Q4 2021 Cowen Inc Earnings Call

February 16, 2022

Today's presentation there'll be a question and answer session.

As a reminder, today's call is being recorded I would now like to hand, the call over to Mr. J T. Farley Cowens head of Investor Relations.

Thank you operator before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward looking statements. These statements are subject to the risks and uncertainties described in our earnings release and other filings with the SEC Cowen has no obligation to update the information presented on today's call also on today's call, we'll be referencing <unk>.

Certain non-GAAP financial measures, which we believe provide useful information for investors reconciliations of those measures to GAAP are presented in today's earnings release as a reminder, we make available our quarterly financial supplement in the Investor Relations section of our website. We encourage you to review it in conjunction with our earnings release, joining us on today's call are <unk> chair and chief.

<unk> officer, Mr. Jeffrey Solomon and our Chief Financial Officer, Mr. Stephen Lasota, now I would like to turn the call over to Jeff.

Thank you J T. Good morning, and thank you all for joining us on call on Collins earnings call for the fourth quarter and full year 2021.

Today I will provide some highlights on our extremely strong operating performance during the fourth quarter as well as our record full year earnings then Steve will review the financial results in more detail and after that I will share some thoughts on the outlook for 2022 and beyond and why we remain confident in our ability to continue delivering strong.

Results to our shareholders then we'll be happy to answer your questions.

2021 was a record year for Cowen.

In terms of both revenues and profitability, we are in $10 per share and after tax economic operating income, which is nearly 35% after tax return on common equity well above our guidance of targeting at least mid teens. After tax return on common equity on an annual basis.

We generated record revenues in our broker dealer powered by investment banking and markets revenues, while the management fees in Cowen investment management hit their highest level since 2008.

Given our strong operating performance, we returned nearly $160 million to shareholders to a record amount of stock buybacks over the full year 2021.

We are keenly focused on optimizing our capital structure and we will continue to do so out of our cash flows utilizing a combination of share buybacks and dividends.

We announced this morning Cowen Board increased the quarterly cash dividend by 20% to <unk> 12 per common share, reflecting our view of the positive outlook on long term for our operations.

We are returning this capital to shareholders, even as we continue to invest in the business organically and through acquisitions that we believe will drive long term revenue growth and diversification. This includes the recent purchase of portico capital advisors, which closed in mid December .

It has long been our stated objective of ours to grow our advisory business and banking to augment our world class capital markets financing and advisory activities.

We were able to do that in a meaningful way in 2021 as advisory revenues were the highest percentage of our banking revenue since 2008, the portico transaction accelerates this strategy as we head into 2022 and beyond.

We also delivered on our expense guidance coming in modestly below our comp to revenue ratio for a second consecutive year, even as we increase our head count by 12%.

Cowen has become an employer of choice in our industry. It is the place where talented people want to come to do what they do best this can be evidenced by looking at both the strategic hires we've made in key revenue areas as well as the acquisitions, we've made and successfully integrated over the past decade. We are after all a people business, which means that culture talent acquisition and retention have been.

And we will continue to be instrumental to our success now.

Now, let's look at the fourth quarter operating highlights more specifically in.

In banking, we had a very strong quarter, despite headwinds from reduced capital markets activity as well as the drop off in the back activity.

Banking revenues were up slightly compared to the very active fourth quarter of 2020, and it was our second best quarter on record for M&A revenues. It was the third quarter in a row that advisory, which combines our M&A and capital markets Advisory revenues represented the majority of banking revenues at 65%.

The industry breath of our banking franchise was on display this quarter sectors outside of healthcare comprise 58% of total banking revenues, including particularly strong results for the TMT consumer and tech enabled services services sectors.

Within healthcare non biotech areas, including tools and diagnostics Med Tech and health care services as well as health care.

Made up 47% of our total health care banking revenues are.

Our sustainability effort also continues to gain traction sustainability related banking efforts more than doubled in 2020.

Sorry, 2021, making up 10% total banking revenues in the fourth quarter and over 15% in the full year of 2021.

<unk> related revenues accounted for 29% of banking revenues in the fourth quarter and 32% of banking revenues for the full year of 2021.

As a reminder, our stock revenues are weighted towards business combination or backend.

In other words.

Financings capital markets Advisory and M&A advisory.

<unk> IPO activity has slowed considerably there are still nearly 600 specs continuing in <unk>.

Currently seeking acquisitions and we expect to continue to capitalize on the associated people from that product in 2022.

As I mentioned earlier towards the end of the fourth quarter, we completed the acquisition of portico capital the Cowen portico team as they are now known provides deep industry knowledge and strong client relationships and the high growth vertical wise software data analytics sector, an area that has seen tremendous interest from both financial sponsors and strategic buyers.

This transaction adds to the momentum of our investment banking platform and empowers the Cowen portico team to provide clients with the full breadth of our capital markets Advisory and research capabilities. Thus far we are very encouraged by the strength of their core business and the multitude of new client situations emanating from joint marketing between our new partners and our existing bankers.

Looking ahead with global economic activity continuing to be strong and disruptive technology is creating new opportunities in every sector. We remain very constructive and positive about the underlying fundamentals for both M&A activity and capital raising over the intermediate and long term, even if 2022 is off to a more challenging start.

We entered this year with more mandated transactions at the start of 2021, which is a great testimony to both the overall deal activity and the growth of our client franchise given the record levels of activity, we experienced last year.

The diversification of backlog also continues to increase with a healthy mix of public and private M&A mandates as well as capital markets transactions spec related mandates now make up less than 30% of the backlog.

Note that our backlog now includes mandates from Cowen portico.

While the mandate number of mandated deals is higher the timing of conversions is being impacted by market conditions, namely increased market volatility inflationary pressures geopolitical uncertainty and rising interest rates as global central banks shift away from their decades long accommodative stance.

These factors have led to increased equity market volatility, which has in turn slowed capital markets activity for the first six weeks of 2022.

But as the market digests, the macro news flow, we anticipate the volatility will subside and when it does we are confident in our ability to convert the vast majority of our mandated backlog.

It is also worth noting that there have been two six week periods in each of the last two years, and which market volatility significantly interrupted capital markets activity. Both of these periods were followed by a rush of transactions from companies that needed capital, particularly in industries, where Cowen is well positioned.

It is also worth noting the Cowen banking franchises in a very different place than it was just a few short years ago.

We've made meaningful strides in our strategy to become a provider of holistic financing advice by operating companies alternatives to funding in the public markets and we've grown our advisory business significantly in fact in recent weeks, we've seen an uptick in our clients seeking less dilutive alternatives given the current equity market conditions, hence our confidence that we remain well positioned.

To benefit as our clients consider how best to match their aspirations with the challenging market realities.

Turning now to our markets business.

Was a strong quarter, averaging $2 $7 million per day in revenues up 7% from the previous quarter.

While average daily revenues were down 8% year over year much of that drop about $4 7 million was due to the wind down of our most of most of our clearing operations in 2021.

As a reminder, the clearing business required significant amounts of equity and regulatory capital in order to support it and we made the decision that the returns on equity, we're not attractive enough in that business to retain it.

Highlights for the fourth quarter included year over year gains in cash trading Prime services non U S execution in ADR trading for the full year 2021, we also had solid gains in securities finance and electronic trading.

We have plenty of strong momentum in prime services, and our swaps business given the decision by a number of competitors to scale back or exit. These areas with these shifts in competitive dynamics, we are being opportunistic in adding new talent to our team overall, we continue to see higher highs and higher lows in our markets business.

Third party industry surveys demonstrate our momentum as we have increased our share of the institutional Commission pool consistently over the last few years.

This is borne out by our revenue growth since the start of 2018, our markets revenues have generated a compound annual growth rate of 13%, which is double the average of our comparable revenues in our peer group.

We are also making progress on the Buildout of Cowen digital our digital assets initiatives and despite the recent volatility in crypto currency engagement level among clients remains extremely high and there is clear demand for institutional quality capabilities and infrastructure in that sector. We will have additional updates on cowen digital throughout 2022.

Looking at the current quarter, we're off to a very strong start with average daily revenues running above our fourth quarter and full year 2021 averages.

And research our fourth quarter, we initiated coverage on 53 stocks today, we are actually close to covering almost 1000 stocks and we are firmly in the top 10 in terms of U S stocks under coverage.

In the fourth quarter. We also published 12 of our flagship ahead of the curve series reports, including a primer on cell and gene therapy tools and a deep dive on edge computing.

Clients continue to value our differentiated research as part of our focus on thematic research in the fourth quarter, We released a new version of our well regarded themes outlook highlighting 2014 investment themes to watch this year.

We are also taking a leadership role in ESG and sustainability research and are proud to have been recently named best ESG Research.

By a leading third party publication.

Our research team continues to produce excellent results and during the fourth quarter, we saw another meaningful gain in brokerage boats from our institutional clients.

In investment management, our fourth quarter results were strong and we increased the size of our business even in the face of a challenging investment environment for our growth strategies.

Total assets under management grew 15.

Due to $15 8 billion up 7% quarter over quarter, and an impressive 26% year over year.

<unk> income for the quarter was at $13 5 million and $33 4 million for the full year.

The biggest full year contributors were from sustainability and the activist strategy.

Management fees were up 20% year over year to $20 1 million for the quarter and full year management fees rose to 36%.

$80 5 million.

This highest level since 2008, due largely to higher AUM and the healthcare sustainability, an activist strategies the growth and consistency of our management fees is a valuable and I would argue underappreciated part of Cowens core earnings power.

Looking at our five strategies, our sustainability strategy had almost $1 4 billion in AUM at the quarter end perf.

Performance remains strong even when factoring in the volatility of the <unk> investment.

Our healthcare investment strategy completed two new investments and ended the quarter with just under $1 2 billion in assets under management long term performance remains strong despite the declines in the value of public positions during 2021.

The activist strategy grew assets to almost $8 5 billion and the strategy outperformed its benchmark for the full year 2021, and finally, the merger arbitrage strategy had $319 million of AUM in that strategy outperformed the <unk> merger Arb index during the quarter and the full year of 2021.

The healthcare royalty strategy also ended the quarter with over $3 6 billion in total AUM.

As a reminder, our balance sheet does not reflect the value of our investment strategies in any meaningful way in the coming quarters will be working on ways to better highlight the value of the investment management business in order to present, you with a clear understanding of a substantial work.

Turning to our balance sheet, we had investment income losses of $5 9 million this quarter due primarily to negative quarterly marks and about value of investments in our health care strategy and in our merchant banking portfolio. Our investment income was positive for the full year of 2021 at $14 6 million and as a reminder, Cowen has always had quarterly fluctuations.

Our incentive and investment income lines and but in every year since the global financial crisis in 2008, <unk> had positive contributions on an annual basis from our combined incentive and investment income.

Looking at other items on our balance sheet, we had some developments during the quarter and Lincoln the largest investment in our <unk> segment in late December the retail unit of link or announced plans to merge with Italian within Italian fixed line operator named typically in exchange for a majority stake in the company and this pending agreement would effectively separate them.

Retail operation of Lincoln from the network operations and the wireless spectrum.

We are hopeful that this will help move us closer to monetization of this non core asset.

And with that I'll now turn the call over to Steve Lasota for a brief review of our quarterly financial results. Steve. Thanks, Jeff GAAP results for the fourth quarter of 2021 were as follows total revenues were $494 3 million down 16% year over year from 591 7 million net income.

<unk> common stockholders was $63 3 million or $2 <unk> per diluted share down from net income of $95 million or $2 98 per diluted share in the prior year period compensation and benefit expenses were $237 3 million a decrease of $40 1 million from the prior year period.

<unk>, excluding compensation depreciation and amortization were $130 7 million for the fourth quarter and D&A expense was $5 3 million.

Income tax expense was $25 2 million.

Down from $37 8 million in the prior year period as a reminder, we utilize all available net operating losses. During 2020. However, we have been a cash taxpayer since the beginning of 2021 and we do still have a small deferred tax asset now turning to our non-GAAP financial measures. We had total economic income proceeds of 400.

54 point.

$454 million down 11% year over year for the quarter economic investment banking proceeds were up 3% year over year to $255 2 million.

Economic growth brokerage proceeds were down 8% year over year to $173 million.

Economic management fees for the quarter were up 20% year over year to $20 1 million and economic incentive income was $13 5 million in the fourth quarter of 'twenty, one versus income of $44 4 million in the fourth quarter of 2020.

Economic investment income was a loss of $5 9 million versus income of $10 3 million in the prior year period, and turning now to our expenses compensation and benefit expense for the quarter was $238 9 million compared to $279 9 million in the prior year period.

Our cost of proceeds ratio decreased year over year from 54, 6% to 52, 6% of economic income proceeds.

For full year 2022, absent any major prolonged decline in capital market activity, we are targeting an annual compensation ratio of between 56%, 57%. Although it may vary from quarter to quarter and is dependent on revenue mix fixed non comp expenses totaled $43 9 million in the fourth quarter up from 38.

$9 million in the prior year period and variable non comp expenses in the fourth quarter of 2021 were $50 3 million versus $45 million in the prior year period. The increase in non comp expenses were due primarily to higher travel and entertainment expenses business development expenses and professional service fees.

The non compensation ratio increased to $20 7 million of revenues up from $16 four in the fourth quarter of 2020.

Depreciation and amortization expenses were $5 3 million compared to $5 9 million in the fourth quarter of 2020 and economic income tax expense for the fourth quarter of 2021 was $24 6 million.

We generated economic income of $82 6 million in the fourth quarter of 2021 economic operating income was $86 7 million or $2.77 per common share, which includes the impact of taxes at an effective rate of 22, 6% in future quarters, we expect our effective tax.

Right to be in the range of 25% to 28% depending on the nature and geographic sources of our income. This estimate is a lower range than our previous tax rate guidance of 25% to 29%.

Full year 2021, we generated economic operating income of $326 4 million or $10 per common share turning to the balance sheet.

Quarter end.

Colin had invested capital in Okdo totaling $734 8 million up 6600, $77 7 million at the end of September 2021, and asset go we had invested capital totaling $121 2 million at the end of December up from $122 million at the end of September .

<unk> 2021, turning to our equity common equity, which prior to this quarter was stockholders' equity less preferred equity was $1 2 billion up from $981 8 million at the end of September 2021 during the fourth quarter of 2021, we made an irrevocable elections to cash.

Settle part of our convertible preferred stock upon any conversion or redemption and therefore, the preferred stock was reclassified from stockholders' equity to temporary equity as a result common equity at the end of December 2021 equals GAAP equity.

Common book value per share, which is common equity divided by total shares outstanding rose to $36 57.

As of December 31, 2021 up from $35 40.

<unk> begun to September 2021 to.

Tangible book value per share was 20 656 at.

At quarter end down from $29 17 at the end of September 'twenty, one due in part to the portico acquisition.

After tax return on common equity was 34, 7% for the fourth quarter of 2021, well above our target of generating at least mid teens. After tax return on common equity on an annual basis.

In mid December 2021, we closed on our acquisition of portico capital advisors for an aggregate estimated purchase price of 112 million of which Cowen paid $91 3 million in upfront consideration.

The acquisition increased cowens goodwill by $86 9 million in intangible assets of $19 9 million with a weighted average useful life of between 1% and 40 years for full year 2022, we expect $9 6 million and intangible amortization expenses related to this acquisition.

Details on the purchase price and the accounting treatment of future contingent consideration will be available and Collins 2021, 10-K filing rig.

Regarding capital and returns to shareholders as Jeff noted, we increased our quarterly cash dividend to <unk> 12 per common share during the fourth quarter, we repurchased $36 9 million in stock a total of one 4 million shares including purchases executed according to our existing <unk> one plans.

That is equivalent to 43% of our economic operating income for the full year of 2021, we purchased shares at a value equal to 49% of our economic operating income well above our minimum annual guidance range of 25% to 35% fully diluted share count at the end at year end was 30.

Two 6 million shares note that due to the change in accounting rules regarding convertible instrument and starting in the first quarter of 2022, we are required to use the if converted method for our convertible preferred stock and our diluted share calculations. We expect this rule change to increase our first quarter of 2022 diluted share count by approximately.

<unk>, one 5 million shares looking ahead, we will continue to be often up to an opportunistic and ship buybacks, depending on market conditions and available cash flow. We will also prioritize additional capital returns when we're able to monetize assets on the balance sheet and with that I'll turn the call back over to Jeff.

The fourth quarter was strong across the board in a capsule a record year for Cowen. This success is the result of the hard work of our team who outperform everyday to help our clients reach their goals. We're grateful not only for your dedication hard work and adaptability, particularly over the last few years, but we are also proud of how we have done so while staying committed to our culture based.

On our core values of vision empathy sustainability and tenacious teamwork.

Before we take questions I'd like to briefly outline some of the reasons why we remain confident about confident about the sustainability of cowens core earnings power.

We believe we built a firm which can generate at least mid teens. After tax return on common equity on an annual basis, although there will be quarterly fluctuations depending on overall market conditions. The organization is built to earn those kinds of after tax returns over the business cycle.

In investment banking multiple years of organic growth along with targeted acquisitions have provided us with depth across public and private M&A as well as capital markets and strong relationships with middle market financial sponsors as an employer of choice. We will continue to add people and teams opportunistically, especially during times of uncertainty when many of our competitors are doing.

The opposite.

So much of our record revenues as making last year emanated from our one <unk> approach to client service mandates for private placements are M&A deals that turned into IPO or spot transactions <unk> transactions morphed into private capital raises our follow on offerings that became debt advisory assignments. This diversity of expertise and differentiated Cowen and ethos.

System and clients we advised.

<unk> had.

<unk> benefited from our being.

A lot less dependent on any one product or industry.

We created that.

With a degree of intentionality that enables us to be versatile as we provide advice to our clients.

In markets, where we build on our strength in U S cash equities expanding into non U S execution options swaps and less volume dependent areas, such as Prime service and Securities Finance.

Our special situations and cross asset teams help our clients capitalize on opportunities, which are less well understood or where liquidity is challenging.

Overall, our markets businesses generated more than $2 5 million in average daily revenues for the past seven quarters.

We believe we can exceed.

Sustain it at least that level.

And likely higher.

Absent any huge market dislocations.

Moreover, not only do we have the revenues in that division.

Which have proven to be consistent with the opportunity for us to continue to take share will provide us with attractive long term growth opportunities, particularly in disruptive areas like digital assets or our institutional clients have only begun.

Barely begun to engage.

In investment management, we have built an impressive roster of private equity style strategies with.

With steady management fee streams in our management fees are now on an annual run rate of approximately $80 million with potential upside from additional increases in AUM.

We also expect our incentive income 2022 to be up year over year.

Overall, our capabilities have never been stronger in.

In addition, Cowen has a larger clients than ever before in short we are in a very different position as an organization. We were just four years ago. That's why we remain confident that we are well positioned to succeed in delivering for our clients and for our shareholders year in and year out and with that I will open it up for questions operator.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

Our first question comes from Sumit <unk> with Piper Sandler you May proceed with your question.

Hey, Thanks, good morning, guys.

Just wanted to start with the banking side of things I appreciate the commentary kind of on the uncertainty and the optimism around that but we're seeing kind of industry ECM volumes trend down about 70% below last year's.

Start to the year end public data shows you guys are doing some activity biotech and maybe some thoughts on semiconductors as well can you update us on some of the trends Youre seeing.

Cross those focus sectors I know there are some concerns around the potential regulation for drug pricing weighing a biotech one of the catalyst you're looking for today in that sector and then maybe.

When do you think those could come through.

So great questions. Thank you.

So a couple of things first of all I would say.

When you look at the calendar for underwritings.

Historically January outside of biotech and Spacs has actually been a relatively slow time.

The fact that biotech has slowed down in the first quarter of this year, it's really more a function of the fact I think that.

Honestly the valuations have come in so significantly that it takes time for management teams.

Two.

It takes time for them to make the commitment to actually go out and raise the capital. We have also seen a significant amount of activity and less dilutive financings. So many of these are clients.

That.

What are otherwise Kathy equity market.

At higher valuations are looking at royalty deals and debt deals and in fact in the month of January we actually added meaningfully to the backlog and those opportunities those don't show up in places like geologic or mandated M&A black backlog, but when you talk about the versatility of the business. We built that's why we remain confident.

Drug pricing I think for as long as I've been in this business has always been a spectrum thats over been overhanging the industry, sometimes it it appears to be more serious than others.

History has done a really good job of getting out in front of it and our belief is that any drug pricing regulation will not be not be geared towards competing.

The growth part of our growth and innovation and that's really critical so what we expect to see some degree of drug pricing.

From Congress this year, but.

But I think it will be much more targeted towards the larger pharmaceutical companies, who really make their living off of <unk>.

Increased drug prices year on year out not from the companies that we bank.

What youre doing really innovative things so my conversations which suggests that that's how how thats going to play out I will also say.

This is one thing I know about this industry.

Everyone wants to wait to see a better day on stock prices to new offerings.

And they want to do it off the back of good positive clinical results already in February we've seen more activity than we saw in January .

Hi.

We have to wait obviously for a number of companies that want their numbers go stale too actually.

Announced their earnings and then there'll be free to raise money they.

They continue to do so in other ways to.

The market offerings that business has grown significantly for us so.

Again as I said in.

My script earlier.

We've seen these periods of time.

Four to six weeks of disruption in the capital markets and what we've seen in each of the last two years in particular as once that subsides.

And markets find their levels.

Body, who needs to finance finances, that's what happens and so whether that happens in the first quarter or the second quarter and I'm not smart enough to know, but I do know, it's Kevin because every one of them needs to raise money and Cowen has divested that so we expect that when you look at it over a full year. That's why we remain as confident as we do.

Alright, thanks for that Jeff that's helpful.

And then just one quick follow up here kind of a two parter on capital allocation just kind of first on the dividend I. Appreciate the increases over the last year, just kind of maintain that 1% yield roughly how are you thinking about that rate going forward as the firm continues to earn new much higher level compared to just a couple of years ago, and then secondly, I appreciate that the monetized.

Nation should drive a lot of the future demand for buybacks, but is there a room for in the near term to increase that pace ahead of these monetization. Considering you guys are trading at a wider gap to earnings today than you did four years ago. When you took over.

I think we will be.

We talk about capital optimization, all the time and you and I've talked about this as well.

It is our stated objective to balance both return of capital to shareholders using both dividend payments as well as.

As well as stock buybacks.

And we also have some stated objectives that we want to continue to grow the diversification of the business and I would argue that some of the.

Some of the decisions we made.

In the middle part of the last decade to invest in certain businesses are really drive driven our outperformance significantly and where we've made meaningful revenue.

We've seen meaningful revenue growth in 2019 2020 and in 2021. So I think we'll continue to return capital.

Particularly as we trade at discounts to book value that is an easy way for us to accrete value to shareholders and.

We will continue to do that we also continue to.

Raised the dividend.

Incrementally as we see our business continue to scale and I would say a lot of people ask the question.

Sort of where things normalize out I look at the growth we've had over the past few years and I recognize.

That has been exceptional I also recognize the firm is structurally in a very very different place than it was even in 2018 in 2019, given the number of Mds, we've hired in banking the acquisitions, we've done the sustained growth in our markets business and the growth in our AUM and so as investors look at where we're calling b.

Oftentimes they look at where we were in 2016, 17, and 18 and it isn't materially different firm and I think certainly you and some of your compatriots doing a good job of articulating that but.

The rest of the world will ultimately catch up to that.

Great. Thanks for taking my questions.

Okay.

Thank you. Our next question comes from Steven <unk> with Wolfe Research you May proceed with your question.

Hi, Good morning, Jeff Good morning, Steve.

Hi, Steve.

So maybe just to start off.

I know you are planning to host an investor day, a little bit later this year I was hoping you could just speak to what prompted the decision to host the event and can you speak to what you're planning Ted Val as part of the upcoming Investor Day.

So I think part of it Steve is that what I just mentioned in the last answer I think I don't think that shareholders fully or potential shareholders fully recognize the transformation that's gone on here. So.

So many people ascribe our success over the past few years to market conditions, and we've definitely benefited from from those to be fair.

But I think Colin would not have benefited from them nearly as much as we did if we hadn't made the strategic moves we've made.

And so our goal is to be able to articulate.

With I think a greater degree of clarity.

The things that drive our business and it's easier for us to do that in an investor day than it is for us to do that on our quarterly call.

Quarterly calls are meant to give people periodic updates, we'll lay out strategy and try to give you some sense as to why we remain highly confident in our ability to deliver on the business, which we do but if you really want to dig in and understand the core drivers of the business. It takes some time and we've got things that we're working on with <unk>.

<unk>.

No.

Certainly things like talent digital as that as that progresses.

<unk> four for folks to think about our asset management business and how to model that up with a greater degree of transparency. Those are all the kinds of things that we're going to cover.

From our standpoint, knowing what we know of Cowen it isn't that hard to make the case for why calendar is significantly undervalued and why we think the core drivers remain in place we see that everyday from the inside and I. Just think it takes some time for us to really level set with everybody who doesn't know the story.

And help them to understand why we think there's a lot of value creation is still here on the table. So that's the primary impetus for that Steve.

Thanks for that perspective, Jeff and.

I guess following up on what was admittedly a little bit of a softball question, but I figure. It now is the opportune time just to unpack some of the commentary around expense and this quarter, you certainly and even for the full year demonstrated good expense discipline. As we look ahead, given the inflationary environment just the challenging revenue backdrop.

To start the year at least how should we be thinking about the complexes ability if we do see a material.

Sustained slowdown in activity.

And also in terms of the non comps how should we be handicapping, the non comp inflation given continued normalization in <unk> in particular.

So first of all I'll answer I'll turn it over the second part of that question to Steve.

Listen.

Revenue slowdown will be at the higher end of the comp range we've articulated.

I also think that a lot of it depends on revenue mix and as you know.

The more risk you to advisory.

In terms of our revenue mix to higher comp to revenue ratio is and I think you covered the industry. So you can see what the comp to revenue ratios are for advisory firms and so the more we do in advisory and the more comp will pay but of course less.

Non comps.

I think we will probably incur as a percentage of those revenues so.

I think we've given a good range and I'm confident that we should be to hit that range. Obviously, if there is a meaningful slowdown.

It could be at the higher end, but I'm not we're not planning on that because again, we look at the backlog that we have and the shadow backlog that we have with companies that we know need to finance.

And that's why we remain confident in the guidance that we've given.

Our non comps I'll turn it over to Steve who has done all the work on that so Steven.

Non comps is a similar story right.

And on revenue, but if it's a lot of that revenue comes from M&A, then you have less non comps.

Although with that being said.

And client development and conferences are picking up but I don't think they're going to return to 2019 levels, but they are picking up because people want to get back out and see clients and.

It's just going to be good for our business.

Specifically, where our health care conference, which is always a fairly significant expenses virtual again this year.

Our first quarter expense, which has driven some of the if you look at 2020 than we had higher non comps in the first quarter because of that.

And we'll continue to look at the flexibility around virtual conferences. So I think that's something we've all learned is that some of the conferences that we used to do in person are actually better done virtually and will continue to do that I think looking at the difference between in travel.

As well as entertainment I think those are we tend to lump them together, but they are really two different drivers I would say travel probably doesn't increase anywhere close to the level that it was.

In prior years, because so much of we've learned we can do so much in the business without actually having to get on a plane and go we will get on a plane and go see clients, but b.

The amount of times that we have to do that in any given year, probably doesn't return to prior levels for entertainment, though I do think people will be out.

And Thats, a good thing because that really drives connectivity in the business.

I've been.

Post omicron or as the as the <unk>.

Things.

Slow down we've been out.

Pretty meaningfully just reconnecting with people and that that is a part of what drives the revenue in the business. So.

Again.

It'll be higher than it was.

Probably in 2021 , but I don't think it approaches the levels. It was in 2018 and 19 in an absolute sense.

Okay.

Thanks, Jeff and just one final question on the advisory business.

You talked about the strength in the shadow backlog.

Certainly encouraging to hear given some of the weakness that we've seen at least in some of the public data, which doesn't seem representative of what youre seeing internally.

Last quarter, you talked about the advisory business running at $100 million per quarter sustainably with the addition of portico I know theres going to be some volatility quarter to quarter, but wanted to just gauge your confidence level around that $100 million plus level being sustainable over the medium to long term.

Yes, so I think when we look at that number obviously quarter to quarter it'll it'll vary just like all the advisory businesses do but I think when we look at that number thats a good number for us to think about on an annual basis.

<unk>.

Our rolling 12 month basis, and the reason is that when you look at the Dealogic numbers. So much of what we do just doesn't even show up there.

If a company we're engaged on a buy side or on the sell side transaction and the company decides not to sell sell for decides to do a cash out refi and that shows that those fees show up as a debt capital markets advisory transaction and honestly we're.

In the business to serve the needs of our clients what falls out and Dealogic is just the way people account for it all.

And how they how they categorize at all and so much of our revenues, including our <unk> advisory revenues.

Don't show up that way.

Pipe that will further engage on a pipe to help our backend factory injection happening like those are not things that shelf and Dealogic. This is why we remain very confident in our advisory business and maybe it's harder to see relative to some of our peers.

And that versatility is a difference maker at Cowen. This is why our clients have continued to choose us because we're not just pushing one product and I think the challenge that a lot of our competitors have is the only thing they do is.

M&A.

And if you are faced in an environment, where that's not your best alternative.

You got to go to a place like how and then has that versatility and that's really what helps to drive that business for us and that's why we remain as confident as we do about our ability to hit the numbers that you talked about on a rolling 12 month basis.

Helpful color. Thanks, so much for taking my questions.

Thanks, Steve.

Thank you. Our next question comes from Chris Allen with Compass Point, you May proceed with your question.

Hey, good morning, guys. Thanks for taking my questions.

I guess, just starting off you mentioned and we will too.

We'll look to Opportunistically add people teams just wondering how the current environment is impacting the willingness there.

And then is there has been any.

Any change in terms of buy versus build opportunities as you kind of look to build the franchise further.

So great question.

And I will just say.

Talent is definitely a place where people want to come work there are more people that want to come than we can possibly higher.

I'm flattered by that.

And it's good that you asked this question because.

I often say if you really wanted to test the health and the sustainability of the franchise. All you need to do is to figure out whether or not people want to work there or not in our business and people want to work at Cowen across the board.

And that makes me feel.

It gives me a great deal of confidence in our ability to attract and retain the right kind of talent. We will continue to look for opportunities, where we're the product capability that we have fits really well with the.

The people that want to come on board.

And I say that because everybody who comes to Cowen on a revenue producing area has a franchise of some sort the question is whether or not that franchise whatever they do for their clients can we augment our add to that franchise again, whether thats, an organic higher of an individual a lift out of a team or an acquisition of a firm that does something.

Really well that can be.

Bolstered by the product capability and the engagement that we have at Cowen.

And so we're continuing to do opportunities like this I think what you've seen for example in the growth and our ability to do more banking digital assets.

Again that dovetail.

There are a handful of folks in that industry, who are making great strides covering clients.

Whether it's the miners or it's a payment processing folks who are using digital assets and crypto as a way to navigate their business models. There are very few places on the street, where they can go for full service investment banking capability.

And so when we see teams that want to join or individuals that want to join our platform. Just in that particular area is emblematic of what we're seeing there are very few firms around the street that get around what I would call.

Growth the way that we do and can provide the products and capabilities that bankers and frankly sales traders.

Yeah.

They need in order to execute for their clients and so I.

I would say it'll be both organic acquisitions.

Organic hires as well as targeted acquisitions that but no shortage of opportunities on that front.

Understood and then maybe some color on the markets business noted decent.

Decent start to the first quarter up relative to fourth quarter and full year 'twenty one.

Is this broad based you're seeing strength in specific areas.

Any color just in terms of the impact some of the teams you then.

The European team and I think.

Just on the Securities finance, when Theres been an impact that youre seeing yet.

Well, so yes, I mean, the short answer to that yes, I mean first of all Europe for US has been a real growth area.

Again, we really had no meaningful presence in Europe prior to a few years ago, but obviously some of the larger firms have decided to.

To exit that business or scale back significantly and where they're happy beneficiary of these amazing teams.

Who again.

Come in and plug into our core capability, whether its algorithmic trading your cash equities.

Or frankly, prime brokerage and outsource trading and all of these things that sort of all work collectively in tandem so we're seeing that.

I think we're continuing to see the build out of the Securities Finance business.

That is something that I don't think people really fully appreciate the consistency of that business.

<unk>.

In terms of its ability to.

Generate revenues for us seven days a week.

365 days a year because it's into interest it's in interest spread business, but it also enables us to do things like.

Swaps.

And provide hard to borrows for our clients and prime brokerage. These are key drivers for us.

Look at and if you look at the growth in that business as we break it out in our financial supplement I don't see why that would abate actually because there are fewer providers of those as some of the bigger firms have scaled back meaningfully.

And so.

Anything we're gated maybe by the size of our capital base.

And I think that that is part of the tension I think that we have in terms of returning capital to shareholders as well as retaining capital to be able to provide.

Again attractive.

Client service capability on that front so.

No shortage of opportunity for us to get bigger in that business.

Thanks, guys.

Okay.

Thank you. Our next question comes from Devin Ryan with JMP Securities. Please proceed with your question.

Okay, great Good morning, Jeff and Steve how are you.

How are you Kevin.

Doing well so I.

I think most questions have been asked but I'm going to try to take a little bit of a different angle on the investment banking question. So healthcare revenues were down 3% in 2021 still through investment banking revenues by 40%. So I think that's clearly highlighting the increased scale and diversification.

All of the business. So it would be helpful. Just to if you can give us the number of investment banking managing directors today versus one year ago to kind of give some more flavor for that kind of growth of the franchise.

And then as we think about some of the puts and takes over the intermediate term outlook. So you have your spec contribution that might come off a bit, but there's still a lot of revenues to realize healthcare the borrowers unnecessarily.

Hi, Kevin.

We just talked about.

I think there's still a lot of deals that are actually going to come. There you are still very early days of ramping sustainability M&A backdrop still reasonable and you added 20 bankers reported the end of last year. So it feels like.

We weren't expecting that.

Should be pretty healthy drop off from 2021 the outlook just given how strong 2021 was but on the other hand, you have added a lot of capacity into the business just over the past year. So I'm just trying to think about what are some of the biggest series of revenue upside off of the 2021 base and maybe what areas. We are thinking about kind of over contributed last year if at all.

Great questions and let me and I appreciate that because I don't think we actually talked about this much but it's a great opportunity to do so.

I'll just give you an idea.

When we look at it.

And I'm happy to give you the MD growth because I think thats really more emblematic managing director growth is probably more emblematic of revenue drive.

In 2018, we had 42 bankers 42 mbps.

And.

And this year, we'll close with 89.

So it's obviously when you look at MD growth, it's over 110% growth in the number of managing directors on the platform account and Thats, both organic hires as well as.

As acquisitions.

Meaningful yes. This is part of the reason why we said we're structurally in a very different place than where we were prior to the pandemic and really frankly prior to 2000 2018.

That if you look at total banker growth over that same period is around the same so building in those teams to actually execute it's roughly the same amount.

And so.

When you look at year over year growth for us.

We exited the year last year was <unk> 73 Mds.

In banking.

And 2020 and as I said 89 for this year.

So.

So meaningful.

A combination of both.

Organic hires as well as acquisitions.

Okay great.

Great. Thanks, Jeff and then a follow up as well on the brokerage side of the business. So you highlighted in the presentation. You guys published this morning over the past three years, you've expanded revenues nearby 14%, so thats more than two times your peers.

When you think about the addressable market that youre going after a day kind of how thats evolved just based on all the comments you made including new areas like digital assets and what you're doing in Europe as well.

There is an expectation.

Just kind of a view on the market growth, which is obviously lower growth.

Challenges in parts of the market, but on the other hand you.

History in the brokerage business and then how do you think Cowen.

Relative to that just given all of these other initiatives that are kind of ancillary to be how people think about the core business.

So I think we do a pretty good job of breakdown or supplement the growth in the core brokerage, which we think is more volume driven.

Institutional services, which we think is not as much driven by volume right.

And so if you look at the growth is coming from both areas, but obviously the faster growing part of that business.

It has been.

Additional services as part of the business that is prime brokerage that's outsourced trading that is.

Securities Finance.

Spot business so.

Obviously, those are places where we're adding.

I'd like to think about it.

We're taking a bigger piece of.

Wallet from existing clients.

I think everyone always thinks about the brokerage business as you know <unk> got to go out and get more clients more clients more clients in our view is once you get to scale in terms of the number of clients not that we wouldn't be adding new clients. We are but new fund formation isn't the primary driver. There. The question is are you taking share from other people that are either exiting the business or don't do as well as yield and what we've done.

With our top clients is take a bigger share.

And we think that trend continues in part because the buy side is making decisions.

As they have been for the better part of last decade, plus to do business with fewer counterparties.

So.

This is what that paradox that we've talked about Devon, which is we know that the overall pie may be shrinking as people look to reduce their expense loads, but the distribution of that pie skews to the best performers. So the ones that are the weakest performers get.

<unk> hurt and their share goes to close to zero and the ones at the top end of that take meaningful share from everybody else and if youre in the middle you are probably going to end up at one side or the other either going to end up as a top revenue or you're probably going to get eliminated overtime.

Our view is that we.

We are as we've demonstrated I think we've mentioned in this.

The call earlier.

We are a top 10 provider of services.

Then we're well within that.

I would call that.

That.

Circle.

Of critical vendors for the buy side.

That means that when the SKU their votes towards the best performers, whether that's in execution cash equities electronic European ADR.

Options that event.

Prime brokerage capability swaps theyre going to be looking for reasons to do business with Cowen because.

They'd rather do business to ensure that they continue to be top of mind at Cowen.

And that's taken years to build and it doesn't get unbuilt or does it dissipate quickly at all in fact, the trend is moving.

Much more towards us in this area and.

And Thats why we continue to make this drives that we've made.

And so that's why we feel again I think it's underappreciated.

The stability of our business and we made.

A quantum leap pre pandemic to post pandemic, everyone keeps waiting for our daily average revenues to go back to what they were.

Prepaid is not going to happen.

In part because of the structural changes that we made the investments in people the new products. We've added and this overarching trend where the buy side is allocating to the top performers of which we are one.

And I think it's really interesting to sort of highlight we do not running central risk book at Cowen.

So when you look at equity markets in particular, it really it falls into those who are willing to use their balance sheet to position and take risk I E. The bulge and they do a good job at that and they make up the bulk of the top 10.

And then people like us really very few.

Who don't have to use their balance sheet in order to get market share ours is agency largely agency, Germany and that is hugely capital efficient for us.

Yes.

To put it all together Jeff so.

There's been a structural shift that's been happening in the market Cowen has been on the right side of that.

Susan.

Because outperform the industry, how do you react to the perception that brokerages low growth within Collin I mean, 13% revenue growth over the past few years is not low growth.

Opinion, but.

How do you react to the view that brokerages low growth based on all of those things we've just done.

I, just think thats a perception in the market again, I've told people for years too.

Tell all your friends equities is a hard business, so we'd like to see more people get eliminated because there's more share to be taken and.

That remains true.

Just look at our numbers and how they've grown meaningfully and it tells you all you should know about whether or not the strategy, we pursued even going back a decade and in.

2012 people told me or us that we were crazy for Bart for buying electronic algorithmic trading platform, we couldn't disagree more and when you look at the growth of our electronic trading platform and how it's spun into all of the different areas, including our cash equities business, which is up meaningfully from 2012.

That is a huge testament to the trend that we identified 10 years ago.

I will also tell you and again, we're not prepared to go into more detail yet, but we believe.

Over the next.

Three to five years the growth in digital asset trading.

Is going to be meaningful.

I don't know when the tipping point will occur, but it's sooner now than it was a year ago. When we set out to make an investment and poly sign to do digital asset custody.

To build out our own digital asset trading capability at Cowen digital right.

That is not the value of that as it begins to.

Sure.

Take shape as revenues begin to come in not fully appreciate it. So when we look out over the next again three to five years. It's the same way we looked out and.

In 2012 hour, where the business was going we have a really good insights into asset classes that we think the institutions are going to trade it and we want to be there.

And there is not a world class.

Institutional digital asset trading firm.

There is a lot of retail, but not a lot of institutional quality digital asset trading firms, we intend to be one of them and so that is nowhere in our numbers today in terms of revenue, but when you talk about legs of growth.

I just will tell you all of the people that are trading equities with Cowen <unk>.

Considering what their strategy is going to be for digital asset trading I know that could be the case, because I've talked to many of them.

When they do it and how they do it and who they do it where it's still to be determined.

It put us in a position where we can take meaningful share when that happens.

And Thats really why I.

I get so excited about it I know thats going to happen and I know, we're going to be a winner there and it's nowhere in our numbers today.

Yep, Okay, great. Thanks, so much I appreciate it.

Great.

Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from James <unk> with Goldman Sachs. You May proceed with your question.

Thanks, and good morning.

To touch on the trajectory for capital markets Advisory business, you were near the all time record. This quarter you can just speak to what drove the results. This quarter in particular and then the sustainability of this.

Of these results.

And the run rate to build off of from here.

So I think the.

A lot of the capital markets Advisory business is driven off the fact that when equity markets. So we've been in a bear market for what I would call speculative growth for like nine months right.

Rest of the broader market indices may have simply caught up in the month of January but let's be really clear it hasnt exactly been a great equity raising environment.

For a lot of the businesses since really April one of 2021.

So.

What are we doing we're talking to our clients about alternative ways for them to finance themselves so debt transactions private placements.

<unk> that may have otherwise looked at the stock market and said I don't really want to be in the stock market, but I need to do a financing and so we've done a number of private placements.

Private offerings that would've otherwise been backed deals.

So as some of the traditional business account has been in both in public equity underwriting and maybe this back back and as that has.

No.

As that has flattened out of it our clients are doing other things and so youre seeing the growth come on particular capital markets advisory from our ability to help our clients to pivot to other things.

The need for financing doesn't change just because the markets aren't there what changes is the way you finance yourself and what we built at Cowen which I continue to think is unique in terms of the street is the ability to offer clients a multitude of ways to get the capital they need to execute on their business plans and Thats why youre seeing the growth.

Capital markets Advisory.

Some of the other businesses may appear softer.

Okay, and then I just wanted to ask about the overall leverage in the business I know there've been changes in terms of swap margin rules, but if I compare your tangible assets versus tangible.

Common equity has significantly increased the leverage on the balance sheet over the past years past few years to about 12 times versus less than six times in 2018, what's the level of leverage in your business that you feel comfortable operating at and should that change from where you are as of this quarter.

So I think the.

Primary Jive and the biggest driver of that has been the growth of the securities Finance business. So.

Just to be clear Thats, a matchbook business. So you've seen the balance sheet go up on both sides, which I think is really driving that that is largely an overnight funding business.

That we've seen for years, we're very comfortable with its not a huge risk business for us as.

As we have both sides of the trade and we're acting as an intermediary there.

And so.

I think where the.

We ended the year is a comfortable level for us.

I think it could go up or down modestly.

If you look at where we ended the year.

It was down.

From the third quarter.

So I think you will continue to see us play in and around this area obviously.

We have the ability to reallocate within that but the leverage.

The leverage targets, we have are in and around where we are not much more meaningful than this but that the primary driver has been.

Securities Finance and obviously the growth in that business has been.

A meaningful contributor.

Thanks.

Thank you. Our next question comes from Sunil Modi with Piper Sandler You May proceed with your question.

Hey, Thanks, just following up here curious on the on the debt side of the banking business.

With interest rates start to increase can you maybe just talk about the activity levels, you're seeing there on that kind of smaller portion of the banking business and update us on the view of that business opportunity going forward more of a kind of medium to long term.

Yes.

So actually we've seen increased activity like meaningfully increased activity I think so a lot of the debt that we're doing might be floating rate in nature.

I know a lot of it has to do with things that are a little further out maybe in terms of.

In terms of.

Yes.

Speculative growth in or middle market.

I will say is the primary driver of that business is really the number of the amount of dollars in both credit funds as well as the growth in what I would call middle market inspect all of growth companies that are looking at that as an alternative to equity finance, so supply and demand and.

Despite the increase in rates theres been more money.

Raised by the providers of that an alternative forms so the alternative lending business, great direct lenders and so there's more money in that space.

Than there ever has been.

And I think people tend to project forward shimmy.

What they think will happen we are still as of this discussion and a zero interest rate environment, even though the market might be pricing in six or seven rate hikes over the course of the next year, if it's six or seven rate hikes will be any almost zero shortly.

Short end of the curve and if you look at that activity and the growth of that activity even in the last rate rising cycle those funds got bigger.

People are looking for yield people will continue to look for yield for the foreseeable future and the providers of that capital will fall over themselves to get that money deployed so.

Still a very robust market and we're seeing it because the number of mandates and the increased pitch accounts again every time the equity market has a little bit of a hiccup everybody looks at the debt market to get themselves financings. So we've seen it in an increase in the number of mandates. So far this year in 2022 and the pitch count the inbound requests.

<unk> for us to come and pitch those capabilities has increased meaningfully.

Great. Thanks.

Great.

Thank you. Our next question comes from Stephen Ju with Wolfe Research you May proceed with your question.

Hi, Thanks for accommodating the follow up.

Jeff you did admittedly didn't give much airplay two monetization plans for non core assets I was hoping you could just give an update on <unk>.

Planned IPO of healthcare royalty partners and any other planned monetization, especially in light of some of the recent volatility that we've seen.

So I think we mentioned I think sit in Africa, we mentioned that there was a.

Meaningful structural change in what we're doing hopefully this year and link them.

The announcement of the split of the retail operations away from the network.

I think there's a good pre stage two ultimately realizing value from that investment, which I know for those of you that have been calling shareholders for a while it's been a long time coming you also I'll remind you like we don't control the timing on that I'm just looking at the fact that we're finally, reaching a point here and which.

The <unk> build out has occurred there is a real structural change in terms of the way the business is running and our partners at Jefferies.

More inclined to pursue the monetization path I think and they have been again by their own.

You look at their own Investor day deck. They say the same thing. So that makes you feel good about the probability of that happening at some point this year.

As far as healthcare royalty partners is concerned.

We're continuing to work through that.

And if you look at.

The demand for what they're doing again, it's the same thing we're seeing any in the banking side of the business. They have been focusing on on growing their asset base.

<unk>.

When they could.

Good public.

In the middle of the year, they went back to simply putting more money to work and raising a bunch of capital inside pocket vehicles.

Ultimately that where they can deploy that capital and thats.

Part of the driver of our future performance I think that they will at some point.

<unk> to look for it makes a lot of sense for this to be a permanent capital vehicle. It just does.

And when that happens and how that happens again.

I think it is market dependent but my sense is the <unk>.

<unk> to Cowen doesn't change.

It's still highly.

A very valuable franchise for us it is not.

Totally recognized as you all know that the investments we have in our asset managers are not on the balance sheet.

And so we'll continue to work with them to figure out when the optimal time is to access the public markets. If that's the right thing to do.

But in the meantime, which is going to continue to grow the business because the demand, especially.

In an environment, where equity financing is extensive.

Given the values of some of these companies.

They'll continue to do business. So we remain really constructive on that and my hope is at some point.

We'll be able to tap the public markets. If that's the right thing to do to realize value.

That's great John Thanks for accommodating a follow up.

No problem.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr. Jeffrey Sullivan for any closing remarks.

Well look we appreciate everybody's time on this morning's call and we obviously appreciate your support we look forward to.

Following.

Following up with you on our next quarterly earnings call and we really hope that you will join us for our Investor day.

Where we will be.

Be hosting on May 19th so please put that on your calendars.

We'll spend a lot more time going in depth on a lot of the.

Topics that we covered today spend some much more time on strategy and value unlock strategies.

Cowen in the future.

We do encourage you to sign up for that so until next time.

Be safe be healthy and good luck.

Okay.

Thank you. This concludes today's conference call. Thank you for participating may now disconnect.

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Good morning, Thank you for joining us to discuss <unk> results for the fourth quarter.

Our full year 2021 by now you should have received a copy of the earnings release, which can be accessed at investor Dot Cowen Dot com. After the speaker's presentation there'll be a question and answer session.

As a reminder, today's call is being recorded.

I'd now like to hand, the call over to Mr. J T Farley Cowen as head of Investor Relations.

Yes.

<unk> financial measures, which we believe provide useful information for investors reconciliations of those measures to GAAP are presented in today's earnings release as a reminder, we make available a quarterly financial supplement in the Investor Relations section of our website. We encourage you to review it in conjunction with our earnings release, joining us on today's call are accounts chair and Chief executive.

Sir Mr. Jeffrey Solomon and our Chief Financial Officer, Mr. Stephen Lasota, now I would like to turn the call over to Jeff.

Thank you Jason Good morning, and thank you all for joining us on <unk> earnings call for the fourth quarter and full year 2021.

Results to our shareholders then we'll be happy to answer your questions.

2021 was a record year for calendar.

We generated record revenues in our broker dealer powered by investment banking and markets revenues, while the management fees at Cowen investment management hit their highest level since 2008.

Given our strong operating performance, we returned nearly $160 million to shareholders to a record amount of stock buybacks over the full year 2021.

We are keenly focused on optimizing our capital structure and we will continue to do so out of our cash flows utilizing a combination of share buybacks and dividends as we announced this morning Cowen Board increased the quarterly cash dividend by 20% to <unk> 12 per common share, reflecting our view of the positive outlook.

Long term for our operations.

It has long been our stated objective of ours to grow our advisory business and banking to augment our world class capital markets financing and advisory activities.

We also delivered on our expense guidance coming in modestly below our comp to revenue ratio for a second consecutive year, even as we increase our head count by 12%.

Ben and we will continue to be instrumental to our success now.

Now, let's look at the fourth quarter operating highlights more specifically in.

In banking, we had a very strong quarter, despite headwinds from reduced capital markets activity as well as the drop off in his back activity.

The industry breath of our banking franchise was on display this quarter sectors outside of healthcare comprise 58% of total banking revenues, including particularly strong results from the TMT consumer and tech enabled services services sectors.

Within healthcare non biotech areas, including tools and diagnostics med Tech and healthcare services as well as health care.

Made up 47% of our total health care banking revenues are.

Our sustainability effort also continues to gain traction sustainability related banking efforts more than doubled in 2020.

Sorry, 2021, making up 10% total banking revenues in the fourth quarter and over 15% in the full year of 2021.

<unk> related revenues accounted for 29% of banking revenues in the fourth quarter and 32% of banking revenues for the full year of 2021.

As a reminder, our stock revenues are weighted towards business combination or backend.

In other words.

Financings capital markets Advisory and M&A advisory.

Whilst backed IPO activity has slowed considerably there are still nearly 600 specs continuing.

Currently seeking acquisitions and we expect to continue to capitalize on the associated people from that product in 2022.

As I mentioned earlier towards the end of the fourth quarter, we completed the acquisition of portico capital.

Cowen portico team as they are now known provides deep industry knowledge and strong client relationships and the high growth vertical wise software data analytics sector, an area that has seen tremendous interest from both financial sponsors and strategic buyers.

The diversification of backlog also continued to increase with a healthy mix of public and private M&A mandates as well as capital markets transactions spec related mandates now make up less than 3% of the backlog.

Note that our backlog now includes mandates from Cowen portico.

While the mandate number of mandated deals is higher the timing of conversions has been impacted by market conditions, namely increased market volatility inflationary pressures geopolitical uncertainty and rising interest rates as global central banks shift away from their decades long accommodative stance.

These factors have led to increased equity market volatility, which has in turn slower capital markets activity for the first six weeks of 2022.

But as the market digests, the macro news flow, we anticipate the volatility will subside and when it does we are confident in our ability to convert the vast majority of our mandated backlog.

It is also worth noting that there have been two six week periods in each of the last two years, and which market volatility significantly interrupted capital markets activity.

Both of these periods were followed by a rush of transactions from companies that needed capital, particularly in industries, where Cowen is well positioned.

It is also worth noting the Cowen banking franchises in a very different place than it was just a few short years ago.

We've made meaningful strides in our strategy to become a provider of holistic financing advice by operating companies alternatives to funding in the public markets and we've grown our advisory business significantly in fact in recent weeks, we've seen an uptick in our client seeking less dilutive alternatives given the current equity market conditions, hence our confidence that we remain well positioned.

To benefit as our clients consider how best to match their aspirations with the challenging market realities.

Turning now to our markets business. It was a strong quarter, averaging $2 $7 million per day in revenues up 7% from the previous quarter.

Average daily revenues were down 8% year over year much of that drop about $4 7 million was due to the wind down of our most of most of our clearing operations in 2021.

Third party industry surveys demonstrate our momentum as we have increased our share of the institutional Commission pool consistently over the last few years.

This is borne out by our revenue growth since the start of 2018, our markets revenues have generated a compound annual growth rate of 13%, which is double the average of the comparable revenues in our peer group.

We are also making progress on the Buildout of Cowen digital our digital assets initiatives and despite the recent volatility in crypto currencies. The engagement level among clients remains extremely high and there is clear demand for institutional quality capabilities and infrastructure in that sector. We will have additional updates on cowen digital throughout 2022.

Looking at the current quarter, we are off to a very strong start with average daily revenues running above our fourth quarter and full year 2021 averages.

And research our fourth quarter, we initiated coverage on 53 stocks today, we are actually close to covering almost 1000 stocks and we are firmly in the top 10 in terms of U S stocks under coverage.

In the fourth quarter. We also published 12 of our flagship ahead of the curve series reports, including a primer on cell and gene therapy tools and a deep dive on edge computing.

We are also taking a leadership role in ESG and sustainability research and are proud to have been recently named best ESG Research.

By a leading third party publication.

Our research team continues to produce excellent results and during the fourth quarter, we saw another meaningful gain in brokerage boats from our institutional clients.

In investment management, our fourth quarter results were strong and we increased the size of our business even in the face of a challenging investment environment for our growth strategies.

Total assets under management grew 15 grew.

<unk> grew to $15 8 billion up 7% quarter over quarter, and an impressive 26% year over year.

Incentive income for the quarter was at $13 5 million and $33 4 million for the full year.

The biggest full year contributors were from sustainability and the activist strategy.

Management fees were up 20% year over year to $20 1 million for the quarter and full year management fees rose to 36%.

At $80 5 million.

Looking at our five strategies, our sustainability strategy had almost one 4 billion in AUM at the quarter end <unk>.

Performance remained strong even when factoring in the volatility of the <unk> investment.

The healthcare royalty strategy also ended the quarter with over $3 6 billion in total AUM.

Turning to our balance sheet, we had investment income losses of $5 9 million this quarter due primarily to negative quarterly marks and about the value of investments in our healthcare strategy and in our merchant banking portfolio. Our investment income was positive for the full year of 2021 at $14 6 million and as a reminder, Cowen has always had quarterly fluctuations.

Our incentive and investment income lines.

But in every year since the global financial crisis in 2008, <unk> had positive contributions on an annual basis from our combined incentive and investment income.

Looking at other items on our balance sheet, we had some developments during the quarter and Lincoln the largest investment in our <unk> segment in late December the retail unit of link have announced plans to merge with Italian within Italian fixed line operator named typically in exchange for a majority stake in the company and this pending agreement would effectively separate.

The retail operation of Lincoln from the network operations and the wireless spectrum.

We are hopeful that this will help move us closer to monetization of this non core asset.

And with that I will now turn the call over to Steve Lasota for a brief review of our quarterly financial results. Steve. Thanks, Jeff GAAP results for the fourth quarter of 2021 were as follows total revenues were $494 3 million down 16% year over year from 591 7 million net income attributable to <unk>.

Common stockholders was $63 3 million or $2 <unk> per diluted share down from net income of $95 million or $2 98 per diluted share in the prior year period compensation and benefit expenses were $237 3 million a decrease of $40 1 million from the prior year period expenses.

Excluding compensation and depreciation and amortization were $130 7 million for the fourth quarter and D&A expense was $5 $3 million.

Income tax expense was $25 2 million.

54 point.

$454 million down 11% year over year for the quarter economic investment banking proceeds were up 3% year over year to $255 2 million.

Economic growth brokerage proceeds were down 8% year over year to $170 3 million economic management fees for the quarter were up 20% year over year to $20 1 million and economic incentive income was $13 5 million in the fourth quarter of 'twenty, one versus income of $44 4 million in the fourth quarter.

2000 Twenty's.

Economic investment income was a loss of $5 9 million versus income of $10 3 million in the prior year period, turning now to our expenses compensation and benefit expense for the quarter was $238 9 million compared to $279 9 million in the prior year period.

Cost of proceeds ratio decreased year over year from 54, 6% to 52, 6% of economic income proceeds.

Fixed non comp expenses totaled $43 9 million in the fourth quarter up from $38 9 million in the prior year period and variable non comp expenses in the fourth quarter of 2021 were $50 3 million versus $45 million in the prior year period. The increase in non comp expenses were due primarily to higher travel and entertainment expense.

<unk> business development expenses and professional service fees.

The non compensation ratio increased to $27 million of revenues up from $16 four in the fourth quarter of 2020 dip.

Depreciation and amortization expenses were $5 3 million compared to $5 9 million in the fourth quarter of 2020 and economic income tax expense in the fourth quarter of 2021 was $24 6 million.

We generated economic income of $82 6 million in the fourth quarter of 2021 economic operating income was $86 7 million or $2 77.

Per common share, which includes the impact of taxes at an effective rate of 22, 6% in future quarters, we expect our effective tax rate to be in the range of 25% to 28% depending on the nature and geographic sources of our income. This estimate is a lower range than our previous tax rate guidance of 25% to 29%.

For full year 2021, we generated economic operating income of $326 4 million or $10 per common share turning to the balance sheet.

Quarter end.

Cowen had invested capital in op co totaling $734 8 million up 6600, $77 7 million at the end of September 2029, and asset go we have invested capital totaling $121 2 million at the end of December up from $122 million at the end of September .

<unk> 2021, turning to our equity common equity, which prior to this quarter with stockholders' equity less preferred equity was $1 2 billion up from $981 8 million at the end of September 2021 during the fourth quarter of 2021, we made an irrevocable elections of cash.

Common book value per share, which is common equity divided by total shares outstanding rose to $36 57.

As of December 31, 2021 up from $35 40.

<unk> begun to September 2021.

Tangible book value per share was 20 656 at <unk>.

Quarter end down from $29 17.

September 'twenty, one due in part to the portico acquisition.

After tax return on common equity was 34, 7% for the fourth quarter of 2021, well above our target of generating at least mid teens. After tax return on common equity on an annual basis.

In mid December 2021, we closed on our acquisition of portico capital advisors for an aggregate estimated purchase price of 112 million of which Cowen <unk> $91 3 million in upfront consideration.

The acquisition increased Collins goodwill by $86 9 million in intangible assets of $19 9 million with a weighted average useful life of between one and four years for full year 2022, we expect $9 6 million and intangible amortization expenses related to this acquisition full details on the purchase price and the accounting.

Treatment of future contingent consideration will be available in <unk> 2021, 10-K filing rigor.

Regarding capital returns to shareholders as Jeff noted, we increased our quarterly cash dividends to <unk> 12 per common share during the fourth quarter, we repurchased $36 9 million in stock a total of $1 4 million shares including purchases executed according to our existing <unk> one plans.

Two 6 million shares note that due to the change in accounting rules regarding convertible instruments starting in the first quarter of 2022, we are required to use the if converted method for our convertible preferred stock and our diluted share calculations. We expect this rule change to increase our first quarter of 2022 diluted share count for you <unk>.

So maybe one 5 million shares looking ahead, we will continue to be often after an opportunistic and ship buybacks, depending on market conditions and available cash flow. We will also prioritize additional capital returns when we're able to monetize assets on the balance sheet and with that I'll turn the call back over to Jeff.

The fourth quarter was strong across the board in a capsule record year for Cowen. This success is the result of the hard work of our team who outperform every day to help our clients reach their goals. We're grateful not only for your dedication hard work and adaptability, particularly over the last few years, but we are also proud of how we have done so while staying committed to a culture based.

On our core values of vision empathy sustainability and tenacious teamwork.

Before we take questions I'd like to briefly outline some of the reasons why we remain confident about confident about the sustainability of cowens core earnings power.

The opposite.

So much of our record revenues in banking last year emanated from our one <unk> approach to client service mandates for private placements or M&A deals that turned into IPO or spec transactions spec transactions morphed into private capital raises for follow on offerings that became debt advisory assignments. This diversity of expertise as differentiated Cowen and ethos.

System and clients we advised.

<unk> had.

<unk> benefited from our being.

A lot less dependent on any one product or industry.

We created that.

With a degree of intentionality that enables us to be versatile as we provide advice to our clients.

The markets, we built on our.

Ranked in U S cash equities expanding into non U S execution options swaps and less volume dependent areas, such as Prime service and Securities Finance.

Our special situations and cross asset teams help our clients capitalize on opportunities, which are less well understood or where liquidity is challenging.

Overall, our markets business has generated more than $2 5 million in average daily revenues for the past seven quarters.

We believe we can.

Sustain at least that level and likely higher.

Absent any huge market dislocations.

Moreover, not only do we have the revenues in that division.

Barely begun to engage.

Okay.

In investment management, we have built an impressive roster of private equity style strategies with steady management fee streams in our management fees are now on an annual run rate of approximately $80 million with potential upside from additional increases in AUM.

We also expect our incentive income 2022 to be up year over year.

Overall, our capabilities have never been stronger. In addition, Cowen has a larger clients than ever before in short we are in a very different position as an organization. We were just four years ago. That's why we remain confident that we're well positioned to succeed in delivering for our clients and for our shareholders year in year out and with that I will open it up for <unk>.

Questions operator.

Thank you very much.

To ask a question you will need to press star one on your telephone.

Draw your question press the pound key.

Our first question comes from Sumit Modi with Piper Sandler you May proceed with your question.

Hey, Thanks, good morning, guys.

Just wanted to.

Start with the banking side of things I appreciate the commentary kind of on the uncertainty and the optimism around that but we're seeing kind of industry ECM volumes trend down about 70% below last year's.

Start to the year end.

Public data shows you guys are doing some activity biotech and maybe some some in semiconductors as well can you update us on some of the trends you're seeing across those focus sectors. I know there were some concerns around potential regulation for drug pricing weighing of biotech.

One of the catalyst you're looking for today in that sector and then maybe one.

Do you think those could come through.

So great questions. Thank you.

So a couple of things first of all I would say.

When you look at the calendar for underwritings.

Historically January outside of biotech and <unk> has actually been a relatively slow time.

The fact that biotech has slowed down in the first quarter of this year is really more a function of the fact I think that.

Honestly the valuations have come in so significantly that it takes time for management teams.

You know it takes time for them to make the commitment to actually go out and raise the capital. We have also seen a significant amount of activity and less dilutive financings. So many of these are clients.

That.

That would've otherwise tap the equity market.

At higher valuations are looking at royalty deals and debt deals and in fact in the month of January we actually added meaningfully to the backlog and those opportunities those don't show up in places like Dealogic are mandated M&A black backlog, but when you talk about the versatility of the business. We built that's why we remain confident.

Drug pricing I think for as long as I've been in this business has always been a spectrum thats over been overhanging the industry, sometimes it it appears to be more serious than others in the industry has done a really good job, though of getting out in front of it and our belief is that.

Drug pricing regulation will not be not be geared towards impeding.

The growth part of our growth and innovation and that's really critical so what we expect to see some degree of drug pricing.

From Congress this year.

But I think it will be much more targeted towards the larger pharmaceutical companies, who really make their living off of increased drug prices year on year out not from the companies that we bank what youre doing really innovative things. So my conversations would suggest that that's how how thats going to play out I'll also say.

There's one thing I know about this industry.

Everyone wants to wait to see a better day on stock prices to do offerings.

<unk>.

And they want to do it off the back of good positive clinical results already in February we've seen more activity than we saw in January .

We have to wait obviously for a number of companies that want their numbers go stale too actually.

Announced their earnings and then there'll be free to raise money.

We continue to do so in other ways to market.

Market offerings that business has grown significantly for us so.

Again as I said in.

My script earlier.

We've seen these periods of time.

Four to six weeks of disruption in the capital markets and what we've seen in each of the last two years in particular as once that subsides and markets find their levels.

Everybody who needs to finance finances, that's what happens and so.

So whether that happens in the first quarter or the second quarter I am not smart enough to know, but I do know, it's Kevin because every one of them needs to raise money and Cowen has divested that so we expect that when you look at it over a full year. That's why we remain as confident as we do.

Alright, thanks for that Jeff that was helpful.

And then just one quick follow up here kind of a two parter on capital allocation just kind of first on the dividend I. Appreciate the increases over the last year, just kind of maintain at 1% yield roughly how are you thinking about that rate going forward as the firm continues to earn new much higher level compared to just a couple of years ago, and then secondly, I appreciate that the monitor.

I think it will be.

We talk about capital optimization, all the time and United talked about this as well.

I think as our stated objective to balance both return of capital to shareholders using both dividend payments as well as.

As well as stock buybacks.

And and we also have some stated objectives and we want to continue to grow the diversification of the business and I would argue that some of the <unk>.

Some of the decisions we made.

In the middle part of the last decade to invest in certain businesses are really drive driven our outperformance significantly and where we've made meaningful revenue.

We've seen meaningful revenue growth in 2019 2020 and in 2021. So I think we'll continue to return capital.

Particularly as we trade at discounts to book value that is an easy way for us to accrete value to shareholders.

We will continue to do that we also continue to.

Raised the dividend.

Incrementally as we see our business continue to scale and I would say a lot of people ask the question.

Sure.

Sort of where things normalize out I look at the growth we've had over the past few years and I recognize.

It's oftentimes they look at where we were in 2016, 17, and 18 and it isn't materially different firm and I think certainly you and some of your compatriots do a good job of articulating that but.

The rest of the world will ultimately catch up to that.

Great. Thanks for taking my questions.

Okay.

Thank you. Our next question comes from Steven <unk> with Wolfe Research you May proceed with your question.

Hi, Good morning, Jeff Good morning, Steve.

Hi, Steve.

So maybe just to start off.

So many people ascribe our success over the past few years to market conditions, and we've definitely benefited from from those to be fair.

But I think Colin would not have benefited from them nearly as much as we did if we hadn't made the strategic moves we've made.

And so our goal is to be able to articulate.

With I think a greater degree of clarity.

The things that drive our business and it's easier for us to do that in an investor day than it is for us to do that on our quarterly call.

Quarterly calls are meant to give people periodic updates, we'll lay out strategy and try to give you some sense as to why we remain highly confident in our ability to deliver on the business, which we do but if you really wanted to dig in and understand the core drivers of the business. It takes some time.

We've got things that we're working on we've mentioned.

No.

Certainly things like talent digital as that as that progresses.

Ways for.

For folks to think about our asset management business and how to model that up with a greater degree of transparency. Those are all the kinds of things that we're going to cover.

From our standpoint, knowing what we know at Cowen It isn't that hard to make the case for why calendar is significantly undervalued and why we think the core drivers remain in place we see that every day from the inside and I. Just think it takes some time for us to really level set with everybody who doesn't know the story.

And help them to understand why we think there's a lot of value creation is still here on the table. So that's the primary impetus for that Steve.

Thanks for that perspective, Jeff.

Well I guess following up on what was admittedly a little bit of a softball question, but I figure. It now is the opportune time just to unpack.

The commentary around expense and this quarter, you certainly and even for the full year demonstrated good expense discipline. As we look ahead, given the inflationary environment just the challenging revenue backdrop to start the year at least how should we be thinking about the comp flexibility. If we do see a material sustained slowdown.

Activity.

And also in terms of the non comps how we should we be handicapping the non comp inflation given continued normalization in <unk> in particular.

So the first one and I'll turn I'll turn it over the second part of the question to Steve.

Allison.

Obviously revenue slowdown will be at the higher end of the comp range that we've articulated I also think that a lot of it depends on revenue mix and as you know.

The more risk you to advisory.

In terms of our revenue mix the higher the comp to revenue ratio isn't I think you covered the industry. So you can see what the comp to revenue ratios are for advisory firms and so the more we do in advisory the more complicated but of course less.

Non comps.

I think we will probably incur as a percentage of those revenues so.

I think we've given a good range and I'm confident that we should be to hit that range. Obviously, if there is a meaningful slowdown.

And that's why we remain confident in the guidance that we've given.

Our non comps I'll turn it over to Steve who has done all the work on that so Steven.

<unk> is a similar story right it's dependent on revenue, but if it's a lot of that revenue comes from M&A, then you have less non comps.

Although with that being said TNT and client development and conferences are picking up but I don't think they're going to return to 2019 levels, but they are picking up because people want to get back out and see clients in.

It's just going to be good for our business.

Specifically, where our health care conference, which is always a fairly significant expenses virtual again this year.

That's the first quarter expense, which has driven some of the if you look at 2020 than we had higher non comps in the first quarter because of that.

And we will continue to look at the flexibility around virtual conferences I think that's something we've all learned is that some of the conferences that we used to do in person are actually better done virtually and will continue to do that I think.

Looking at the difference between in travel.

In prior years, because so much of we've learned we can do so much in the business without actually having to get on a plane and go we will get on a plane and go see clients, but b.

The amount of time, because we have to do that in any given year, probably doesn't return to prior levels for entertainment, though I do think people will be out.

And Thats, a good thing because that really drives connectivity in the business.

Ben.

Post omicron or as the as the <unk>.

Things.

Slow down we've been out.

Pretty meaningfully just reconnecting with people and that that is part of what drives the revenue in the business. So.

Again.

It will be higher than it was.

Probably in 2021 , but I don't think it approaches the levels. It was in 2018 or 19 in an absolute sense.

Okay.

Thanks, Jeff and just one final question on the advisory business.

You talked about the strength in the shadow backlog.

Certainly encouraging to hear given some of the weakness that we've seen at least in some of the public data, which doesn't seem representative of what youre seeing internally.

Last quarter, you talked about the advisory business running at a $100 million per quarter sustainably with the addition of portico I know theres going to be some volatility quarter to quarter, but wanted to just gauge your confidence level around that $100 million plus level being sustainable over the medium to long term.

Yeah. So I think when we look at that number obviously quarter to quarter it'll it'll vary just like all the advisory businesses do but I think when we look at that number that's a that's a good number for us to think about on an annual basis.

<unk>.

Our rolling 12 month basis, and the reason is that when you look at the Dealogic numbers. So much of what we do just doesn't even show up there.

If a company we're engaged on a buy side or on the sell side transaction and the company decides not to sell sell for decides to do a cash out refi and that shows those fee show up as a debt capital markets advisory transaction and honestly we're.

In the business to serve the needs of our clients what falls out and Dealogic is just the way people account for it all.

And how they how they categorize at all and so much of our revenues, including our stack advisory revenues.

Don't show up that way.

Our pipe that will further engaged on a pipe to help backend spacs transaction happening like those are not things that Chubb and Dealogic. This is why we remain very confident in our advisory business and maybe it's harder to see relative to some of our peers.

And that versatility is a difference maker account and this is why our clients have continued to choose us because we're not just pushing one product and I think the challenge that a lot of our competitors have is the only thing they do is.

M&A.

And if you are faced in an environment, where that's not your best alternative.

You got to go to a place like how and then has that versatility and thats really what helps to drive that business for us and that's why we remain as confident as we do about our ability to hit the numbers that you talked about on a rolling 12 month basis.

Helpful color. Thanks, so much for taking my questions.

Thanks, Steve.

Thank you. Our next question comes from Chris Allen with Compass Point, you May proceed with your question.

Hey, good morning, guys. Thanks for taking my questions.

I guess, just starting off you mentioned in the water.

We'll look to Opportunistically add people teams just wondering how the current environment is impacting the wound is there.

And then is there has been any.

Any change in terms of buy versus build opportunities as you kind of look to build the franchise further.

So great question.

And I will just say al.

Cowen is definitely a place where people want to come work there are more people that want to come than we can possibly higher.

Flattered by that.

And it's good that you asked this question because.

I often say if you really wanted to test the health and the sustainability of a franchise. All you need to do is to figure out whether or not people want to work there or not in our business and people want to work at Cowen across the board.

And that makes me feel.

The people that want to come on board.

Really well that can be.

Bolstered by the product capability and the engagement that we have accounting.

And so we're continuing to do opportunities like this I think what you've seen for example in the growth and our ability to do more banking digital assets.

Again that does.

There are a handful of folks in that industry, who are making great strides covering clients.

Whether it's the.

The miners or it's a payment processing folks who are using digital assets and crypto as a way to navigate their business models. There are very few places on the street, where they can go for full service investment banking capability.

Growth the way that we do and can provide the products and capabilities that bankers and frankly sales traders.

Yeah.

They need in order to execute for their clients and so.

I would say it'll be both organic acquisitions.

Organic hires as well as targeted acquisitions that but no shortage of opportunities on that front.

Understood and then.

Maybe some color on the markets business known as <unk>.

Decent start to the first quarter relative to fourth quarter and full year 'twenty one.

Is this broad based you're seeing strength in specific areas.

Any color just in terms of the impact some of the teams do that and I am thinking.

The European team and I think.

Just on the Securities Finance.

There's been an impact that youre seeing yet.

Well, so yes, I mean, the short answer to that yes, I mean first of all Europe for US has been a real growth area.

Again, we really had no meaningful presence in Europe prior to a few years ago, but obviously some of the larger firms have decided to.

To exit that business or scale back significantly and where they're happy beneficiary of these amazing teams.

Who again.

Come in and plug into our core capability, whether its algorithmic trading your cash equities.

Or frankly, prime brokerage and outsource trading and all of these things that sort of all work collectively in tandem so we're seeing that.

I think we're continuing to see the build out of the Securities Finance business.

That is something that I don't think people really fully appreciate the consistency of that business.

<unk>.

In terms of its ability to.

Generate revenues for us seven days a week.

365 days, a year because as it into interest it's in interest spread business, but it also enables us to do things like.

Swaps.

And provide hard to borrows for our clients and prime brokerage.

Key drivers for us as we look at and if you look at the growth in that business as we break it out in our financial supplement I don't see why that would abate actually because there are fewer providers of those as some of the bigger firms have scaled back meaningfully.

And so.

Anything we're gated maybe by the size of our capital base.

And I think that that is part of the tension I think that we have in terms of returning capital to shareholders as well as retaining capital to be able to provide.

Again attractive.

And service capability on that front so.

No shortage of opportunity for us to get bigger in that business.

Thanks, guys.

Okay.

Thank you. Our next question comes from Devin Ryan with JMP Securities. Please proceed with your question.

Okay, great Good morning, Jeff and Steve how are you.

Good how are you Kevin.

Doing well so.

I think most questions have been asked but I'm going to try to take a little bit of a different angle on the investment banking question. So you'll healthcare revenues were down 3% in 2021 still grew investment banking revenues by 40%. So I think that's clearly highlighting the increased scale and diversification.

And then as we think about some of the puts and takes over the intermediate term outlook. So you have your spec contribution that might come off a bit but there's still a lot of revenues to realize healthcare the borrowers unnecessarily high given what we just talked about.

One is expecting that.

Should be pretty healthy drop off 2021, the outlook just given how strong 2021 was but on the other hand, you have added a lot of capacity into the business just over the past year. So I'm just trying to think about what are some of the biggest areas of revenue upside off of the 2021 base and maybe what areas. We are thinking about kind of over contributed last year if at all.

Great questions and let me and I appreciate that because I don't think we actually talked about this much but it's a great opportunity to do so.

Just give me an idea.

When we look at it.

And I'm happy to give you the MD growth because I think thats really more emblematic managing director growth is probably more emblematic of revenue drive.

In 2018, we had 42 banker 42 mbps.

And.

And this year, we'll close with 89.

So it's obviously when you look at MD growth, it's over 110% growth in the number of managing directors on the platform account thats, both organic hires as well as.

As acquisitions.

Meaningful yes. This is part of the reason why we said we're structurally in a very different place than where we were prior to the pandemic and really frankly prior to 2000 2018.

That if you look at total banker growth over that same period is around the same so building in those teams to actually execute it's roughly the same amount.

And so.

When you look at year over year growth for us.

Exited the year last year was <unk> 73 Mds.

In banking.

And 2020 and as I said 89 for this year so.

Still meaningful and that's a combination of both.

Organic hires as well as acquisitions.

Okay great.

Great. Thanks, Jeff and then a follow up as well on the brokerage side of the business. So you highlighted in the presentation. You guys published this morning over the past three years, you've expanded revenues, thereby 14% so thats more than two times your peers.

When you think about the addressable market that youre going after a day kind of how that's evolved participation on all the comments you made including new areas like digital assets and what Youre doing in Europe as well.

There is an expectation.

Just kind of a view on the market to work, which is obviously lower growth.

Some challenges in parts of the market, but on the other hand you.

You've identified a number of areas for expansion for the firm and some of these areas are coming from a very small base. So I guess it would be very helpful to just think about Jeff. If you can how are you contemplating growth in the industry in the brokerage business and then how do you think cowen can perform relative to that just given all of these other initiatives.

Kind of ancillary to maybe how people think about the core business.

I think we do a pretty good job of breakdown in our supplement that growth in the core brokerage, which we think is more volume driven and institutional services, which we think is not as much driven by volume right.

And so if you look at the growth is coming from both areas, but obviously the faster growing part of that business.

He has been.

Additional services as part of the business that's prime brokerage that's outsourced trading that is secure.

Securities Finance.

<unk> business so.

Obviously, those were places where we're adding.

I'd like you to think about it.

We're taking a bigger piece of the.

Wallet from existing clients.

With our top clients is take a bigger share.

And we think that trend continues in part because the buy side is making decisions.

They have been for the better part of last decade, plus to do business with fewer counterparties.

So.

<unk> hurt and their share goes to a close to zero and the ones at the top end of that take meaningful share from everybody else and if youre in the middle you are probably going to end up at one side or the other you are either going to end up as a top revenue or youre, probably going to get eliminated overtime.

Our view is that we.

We are as we've demonstrated I think we've mentioned in this in the.

The call earlier we.

We are a top 10 provider of services.

Then we're well within that.

What I would call that that.

Circle.

Of critical vendors for the buy side.

And that means that when the SKU their votes towards the best performers, whether that's in execution cash equities electronic European ADR.

Option hit event.

Prime brokerage capability swaps theyre going to be looking for reasons to do business with Cowen.

They'd rather do business to ensure that they continue to be top of mind at Cowen.

And that's taken years to build and it doesn't get unbuilt or does it dissipate quickly at all in fact, the trend is moving up.

Much more towards us in this area and.

And Thats why we continue to make this drive that we've made.

In that and Thats why we feel again I think it's underappreciated.

The stability of our business and we made.

A quantum leap pre pandemic to post pandemic, everyone keeps waiting for our daily average revenues to go back to what they were.

Prepaid and it's not going to happen.

In part because of the structural changes that we've made the investments in people the new products. We've added and this overarching trend where the buy side is allocating to the top performers of which we are one.

And I think it's really interesting to sort of highlight we do not running central risk book It talent.

And then people like us really very few.

Who don't have to use their balance sheet in order to get market share ours is agency largely agency, Germany and that is hugely capital efficient for us.

Yes.

To put it all together Jeff so.

Theres been a structural shift that's been happening in the market Cowen has been on the right side of that and make good decisions and as a result has outperformed the industry.

How do you react to the perception that brokerages low growth within calendar, 13% revenue growth over the past few years is not low growth.

Opinion, but.

How do you react to the view that brokerages low growth based on all of those things you can do so.

Yes, I, just think thats a perception in the market again I have told people for years too.

Tell all your friends equities to hard business, so we'd like to see more people get eliminated because there's more share to be taken and.

That remains true again, just look at our numbers and how they've grown meaningfully and it tells you all you should know about whether or not the strategy, we pursued even going back a decade.

And then in 2012 people told me or us that we were crazy for Viper buying electronic algorithmic trading platform, we couldn't disagree more and when you look at the growth of our electronic trading platform and how it's spun into all of the different areas, including our cash equities business, which is up meaningfully from 2012.

That is a huge testament to the trend that we identified 10 years ago.

I will also tell you and again, we're not prepared to go into more detail yet, but we believe.

Over the next.

Three to five years the growth in digital asset trading is going to be meaningful.

I don't know when the tipping point will occur, but it's sooner now than it was a year ago, when we set out to make an investment in.

Poly sign to do digital asset custody.

To build out our own digital asset trading capability at Cowen digital right.

That is not the value of that as it begins to.

Sure.

Take shape as revenues begin to come in not fully appreciated. So when we look out over the next again three to five years. It's the same way we looked out in.

In 2012 hour, where the business was going we have a really good insights into asset classes that we think the institutions are going to trade it and we want to be there.

And there is not a world class.

Institutional digital asset trading firm.

There's a lot of retail, but not a lot of institutional quality digital asset trading firms, we intend to be one of them and so that is nowhere in our numbers today in terms of revenue, but when you talk about legs of growth.

I just will tell you all of the people that are trading equities with Cowen <unk>.

Considering what their strategy is going to be for digital asset trading I know that can be the case, because I've talked to many of them.

When they do it and how they do it and who they do it where it's still to be determined.

It put us in a position where we can take meaningful share when that happens.

And that's really why I get so excited about it and I know thats going to happen and I know, we're going to be a winter there and it's nowhere in our numbers today.

Yes.

Great. Thanks, so much I appreciate it.

Great.

Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from James <unk> with Goldman Sachs. You May proceed with your question.

Thanks, and good morning.

Let me touch on the trajectory for capital markets Advisory business, you were near the all time record this quarter given just speak to what drove the results. This quarter in particular and then the sustainability of this of these results.

Run rate to build off of from here.

So I think that a lot of the capital markets Advisory business is driven off the fact that.

When equity markets. So we've been in a bear market for what I would call speculative growth for like nine months right.

The rest of the broader market indices may have simply caught up in the month of January but let's be really clear it hasnt exactly been a great equity raising environment.

For a lot of the businesses since really April one of 2021.

So.

What are we doing we're talking to our clients about alternative ways for them to finance themselves so debt transactions private placements.

Companies that may have otherwise looked at the stock market and said I don't really want to be in the stock market, but I need to do a financing and so we've done a number of private placements.

Private offerings that would have otherwise been spec deals.

<unk>.

So as some of the traditional business account has been in both in public equity underwriting and maybe this back back and as that has.

No.

Need for financing doesn't change just because the markets aren't there what changes is the way you finance yourself and what we built at Cowen which I continue to think is unique in terms of the street is the ability to offer clients a multitude of ways to get the capital they need to execute on their business plans and Thats why youre seeing the growth in <unk>.

Capital markets Advisory.

As some of the other businesses may appear softer.

Okay, and then I just wanted to ask about the overall leverage in the business I know there've been changes in terms of swap margin rules, but if I compare your tangible assets versus tangible.

So I think the primary driver and the biggest driver of that has been the growth of the securities Finance business. So.

Just to be clear that the matched book business. So you've seen the balance sheet go up on both sides, which I think is really driving that that is largely an overnight funding business.

That we've said for years, we're very comfortable with its not a huge risk business for us as.

As we have both sides of the trade and we're acting as an intermediary there.

And so I.

I think where the.

We ended the year is a comfortable level for us.

I think it could go up or down modestly actually if you look at where we ended the year at.

It was down from.

From the third quarter.

So I think you will continue to see us play in and around this area obviously.

We have the ability to reallocate within that but the leverage the leverage targets. We have are in and around where we are not much more meaningful than this but that the primary driver has been.

Securities Finance and obviously the growth in that business has been.

A meaningful contributor.

Thanks.

Okay.

Thank you. Our next question comes from <unk> Mody with Piper Sandler You May proceed with your question.

Hey, Thanks, just following up here curious on the on the debt side of the banking business.

With interest rates that to increase can you maybe just talk about the activity levels, you're seeing there on that kind of a smaller portion of the banking business and update us on the view of that business opportunity going forward more kind of medium to long term.

Yes.

So actually we have seen increased activity like meaningfully increased activity I think so a lot of that that we're doing might be floating rate in nature.

And a lot of it has to do with things that are a little further out maybe in terms of.

In terms of.

Yes.

Speculative growth in or middle market.

What I will say is the primary driver of that business is really the number of the amount of dollars in both credit funds as well as the growth in what I would call middle market and speculative growth companies that are looking at that as an alternative to equity finance, so supply and demand and.

Despite the increase in rates theres been more money.

Raised by the providers of that an alternative forms so the alternative lending business right direct lenders and so there's more money in that space.

Than there ever has been.

And I think people tend to project forward shimmy.

Short end of the curve and if you look at that activity and the growth of that activity even in the last rate rising cycle those funds got bigger.

Because.

People are looking for yield people will continue to look for yield for the foreseeable future and the providers of that capital will fall over themselves to get that money deployed so.

Still a very robust market and we're seeing it because the number of mandates and the increased pitch accounts again every time the equity market has a little bit of a hiccup everybody looks to the debt market to get themselves financings. So we've seen it in an increase in the number of mandates. So far this year in 2022 and the pitch count the inbound requests.

For us to come and pitch those capabilities has increased meaningfully.

Great. Thanks.

Great.

Thank you. Our next question comes from Stephen Ju with Wolfe Research you May proceed with your question.

Hi, Thanks for accommodating the follow up.

Jeff You did maybe you didn't give much airplay two monetization plans for non core assets I was hoping you could just give an update on <unk>.

Planned IPO of healthcare royalty partners and any other planned monetization, especially in light of some of the recent volatility that we've seen.

Well, so I think we mentioned I think sitting in Africa, we mentioned that there was a.

Meaningful structural change in what we're doing hopefully this year and link them.

The announcement of the split of the retail operations away from the network.

I think theres a good pre stage two ultimately realizing value from that investment, which I know for those of you that have been calling shareholders for a while it's been a long time coming you also I'll remind you like we don't control the timing on that I'm just looking at the fact that we're finally, reaching a point here and which.

The <unk> build out has occurred there is a real structural change in terms of the way the business is running and our partners at Jefferies.

More inclined to pursue the monetization path I think than they have been again by their own.

You look at their own Investor day deck. They say the same thing. So that makes you feel good about the probability of that happening at some point this year.

As far as healthcare royalty partners is concerned.

We're continuing to work through that.

And if you look at.

The demand for what they're doing again, it's the same thing we're seeing any in the banking side of the business. They have been focusing on on growing their asset base say so.

When they could.

Good public.

In the middle of the year, they went back to simply putting more money to work and raising a bunch of capital inside pocket vehicles.

Ultimately that where they can deploy that capital and that's that's actually part of the driver of our future performance I think that they will at some point.

To look where it makes a lot of sense for this to be a permanent capital vehicle that just does.

And when that happens and how that happens.

Again.

I think it is market dependent but my sense is the value to Cowen doesn't change.

It's still highly.

A very valuable franchise for us it is not.

Totally recognizes you all know that the investments we have in our asset managers are not on the balance sheet.

And so we will continue to work with them to figure out when the optimal time is to access the public markets. If that's the right thing to do.

But in the meantime, what is going to continue to grow the business because the demand, especially in our.

In an environment, where equity financing is expensive.

Given the values of some of these companies.

They'll continue to do business. So we remain really constructive on that and my hope is at some point.

We'll be able to tap the public markets. If that's the right thing to do to realize value.

That's great Jeff Thanks for accommodating a follow up.

No problem.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr. Jeffrey Solomon for any closing remarks.

Well look we appreciate everybody's time on this morning's call and we obviously appreciate your support we look forward to.

Following fall.

Following up with you on our next quarterly earnings call and we really hope that you will join us for our Investor day.

Where we will.

I'll be hosting on May 19th So please put that on your calendars.

I'll spend a lot more time going in depth dialogue.

Topics that we covered today spend much more time on strategy and value unlock strategies or cowen in the future.

We do encourage you to sign up for that so until next time.

Be safe be healthy and good luck.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2021 Cowen Inc Earnings Call

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