to our team here at Cowen in particular, you know the tech and ops teams and professionals who really.
Enabled us to continue performing well I've said, it two or three times on the call. It was remarkable what happened or and I couldn't be more thankful for all of US. We also think Oh all of you for your continued support of US I've spoken to a number of shareholders over the course of.
So the past few weeks and I appreciate it every time someone calls to check in and a and for those of you that are also clients. We certainly appreciate your support.
Ah we look forward to it take continuing to do the things that we do and a and feel extremely positive about how our position going forward and it feels a little bit sometimes out of step to say that when you look around and you see how many other.
You know friends and clients are having challenges. So I I think it you know I I've said I feel extremely thankful that we are who we are in that we have the opportunity do what we do the remotely and so I just want to say you don't feel are extremely fortunate.
For that and ER and so we'll continue to do what we do a in ways, we can and of course the better it is for us the more goods, we get to do.
And I think from a psychic level and every time, we get to help somebody get through this.
It makes us feel good about what we do for living and we don't get to do that without support from our shareholders.
And everybody on the phone so really do appreciate it. Thank you all for joining us and we look forward to speaking with you again on our next call in July Clarkson.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day [noise].
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