Cowen Inc (COWN) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining the Cowen Group Incorporated conference call to discuss the financial results for the 2011 first quarter. By now, you should have received a copy of the Company's earnings release, which can be accessed in the Cowen Company's Incorporated website at www.cowen.com. If you do not have Internet access, and would like a copy of the press release, please call Cowen' Incorporated Investor Relations at 646-562-1880.

Before we begin, the Company has asked me 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 risks and uncertainties described in the Company's earnings release and other filings with the SEC. Cowen Group Incorporated have no obligations to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the Company's filing with the SEC, which are available on the Company's website and the SEC website at www.sec.gov.

Also on today's call, our speakers will reference certain non-GAAP financial measures which the Company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the Company's reconciliations as presented in today's earnings release.

Now I would like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.

Thank you, Operator. Good morning, everyone. And welcome to Cowen Group's 2011 First Quarter Earnings Call. I'm joined here today by Jeff Solomon, our COO and Head of Investment Banking; along with Steve Lasota, our Chief Financial Officer; and Pete Poillon, Head of Investor Relations and Corporate Communications. Later in the call, Jeff will take you through our individual operating businesses in detail, followed by Steve who will discuss our first quarter results.

I'm pleased to report we recorded our second consecutive quarter of positive economic income, as we generated $7.2 million of earnings during the quarter, which compares to an economic loss of $11.1 million in the prior year period. Later in the call, Steve will provide greater detail around the drivers of the improvement and economic income. And as many of you have probably already seen, we have issued our press release with more details on the earnings.

As we have discussed in detail during the past calls, 2010 was a year of positive change for the Company, and we're building on the momentum we gained at the end of 2010 to drive results into this year and beyond. Last year, we identified a number of important initiatives across the firm, and we are beginning to demonstrate our ability to successfully execute on those -- [inaudible - music playing] on those initiatives. The firm has been able to generate positive momentum over the last six months as the transition of old Cowen to new Cowen has accelerated.

At Ramius, we are pleased to report that assets under management increased for the fifth consecutive quarter and we will supply some of those details later on, also. We have positioned the Alternatives platform to continue to gain traction with areas of growing domestic demand, we've launched new funds and products focused on replication and commodities trading, and for our established products, we are beginning to see the true performance as they move beyond their high watermarks.

At Cowen and Company, our product capabilities in our Capital Markets Department deepened client relationships and we increased coordinated offerings between banking capital markets sales and trading. And we have a much broader footprint, as Jeff will talk about, than old Cowen did one year and one-half ago. Alignment and cooperation between these units are helping us to win business in the partnership culture that we have worked hard to put in place -- is really starting to take hold.

Looking forward to the remainder of 2011, we still have some changes to make to optimize our platforms and continue to work to reduce fixed costs, but I'm confident we have a very strong team in place to deliver the best-in-class services and products to our focused client base.

I would also like to briefly discuss the proposed merger with LaBranche, which we announced in February. Since our last call, we have filed our proxy materials and, in fact, the joint filing went effective on Wednesday. Shareholder meetings staged to vote on the merger have been established for June 15th. And we are in the process of mailing our proxy to both sets of shareholders, as we speak.

For a number of reasons, we believe this is a compelling transaction and stands to improve both organizations. First, we believe the combination will strengthen our already well-established sector focused sales and trading businesses. LaBranche has made substantial progress in their development proprietary IT and electronic trading systems and technology, and we believe that we can leverage with Cowen's existing customer-driven equity and derivative sales and trading capabilities -- that technology --they're producing more business. By increasing our electronic trading footprint, we will be also be able to accelerate our efforts to serve clients in areas like listed options and global ETF executions. The combination also pairs LaBranche technology with Cowen's fundamental research product and distribution network in a way that's expected to make both platforms more profitable.

The transaction allows us to more quickly expand Cowen's capital markets activities in Asia by leveraging LaBranche's licenses and Hong Kong exchange membership. We have been increasingly active in providing financing to Chinese domicile companies and the Hong Kong exchange license will provide additional options to our Chinese clients to list shares in the US exchanges or the Hong Kong exchange or both.

Beyond the synergies just described, we believe it has significant financial benefits. As many of our shareholders already know, Cowen has a long track record of investing the Firm's capital profitably. And a significant portion of LaBranche's excess capital would be available to be invested by Ramius professionals, similar to Cowen's capital base. And we expect to earn very good risk-adjusted returns, well in excess of LaBranche's current returns.

In summary, we believe the combination will create a strong platform for growth. The combination creates diversified business with complimentary product offerings that are able to service the needs of the corporate, institutional client framework that we service. Additionally, the organization will be well-capitalized with the ability to respond to industry developments, addressing evolving client needs and pursue strategic acquisitions.

One last thing I would like to mention, before I turn the call over to Jeff, and this is for clarification purposes, more than anything else; in the fourth quarter call -- or on the fourth quarter call, we announced that we would spin-off our Value and Opportunity business and that was completed on April 1st. There seems to have been some confusion on the reasoning behind the spin-off so let me take another shot at describing the circumstances as simply as possible.

This strategy was one of our strongest performing strategies but only had about $250 million of assets under management at the time we made the decision to spin it off. It had been a larger strategy in the past, as it was fed from our multi-strategy portfolios, but since we are exiting the multi-strategy business, those portfolios necessitated bringing down that portfolio. And that's why it was the size it was.

In marketing the fund, which we are doing for the first time -- directly marketing fund, we were receiving resistance from large institutional fund managers and state pension funds and the like, because of the perceived conflict of an activist investor being owned by a broker-dealer. On the flip side, our investment bankers were hearing concerns from clients and potential clients about our affiliation with an activist fund. So we made the decision to reduce our ownership to a minority position. The economics resulting from taking this action -- the economic diminution is insignificant, far less than you might expect, but I won't and I can't get into the specifics. However, the opportunity to raise assets under management -- under this arrangement is far greater.

Again, let me just emphasize -- we had large number -- very large institutional mandates standing at our doorstep but concerned about the conflict and we said, we will fix the conflict. We have done that. We already had success. We closed on $125 million from a state pension fund yesterday. We expect to see additional similar large or even larger mandates in the future.

So it simply came down to an analysis comparing owning a somewhat larger percentage of a smaller pie versus owning a slightly smaller percentage and having a much larger pie. And the economics to shareholders we believe far favor the latter and that's what we did.

And I know I have gotten some comment about, why did we sell it, why did we spin it off? I tried to make that clear. For some reason, I haven't done a very good job. I hope everyone now understands what we did here. We did not substantially change the economics, but we removed the perception of a conflict. And our ability to grow the asset base is substantially enhanced and this will be a much bigger fund this way, than it was ever going to be the way it was.

With that, I will turn the call over to Jeff Solomon who will discuss our business in greater detail.

Thank you, Peter. First, as Peter mentioned, our operating businesses are beginning to gain momentum. I would be remiss if I didn't start off by thanking the folks who are making it happen every day in both businesses. We have taken the time to hire and retain the right people and it is showing up in results, and that's very exciting to all of us.

I will begin by discussing some of the recent developments at Ramius, our alternative investment management group. As compared to the start of the year, we recorded an increase in assets of approximately 8% or almost $700 million. This increase was largely driven by net cash inflows into our cash management and alternative solutions platforms. It is an impressive quarterly increase, but it should be noted that both of these platforms generate lower fee revenues than our more traditional hedge fund strategies. As a result, our average annualized management fee decreased to 61 basis points during the quarter, as compared to our average management fee of 65 basis points in the prior year period.

While it is not yet reflected in our numbers, we believe we are making considerable progress in attracting new assets to some of our higher fee paying funds, as Peter mentioned earlier. Once these mandates are funded, we expect that our average fees will begin to increase over the course of the year.

Aside from cash management and alternative solutions, the global credit and devalued strategies also grew assets but at a more modest pace. We also reported positive incentive fees for the third quarter. During the first quarter, we earned incentive fees of $5.2 million, as compared to $2 million in the prior year period. The increase in incentive income was a result of our strong performance combined with the fact that all of our ongoing Hedge Fund Performance D products are now incentive fee eligible, with the exception of $48 million in assets belonging to investors who transferred their high watermarks over from our multi-strategy funds.

We had good performance across most of our funds during the quarter,with notably strong performance in our Deep Value Fund, which increased 7.5% during the period, and our Global Credit Fund which increased 4.4%. To give you a benchmark, the HFRI fund-weighted composite index was up 1.6%, and the Merrill Lynch High Yield Master II Index was up 3.9%.

We continue to focus on marketing our existing investment strategies and have built a solid pipeline. To remind you, we have two primary marketing channels through which we distribute products. The first is our institutional and family office network, and the second is our financial intermediary platform, which focuses on high net worth individuals. From our institutional clients, we currently have over $550 million in mandates that have been awarded but were not included in April 1st 's assets under management numbers, including $400 million mandate from an Australian asset management firm that we noted on the last call, as well as $125 million mandate from a state pension fund that Peter referred to earlier. As Peter mentioned, the $125 million has now been closed and is being funded as we speak.

Our efforts to grow our presence in the high net worth distribution platforms have also begun to bear fruit. Our Deep Value Fund was recently selected to be a part of the Morgan Stanley Smith Barney Alternative Investments Platform. And we expect to start receiving related cash flows in the near future, possibly this quarter. This is a very important step in our ongoing efforts to expand Ramius' presence in the platform distribution space.

Concurrent efforts covering other global high net worth platforms are at various stages of progress, with a focus on distribution of deep value, our replication product, Ramius trading strategies, which is our CTA product, and our credit products. Remember, we only began the process of positioning these funds for distributions about 15 months ago , so the efforts made by our marketing team to reach this point have been quite impressive. And we hope that we will be discussing our success with you in the quarters to come as our efforts begin to show progress through AUM growth.

A key area for Ramius will be our ability to continue to offer products determined to meet client needs and offer attracted risk adjusted returns. We were successful in this regard last year and I believe we can continue to be successful and show similar progress in 2011. As such, we have been working on -- to develop other products based on our already existing set of strategies and we will be bringing you up to speed on those in the quarters to come.

Turning to the real estate area; our managed real estate funds have showed quarter-over-quarter increases in portfolio valuations as the overall real estate market has continued to steadily improve. We feel this modest recovery in commercial real estate has led to the potential opportunity to capture those -- ability to raise additional funds, in both our existing fund investments, as well as new fund offerings. And we will be talking about that later on in the year as well. And we have also seen an increase in assets under management at Cowen Healthcare Royalty Partners during the first quarter.

I would now like to turn to Cowen and Company, our investment bank. Following the strong fourth quarter, our investment banking department recorded a similar first quarter. This is a very positive accomplishment, given the strong flow of transactions that came through the pipeline before the year end 2010, and reflects considerable efforts made by our team, a repositioning of our capital market capabilities, as well as a favorable financing environment.

During the period, we closed a total of 16 transactions across all products, generating approximately $15 million in revenues, as compared to revenues of $6 million from a total of nine transactions in the comparable prior year period. The increased activity was driven primarily by our global capital markets areas, which completed 14 transactions, as compared with five transactions in the primary year period. We acted as a lead manager on three transactions during the quarter, which nearly matches the amount of lead managed business we completed in all of 2010. We also continue to maintain a strong pipeline of mandated transactions, and a strong pipeline of what I like to call our shadow transactions.

In the past quarters, we developed a number of transactions in our current mandated pipeline. And while the mandated pipeline may be a decent predictor of future -- for future M&A and IPO activity, it's not necessarily as reliable for many of our other products including follow-on offerings, PIPEs, register directs, wall cross offerings, convertible debt transactions and credit transactions. These types of transactions frequently occur with minimal forewarning and get completed within a short time span.

We do pay close attention to our shadow backlog, which tracks the transactions that we believe we have a decent probability of winning. We find this internal metric to be a more comprehensive gauge for future capital market activity levels. And in fact, in the first quarter, approximately 50% of our financing revenues were not in our mandated backlog when we last reported but rather came from the shadow backlog. As stated, both mandated and shadow pipelines look strong at this time.

I'm happy to report that we are making headway in our recently established credit fixed income group. It closed it's first transaction in the first quarter and has several more transactions in the pipeline. Also, we completed one registered direct transaction in the first quarter. And, again, there had have been several other transactions in the pipelines. And while it's gratifying to achieve deal first in the in fixed income capital markets and the register direct, most importantly, we are able to pitch our clients far more holisticly than we have been in the past.

In 2009 and most of 2010, Cowen had limited capital market capabilities and was only able to offer investment banking clients equity financing based products. Today we offer a more comprehensive array of financing and advisory capabilities, very similar to the [bald bracket] firms but for a far more focused target clientele that will benefit significantly from the attention we can give from our entire organization.

As I said before, in 2011, we are going to be focused on taking market share in our sectors and ensure the momentum created by our recent initiatives to improve the profitability of our banking business continues. We will be opportunistic in hiring skilled professionals , and enter and strengthen our presence in verticals where we believe we can add value to our clients for the firm.

Turning to our sales and trading business; cash equity volumes remained low in the first quarter, with aggregate New York Stock Exchange and NASDAQ volume down 9% from first quarter of 2010. We fared somewhat better than the general market, having experienced a 7% year-over-year decline inbrokerage revenues. We think as the cash equity business will continue to face challenging times, as commission stage of the Street will continue to come under pressure, our strategy for improving our results is focused on establishing a presence in businesses that can leverage our world-class research products and our non-comp fixed cost structure while exhibiting a variable cost structure that will ramp with revenues.

Recall that in 2010, we strategically entered new businesses to decrease our dependence on the cash equities markets, but gives use additional ways to get paid for our well-regarded research product. We increased our presence in the options, convertible, and equity derivatives markets and hired a team focused on fixed income distribution. These efforts are getting underway, as we are opening accounts and introducing capabilities.

In the meantime, the presence of fixed income and convertible sales and trading have already paid dividends, as we were able to complete one exchange offer in the first quarter, and have been mandated on several other fixed income transactions. This is a great example of how our entire organization, from sales and trading, capital markets and investment banking, can work together to help produce results.

Throughout 2011, we will continue to direct resources to businesses to diversify our platform, such as high frequency option trading, ETFs and electronic market making. This is one of the important synergies that the LaBranche merger brings to the organization. We expect that our expanded footprint will help to offset the weakness in the cash equities market. And we look forward to updating you on our progress in these areas as they begin to take shape later in the year.

As we stated on previous calls, we remain focused on aligning our resources throughout the firm to ensure we can deliver the entire firm to our clientele. To that end, we have been recruiting to add capabilities to our research team. This year we added four senior research analysts, two in Life Sciences to focus on our emerging company research platform in that vertical, one covering Healthcare IT, and one covering Healthcare in China.

In banking, we are also pleased to announce the addition of two senior bankers in Life Sciences, who along with our existing team, we believe will make significant impact in our advisory business and health care. Our focus in healthcare, which is a particularly strong franchise for us already, reflects our desire to serve clients for whom we can matter a great deal. You will continue to hear more about our alignment in other verticals in the weeks and months to come.

Finally, I would like to turn to our balance sheet. And this is an area where we believe we can differentiate ourselves, not only from our peer mid-sized investment bank, but from the Street in general.

We utilized a significant portion of our capital base as a merchant bank to facilitate growth of our operating businesses. In doing so, we invested the Firm's capital to generate attractive average annualized returns on our invested capital, historically. This was evident again during the first quarter of 2011, as we earned $16.7 million in investment income from our trading and merchant Banking strategies, representing a compounded annualized return of approximately 20% on average invested capital during the first quarter. The increase to investment income was driven by improved performance across certain investor strategies within our investment portfolio, particularly the concentrated public equity portfolio, our credit portfolios, our deep value funds and the global macro strategies.

Cowen's capital investment strategies range from trading strategies such as macro credit trading, event driven, convertible arbitrage, which as March 31st represented about 55% of the portfolio in the aggregate, to merchant banking like strategies such as PIPEs, private investment, healthcare royalties, which represent about 35% of the portfolio in aggregate. As you all know, we also invest in real estate, debt and equity strategies and that represents about 10% of the portfolio as of March 31st .

We believe our balance sheet is conservatively invested and well-diversified across asset classes and strategies. On a blended basis, our trading strategy investments were only levered about two times at the end of the quarter. And as we've stated on previous calls, our merchant banking strategy investments remain unlevered.

I will now turn the call over to Steve who will provide an overview of the results for

Thank you, Jeff. During the first quarter of 2011, we reported GAAP net income of $82,000 or less than $0.01 per share, compared to a GAAP loss of $13 million or $0.18 per share in the first quarter of 2010.

In addition to our GAAP results, Management utilizes economic income to analyze our performance. We believe economic income provides a more complete view of the business by excluding such items as the impact of consolidating our funds and expenses associated with one-time equity awards made in connection with the November 2009 Ramius Cowen transaction. Economic income in 2011 also excludes $2.8 million in acquisition-related expenses such as legal, consulting and banking fees associated with the proposed acquisition of LaBranche and other reorganization charges within the Alternative Investment Management business.

For the three months ended March 31st , 2011, the Company reported economic income of $7 million or $0.09 per share, compared to an economic loss of $11.1 million or $0.15 per share in the prior year period.

If we adjust economic income to exclude certain non-cash items, including depreciation and amortization, share-based and other non-cash deferred compensation expense, and our real estate incentive fee gain or loss; economic income for the first quarter of 2011 was $12.3 million, compared to an economic loss of $6.5 million in first quarter of 2010.

Our aggregate first quarter economic income revenues increased by 29% to $79.7 million from the prior year period, primarily due to increased investment banking fees, investment income, and incentive income.

I will spend a little time discussing each of the economic income revenue line items. Investment banking revenues were $14.7 million during the quarter, more than double first quarter 2010 banking revenues of $6 million. The increase in fees was principally driven by our equity underwriting product, which generated $11.3 million for the quarter, its highest level since the second quarter of 2007. We completed 12 equity underwriting transactions, including three lead managed transactions. In the prior year period, we completed four equity underwriting transactions, generating $1.4 million in fees.

In our other global capital market areas, we generated an additional $2.4 million from one private placement transaction and our first debt capital markets transaction. Comparatively, during the first quarter of 2010, we completed one private placement transaction, generating $600,000 in fees.

Finally, we reported M&A revenue of $900,000 from two strategic advisory transactions. In the prior year period, we completed four M&A transactions, generating $4 million in fees.

Moving to our sales and trading business. Revenue decreased by $2.3 million, or 7% to $27.6 million, compared to $29.6 million in the first quarter of 2010. The decrease was purely volume driven, as Jeff discussed earlier.

On the Alternative Investment Management side of our business, we recorded management fees of $14 million in the first quarter of 2011, an increase of $1.4 millionor 11%, as compared to $12.6 million in the first quarter of 2010. The growth in management fees was primarily due to an increase in our average assets under management, which grew by approximately $1.5 billion or 19% year-over-year.

On a blended basis over the quarter, our annualized average management fee was 61 basis points. This compared to a blended annualized average management fee of 65 basis points in the prior year period and 61 basis points for 2010 full year. The year-over-year decline in our annualized average management fee was primarily related to a change in the mix of assets under management over the two periods , as we have significantly increased AUM and our alternative solutions area, including advisory services and our cash management area. The decline also reflects fee reductions on uni-credit assets based on the July modification agreement.

We reported incentive fees of $5.2 million in the first quarter, a more than twofold increase compared to fees of $2 million in the first quarter of 2010. The increase was due to our strong performance in the first quarter across our incentive fee eligible products, including the global credit funds, our real estate funds, and the deep value funds. Additionally, strong performance over the past year has also lifted many investors above high watermark thresholds. And as such, a greater percentage of our funds are now incentive fee eligible.

We recorded investment income of $17.2 million during the quarter, compared to investment income of $11.4 million in the first quarter of 2010. The increase in investment income during the current quarter was principally driven by our trading strategy portfolio, including our concentrated public equity, credit, deep value, and global macro investments. In aggregate, our trading strategy portfolio contributed to approximately 90% of the investment income in the quarter.

Additionally, many of you will recall that we reported investment income of over $36 million in our fourth quarter 2010. Those results were heavily impacted by the closing of two Luxembourg reinsurance programs that generated significant income in that period.

We caution investors that our investment income line can vary from period to period, dependent on the number and the size of such deals closed in a period, if any. While we do believe that we will close similar deals from time to time in the future, the timing and the financial impact of such deals is not predictable. We did not close any such deals in the first quarter of 2011 or 2010.

Turning to our expenses; we reported an aggregate compensation to revenue ratio of 54% for the quarter, compared to 67% in the first quarter of 2010, and 68% in the full year of 2010. The decline in the comp-to-revenue ratio was obviously driven by the increase to the denominator of the equation, as our revenues are up 29%, as mentioned earlier.

Additionally, our corporate-wide average headcount for the first quarter 2011 is down about 4% from first quarter 2010. I expect that our headcount will increase throughout 2011, as we continue to selectively and strategically hire in an effort to drive revenues into the future.

The comp-to-rev ratio, as well as economic income, excludes one-time equity awarding expense from grants made in connection with the Cowen Ramius transaction of $3.9 million and $2.1 million in the first quarters of 2011 and 2010, respectively.

Total non-compensation expenses in the first quarter declined by 8% to $30.5 million, compared to $33.3 million in the first quarter of 2010. Our non-compensation expenses in the first quarter exclude $2.8 million in acquisition-related expenses, such as legal, consulting and banking fees associated with the proposed acquisition of LaBranche and other reorganization charges within the Alternative Management Investment business.

Our fixed non-comp expenses amounted to $21.6 million in the current quarter, down 12% from $24.5 million in the first quarter last year. Reducing fixed non-comp expenses is an important initiative for Cowen and we made significant strides firmwide. Companywide, fixed expense reductions were achieved in IT, data-providing services, and trade-related expenses, as well as the consolidation of most of our New York office space.

Although economic income is a pre-tax measure, I also want to briefly discuss our tax position. Cowen has a full valuation allowance against its net deferred tax assets at the end of the 2011 first quarter, part of which was made up of net operating losses of approximately $110 million. As a result of the NOLs, we did not pay any taxes in the United States in the first quarter, but our foreign operations incurred taxes of $200,000.

Finally, turning to our balance sheet. Our stockholder's equity amounted to $456.6 million at March 31st. And our book value per share was $6.04, up from $5.95 per share at December 31st, 2010.

Tangible book value per share, which is a non-GAAP measure, was $5.52 per share, up from $5.42 per share at December 31st , 2010.

I will now turn the call back over to Peter

Thanks, Steve. Well, I think -- everyone probably gets the picture that a lot of what we talked about last year, the programs we implemented, the reduction and recasting of our overhead into more productive areas is beginning to pay off. We are all in this industry, somewhat environment bound and -- but the environment definitely has gotten better. And let's hope it stays that way.

But let's turn this over to questions now, and see if any of you have things I can enlighten you about or enhance what we just said.

Thank you. (Operator Instructions). Your first question comes from the line of Ted Holzman from Sandler O'Neill. Please proceed.

Hi, guys.

Hi, Ted.

You did a good job of controlling the comp ratio in the quarter? Is this a function of the revenue mix? Or how sustainable is the low rate, going forward?

It's a combination of revenue mix and the growth in the denominator. And that we did a pretty effective job at reducing headcount last year so that people here are, on a per capita basis, more productive.

Great.

It's no one thing. It's a combination of things. It will fluctuate based on the mix of revenue.

Ted, we do expect that we may hire some people that -- the revenue generation may take a little bit. So the comp-to-rev ratio may increase but not much.

Yes, let me just reiterate -- last year, we had about $18 million of comp expenses that went through the P&L relating to salaries of people who are no longer here, severance payments, and stock-based comp write-offs of people who left. At the same time, we had about $7 million of expenses last year in the comp line, relating to people we brought in over -- really kind of the second half of the year. So we didn't really see the productivity of those people in the revenue numbers. So there's $25 million of expense last year that relates to retooling this place.

Okay. Great. And then on the investment banking side, you noted that your pipeline is strong; but can you quantify that in any way? And then when you think about that backlog, how much of it is sensitive to market conditions versus what will probably get done regardless?

I don't think we actually quantify numbers in our backlog. I can't really give you specifics. What I can say is that the amount of equity underwritings in PIPEs has increased, in the mandated backlog. And what I would say is the activity around some of the areas that we focused on has increased significantly.

We have done a couple of transactions, I would certainly -- I would point you to the ones that have been announced in April, to give you a sense as to the kind of activity. I think on the last call we talked about the lead managed deal we did for a Company called Exelixis. In March, there's been a spill-over effect on that. It was a great execution on behalf of our team. And what we are seeing is reversed inquiry and a lot of referrals that are coming off the back of that success. And you can see it show through by just the amount of inbound calling. So it's been healthy, is about all I can say.

It's definitely market dependent. I think if we go through a protracted period here of a down-trending market, or we have anything that increases volatility significantly, I -- that could be impacted. But what I would say is, the companies that we are focused on primarily, they need to do financings and so these are things that will invariably happen -- if they happen next quarter or the quarter after next. We are focused on companies that need to get stuff done irrespective of market conditions.

Okay. Good. And then it sounds like the asset gathering for the value and the opportunity fund is going well. But when you say the economic impact is modest, is that assuming that you gather more assets? Or is that on the current assets that you have now?

It's fairly modest on the current assets we have now. And the -- if we grow the fund to where we think we can -- the economics, while not as big as they would have been, but we -- but again, we wouldn't have grown to the size we expect to get to, because of this perceived conflict -- dwarfed our current economics, in terms of absolute numbers.

Okay. And then my final question, it looks like the RTS Global 3X fund was down a bit in the quarter. Is this anything that you can attribute to that?

Volatility in the commodity markets.

Okay. Thanks, guys. Congrats on the good quarter.

Your next question comes from the line Joel Jeffrey from KBW. Please proceed.

Good morning, guys.

Hi, Joel.

Peter, I think you said in some of your opening comments, that you think there's room for future cost savings on the non-comp side. Can you give us a sense of where you think those cost savings could come from? And any sense of how big they could be?

It's hard for me to guess how big they could be. As we grow the business, and as Steve pointed out, we will be selectively continuing to hire people and then those people will require support. But as an example, we think that integrating the LaBranche technology is going to help us lower execution costs. We still lug some expenses in marketing related to the wind-down of our multi-strategy funds in client service. So we're not nearly as efficient there as we could be.

So at this point, it's --there's small amounts spread all over the place. So I wouldn't expect really significant declines. I can't even say that we have any excess space at this point, because having consolidated everyone from 1221 Sixth Ave on the production side at Cowen over to 599 Lex, we are packed like sardines now. We are actually running out of space. So while we still have some legacy space over at 1221 Sixth Avenue which goes to 2013, whatever we save there, we will be spending -- we will have to take space to accommodate the growth that's going on.

And the -- we are in the process of doing a data center conversion that -- a lot of those expense reductions will come through in future quarters.

Right now, it's really more about revenue driving and deployment of capital, I would say, than it is about major gains from expense reductions.

Okay. Great. And then that's a nice segue into my next question. Clearly, equity volumes are weaker this year than they had been last year. And it sounds like you guys are expecting them to continue to be relatively subdued going forward. Are you hearing any specifically from your clients as to why they are either staying out of the market or are they switching to different products?Any commentary there?

Sure, we are hearing things from our clients. One of the things they are saying is they value our research, but they are also saying that their wallets are smaller than they used to be. And I think that's a function of the fact that there's not as much trading going on. I think you can follow fund flows and have a sense as to what's happening. We think there's a fairly significant amount of cash, believe it or not, that is on the sidelines and missed this rally over the last 15 months -- in equities, in particular.

But one of the things we are absolutely seeing is the share of all that's going through electronic trading. And there are a number of our clients who just don't do as much in cash equities as they used to. Because it's far more efficient for them to trade electronically. These are direct market access, algorithms and things like that. And what you are seeing us do is develop a capability there to really go after that share of the wallet that currently we don't address much of. And so that's our answer to that.

The other one is; we think that the growth in listed derivatives is still evident. There are a number of accounts that are beginning to use -- or growing in ETFs and listed options as a way, either to hedge their portfolios if they are hedge funds, or as a way to gain market share if they are larger institutional accounts. And so what you are seeing us is -- build up our capabilities in those areas to address a bigger share of the wallet.

Great. And just lastly, can you just remind us again how much excess capital you expect to get from -- after the LaBranche deal closes?

Well, I don't think we have ever said that we expect to -- quantify a number of excess capital. Of LaBranche's net worth, there's a certain amount that will be needed to support the ongoing businesses. It's not terribly significant, relative to the overall capital base of LaBranche. And we expect the balance of the capital to, over time, get deployed and levered across our asset management strategies. And then to -- basically, to seed new asset management strategies and take advantage of the opportunities that we come across as we are managing fiduciary money -- which is what we have done our entire history. But we've never actually tried to quantify what the excess capital would be.

And suffice it to say, as Peter mentioned, the amount of capital required to support the existing businesses there -- we have a pretty good handle on that. The vast preponderance of it will be available for us to invest.

Great. Thanks for taking my questions.

(Operator Instructions). Your next question comes from the line of Logan Sugarman from Midsummer Capital. Please proceed.

Hi. Yes. How is it going, guys?

Good, how are you?

I think the economic results look a lot better than the headline numbers. I was wondering if you could go through the major differences between the economic revenues and returns versus the headline GAAP numbers, just to kind of clarify for the Street. I know you guys went through them, but I think maybe the underline results are getting missed, potentially.

Steve, why don't you -- ?

Sure.

Just a handful of --

Yes. The best place to look in the press release is when we do that -- we do our reconciliation from GAAP to economic income. But just quickly, we talked about the transaction-related expenses, so they're expensed to GAAP. We don't include those in our economic income. We have equity awarded -- the one-time transaction -- as a result of the Cowen Ramius 2009 transaction is $3.9 million. So it's mostly that -- those two numbers; $2.8 million for reorg expenses and the $3.9 million for the one-time transaction costs.

Okay. Great. Thank you, guys.

One of the things that we don't highlight enough, but it's a metric I look at is -- when you take economic income and non-cash charges, what our cash generation in the quarter was, which is about $12 million. It's actually higher -- it's way higher than $12 million, it's probably in the low $20 million because we obviously have bonus accruals going through our income statement that won't get paid out until next February. So we have the potential now to really generate a significant amount of cash and a number well in excess of what we might have to pay out -- cash portion of bonuses next year. The way I look at, it I'm very pleased with our numbers.

Your next question comes from the line of [Christian Similar], Private Investor. Please proceed.

Hi, guys. Thanks for taking my question. You mentioned briefly the withdrawals of uni-creditor. Are these withdrawals now completed? Or do they still hold assets under management within one of the funds?

I didn't understand it. Can you repeat the question?

Sorry. You mentioned the withdrawals of uni-creditor. Are these withdrawals now completed? Or does any creditor still have assets under management?

Yes, they still have -- we still have some assets with us that will -- that we will be returning to them over the next year or so. It's roughly -- on the hedge fund side, it's roughly $150 million. And on the fund-to-fund side or alternative solutions side, it's about $40 million.

Okay. Thanks a lot.

The amount of assets left to be distributed back from our legacy business activities is relatively small at this point. Our inflows will far outweigh those withdrawals as we continue to liquefy and send out money.

At this time, I'm showing you have no further questions. I would now like to turn the call back over to Management for closing remarks.

Well, thank you all very much for participating. I can tell you we are very upbeat, as we look at how we are positioned today and compare ourselves to our peers in the industry -- that's kind of a broad range of different types of companies. We see ourselves in an incredibly strong position. We think we have more tangible hard book value than anybody else in the industry per employee -- important metric.

We are the least leveraged firm in the industry. Or at least on par with one or two other firms who have diminimus leverage. So our opportunity to deploy capital, post LaBranche, even as we are today, but certainly post LaBranche and grow certain parts of the business is significant. Obviously challenging in this environment. But we made a lot of progress and we are just -- we are feeling pretty good about where we are going.

So with that, I thank you all. Wish everyone a happy weekend -- great weekend, Happy Mother's Day. And we'll be speaking to you in three months.

Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.