Cowen Inc (COWN) 2016 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for joining Cowen Group Incorporated's conference call to discuss the financial results for the 2016 second quarter. By now you should have received a copy of the Company's earnings release, which can be accessed at the Cowen Group Incorporated 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 Incorporated 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.

Thank you, Operator. Good afternoon, everyone, and welcome to Cowen's second quarter 2016 earnings call. With me as always Jeff Solomon, President of Cowen, and Steve Lasota, our CFO.

For the second quarter of 2016, Cowen reported an economic income loss of $22 million or a loss of $0.20 per diluted share. This compares to economic income of $10 million or $0.09 per diluted share in the prior period last year.

The loss was primarily attributable to a $22.2 million investment loss on invested capital which included a $23.7 million loss on the Merger Arbitrage portfolio resulting from the termination of the Pfizer-Allergan merger transaction offset by gains elsewhere in the Merger Arbitrage portfolio and other investment strategies. We'll talk a little bit more about that in more detail in a moment.

Excluding this investment loss and event, our revenues would have been $104 million and our estimated economic loss in the second quarter would have been approximately $4 million to $5 million or a loss of $0.04 to $0.05 per diluted share. Despite the loss, our operating businesses showed remarkable resiliency given a challenging revenue and the investment environment. This is largely due to a number of strategic initiatives that we began a few years ago to build a stronger foundation from which to operate both our businesses when the inevitable market slowdown occurred.

During times like this we have positioned ourselves to take advantage of dislocations at the larger financial institutions as well as the consolidation that is occurring at the smaller firms. That's why we remain incredibly upbeat about our performance despite the bottom line.

As we have discussed on previous calls, in an investment world increasingly occupied by passive investing, our clients who are those seeking to outperform their peer groups, are demonstrating a growing reliance on our services. At Cowen & Company we have invested in intellectual capital and are capitalizing on a consolidation trend within the brokerage and banking industry. We continue to benefit from the availability of talented individuals who are migrating away from large banks. And given the current regulatory environment, we are exploring opportunities to take market share from larger players in many of our businesses, as they are facing increasingly stiff regulatory headwinds as well as increased capital constraints.

Over the last 6 years, we have completed 7 acquisitions that have not only given us scale, but have enabled us to enter businesses that have been deemphasized by the larger banks. And most recently we established a broader credit presence with the acquisition of certain businesses from CRT, which stands for Credit Research and Trading. And last of fall we established a prime services business with the acquisition of Concept Capital and Conifer Securities.

At Ramius there was also significant investment talent available to broaden our range of strategies in our investment management business. We have been the beneficiary of talented portfolio teams looking for an institutional quality asset management platform with whom to affiliate. Over the last few years we have launched four new strategies and are beginning to see good traction in assets under management.

More so than ever, critical mass matters in our business. People in firms are looking to affiliate with well capitalized firms such as ourselves that will be long term gainers of market share. We are very fortunate to have taken the steps we've taken over the past few years to prepare ourselves for this kind of environment.

Now for our operating results. For the second quarter of 2016 our operating businesses, excluding investment income, generated $101.2 million of revenue compared to $112.2 million revenue in the prior year period. At Cowen and Company we successfully raised capital for 22 clients and completed a book run IPO just one week after Brexit. In addition, we had a productive quarter in M&A Advisory and have continued to add to our advisory backlog.

We continue to grow our equity business. In the first couple of months with the newly acquired Cowen Credit Research and Trading businesses, we were positive. At Ramius we onboarded a new manager to the Alternative Investment platform, bringing our total number of capabilities to 10. This quarter's loss attributed to a $22.2 million investment loss on invested capital, which included the $23.7 I mentioned before in Merger Arb resulting from the termination of Pfizer-Allergan offset by gains elsewhere in the merger portfolio and other investment strategies. The Pfizer-Allergan position was severally and adversely affected when the US Treasury announced proposed regulations that would have retroactively applied certain financial tests to Allergan in order to preclude Pfizer from completing a tax inversion. In this unprecedented action, they we in effect proposing to retroactively change the rules which resulted in the two companies calling off the merger. The position size was consistent with the size and risk parameters we've been employing in the strategy for over five years. But the magnitude of the loss was in excess of what we expected.

Let me put this in context. In the last five years, our Merger Arb team has invested in 650 deals and has never had a deal break of this magnitude or had a deal break that exceeded downside expectations of the group to this extent. The proposed action by the Treasury was a stark reminder that we live in an era of uncertainty where rules set forth by the government can be changed beyond what we and the market can anticipate despite extensive research and ongoing analysis.

In recognition of these risks, we have taken steps to prevent a recurrence of such a loss by reducing position sizes, leverage and invoking tighter stop loss limits in these strategies than we have utilized up until now.

While we own the responsibility for the investment loss this quarter, the Merger Arb strategy has had strong historical performance and we expect it to continue to contribute positively for the remainder of the year as spreads remain at all time wides. Since the event, we have had net flows into Merger Arbitrage.

Now let me talk for a few moments about our operating performance at Ramius. In the second quarter of 2016, Ramius assets under management as of July 1st was $13 billion, a $660 million decline in AUM from April 1st. The decline included $679 million in redemptions, $161 million in new subscriptions, and $142 million in negative performance. The redemption, the $679 million, primarily related to a single client within our alternative solutions business which occurred when the client had a change in management at the CIO level. The loss of this account will have minimal impact on the profitability of the asset management business as the fees were very low.

Management fees for the Alternative Investment Management segments averaged $5.2 million per month in the second quarter compared with $5.4 million per month in the first quarter of this year. The monthly average decline is due to an agreement to sell a portion of our ownership interest in the activist business, back to the principals of Starboard at the end of the fourth quarter of 2015, as well as lower management fees from the Alternative Solutions business. The average management fee for the quarter was 47 basis points compared to 51 basis points in the prior period last year. As we have noted in the past, because fee structures vary by product and channel, we do not manage this metric.

On May 1st we launched a consumer focused long/short equity fund which has gotten off to a good start performance wise and has grown enough assets to be at least breakeven already. During the quarter we executed a partnership agreement with a lady named Samantha Greenburg who will manage an equity long/short strategy initially focused on communication, technology, media and consumer sectors. Samantha was recently named to the 2016 Class of Hedge Fund Rising Stars by Institutional Investor Magazine.

Once this fund launches, Ramius will have two distinct long/short equity capabilities which we've never had before. Important milestone as long/short equity is the largest hedge fund category and will give our balance sheet more protection through more long volatility exposure.

Subsequent to quarter end, we launched our first UCIT fund in Europe for Merger Arbitrage sponsored by Bank of America Merrill Lynch which has gotten a very good reception in Europe in the first few weeks. In the second quarter we bought back $2.4 million worth of stock under the company's existing share repurchase plan which leaves approximately $23 million available for repurchase under the program.

Finally, I want to acknowledge our colleagues. Our successes based on teamwork, collaboration, delivering for each other, our clients and our customers. Thank you all for your focus and your continued commitment to the organization. I will now turn it over to Jeff who will discuss the quarter at Cowen and Company.

Thanks, Peter. After a relatively slow start to the quarter, US capital market activities saw a decent pickup in June. Equity issuance was up from the first quarter of this year as well. However, year over year, second quarter total proceeds raised in IPOs in the entire market and follow-ons, declined 26% to $45 billion. And the number of IPOs and follow-ons were down 56% and 16% respectively.

Healthcare was once again the most active sector in terms of the number of transactions. But the number of IPOs and follow-ons were up 29% compared to the first quarter of 2016 but down 31% year over year. For Cowen, our business followed a similar trend. Equity capital markets revenues were up 13% versus the first quarter this year, but down 57% for the prior year quarter.

We closed 21 transactions during the quarter compared to 39 in the prior year quarter. We were a book runner on two-thirds of the transactions compared to 62% in the quarter a year ago. But more importantly, we were included in every public equity deal done in our core sectors where we sought to participate. Our average underwriting fee was $1.2 million compared to $1.5 million in the prior year period. Market conditions have improved for financings, but the environment remains challenging. Our job is to advise clients on how they can address their capital needs given the environment.

As corporate clients adjust to the new market realities, some are showing a greater willingness to tap the market for equity capital through traditional follow-on or IPO or convertible financings and we have also had more clients utilize continuous shelf offerings as an opportunistic form of raising capital. Cowen is a leader in this form of financing.

As we have said on previous calls, many of our banking clients have significant long term capital needs and we are benefiting from their ongoing capital raising activities, even in the slower financing market. We continue to have good backlog of equity market capital transactions to execute upon even if the window remains only slightly open.

Our M&A Advisory business had a healthy quarter, primarily driven by a few sizable fees from our technology clients and we continue to recruit M&A Advisory teams, individuals, and expect to add a group of new bankers to our platform in the very near term.

Turning to our institutional brokerage business, which includes equities, prime services and the new Cowen Credit Research and Trading, our core equities revenue, which includes cash equities, electronic trading, options and convertibles, rose 7% year over year. We pared back some of our single stock research in areas where we believe we are less relevant to clients and we refocused our research product in sector and wallets where we can take more market share.

In the next few weeks we will be entering a new area of macro policy research as we see a clear revenue opportunity to penetrate a portion of the portfolio manager's commission wallet which is a place we clearly have an opportunity to increase our revenue wallet as we don't currently do anything really in the portfolio manager's wallet today.

In Prime Services, since the acquisition of Concept and Conifer last fall, we've added 40 new accounts and culled the smaller accounts. Assets in custody have increased over $1.5 billion and in outsourced trading the pace of new client wins in accelerating. We also have made some good early progress in building the international prime brokerage unit which we announced during the quarter.

As we mentioned on last earnings call, we would give a little more insight on the Cowen Credit Research and Trading business once the transaction closed. While we are not yet breaking out operating revenues, we are encouraged by the early momentum at Cowen Credit Research and Trading in the first few months. The business, which focuses primarily on distressed credit trading, emerging markets, special situations equities and trade claims, appears to be more episodic in nature on a daily basis than our traditional equities business. But it is performing in line with our revenue expectations even as we are continuing to bring many accounts online.

The integration of these businesses is proceeding according to plan. The new credit research team is fully integrated into the research department and are already beginning to make co-marketing calls with clients and their equity research partners.

The trade ideas from Credit Research team have resulted in unique and timely insights that have cross pollinated into our long only equity accounts as well as our hedge equity accounts and this is an example of the type of collaboration that we're able to facilitate on our expanding platform. We see many more opportunities to leverage the relationships and expertise of our existing new businesses to elevate the Cowen Credit Research and Trading as well as other parts of our firm, from our core equities business to converts to debt capital markets as well as balance sheet advisory. Honestly, we've barely scratched the surface here and we're looking forward to doing more.

I will now turn the call over to Steve Lasota, who will review our financials.

Thank you, Jeff. In the second quarter of 2016 we reported a GAAP net loss attributable to common shareholders of $12.2 million or a loss of $0.11 per diluted common share compared to GAAP net income attributable to common shareholders of $6 million or $0.05 per diluted common share in the prior year period.

The second quarter of 2016's GAAP net income attributable to common shareholders is net of preferred stock dividends of $1.7 million which is associated with the preferred stock issued in May of 2015. In addition to our GAAP results, management utilizes non-GAAP financial measures which we refer to as economic income. Management uses economic income to measure our performance and to make certain operating decisions.

In general, economic income is a pre income tax measure that excludes the impact of accounting rules that require us to consolidate certain of our funds, certain other acquisition related adjustments and reorganization expenses, goodwill and intangible impairment, and preferred stock dividends. The remainder of my comments will be based on these non-GAAP financial measures.

In the second quarter of 2016 the Company reported an economic income loss of $22 million or a loss of $0.20 per diluted share. This compares to economic income of $10.2 million or $0.09 per diluted share in the prior year period. Second quarter 2016 economic income revenue was $80.4 million compared to $124.4 million in the prior year period. Investment banking revenue was $35.3 million compared to $68.5 million in the second quarter of 2015.

Brokerage revenue rose 40% year over year to $49 million. Management fees were $16.5 million, unchanged from the prior year period. Incentive income was $429,000 compared to a give back of $7.8 million in the prior year period. Investment income was a loss of $22.2 million compared to income of $12.2 million in the prior year period. And other revenue was $1.3 million compared to $57,000 in the prior year.

Compensation and benefits expense for the quarter was 68% of economic income revenue compared to 60% in the prior year. Variable non-comp expenses in the second quarter were $14.8 million compared to $12 million in the prior year period. The increase is primarily related to higher floor brokerage and trade execution costs due to higher brokerage revenue and increased marketing and business development expenses, some of which is related to acquisitions during late 2015 and during 2016.

Fixed non-comp expenses totaled $27.4 million in the second quarter compared to $24.8 million in the second quarter of 2015. This increase was primarily due to higher communications, increased occupancy costs, and increased depreciation and amortization all of which are primarily related to acquisitions during late 2015 and the beginning of 2016.

Stockholders equity decreased by $15 million to $770 million at June 30, 2016 from June 30, 2015. Common equity, which is shareholders equity less the preferred stock, was $668.8 million compared to $684.3 million at June 30 of last year. Book value per share, which is common equity divided by shares outstanding, was $6.24 per share compared to $6.22 at June 30, 2015.

Tangible book per share, which is common equity less goodwill and intangible assets was $5.40 per share compared to $5.84 at June 30 of 2015. Invested capital stood at $662 million as of June 30, 2016 versus $735 million a year ago.

In the second quarter we repurchased approximately 725,000 of the open market and acquired 1.4 million shares as a result of net share settlement related to the vesting of equity awards at an average price of $3.31 per share and a total cost of $7 million. As of June 30th, 22.6 million remained able under our share repurchase program.

I'll now turn the call back over to Jeff for closing remarks.

Thanks, Steve. With the markets in which we operate are volatile and deeply affected by the new world order, helping clients outperform is becoming even more critical in these times. From Cowen's trading desk and research insights, we're helping accounts to make sense of it all. In corporate financing and investment banking we're helping clients to achieve their financing goals. In the investment management business our differentiated investment capabilities continue to offer clients strong alternatives to passive investing with some upcoming high profile strategy launches.

A few years ago in a challenging revenue environment such as the one that we're in, Cowen would have incurred significant operating losses due to a lack of scale. That's why we set out to elevate the revenue capability of the entire platform. The success of that strategy is quite apparent so far in 2016. We positioned the organization to take advantage of the continuing industry consolidation and, this being a people business, to attract the best and brightest professionals.

With $1 billion in total capitalization, we are well positioned to take advantage of the opportunities that will help us to drive long term shareholder value, facilitating growth in our core competencies and creating platforms what will perform well over the market cycles.

While we open the call to questions, I'd just like to echo Peter's sentiment and thank our colleagues for their contributions and everything they are doing to help advance the organization. Without you, we don't get to do this good stuff.

Operator?

(Operator Instructions) Devin Ryan, JMP Securities.

Hey guys, this is Brian McKenna for Devin. First, the fourth quarter can seasonally be a strong period for underwriting and life sciences as companies look to improve balance sheets into yearend. On the other hand, the election is clearly driving some uncertainty for the group. Based on conversations, are companies hopeful they will have access to capital over the next several quarters? Or do you think given a number of different dynamics this year, activity that might have been a 2016 event will spill into next year?

I think we'll continue to see companies raising selectively between now and the election, even after the election. I think this is -- the slowdown in new issue has I think primarily been a function of the fact that there's been outflows from the sector. And I think what we've been waiting for is for outflows to stop in the long-only folks. It's always hard for them to be buying new issue when they're busy paring things that are already in their portfolios. So I have some early indications that the outflows from the sector have abated and I think as we've seen from a few of the new issues we did towards the second half of the quarter, there is at least capital available to do new issue. Will it be at the same pace as last year? Probably not. But I think the fact that we've seen outflows from the sector stem is a pretty good sign for companies, new companies raising capital.

Okay, great. Thanks. And then within Ramius, you have a number of differentiated strategies but there's also been increasing scrutiny around the hedge fund industry and the fees charged. Are you seeing any pushback on fees as you're out raising for a number of new products? Or would you even consider lowering fees if that meant accelerating fundraising?

Well I think we're a little bit ahead of this. I mean our fee structure in general had been moving towards lower fees anyway, recognizing us where it was going. And we're not seeing any like increased pressure right now on lowering fees. I think people are much more interested in unique products that we bring to them at reasonable fees with reasonable performance. And while I do think there will be continued pressure on fees in years to come, it's not something that's sort of terribly relevant today to us.

Got it. And then last one for me, any changes to the thoughts around the balance sheet strategy in the wake of what have been very difficult markets? Thanks.

Well I mentioned that we now have two long/short equity managers, or we will have as of August 1. And part of our desire to have those was because we want, we did want basically portfolio managers who really knew how to short, be short, could be net short so that we had basically long volatility strategies on the balance sheet. Because don't forget, we give all the PMs some capital to get them started while we go out and raise money. So I guess the answer is yes in that we'll have more long vol exposure in the balance sheet going forward.

And at the same time, recognizing what happened with Allergan and Pfizer, which was such an unprecedented move by the government, or proposed move because they didn't actually do it, that we pared back the way we've been running Merger Arbitrage forever so that we can't have a recurrence of something like what happened in Allergan and Pfizer if all of a sudden they decide to retroactively reset the rules.

Mike Adams, Sandler O'Neill.

Good afternoon, gentlemen. I'd actually like to follow up on that last question in terms of the balance sheet strategy because Peter, in some of your prepared remarks you talked about some of the steps you've taken following the loss in the Merger Arb portfolio, and you outlined reduced position size and de-leveraging. I'm just kind of curious if we should expect any change in the absolute level of invested capital in the future or if you think it's fairly steady.

No, I don't think the level of investment will change. It will be spread over more strategies as again, I just mentioned, we introduced Caerus, the first long/short strategy, and Samantha Greenburg who goes active on August 1. So we may spread the capital over more strategies. Give us a little more exposure again to long volatility. And we actually are, I mean we have reduced and will reduce a little bit more, the amount of capital devoted to the balance sheet as we invest in like Conifer and Concept and CRT. Those require writing checks and it's got to come from somewhere. So we've already taken our balance sheet exposure down. When you look at our balance sheet, it's down about $100 million quarter over quarter. So I guess my answer is, it's a little bit of both.

Got it. And maybe I missed it, but what was the invested capital balance at June 30?

Invested capital at June 30 -- Steve?

662.

662.

Okay, great. Thank you. And then, Jeff, a question on the advisory business. It had a pretty nice quarter and I think you mentioned that there were a couple large tech deals that closed. So I'm curious what the pipeline looks like today. And then secondarily, you also mentioned adding a few new bankers. Just kind of curious what their focus is. Either if its sector specific or if there's specific products. A little bit additional detail would be appreciated.

Great. Happy to talk about it. We've been constantly looking at whether we hire organically and build one at a time or we buy like an advisory firm. And today we haven't been able to get there on the advisory firm, either because we haven't been able to get the right culture or the right consideration or the right compensation structure. So what we've been doing is there's a lot of really talented individuals who want to join a platform where they can do more than just provide advisory services. So we've added in healthcare, we've added in technology already.

And what you're seeing in the success in the second quarter is a function of the fact we've added and imbedded M&A professionals into the various sectors. And that's the strategy. We don't intend to have a separate M&A group. I think that's a very bullish approach to the world. I believe that M&A advice is strategic advice that needs to be embedded in these sectors. And while I do recognize that it's a different product, it really is strategy specific or what I would call sector specific. Particularly in technology, you need to have reach into China. If you don't have a pretty good view on what's happening in China and what the buyers over there are looking for in the US, it's kind of hard to do. We actually have pretty good reach into China in our technology practice which has been really helpful for us as we've identified a number of opportunities to help cross border transactions.

The new talent that we expect will be coming on will be coming on in the sectors we already cover, so we won't be expanding our sector coverage. But you'll see us doing some things adding in technology, you'll see us adding in consumer, and those are -- and industrials, that's the other place where we've also added some capabilities. I think we see a great opportunity to scale what's already been a fantastic aerospace, defense and industrials business. So if we can add individuals that we think will add to the calling effort, it would be great.

And then last, we have an individual starting in our financial sponsors area. We' e gone a pretty decent chunk of this year we've not had financial sponsors coverage. We talked to a ton of people, we're really excited to have him start. But he's an M&A professional and we feel like that's really critical to have somebody in the sponsor position who actually is somebody who brings content and talent to the table as it relates to M&A. And so he starts some point next week. So that's what we're doing. We're building organically and again, where we've done that in the past, it takes few years to get it going, but when it does, you can see quarters like the one we just had.

I just want to add on, on top of what Jeff said, I'll take one second here. In addition to what he just talked about, I think this CRT acquisition is going to turn out to be one of the best things we've ever done. The enthusiasm that is exhibited by the guys who joined us and the sort of feeling they're on a platform where they can do a lot more business, and they are starting to do that, is really infectious. It's really exciting to see. And so I think that's going to add a whole other dimension to the investment bank that I think is going to be very meaningful over time.

Yeah, one of the other trends that we're seeing is the lack of tech IPOs has really translated into some of the former unicorns really reassessing what their value is and what their exit strategy is. And so we've got a couple of transactions in our backlog that are former unicorns, that are really going through a sale process. And we also just recently closed one in this quarter, third quarter, which was a biotech company that really had a couple of disappointments and needed to create an exit with their technology and their IP and they retained us to do that.

So again, these are things that I think we're really super good at in terms of our content and knowledge. And as a result, we see chances to extend really in places where there's likely to be fee pie.

Great. And you mentioned CRT, so maybe if we touch on the brokerage business, the growth has been pretty tremendous. I think your revenues are up like 40% or something like that year on year. But could you help me think about the organic growth? When you kind of strip out CRT and the Prime buildout, what does the underlying growth trend look like in that business?

So in the first quarter when I look at our McLagan results, the McLagan lagged for about a quarter. In first quarter, our year over year market penetration was up 25%. So we've had 25% growth in terms of our market share in McLagan. Now while that doesn't translate into dollars, dollar for dollar, it does show that what we're doing in terms of investing, in terms of mindshare, is pretty significant. And as a result, we're incredibly integrated into the process for the biggest commission payers on the Street. So I just feel like that gives us great comfort. As some of the bigger players we talk to are shrinking broker lists and forcing their portfolio managers and traders to trade with fewer counterparties, we're in a position to gain more wallet over time. We've seen a number of firms close their doors in the equities division. Obviously the folks at Sterne Agee closed their doors. Today BB&T announced it's getting out of the equities business. I mean these are people that just weren't relevant to the biggest commission payers. And so our decision several years ago to embed ourselves as strategic partners for the Fidelities and the Wellingtons of the world, has paid dividends because we're integral to their alpha generating process. And as a result it shows where we can -- we made the biggest move outside of the bulge banks of any firm in terms of market share during the first quarter year over year.

So we're probably going to be a little bit more tied to what I would say is the growth in the equity markets. So as we move from $90 million to $160 million we're clearly taking share that was outsized relative to the growth of where the slowdown in the industry. So I would say we'll continue to climb but it will probably be more in line with what the wallet is that's available. But that's why we continue to bolt on things like prime services and other businesses that are adjacencies where there you can really leverage your fixed cost structure associated with delivering the product. And so when you look at the growth plus the acquisition, it makes a pretty big difference in terms of our market penetration.

Thanks, Jeff.

There was organic growth ex those acquisitions.

Yeah. No, so we were up 7% quarter over quarter. I mean year over year in the same quarter. We were down a little bit between second quarter and first quarter, but the market was down much more significantly between second quarter and first quarter than we were and we're still showing 10% growth year over year which the market is not doing.

So that 7% is core?

Right. I would also say this though, I mentioned in the call that we don't currently penetrate the portfolio manager wallet at the long only account. And I think this is not something that I really fully appreciated when I was in my old portfolio manager seat. But when you talk about the voting process at the largest long only institutions, it's really divided pretty clearly into who portfolio managers vote for, who research analysts vote for, and who trading votes for. So the portfolio managers are largely focused on macro-economic research. And there's some really high quality firms that own a big share of that wallet. We don't really play in that because we don't have a macroeconomic product, we have largely bottom up stock selection, we cover 750 companies in the US. So we feel like we have a chance with the new team that's joining us to really take a significant share. It's a reasonably high profile group. I can't talk about it until they officially show up here, but we are really excited about the possibility of being able to plug those guys into our existing client base. And we already know that the clients we have are well familiar with the product and it's widely regarded. So I think there's a huge opportunity for us to take share from others in an existing client base. And to me that's margin business. So we'll see how it goes in the first 6 months. It's a new platform, so I don't expect it to be an immediate bump, but in a year from now I would expect that we'll see organic growth, precisely because we're going to access a wallet that today we don't access.

Great. And one last one for me, probably for Steve. In terms of the expense outlook, I brought this up last call and I think you guys did, took some actions to really rein in compensation. I'm just kind of curious given the backdrop today, should we expect some incremental improvement on either comps or non comps in the back half of the year?

Sure. Based on our projections we still feel we can come in around the 60% or hopefully slightly below for the year on a comp to rev ratio basis. And then the non-comps, we were just talking about this other day, we've taken out a significant amount of non-comps. It's just the new acquisitions have obviously increased both the fixed and variable a bit. But as you can see quarter over quarter they're pretty flat and CRT closed in early May, so third quarter -- I would expect them to be fairly flat for the first two quarters, we'll pick some up for CRT, but most of our conferences, our major conferences, are in the first half of the year, so I would expect it to be in that range.

But just from a core year over year if you back out acquisitions, our fixed -- our non-compensation expenses are -- our fixed non-comps are down. And I think what's important is the variable non-comps are up obviously because revenue is up. And a lot of that's tied to trading revenues. But if you look at our fixed non-comps which we look at daily, we're laserly focused on that, if you back out the acquisitions, our fixed non-comps are actually down year over year. And we'll continue to make sure that we're working every possible angle to get the synergies we think we should be getting from the acquisitions.

Okay. Thanks again, gentlemen. Have a good night.

Steven Chubak, Nomura

Hey, it's actually Sharon Leung in for Steven. Just in terms of in the prime brokerage space, we've seen a lot of European banks pulling back from that area. Do you see any opportunities to invest where some of the competitors have retrenched?

Absolutely. In fact, we announced that we are launching a European Prime Brokerage operation this quarter. We hired somebody who has actually built one, built the leading independent prime brokerage in London, to come and build it for us. No question that the European institutions are looking to, are paring back their services to small funds. Similar to here in the United States. And that's a no brainer for us. I mean a lot of these European hedge funds are trading US equities and the US equity capital market is still the largest capital market in the world. And we already could be catering to them with our research products, so our ability to do soup to nuts fund services for those guys, prime services for those guys, makes a lot of sense. So we think, again, leveraging our fixed cost structure, it's not going to cost us a lot to start processing, clearing and settling for those accounts. And so we are specifically looking to take advantage of that.

I think those banks will be in a position, and we've already seen this in the US, where they're referring clients to us. I think -- this is not like we're competing against the large banks for accounts. In many instances, like we saw after we closed both the Concept and Conifer acquisition, some of the prime brokerage relationship that we have at Ramius, we prime brokerage with other firms, are calling us and saying hey, would you take a look at our smaller accounts and open them on your platform? They can then know us as a counterparty at Cowen. So it's sort of this is part of -- we have an organization here that engages with the Street on a number of different ways, so we're working collectively with some of the larger banks to take on some of the accounts that they don't want and they work really well on our platform. So I think that's a great strategic fit that we have between our asset management business and our investment bank.

Okay, that's really helpful. Thanks. Just one last one. Have you been seeing any impact from Brexit? I know some of the smaller firms out there have noted that they actually haven't seen much impact so far and the full scale of the impact might take a couple of quarters to roll through. I was wondering if you were seeing some of the same.

We have seen no impact from Brexit.

Okay, great. Thanks. That's all for me.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to management for closing remarks.

Well, ladies and gentlemen, thank you for dialing in, listening to us. Notwithstanding the loss we took on the Pfizer-Allergan, and the effect it had on the quarter, our business is very healthy. We're extraordinarily excited about our opportunities. A lot of the questions that you asked point to what those opportunities are, whether it's leveraging up the clearing business or it's CRT, some of the new people we brought into banking, and sort of the continued shrinkage of competition in the industry which allows us to continue to gain market share. So it's a tough environment, we all know that, but we're really pumped up. We're very excited about our opportunities. So thank you. Everyone enjoy the rest of the summer and we'll speak to you in October.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.