Cowen Inc (COWN) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining the Cowen Group, Inc., conference call to discuss the financial results for the 2013 third quarter. By now, you should have received a copy of the Company's earnings release, which can be accessed at the Cowen Group, Inc., website at www.cowen.com.

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 the risks and uncertainties described in the Company's earnings release and other filings with the SEC. Cowen Group, Inc., has no obligation 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 filings with the SEC, which are available on the Company's website and on 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 reconciliation 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 go ahead, sir.

Thank you, Operator. Good morning, ladies and gentlemen, and welcome to our third-quarter earnings call. With me here today are Michael Singer, CEO of Ramius, and Jeff Solomon, CEO of Cowen, and Steve Lasota, our CFO, and a few other people.

I am very proud to report a profitable third quarter, another record revenue quarter since the Cowen/Ramius combination, which really took place four years ago this past Monday. These results, in spite of the environment, reflect a lot of hard work over the recent years to transform ourselves into a firm that can be successful in the current market environment.

Four years ago when we merged Ramius into Cowen, both businesses were facing headwinds in their respective areas that required significant transitions in order to make them competitive. Today, Ramius is back to being in excess of a $9 billion alternative investment management platform and is growing. It's comprised of seven different unique [outcomes] providing investment capabilities, selling into several different distribution channels. Ramius so far this year successfully raised $1.2 billion in assets and has launched several new products.

Today, Cowen and Company has become a leading provider of equity research on US equities and investment banking advice for emerging growth companies. Over the past year, we have continued to gain market share in our equities business and have invested, we believe, intelligently in our research franchise, which will match many of our larger peers by year-end in terms of number of stocks under coverage.

In addition, our investment bank is becoming a leading equity underwriter and a leading private placement agent in private high-yield offerings in our core industries.

Here are some financial and operating highlights from the third quarter. The firm reported economic income of $3.7 million in the quarter on economic revenues of $92.1 million. This compares to third quarter of 2012 when we reported an economic loss of $8.9 million on revenues of $66 million.

At Ramius, AUM grew by $234 million in the quarter and $1.2 billion during the year. Ramius launched two products in the most recent quarter and six products so far this year. Mike will provide you with an update on the Ramius business and the details behind all that in a few minutes.

Cowen and Company, our broker dealer, had another record revenue quarter in the investment banking sales and trading businesses. This past year has been a favorable capital-raising environment, and that allowed our strengths to shine in both equity and debt.

On the sales and trading side, we continue to make inroads with accounts who find value in the services that we provide and we continue to move up in the broker boat. Jeff will discuss these things with you in a few minutes.

On the expense side, we continue to keep expenses under control, while assuring we do not constrain future growth opportunities. In the quarter, total non-comp expenses rose by a moderate amount year over year, primarily due to acquisitions which were in the third quarter, didn't exist last year, and an increase in variable costs, due to a 40% increase in revenue.

Turning to our balance sheet, we ended the quarter with $511 million in equity, of which $407 million was invested. We generated $12.3 million in investment income, for a quarterly return of approximately 3% on our investment portfolio.

A strong capital base has been the foundation in the firm. This market environment remains very challenging for smaller, less well-capitalized firms to sustain themselves, and we think our capital gives us a very distinct advantage.

Our balance sheet continues to enable us to capitalize on a variety of opportunities that may present themselves and to invest in the future of both of our operating businesses.

Over the past year, we continued to buy back stock as we saw the opportunity to do so at a discount to book value. Since June 2011, we have purchased approximately $25 million worth of stock in the open market, pursuant to the share purchase program that our Board put in place, and an additional $11 million worth of stock from employees to settle tax obligations on vesting shares. Our average price on these purchases is 200 -- $2.82.

We will continue to repurchase shares intelligently, even as we have seen an increase in our share price. And to that end, we announced today that Cowen's Board of Directors approved a $15 million increase in the share repurchase program, which brings the total availability under the program up to $25 million, which is higher than it has ever been since we started the buyback program.

And just a note on that, we will, as we always have, balance our investment opportunities with our balance sheet and into the businesses and our cash flow with the buyback so that we remain in a very healthy capital position, while we continue to work at shrinking the capitalization intelligently.

Finally, in September of 2013, Ramius' legacy multi-strategy funds received a significant distribution from Lehman Brothers International, LBIE, which was subsequently distributed to the funds invested in respect of the Omnibus Trust Asset claims held by our fund from 2008. As a creditor of LBIE, we proactively joined the unsecured creditors committee of LBIE, and in coordination with the administrator worked diligently, for five years, to a de novo solution that would ensure that our clients' assets would be recovered. The resulting distribution in September of this year from LBIE was a landmark event of Lehman's global bankruptcy, and our fund expects to recover in excess of 100% of the value of the claims registered in December -- in September of 2008.

This outcome for our firm and our investors really highlights what makes us different, we think, as an organization. I can think of no other fiduciary that would spend the kind of effort and money we did over a long time to ensure that 100% of the assets trapped as a result of the bankruptcy were returned to their rightful owners. I commend the efforts of our team for really making a difference on behalf of our clients.

And just a side note, many of our peers, basically, chose to sell their claims into the open market at cents on the dollar. Originally, these claims were trading as low as $0.20 on the dollar. We believe that we will end up returning probably close to 125% of the balances that were there on September 2008.

Lastly, I am gratified to see the progress we continue to make as a firm; however, in our business, we need to constantly assess where we are, where we want to be, and plan on the next forward move. We still have a long road ahead of us, and I want to take this moment to express my thanks and appreciation to all of my colleagues at Cowen and Ramius and Cowen Group, the parent company, for their hard work, not only for the quarter's performance, but for all their hard work over the last few years that allowed us to transform the firm to where we are today.

I will now turn the call over to Michael, who will talk about Ramius, our asset management subsidiary.

Thank you, Peter. I am pleased with the progress Ramius made in the third quarter on the initiatives we set out earlier this year.

As a reminder, they are, first, increasing AUM and revenues within our existing investment capabilities; second, reorganizing our sales and distribution effort; third, realigning our expense base; and fourth, creating bolt-on products for existing capabilities and recruiting new investment capabilities to our platform.

I will give you a brief update on each of these objectives. First, AUM and revenues. AUM increased from $8 billion at the start of the year to $9.3 billion as of 10/1. AUM growth in the quarter came from our alternative solutions business, real estate, and value activist capabilities. We launched several new funds this year, which enable us to further expand our AUM potential.

Management fees and incentive income collectively were up 14% year to date to $57.6 million, versus the prior-year period.

On the sales and distribution side, given our seven different investment capabilities, the various product constructs we offer, and the different types of investors we seek to address -- institutions, high net worths, mass affluents, we believe that a generalist/specialist marketing approach on the direct institutional selling side and a dedicated platform team on the other side is really the right approach. And it is producing results.

Regarding our expense base, we're on track to meet our 2013 expense savings goals. We have been paying careful attention to the expense line to ensure that we meet our objectives for the year. However, we note that management and performance fees will unlock our true earnings potential.

In terms of extending our product suite, we launched two new funds this year. So far this year, we've launched six new products and one new capability.

When we talk about creating bolt-on products to our existing investment capabilities, a good example of that is what we have done with the Ramius Event Driven Equity Fund, which we launched in October. This is our fourth alternative investment mutual fund. It is an actively managed alternative mutual fund that provides investors with data liquidity and exposures to a broad spectrum of transformative corporate events, including activism, merger arb, and special sits.

We believe this is the only alternative mutual fund with this particular equity event investment program. The early feedback from our marketing team and investors out there has been very positive.

Overall, we have made a lot of headway in the first three quarters of the year. AUM is substantially higher than a year ago, our revs are up, and we've reduced expenses. However, the real X factor is performance fees and the elasticity that will create in our P&L.

Of course, our greatest asset is our people. We have an incredibly talented group of passionate and motivated investment professionals. Our goal is to provide them top-quality institutional infrastructure, sales and marketing, and know-how so they can do what they do best, generate outstanding risk-adjusted returns.

I look forward to discussing Ramius' progress with you during our next quarterly call. I will now turn the call over to Jeff, who will give you an update on our broker dealer, Cowen and Company.

Thank you, Michael.

As Peter mentioned in his opening remarks, Cowen and Company reported revenue of $62 million for the quarter, another record since the Cowen/Ramius business combination in 2009. It is also the seventh consecutive quarter of sequential revenue improvement since the fourth quarter of 2011, where we reported $33 million.

We are a far cry from where we were three years ago, and the path to achieving this kind of success has taken some time; however, breaking even is not where we want to be, so we continue to focus on the things that will help us to consistently improve upon these results.

As most of you already know, our focus at Cowen has been to establish ourselves as thought leaders in our core industry sectors by providing our clients with unparalleled domain expertise, advice, and execution through a deep commitment to high-quality research and investment banking services.

Over the past three years, we have invested around our core competencies in capital markets and banking by building a broader product suite that we thought would enable us to provide a level of service to our clients we didn't think was being achieved by our competitors.

We knew that we had an outstanding research platform, and believed that by building upon that platform, it would prove to be a critical differentiator versus our peers. So we made targeted incremental investments within our research group, and we also made key leadership changes in banking, capital markets, equities, and research that have enabled us not only to chart a more certain strategic course, but have ushered in a new era of cooperation and accountability in our organization that is now the backbone for how we execute for our clients.

All of these actions were designed to get each of our divisions functioning in a manner that could leverage our strengths and align our resources more productively, so that we begin to put some distance between us and the others who claim to do what we do.

Today, we are starting to see evidence of those efforts. Now, our results have been buoyed by a more robust capital-raising environment, to be sure. Our franchise is positioned well to take advantage of these markets because we're in a much different place compared to where we were three years ago when we began these efforts.

Here are some highlights from the quarter. Banking revenue was $27.7 million. We closed on 28 deals across all of our product lines, compared to 15 a year ago. We completed 20 equity transactions, seven debt capital markets' transactions, and one advisory assignment.

The IPO market continued to be robust. We were involved in seven IPOs, where we were a book runner on two of them. Our debt capital markets' business continued to gain some real traction by accounting for almost 40% of our banking revenue, which is the highest level since we established that business in 2010. Collectively, our wins in debt and equity span all of our core sectors, healthcare, tech, consumer, energy, transportation, industrials, and metals and mining.

Brokerage revenue was $32 million for the quarter, the second consecutive quarter where we reported brokerage revenue greater than $30 million. This was a noteworthy result, given the traditional summer slowdown in equities against a broader decline in overall market volumes. For the year, our equities revenues have increased 20% year over year, compared to a 5% year-over-year decline in market volumes as a whole.

The gains in our equities revenue are due in part to our acquisitions, but also due to several other important operating factors. First is new client mapping tools and disciplines, which allow our sales and research to have a much more granular view into each of our accounts, which has enabled us to focus our efforts in areas where we can move the needle with each client.

Two, we provide more content and corporate access. Following the Dahlman Rose integration, which began in earnest in April, we are now delivering more content than ever. We have 42 publishing analysts and are on track to have approximately 750 companies under coverage by the end of the year. This compares to about 400 companies under coverage a year ago, and so, it's really been a remarkable improvement. Our number of corporate access events has also increased 28% year over year.

And the third is the integration of our algorithm and trading in securities lending businesses, two key acquisitions that have really helped to bolster our revenue significantly.

As a result, we've been able to establish greater relevancy to our commission paying clients. On this point, one of the best ways for us to measure our success in penetrating accounts is through the research [book], which Peter mentioned earlier. We have seen our position there begin to improve steadily. In fact, according to a third-party market research, we had the largest market-share increase among any peer firm in this survey, excluding the bulge bracket and electronic trading only firms. This market-share growth is a testament to our strategy of being able to make an impact, even when the overall market for equity volumes continues to be challenging.

While I am pleased with the performance of our banking and equities businesses in this environment, we take nothing for granted, and there are many areas for improvement. We continue to work hard to drive results. However, I hope it is evident that we are in a better position today than we have been in a long time.

To all of our colleagues at Cowen, I just want to let you know how proud I am to be a part of this team. While we have much more to do, through your collective efforts we have not only achieved our best operating quarter since the merger, but we've put ourselves in a position where we can win consistently.

With that, I will now pass the call on to Steve Lasota, who will give you an update on our financial performance.

Thank you, Jeff.

During the third quarter of 2013, we reported GAAP net income of $3.6 million, or $0.03 per share, compared to a GAAP net loss of $10.6 million, or $0.09 per share, in the prior-year period.

In addition to our GAAP results, management utilizes non-GAAP measures -- what we term as economic income -- to analyze our core operating segments' performance. We believe economic income provides a more accurate view of the operating businesses by excluding the impact of expenses associated with one-time equity awards made in connection with the November 2009 Ramius/Cowen transaction, certain other acquisition-related expenses and other reorganization charges, goodwill impairment. Economic income also excludes the impact of accounting rules that require us to consolidate certain of our funds.

For the three months ended September 30, 2013, the Company reported economic income of $3.7 million, or $0.03 per share, compared to an economic income loss of $8.9 million, or $0.08 per share, in the 2012 third quarter.

Third-quarter economic income revenues were $92.1 million, an increase of $26.1 million compared to $66 million in 2012 third quarter. The increase was in all revenue sources -- investment banking, brokerage, management fees, incentive fees, and investment income.

We generated $12.3 million in investment income during the third quarter, an increase of $3.2 million over the prior-year period. We ended the quarter with $407 million in invested capital.

On the alternative investment side of our business, we recorded management fees of $14.3 million, compared to $13.4 million in the prior-year period. Incentive income increased $4 million year over year to $5.7 million in the third quarter.

In our broker-dealer segment, third-quarter investment banking revenues were $27.7 million, an increase of 48% compared to $18.7 million in the prior-year period. We completed a total of 28 transactions across all products in the most recent quarter, compared to 15 transactions in the third quarter of 2012.

Brokerage revenue was $32 million in the third quarter, an increase of 41%, or $9.3 million, over the prior-year period. The increase in the current quarter was primarily due to acquisitions, as well as continued improvement in overall commissions and trading with customers related to the Company's electronic trading and cash equity businesses.

In the third quarter, we reported comp and benefit expense of $53.8 million, a 16% increase compared to $46.2 million in the third quarter of 2012. The increase was primarily attributable to an increase in headcount due to the acquisition of Dahlman Rose and others. For the quarter, we reported an aggregate compensation to revenue ratio of 58%, compared to 70% in the third quarter of 2012.

In the quarter, we incurred $1.4 million in comp expense for activities in which the Company gets reimbursed.

Moving to our non-comp expenses, fixed non-comp expenses in the current quarter increased by 5% to $25.4 million, as compared to $24.1 million in the comparable prior-year quarter. This was primarily due to an increased occupancy and depreciation and amortization cost due to the Dahlman Rose acquisition we completed during the first quarter of 2013, which were only partially offset by lower service fees.

Variable non-comp expenses were $6.9 million in the third quarter of 2013, up 20% compared to $5.7 million in the third quarter of 2012. This is due to an increase in floor brokerage and trade execution related to a general revenue increase in the Company's overall business, as well as two acquisitions completed during the second and fourth quarter of 2012 and one in the first quarter of 2013. The increased trading costs were in line with the increase in associated revenues.

While economic income is a pre-tax measure, I would like to briefly touch on our tax situation. After the acquisition of LaBranche, Cowen had significant net operating losses, or NOLs, in the US to carry forward into the future of $360 million. The associated gross deferred tax asset currently amounts to $143 million. There was a 100% valuation allowance against that asset, where it adds significant value to the firm.

IRS rules associated with the acquisitions of Cowen and Company in 2009 and LaBranche in 2011 partially limit the amount of NOLs the Company will be able to utilize annually, but significant amounts of future earnings will be shielded from taxes by this asset.

Turning to our balance sheet, our stockholders' equity amounted to $511 million at September 30 and our book value per share was $4.35. Tangible book value per share, which is a non-GAAP measure, was $3.94 per share, compared to $4.04 per share at the end of 2012.

Finally, moving to our share repurchase program. For the quarter, we repurchased approximately 725,000 shares in the open market and 100,000 shares as a result of net share settlement related to the vesting of equity awards. The total cost in the quarter was $2.8 million, or $3.43 per share.

Since we announced our original repurchase program in July of 2011, we have repurchased 8.9 million shares in the open market and an additional 4 million shares as a result of net share settlement related to the vesting of equity rewards.

We have spent approximately $25 million in share repurchase and another $11 million in share net settlement at an average price of $2.82. As of September 30, we had approximately $10 million remaining under the current program. On November 6, Cowen's Board of Directors approved an increase to the Company's share repurchase program that authorizes Cowen to purchase up to an additional $15 million of Cowen's Class A common shares. The $15 million increase, in addition to the Company's existing $35 million share purchase program announced before, of which we have $10 million left, for a total of $25 million.

I will now turn the call back to Peter for closing remarks.

Thanks, Steve, Jeff, Michael. Why don't we open this up to questions right now?

(Operator Instructions). Joel Jeffrey, KBW.

Got a quick question on the comp ratio. It looks like it stayed steady around where it was in the last quarter. But given the increase we saw IN investment income, I would have thought it might have come in a little bit lower than that. Can you just talk a little bit about how that business line is comp versus some of the other business lines?

Sure. It is the revenue mix that affects our comp to rev ratio. As you can tell, in the quarter, we did more investment banking, and that's usually a little bit higher payout than it would be on a brokerage, and we also, on the investment income side, we have a little bit of netting risk as well. So, it's just the fact of where the revenue is coming from and who is getting paid off of that revenue.

Yes, it's the mix, Joel, of the revenues, and I think that from years past, we have learned to be very careful during the year with our comp accruals because whatever you think, until you get down to the end of the year and you get into final discussions with everybody, comp is always subject to discussion at year-end. So, we're hoping that we are being very conservative in our accruals.

Okay, and sticking on the expense side of the equation, in terms of fixed non-comp expenses, going forward if you guys are not doing acquisitions in the near term, is there any reason to think that is going to pick up meaningfully?

No (multiple speakers). The fixed non-comps, Joel, should actually come down a bit, but not significantly.

As you know, we have taken a lot out in the past few years. There are a couple of little things that we are working on now, office space that is rolling off in certain locations, things like that. But for the most part, the fixed non-comps should come down a little bit or stay steady. It is the variable costs that will be affected by how much business we do.

Don't forget, we picked up Dahlman Rose's lease obligations when we acquired them back in March. We are coming up on having -- there were three years left on those leases, two years to go come this March. We have got a particularly large lease that is being renegotiated right now because it is rolling off next year. We will save, we think, a considerable amount of money from that, and a number of other things.

So to Steve's point, we don't see any reason why those numbers shouldn't stay very much in line as we grow the firm. That's where the leverage is, leveraging that infrastructure.

Okay. And then, in terms of the distribution you guys got from the Lehman Brothers settlement, did that flow through the investment income line and then what you paid out to your -- the fund holders come through the noncontrolling interest line?

Those -- we had remarked and had to remark those claims all the way along, so from the firm's point of view, whatever the firm's portion of that was basically baked in over the last four years, and the distribution basically just creates cash flow for the firm. But the firm's portion of that was not that material, relative to what we distributed to our customers. No effect, really, on the capital line.

Okay. And then, just lastly for me, maybe more of a big-picture question, we're certainly seeing a really nice pick up in IPOs and ECM activity, and I think we have even gotten to the point where there is some media speculation that there may be a bit of froth in the market at this point, given some of the companies that have come public.

Do you think this is -- are we in that sort of situation, or is this a catch-up given the amount of bad market activity we have had over the past few years in the issuance markets?

I think it is a reflection of a couple of different things. So first of all, the sectors that we are in are consistent money raisers, so the fact that we've had so many healthcare companies come public only means that we have set ourselves up for -- assuming markets are not horrible, we have set ourselves up to do consistent fundraising with these clients for extended periods of time.

What I am most impressed with is our repeat business, and so I don't think I want to comment on whether or not I think it is frothy. If you look at the number of IPOs this year, it's more than we'd had last year, more than any time in 2007, but if you look at the average number of IPOs we have done this year versus what it would take to replenish lost listings, we are nowhere close to that number.

So I think the market, as long as there is flows into the equity market, we will continue to see absorption of these new issues -- meaningfully. And so, as long as money is flowing into equities and the markets are reasonably stable -- they don't even need to be trending up; they just need to be reasonably stable -- I think we will see capital-raising activities continue. (multiple speakers)

Of course, Joel, if the government -- I will tell you if the government hadn't fixed the challenges at the beginning of October, the amount of new financing activity that would be getting done would have been de minimis. It is really that simple.

I think there's a lot of people that are trying to cram themselves into the fourth quarter because they're worried about what is going to happen again in January. So we are seeing -- obviously seeing a pickup in activity in this quarter, significantly.

Are you also seeing a pickup in debt capital markets activity? Because, again, the third quarter appeared to be pretty strong for you guys as well.

So, we see a pretty narrow -- we are focused on a very narrow part of the business, which is creating debt financing for emerging growth companies. Actually, we're as busy as we have been.

The good thing about our backlog is as we have been executing on these things, we keep adding things to the backlog, so we are not burning off backlog and not replenishing. And like I said in my comments earlier, the impressive part about the debt capital markets business is it really has applicability to the entire range of companies we cover.

There are always companies in each of those sectors that are smaller companies that can avail themselves of creative debt financing solutions, and that is a niche we have carved out where there are just very few competitors. So, it continues to look pretty good for us.

Great, thanks for taking my questions.

Devin Ryan, JMP Securities.

So a question on the alternatives business. Obviously, markets have recovered at highs now, and I am just looking at the performance fees and trying to think about the potential there. We are still well below where we were precrisis on that front, and so, I guess, just what needs to change to really see a big step back up on the performance fees and what is the expectation on that front? I know it's something that was addressed during the call.

Sure, two things will drive that. One, it's the product mix. We have products that charge performance fees. We also have alternative mutual funds. We also have a solutions business.

And two is, of course, the performance and how performance fees work these days. So right now, we have in the liquid format three capabilities that provide performance fees, two of which which can be substantial. The others are either private equity or they're mutual funds. Going forward as part of our product mix, we will look to put on products that can generate performance fees because that is really the X factor in the business. That is what can really drive the P&L.

And then, second is how are the performance fees constructed these days and how are products performing? So performance fees have gotten trickier because fees have become compressed, and the way they have become compressed on the performance fee side is it used to get a straight 2 and 20, no restrictions. Now you don't get 2, and on the performance fees side, it is not uncommon now to get your performance fee over a pref, or a preferred returned, which means some portion that won't pay a performance fee. So we are dealing with that.

And secondly, our products this year, one is a credit product, so you're not going to hit home runs this year in credit. And second, in some of our other businesses, these are markets where hedge funds don't keep pace with such a buoyant equity market, and we have done fine. We haven't crushed the relative to the market, but that's not what we are doing. We are looking to provide good risk-adjusted returns, high sharp and protect.

So going forward, I think the product mix will move towards more performance fee-paying products, and if markets aren't this hot, I think we will do better than the markets and those performance fees will rise.

Okay, thanks for that color, and then I guess just a follow-up on fundraising within alternatives. Maybe you spoke to it a bit in terms of the products, but just given the improvement in markets, maybe, and sentiment here a bit, any change in expectations for the ability to raise capital? Are things feeling better? Are you seeing mandates accelerate? Has the tone changed at all on the fundraising side?

And I guess just looking at your backlog of commitments, has there been, I guess, a pickup or is there anything lumpy in there that may be coming over the next couple quarters?

Sure. We have had a robust asset-raising year. We've raised nearly $2 billion in assets -- now at 1.2 -- so that's pretty staggering, considering our size. And when I talk to my peers out in the market and I share the percentage raised and what we have done, the response is wow. You guys are way ahead of most people we speak to. So that feels good.

In terms of what does it look like going forward, there is plenty of assets that will be raised in the system right now for next year. We will be completing a raise in one of our bigger PE products through next summer that will be substantial, and we are well on our way to completing that. Then we had several other products that will be open to new capacity, so we will be in good shape next year. We will also be bringing on new products. I can't predict what will happen next year, but based on what I see in this system, I think we should have another good year.

Okay, great. Okay, and a question for Steve on just the noncontrolling interest. I know there's a couple different funds that can impact that, and it was a bit higher, the contribution, this quarter, or I guess that portion was backed out. Can you remind us which fund was the big driver this quarter and how that flows through the income statement?

Yes, as you know, for GAAP purposes when you have arrangements with partners, that comes through as noncontrolling interest. So it's our Healthcare Royalty Partners. It's Orchard Square, which are -- they are consolidated for GAAP purposes, and then the partnership piece or the PMs comes through as noncontrolling interest.

Right, but with respect to revenues being elevated, was it within the management fee or investment income? Just which revenue items were maybe a little more elevated than were backed out within the non-controlling?

It's both, Devin, because they share in both the management fee and the performance fees.

Yes, okay, understood. And then with respect to the DTA, you gave a little bit of additional color this quarter. Any conversations around or any opportunity to maybe think about bringing some of that back on the balance sheet or expectations for the timing to be able to do that?

We are looking at different alternatives to do that, but you need cumulative earnings to show to the accounting firms to allow us to take down your valuation allowance. But there are a number of things that we are looking at to try and do something in that area.

Okay, got it, great. Okay, thanks for taking my questions, guys.

Just one kind of postscript comment on incentive fees, we have one very large segment, our healthcare royalties business, where in the model, the private equity model, we don't get to accrue our incentive fees until we have returned all the capital. So there are incentive fees that have been to be earned that are not reflected anywhere. They will come when the capital has all been returned to our investors. We have disclosed that in the past.

Got it, thanks.

There is no further questions at this time. (Operator Instructions). There are no further questions at this time.

Well, then, thank you all for dialing in. Operator, thank you.

I will just close by saying that we are very pleased with where we are. Our thesis four years ago, probably delayed, but more true than ever is that this industry is going to continue to consolidate. We're going to be a beneficiary of that. Since they happen sporadically and don't get a lot of coverage, people don't really focus on the fact that a lot of capacity is going out of this business. And we are the big beneficiary of that, either because of a Dahlman Rose acquisition or because we get to hire very good people, either from some of those disappearing players or because people from some of the big institutions find that they want a cultural change and they can get that here.

So we would love a better environment. We would love to see volume start to grow again, but notwithstanding, we think we'll continue to plod along with the plane we've got and look for some strategic opportunities on both sides of the business to accelerate the growth of the firm. The cleanup work is over, and now it's all building for the future.

With that, I thank you all. Have a good day.

Thank you. Ladies and gentlemen, that concludes your conference. You may now disconnect. Thank you for joining us. Do enjoy the rest of your day today.