Cowen Inc (COWN) 2017 Q3 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 2017 third quarter. By now, you should have received a copy of the company's earnings release, which can be accessed at Cowen Group Incorporated's 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 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. Welcome, everyone. Thank you for dialing in for our call. Special thanks to all our Cowen colleagues who are interested in us to dial in to hear about their own company. Good afternoon. With me today are Jeff Solomon, our President; and Steve Lasota, our CFO.

Cowen reported economic income of $8.3 million or $0.26 per diluted share for the third quarter compared to economic income of $11 million or $0.41 per diluted share for the third quarter of 2016. Just as a reminder, economic income during last year's third quarter included a one-time gain of $17 million from the sale of our interest in the alternative solutions business of Cowen's investment management division.

Economic income revenue for the quarter was $183 million compared to $154 million in the third quarter of last year. Third quarter results reflect the fact that we have established a broader and more diversified platform over the past few years, which we've talked about. We experienced solid levels of activity across our operating businesses and consistent performance on our investment capital. Capital raising environment was favorable in our focus sectors and continued to be quite strong in areas such as healthcare.

As we mentioned in our first and second quarter calls, our M&A business is developing nicely as many of the investments made last year and the prior years are bearing fruit. And in spite of challenging equity trading volumes and low levels of equity and credit volatility, we achieved important progress furthering the equity franchise in the first full quarter with the acquired businesses from Convergex.

With Cowen's broader larger platform, we are focused as ever on driving profitability through scale and cost effectiveness. Over the last several years, we have broadened our range of product and service offerings in certain areas while in other areas we focus on doing fewer things but doing them better. You will continue to see us invest and optimize our operating business and capital base. Some of the more recent moves are a result of the Convergex acquisition.

For example, in August, we began for the first time clearing our own balance sheet, which relieves us of external capital requirements and we now are in a position to redeploy that excess capital towards newer businesses such as securities lending and create reoccurring income through margin financing.

We have also lowered our comp to revenue ratio with the change in business mix volume and Convergex acquisition. Steve will talk a little bit more about this in detail later on. Along with high non-comp expenses as a percent of revenue. That's also a byproduct of the Convergex merger.

Our primary goals are to deliver solid operating results to our shareholders while insulating the organization from economic adversity and deliver consistent alpha generating capabilities to our clients.

Now, let me provide you an update on the investment management division.

The assets under management were $10.4 billion as of October 1, which is a decline of $557 million from July 1. The decline, though, is primarily due to distributions in the healthcare royalties and real estate strategies from the maturing of investments, not from redemptions. Our long/short equity strategy, which invests primarily in the communication, and technology, media, and consumer sectors has had positive performance in the quarter year to date and since inception. The strategy is gaining traction on the Morgan Stanley and Merrill Lynch distribution platforms and while long/short equity space has been very competitive, investors and prospects remain actively interested in what we're doing.

Merger arbitrage performance was slightly negative in the quarter although it is up strongly year to date. Year to date, the strategy has outperformed the HFRI merger index by 390 basis points. Assets have been stable in the U.S. and we have seen encouraging inflows into the UCITS product in Europe, which greatly expanded the strategy's global footprint.

Real estate had a productive quarter and prepares for its final close for its sixth debt fund offering before year-end, expects to be embarking on 2 new equity vehicles this quarter.

The healthcare royalty business committed approximately 55% of Fund 3 and to date has returned 67% of called capital, primarily driven by several large exits in the third quarter. The pipeline for healthcare royalty investments remains robust with approximately $600 million of potential transactions under consideration as of today.

We are continuing to focus the investment management platform on its essentially strategies for growth potential and position ourselves to explore new capabilities in 2018 that meets the growth risk criteria we've set for ourselves.

To that end, we plan to launch a private healthcare strategy fund in the fourth quarter with external investors. This is a strategy that we have been incubating over the last 5 years with our own capital and a partner. The strategy makes mid to late stage investments in innovative private biopharma and healthcare companies, which capitalizes on Cowen's well-regarded healthcare franchise. Our target is to raise $200 million and we believe we will be able to do that.

Importantly, we've also continued to pare back on the strategies that have not shown an ability to scale, such as the consumer focused long/short equity strategy. In September, we announced a very important hire in the form of Elizabeth Flisser Rosman as head of strategy. Elizabeth has extensive experience sourcing, seeding, and incubating alternative investment management since 1999. She will work with our senior team on platform expansion.

Moving to the investment performance of our capital, for the third quarter we generated $15.9 million in investment income compared to $19.7 million in the year ago period. Contributions by strategy were generally positive across the board.

Before I turn the call over to Jeff, as always, I would like to thank our colleagues for their hard work and contributions to the organization and to the success that we achieved in the quarter.

Thanks, Peter. The investment banking and brokerage business both contributed to a solid quarter, demonstrating improved product and industry diversification. In investment banking, the overall environment for new issuance was positive. In spite of subdued trading volumes during the summer months and a market pull back in mid-August, the market recovered quickly sending stocks higher for the quarter.

Industry wide equity proceeds in the U.S. for IPOs and follow-ons in our core sectors were about $23 billion, and this is up 27% from the prior year period but down 13% in the second quarter of the year. There were 121 transactions completed across our core sectors compared to 115 in the prior year period and 141 in the second quarter of 2017. The year-over-year increase was primarily driven by greater follow-on activity and the quarter-over-quarter decline was primarily due to a decline in IPO activity.

At Cowen, we broadly followed these trends. We performed well in our areas of traditional strengths, such as health care and equity capital markets. We also saw continued momentum in other product areas such as M&A. Some of the highlights from the quarter included the fact that we completed 2 equity transactions totaling $4.5 million in fees in the med-tech space as we look to translate our success in biotech to other areas of health care.

We were a book runner for follow-on in the transportation sector, our first book run in that sector in many years. We had another strong tech M&A quarter, which included a multimillion-dollar fee from a buy side sponsor and we closed on our first consumer M&A transaction since 2014. We also launched a leveraged finance business that we believe will be able to further advance our banking franchise into 2018.

In equity capital markets, we benefited from a favorable new issuance calendar. Our ECM revenue rose 77% year-over-year, which is well in excess of the 27% year-over-year increase in total fees generated in our core sectors. We participated in 24 transactions compared to 22 in the prior year period and notably, our average equity underwriting fee rose 64% to $1.8 million versus $1.1 million in the prior year period primarily due to transaction sizes and a greater number of book run transactions.

Our M&A advisory business had its best quarter in years as we converted our strong backlog that we mentioned earlier in the year. The areas where we made investments in personnel in recent years such as technology, consumer, industrials, and financial sponsors are beginning to gain momentum and we expected to continue recruiting talent in industries where we are seeing that momentum as we look to build upon the recent momentum we've been experiencing.

So far in the current quarter, the four quarter, we've actually closed on 2 transactions already including acting as a financial advisor for the acquisition of Rimini Street, which puts us on track for another significant quarter for M&A and a record quarter overall for M&A. The financial advisory fee in connection with the acquisition of Rimini Street represented our single largest M&A fee since 2009. And it was a result of significant work done by both our capital markets and several banking sectors.

Our M&A backlog remains strong as we've been replacing closed mandates with new mandates across industries. We do however expect that a certain amount of our cross-border transactions in an advisory sense will take longer to clear CFIUS and so some of them will flip into 2018 as that process has been a slow one.

Turning to our brokerage business. Our brokerage business included a first full quarter contribution from the businesses acquired from Convergex and it produced record revenue and year-over-year growth of 75%. We are quite pleased to see that the migration of client revenues to the combined platform is on budget, validating our assertion that the legacy Convergex account businesses are quite complementary.

Total brokerage revenue averaged $1.5 million per trading day, which is in line with our budget compared to $805,000 per trading day in the year ago period. For purposes of this call and going forward, we will broadly describe the individual units within the brokerage business as "institutional brokerage" and "institutional services." "Institutional brokerage" includes cash equities, special situations, electronic trading, options, convertibles, and credit and "institutional services" includes prime services, global clearing, securities finance, and commission management services.

Our institutional brokerage business was up 54% year-over-year. In spite of a generally low volume environment, we're seeing the benefits of the scaled equities platform and have received positive feedback from a number of clients on the combination with Convergex. In particular, we feel extremely well positioned for life in an unbundled, MiFID II world as we continue to demonstrate excellence in both research and non-conflicted agency execution. More on that specifically in a moment.

The institutional services businesses rose 189% year-over-year and that growth reflects the diversification of the business that Peter talked about earlier on. The prior year period included only prime services. With Convergex, we've added several new business lines including clearing, commission management, as well as Convergex's prime pervices business. We are making steady progress with the integration of those businesses and continue to expect the acquisition to be accretive to earnings in 2017.

We are executing the integration in phases, which will allow us to realize synergies in technology, operations, and corporate as well as hearing -- scaling new business lines and this is at work even before we begin the idea of cross-selling. Earlier this month, we did announce the completion of the integration of Cowen and Convergex prime brokerage businesses under one umbrella.

Finally, we've been preparing for the upcoming implementation of MiFID II and I want to spend a few moments on that given the fact that so many shareholders and so many constituents in Cowen have asked. First, at Cowen, we've been preparing for MiFID II for years and while no one knows exactly how all the regulations will play out, we have positioned ourselves to take advantage of weaker players who have not prepared, and we do think there will be some shakeout. The buy side has been consolidating their commissions for years towards those research providers that add the most value to their process and in that regard, MiFID II is simply an extension of that trend through regulation. The winners in this world will continue to be those firms that provide differentiated capabilities in both research and trade execution.

We have made a conscious choice to make significant improvements in our vote standing and research because of the great emphasis we have placed on providing sophisticated research and the alignment of the firm's efforts towards those clients that find value in what we do.

And heading into 2018, we believe that we will be a major beneficiary of the reallocation of those commission dollars given our differentiated equities platform, which offers both that strong research capability as well as sophisticated non-research agency execution at scale.

We've also developed a MiFID II payment model that reflects each's client historical and anticipated needs as well as a shared understanding of that value as we have discussions with each individual client who is going through that transformation.

Furthermore, with the addition of Westminster Research Associates, which is a part of the Convergex acquisition we have, a MiFID II implementation plan, and a full service research payment account administrative solution, which we think will be a value added proposition for our clients in Europe.

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

Thank you, Jeff. In the third quarter of 2017, we reported GAAP net income attributable to common shareholders of $3 million or $0.09 per diluted common share compared to a GAAP net loss attributable to common shareholders of $4.9 million or a loss of $0.18 per diluted common share in the prior year period. Third quarter 2017 GAAP revenue was $178.8 million.

Compensation and benefit expense was $103.3 million. Non-comp expenses, excluding interest expense, depreciation, and amortization and restructuring costs, were $70.5 million. Net gain on investments and net gain from consolidated funds were $27.6 million. Income tax expense was $2.3 million and income attributable to non-controlling interests of $5.2 million.

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 third quarter of 2017, the company reported economic income of $8.3 million or $0.26 per diluted share. This compares to economic income of $11 million or $0.41 per diluted share in the prior year period. Third quarter 2017 economic income revenue was $182.6 million compared to $153.5 million in the prior year period. Investment banking revenue was $57.4 million compared to $36.7 million in the third quarter of 2016.

Quarterly brokerage revenue increased 75% year-over-year to $90 million. Management fees were $13.8 million compared to $16.5 million in the prior year period. Incentive income was $4.6 million compared to $11.8 million in the prior year period. Investment income was $15.9 million compared to a $19.7 million in the prior year period and other revenue was $939,000 compared to $17.2 million in the prior year period, which included a $17 million gain associated with the sale of our interest in the alternative solutions business of Cowen's investment management division.

Compensation and benefit expense for the quarter was 56% of economic income revenue compared to 61% in the prior year period. As a result of the acquisition of Convergex, our compensation to economic income revenue was lower than prior year levels. We expect this to be the case for the next few quarters given the shift in our business mix with the Convergex acquisition.

Variable non-compensation expenses in the third quarter of 2017 were $32 million compared to $14.8 million in the prior year period. This increase is primarily related to higher floor brokerage and trade execution costs related to the acquisition of Convergex. And again, for the next few quarters, we expect our variable costs as a percentage of revenue to be greater than prior year levels due to certain acquired businesses in Convergex, which have higher variable costs.

Fixed non-comp expenses, excluding depreciation and amortization, totaled $33 million in the third quarter of 2017, compared to $25.3 million in the prior year period. And again, for the next few quarters, we expect our fixed costs as a percentage of revenue to be greater than prior year levels. And as Jeff discussed, we are focused on the integration of Convergex and realizing synergies in the areas such as technology, operations, and corporate.

Depreciation and amortization expenses were $3.1 million in the quarter compared to $2.7 million in the third quarter of 2016. This increase is related to an increase in amortization of intangible assets related to Convergex.

Reimbursement from affiliates was $0.6 million in the quarter and is unchanged from the prior year period. Reimbursement from affiliates is a fixed charge, and we expect it to remain at this quarterly level for the balance of the year.

GAAP stockholders' and shareholders' equity increased by $71 million to $844 million at September 30, 2017, from $773 million at 12/31/16. Common equity, which is shareholders' equity -- stockholders' equity less the preferred stock, was $742 million compared to $671 million at 12/31/16. Book value per share, which is common equity divided by shares outstanding, was $23.87 per share compared to $25.11 at 12/31/16.

Tangible book value per share, which is common equity less goodwill and intangible assets, was $20.90 per share compared to $21.88 at 12/31/16. Invested capital was $691 million as of September 30, versus $657 million at 12/31/16.

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

Thanks, Steve. As you can see from our third quarter results, we are continuing to transform the organization to bring greater consistency to the platform. The investment management business is cross pollinating the expertise at Cowen to create new products and refocus its efforts on essential strategies that we believe will be successful in our platform.

By scaling the equity franchise with the Convergex acquisition, we made significant progress towards mitigating the quarter-to-quarter variability inherent in some of our other revenue lines. And with the investments made last year and prior years, the investment bank is making great strides in improving its revenue diversification as well.

As we have previously disclosed, the completion of the transactions contemplated by the agreements we entered into with CEFC China is subject to certain approval from the Committee on Foreign Investment in the U.S. and certain other customary regulatory approvals and closing conditions.

We continue to work on attaining the required approvals and satisfying those closing conditions. But as you can see, we are continuing to scale our business without the capital from CEFC. The progress we are making is not at all dependent on the completion of the transaction with CEFC. With approximately $1 billion in total capital today, we are fortunate to have the flexibility to make strategic investments and nurture new businesses to fuel our future growth.

Our near term priority is to complete the integration of Convergex as there are significant opportunities to drive margin expansion through cost reduction and revenue synergies. Before we open the call to questions, I just also want to thank everyone at Cowen for everything you do in making a difference at Cowen every day. Operator?

(Operator Instructions) The first question comes from the line of Devin Ryan of JMP Securities. Your line is open.

Maybe first one here on the investment bank. I'm just looking at ECM results year to date and clearly, revenues are much stronger in the last year, up 80% year-over-year. Last year was kind of a low bar. So just trying to get some perspective around how you would frame this equity underwriting backdrop we're in right now. Is this we've reverted to normal or is there still room to go? It feels like the broader markets are functioning obviously but it still feels like maybe there's some pent up issuance to come through. So I'm just curious how you guys would frame that and the potential from hereafter, kind of a good snap back.

I would say we tend to focus on the sectors where we think there's actually ECM to do, which was in health care. We tend to focus on health care because one thing about those companies is almost regardless of the market environment, they need to raise money and so there's a -- and we're really good at that sector as we've noted in the past. And I think what we're seeing is a continued approval of new drugs, continued funding of new drugs, the continued growth. Every time there's an acquisition in the sector, like we saw with Kite Pharma, which we advised on this quarter. Those CEOS go off to start new companies and raise more money and so I believe that what we're seeing here in that sector is an extension of a trend that began 6 or 7 years ago with an acquiesent FDA, a good regulatory environment, the science finally maturing and capital markets that understand how to price these.

2015 or 2016 was largely -- the overhang was largely due to drug pricing and there I think that debate continues to rage but it's less impactful as investors think that's going to be a harder thing to really implement. And so that sector is so much of our ECM business that I almost -- I don't look at the challenges in the tech sector per se as having a deep impact on us because those deals tend to be much larger and they tend to be trying to rationalize price between unicorns and what the public market will pay for it. And while we're involved in some of those discussions, we can't make that a central part of our business model because really we have no ability to effectuate the rationalization of private market valuations and public market valuations.

So I still think that for what we do in ECM we are extremely well positioned and we continue to look at other things, for example, like SPAC issuance and a bunch of other areas where we can compete head to head and do a really good job at taking market share. And so that's why I continue to remain bullish. The backlog looks as strong as it ever has and we continue to think things are going well.

Maybe one on just the outlook for incentive fees. It sounds like royalty partners realization activity has picked up there and I know there's some kind of unrealized fees that haven't moved through the P&L yet tied to that fund. So just curious how we should think about modeling a set of fees if there's a pickup in realizations or if we were to think about it that way.

Well, I think in those funds, they're private equity style funds. So as you know, as we talked about it, those performance fees get hung up in the last few investments you have in those portfolios. So I know the team is working feverishly on monetizing those. I don't have a strong insight as to when that's going to occur and of course, we figured that we started talking about this a few years ago, we figured that those would be rolling off more quickly. They're just taking time to mature and so we're not really giving future guidance on that. We know they're there. Those fees have been there for a while and when we realize those final investments in those funds and we roll into income.

Just trying to figure out if it's imminent or a little more drawn out but it sounds like probably still --

What I can tell you is the team is -- everybody has got economic alignment around making that happen sooner rather than later. But sometimes these are early stage companies. In some instances, it just takes longer for those realizations to occur and everybody is laser focused on it. I'm more cautious about throwing out time frames because I don't have insight there.

Maybe one just on Convergex and integration. It sounds like thus far, things have been going pretty much on plan. You're obviously talking about some of the additional revenue opportunities and expense opportunities above and beyond maybe what was initially targeted. How should we think about framing those? Is there any way or is the magnitude of where -- revenues where what's the biggest and do you have any sense of the size and same thing on the expense side, like how big those could be? Just trying to also think about this from a modeling perspective.

What we tried to do in this quarter, Devin, for the first time is really give you daily run rate numbers. So that gives you a sense as to the magnitude of the business relative to what the magnitude of the business was prior to the acquisition. And what I would say is that we had a really challenged July and August and I can't stress enough how dead the market really was in terms of volumes in July and August. We did the numbers that we thought we would be seeing in January of next year. So we certainly budgeted for an attrition of some sort, a small amount. And what I will say is clients are trading with us and not choosing not to trade with us. I think in a low volume environment, if I want to look at the positive attributes of this is in a low volume environment where people are choosing their counterparties extremely carefully where they want to trade, our budgeted numbers for this quarter are tracking to where we had hoped to be tracking in January after 7 months of acquisition.

So I feel like we're in a low and difficult environment, we're actually tracking to a better number than we anticipated, which is a super positive thing. In terms of incremental cost, I think we've taken out a significant amount of compensation cost just prior to the closing or just after the closing of the transaction. What we're going to be looking to do is really try and drive down more of the duplicative costs of running parallel technology platforms.

Orders of magnitude will be in the millions, no question. I think we want to run in parallel. There's still some systems that they're running at Convergex that were a little old, a little homegrown, and we have other systems we want to consolidate them on, and we want to run them in parallel. So I think our goal is to realize several million dollars more in cost savings as we head into, on a run rate basis, in 2018. And of course, we're going to be working hard to try and reduce our variable transaction costs and I just want to spend 2 seconds on that as Steve highlighted.

The big change in the model that you should be thinking about is that because of the clearing business, the international business, and the ADR business, those are high variable cost businesses. Good news and bad news. The good news is if those businesses slow down, the cost base at Cowen is much more variable in nature, that is that there are much higher variable costs associated with that business.

The compensation costs associated with that business are lower and so the mix is meaningful enough for us that it changed the way you should be building your model to look a lot more like what this quarter looks like in terms of revenue, comp, and non-comp expenses. We will go to -- we're hard at work trying to figure out how to reduce our cost of clearing, and I think Peter mentioned a number of ways where we can begin to internalize some of our own balance sheet to be more efficient, reduce some cost, reduce borrowing cost, and those I think, as we head into 2018, we're budgeting a couple million dollars in savings there as well.

So there's more to go and as it starts to unfold over the next few quarters, we'll be a lot more transparent with those.

Thank you. And our next question comes from the line of Steven Chubak with Nomura Securities.

This is Sharon Leung filling in for Steven. The first question kind of as a piggyback off of the Convergex expense question. You noted previously that you have plans to consolidate some of your broker-dealers, which needed approval from FINRA. Could you give us an update of what's the timeline we're looking at or if you've already received that approval?

Sure. The approval -- we have approval already to combine the 2 prime brokerage businesses, which we are in the process of doing. We still need approval from there, we need approval to do some more combinations. But we're still waiting for that.

We expect it should happen here.

Yes, it should be happening.

In the next quarter, maybe at the beginning of the year. But I think our expectation, what we budgeted in is that it would be a good 180 to 270 days. Again, it's going to allow us to consolidate. So if it doesn't happen in the fourth quarter, it will happen early in the first quarter of next year and you'll begin to see the benefits of that consolidation in our 2018 numbers.

Okay. And then a quick one on your capital management priorities, especially if you get the CFIUS approval for the CEFC deal. Can you just talk about your priorities between maybe pursuing some inorganic growth opportunities versus maybe pursuing additional buyback?

This is Peter. I think if we get CFIUS approval, the earliest transaction we would conceivably close would be late this year and maybe more likely early next year. They're inundated in Washington. They're very slow but assuming it does close, I think that we're going to take the capital and really use it for organic growth internally more than we're thinking about a buyback. Obviously, we're always looking at sort of our investment opportunities versus our liquidity versus the price of our stock. So I wouldn't say that we're not going to be stock back but it's not a priority when we have with the opportunities like a Convergex surfaces and we have to write a fairly significant check. Having that liquidity enabled us to do that. And I think you see a little bit of the evidence in the third quarter of the effect that Convergex just in our equity business.

And as Jeff has mentioned, as we integrate more and more, we get more of the cost savings out, the benefit of Convergex can be substantial. So I'm not giving you a very exact answer but that's kind of the best I can do right now.

You saw the investments we made in personnel organically last year in investment banking in a down year and certainly, we're reaping the benefits of that this year. We do have a stated objective here to increase our M&A and our leveraged finance businesses. Will that require significant capital? No, but we're going to be investing in humans and I think again the stability of the balance sheet is a critical lynchpin in people coming onto the platform.

And so we'll be doing things to grow the business, but as Peter said, if it becomes super compelling for us to buy back stock relative to book value, we're not averse to doing that. We'll be making those decisions as things unfold for us so as to see a post the CEFC investment.

And then one final one. Could you just give us a quick progress report as to the build-out of the sec lending business is playing out?

Without being specific, we're more than pleased with what's been achieved to date. It's off to a way better than expected start in terms of size and spread. So it's all good news.

One of the things we could point to I think in our numbers, you can take a look at the balance sheet and there's some pretty obvious spots where you can see the growth in the match book from securities lending and you can see the increase in interest and dividends and that -- while there's other stuff going on here that's a pretty good way to take a look at the spreads that we're getting in that business. And I think as we've said, our balance sheet has been an under levered balance sheet for a long time just because we're super conservative about the way that we run our business.

And so this is a very conservative way for us to bring leverage into the balance sheet with positive net interest margin and so that you're going to start to see as you -- it's going to be the first quarter in which you can feel it a little bit and that would be a great way to track to see how it's going.

We were ramping during the quarter. Our run rate is better than what's reflected in the quarter's numbers obviously.

(Operator Instructions) And our next question comes from the line of Nick Brown of Zazove Associates. Your line is open.

One question about your income -- economic income by business segment. You provide a lot of detail obviously in the press release on the revenue by segment but when I look and see that the actual economic income declined by about $3 million sequentially from Q2 to Q3, was that just because there was less high margin investment banking and incentive income in the quarter relative to Q2 or is there something else going on there?

No, that's pretty much it, yes.

At this time, I am showing no further questions. I'd like to turn the conference back over to management for any closing remarks.

I'd just again like to thank everybody for dialing in, thank, again, all of our colleagues at Cowen as Jeff said, for everything they do every day. We're super optimistic about where the firm is right now, all of the things we've done over the years. It seems like everything takes a little bit longer now than it used to when I was in this business a long time ago. But nevertheless, we're going to get to the same place.

So we're very upbeat, very positive, and look forward to being able to report favorably to you in the future.

Thanks, everybody.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everybody have a great day.