Evercore Inc (EVR) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Evercore Partners second-quarter 2009 financial results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference call will be open for questions. (Operator Instructions). This conference call is being recorded today, July 29. I would now like to turn the conference call over to your host, Evercore Partners' Chief Financial Officer, Robert Walsh. Please go ahead, sir.

Thank you. Good morning and thank you for joining us today for Evercore's second-quarter 2009 financial results conference call. I'm Bob Walsh, Evercore's Chief Financial Officer, and joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer, and Roger Altman, Chairman. After our prepared remarks we will open up the call for questions.

Earlier this morning we issued a press release announcing Evercore's second-quarter financial results. The Company's presentation today is complementary to that press release which is available on our website at www.Evercore.com. This conference call is being webcast live on the investor relations section of the Evercore website and an archive of it will be available beginning approximately 1 hour after the conclusion of this call for 30 days.

I want to point out that during the course of this conference call we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

These factors include, but are not limited to, those discussed in Evercore's filings with the Securities and Exchange Commission including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the Company assumes no duty to update any forward-looking statements.

In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures which we believe are meaningful when evaluating the Company's performance. For detailed disclosures on these measures and their GAAP reconciliations you should refer to the financial data contained within our press release which, as previously mentioned, is posted on our website.

We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings, both on the advisory and investment management sides of our business. I'll now turn the call over to Roger.

Good morning everyone. I just want to make a simple introductory comment about the past quarter and the year to date which is that the most important event in the quarter and the most important event in the year by far occurred in late May when Ralph Schlosstein joined Evercore as Chief Executive Officer. It's quite a bit more important than our results for the quarter, even though I think they were good, and anything else that will happen in 2009. And I believe that this event, Ralph's joining, ultimately will turn out to be the most important event in the history of the firm other than the founding of it. So to put the quarter in context I wanted to make that observation and now I'm going to turn it over to Ralph.

Thanks, Roger, I'm only one person, but I'm thrilled to be here and to be both your partner and partners with the enormously talented partnership group that we have at Evercore. Let me start by making a few observations on what I have found in my first eight weeks here.

First, as I expected, Evercore truly does have the premier investment banking boutique advisory business in the US and its reputation is growing globally. We, as you saw, were the number one boutique in the US in the first six months and by a lot, more than double our next largest competitor in terms of volume of transactions. In fact, we were number four according to Thomson in the US overall, finishing ahead of many firms that were quite a bit larger than us.

And on the strength of our -- on the back of our strength in the US we were also, according to Thomson, the number one boutique advisory firm globally. And we were involved in some of the largest and most prestigious transactions in the first half of the year. And Roger will describe in much greater detail our advisory business.

Second, as I knew before I joined, we have first class professionals throughout this firm. Our advisory team is very senior, very talented and able to command the attention of senior executives at our clients, generating a lot of revenue based solely on their ideas and their relationships. This is true in the US and it's true in London where I've been twice and Mexico where I've been once since I joined, even though today the quality of people is not necessarily reflecting revenue production in those markets. Our professionals in our investment management business are similarly talented.

Third, I believe the brand and the reputation of Evercore is extendable to other related businesses with which I have deep professional experience, whether they be money management or other related businesses. I believe strongly, and my first eight weeks here have validated this, that the search for excellence oriented partnership-like cultures where the client is the center of the business is not something that is motivating just advisory professionals, but highly qualified people across the financial services industry. So I think we will have the opportunity over time to work with talent that goes well beyond the advisory business.

And finally, as I believe this quarter demonstrates, we have an opportunity to bring a little more disciplined financial management to a firm that has had a really strong entrepreneurial first 14 years. And to make sure that a growing portion of our revenue success shows up in our earnings.

Let me now talk a little bit about our financial performance and some of the highlights of the quarter. Financially I would have to say that our performance is like the tale of two cities, the best of times and the worst of times. The good news are the revenues. They were extremely strong, up 21% for the quarter versus the same quarter last year, up 18% for the first six months versus the same half last year. And this in an environment where M&A activity is off 35%, 40%, 45% depending upon which measure you want to use. That's an extremely strong performance and it's driven both by our advisory business and by the very strong position we have in restructuring.

Earnings, on the other hand, were disappointing and that's probably a kind characterization. The sellthrough of our revenues to earnings was negatively affected by a number of issues, some of which are one time and some of which require longer term attention. In the one-time category we have about $8.5 million of one-time expenses including, sadly, my signing bonus and a number of other items. Hopefully we won't be a hiring a new CEO every quarter, so those will truly be one-time, the portion associated with that.

In addition, in our private equity business we have a write down of $3.8 million associated with an investment in an oil and gas company, the write-down is actually very adversely affected by the fact that we are in the catch up period of our performance fees, so literally 80% of the decrease in value shows up on our financial statements and since we have a limited amount of already booked carry on our books today which Bob can go into, that certainly is not expected to recur. Together those two items would affect earnings by about $0.20.

The issues requiring longer term attention include three. First, Mexico. Mexico, we have a terrific business, the economic environment there is horrendous, much worse than the US or Europe. The economy is expected to decline by more than 10% and we're adjusting to that very aggressively. But there's not much that we can do in the immediate short run other than keep a very tight control on our expenses and to be agile on the revenue production side, both of which we are doing.

Europe, on the advisory side, we are punching below our weight. We've got good people doing many of the right things, but it's not showing up in revenues today and we're working on that.

And finally, our investment management business. We have a number of start up businesses, these are a drain on earnings and they also will get attention from management in the coming quarters. Those last three issues are not things that are immediate fixes, but they certainly will get our attention.

And finally, our investment in new partners, which we will continue to make as opportunity presents, are certainly a short-term drag on earnings.

I want to be very clear that while we are very proud of our position in the industry and the revenue growth associated with that position, we believe that our earnings are not acceptable and that this will be addressed by all of us in the coming quarters. Roger will talk about our advisory business, so let me talk briefly about investment management.

Despite the negative financial performance our investment management business made progress this quarter. First, we completed the acquisition of Special Fiduciary Services from BofA and formed Evercore Trust Company, that acquisition closed May 1. Substantially all of the clients came along with it and moved to Evercore. Our quarter reflects two months of revenues, two months of expenses and a bunch of acquisition costs going forward; the contribution will more fully reflect the run rate of this business.

Second, Evercore Wealth Management shortly after the end of the quarter passed $1 billion in assets under management. EWM continues to grow adding an office in San Francisco, two partners opened that office in June and two more will join in July. Evercore Asset Management grew to more than $330 million under management; performance has been very strong in the first half of this year. Normally I can tell you that that's a precursor, six to 12 months of asset inflows. But we never know for sure. And our results this quarter also reflect the consolidation of EAM because as we took on another investment group there we increased our ownership in the business.

And finally our private equity restructuring puts that business on a close to breakeven basis going forward. We talked about the write-down of Davis, our E&P company, in that fund and we have a limited amount of book carry left so that reversals there should be limited. Let me just highlight a couple of other issues and then turn it over to Roger.

Since the end of the quarter we amended our partnership agreement to better align our employee interest with the interest of our shareholders. The changes we made were outlined in an 8-K we filed on Monday.

The three most important of those are -- first, there was a significant amount of unvested stock held by IPO partners who were here at the time of the IPO. That stock vesting was triggered by events rather than by time, which caused our professionals to undervalue the stock that they owned and also reduced significantly its retentive value. So we've gone from an event-based vesting to a time-based vesting and that stock will vest ratably over a three, four and five year period of time.

The second thing we've done, as many of you may be aware, roughly 60% of the equity in this company is owned by the employees. They are subject to transfer restrictions which lapsed 100% of them in August of 2011. That kind of -- we don't believe that's the best corporate finance. So we've modified that so that those transfer restrictions will lapse ratably also over the next five years. The average duration will be a little later toward the end of 2011 rather than the middle. But certainly that will spread out any further overhang on the stock.

And finally, the thing that we did is we put in place a strong minimum shareholding requirement for all senior managing directors here because we believe passionately that the best companies, particularly in talent businesses, are owned significantly by their employees. All of our active and inactive partners agreed to these changes and are bound by them even though a simple majority was only required.

We are also embarking on a secondary offering today representing 20% of the shareholders of most of our partners who were here at the time of the IPO. I'm strongly supportive of this. I believe diversification is a sound policy for professionals in the financial services business. Certainly the last year or two would convince anyone of that, and we have a substantial number of partners who have 100% or more of their liquid net worth tied up in our stock.

The amount of stock being sold is modest. After the sale the employees will still own more than 50% of the Company. It will increase our float which I think is a positive thing for the Company. We're not selling any primary shares because our current capital base is adequate for the business that we are in today.

And finally, let me just talk very briefly about our priorities going forward. We will continue to build the advisory practice, that's our gem today. We will fill out areas in the US where we can add either industry expertise or product expertise. Many of you saw that on Monday we added Mark Burton who will join in October. Mark was a Vice-Chairman of Barclays and one of the most senior professionals in their financial institutions group covering depository institutions. We clearly want to return both Mexico and Europe to profitability and we want to capitalize on our ventures in the key emerging markets of China and Brazil.

In money management we're going to focus on helping our existing businesses grow and ultimately become profitable, carefully look at high-quality opportunities to expand that business. And obviously we're going to have a major focus on financial performance. We're not going to stop investing in building the partnership. Certainly if more high talent professionals become available to our advisory business we'll make those investments. But we are on a very focused effort to make sure that more of our revenues make it into our earnings. Let me now turn it to Roger.

Before talking about our advisory business just one more comment in the spirit of my opening one. We ardently pursued Ralph over many months and we're very fortunate to have him join us. Because, among other factors, it was time to have a professional Chief Executive Officer. And speaking for myself, I hope I'm a good investment banker, but I've never met anybody who is both a really good investment banker and a really good CEO at the same time, it's just not -- the two functions don't fit well together.

And I think the recent historical disconnect between our revenue growth and our earnings growth is illustrative of that, but the good news is I'm quite confident that over the short to medium term, let's say medium term, you're going to see improvement in that because the firm now has a very substantially strengthened management team. And I'm not going to quantify any of that likely improvement or anything like that, that's not what we do, but I'm confident about the direction.

Now let me just say a few words about the advisory business. By any standard the firm had, under current market circumstances, a very strong advisory performance. The revenues speak for themselves and the growth in the revenue speaks for themselves and I think you know the results of our peers and I think you know that their results have not been comparable.

But a particularly noteworthy thing happened this quarter which is that for the first six months -- this year rather, for the first six months Evercore is ranked fourth among all investment banks in the United States, it's Morgan Stanley at $240 billion of transaction volume -- this is Thomson Financial data -- Goldman Sachs at 160, JPMorgan at 150 and Evercore at 140. So Morgan Stanley, Goldman Sachs, JPMorgan and Evercore are the top four firms in the United States for the first six months of 2009.

Now I don't expect that to continue in terms of that level of performance because we are in a relatively weak market and there are some very strong firms against whom we compete. But in terms of relative performance that may well be our best ever. Probably is our best ever. And I think it's pretty remarkable.

In addition, for the year to date among boutiques, they not only have done more business than any other boutique, we've done more than twice as much business. And for the decade to date, in other words 2000 to the present, we've done actually 65% more business than any other comparable firm. I want to stop on that for a minute. We've done 65% more business in the United States since 2000 than any comparable firm according to Thomson Financial.

So the firm is not just the top ranked advisory boutique in the United States, it's top ranked by a mile. And of course we're proud of it. And I'm going to talk in a minute about why that is. But just to give you a few of the details underneath that, we participated in the largest M&A transaction in the United States this year which is Pfizer Wyeth where we advised Wyeth. We also participated in the largest restructuring transaction in the United States this year, which is General Motors, we advised and are advising General Motors.

We participated in two of the top 10 transactions in the United States this year between Wyeth and Verizon Frontier. We participated in two of the top-five restructurings in the United States this year between General Motors and LyondellBasell. The number of fee paying clients Evercore realized for the quarter and the six months rose again as it has in every recent period. And one particularly noteworthy statistic for the -- I believe this is for the decade to date -- average transaction size in the US, Evercore $4.3 billion, Greenhill 2.0, Lazard 1.2.

So obviously we have really done well in the large-cap multinational niche. It's historically been our strength even though we're happy to do and do lots of business with medium-sized companies and would like to do more. But we are particularly strong in that large-cap niche and as we have been for many, many years, and this quarter and the six months is a particularly vivid demonstration of it.

I might also add that while the data from folks like Thomson Financial, Dealogic and Bloomberg and others is not yet really developed we believe we've moved into the top three of the restructuring business. That's long been an objective of ours, you've heard me talk about that before. And between situations like MGM, Lyondell, CIT and General Motors and a series of others, I think we're in the top three in that business for this year so far, which is quite an achievement and, as you'll remember, a particular goal we have set.

Now the reason I think we've been so successful have to do simply with the people and particularly the partners of the firm. Evercore has a rather different recruiting strategy than its peers, it's not too obvious if you look just quickly, but if you really study it, it is obvious. We have historically recruited more experienced, more veteran partners and, by the way, we have historically paid what it was necessary to do that.

And our cadre of senior advisory partners, which is now 41, numbers 41, is particularly used to and experienced in working in the large-cap immunity. And so the seniority of our partners together with our emphasis on classical advice, and I think you know what we mean by that, has resulted in this extraordinary lead that the firm has among its competitors.

We did add four new advisory SMDs this year to date, George Ackert, Rob Pacha, Mark Friedman and Mark Burton. They serve to expand our sectoral coverage into transportation and infrastructure, midstream oil and gas, shipping and depository institutions, four sectors we did not cover before. Adding those up it means that we have more than doubled our sectoral coverage; in other words the sectors we cover since the IPO, we've more than doubled it.

And as Ralph just said, we're going to continue to recruit at the same steady but very discriminating pace that we have used I think over many years. So, the advisory performance of the firm was pretty dynamic. I think you know the statistics on M&A volume as a whole, it's down pretty sharply, it's down about 40% in round numbers year-over-year in the US and globally and it's down about 50% in round numbers year over year in transactions over $1 billion US and globally and the latter of course is where we particularly specialize.

So to have a revenue performance in advisory in the face of those poor market conditions is really quite remarkable. And we're quite proud of it. And once we get over the hump, as I know we will, in terms of converting a higher share of revenues to earnings, then the firm is going to be operating on eight cylinders and I think you're going to see some pretty remarkable performance. So on that note I'll stop and I think hand it back to Bob.

Thanks, Roger. Let me say if I can just wrap up quickly reinforcing a few of the key themes from our financial results that are important for the quarter and then we'll take questions.

As both Ralph and Rodger have indicated, this was a strong revenue quarter for the business and it represents our best quarter since the fourth quarter of 2007. Those results are driven by our advisory business, as we've said, where revenue for the quarter grew 19% to $68 million. And importantly, the contribution to income from the advisory business grew by 31% to $19.5 million.

Revenues also grew in our investment management business by 87% or to $2.9 million and this was driven by an increase in underlying management fees largely as a result of our new businesses. Of course that growth was offset by a loss from the investment management business which was significant of $15.3 million which was largely driven by the investment in new businesses, restructuring costs associated with the private equity business and the mark to market that Ralph had mentioned earlier.

With regard to that mark to market, as Ralph had mentioned, a significant portion of that $3.8 million represented the reversal of carry recognized in prior periods. As those of you who track private equity know, there is a portion of the carry allocation, there is an accelerated period where the sponsor can recognize a disproportionate amount of any gains and losses and in this quarter we recognized a disproportionate amount of the loss on the underlying portfolio investment. The remaining carry on our books is roughly half -- $500,000. So simply by definition we won't repeat that outsized loss in the future.

The new businesses, if I can touch on those for a moment, significantly contributed $3.1 million of revenue for the quarter. $2 million of that comes from ETC and, as Ralph mentioned, that is two months of their results. The new businesses also drove essentially all of the increase in non-compensation costs representing $2.3 million of those costs. Absent the costs associated with those new businesses, our non-compensation costs are up moderately and in our advisory business, as you will see in the press release, are down 12% on a year-to-date basis.

The compensation ratio for the quarter of 72.7% is higher than prior quarters and higher than we would have expected absent two items that we've already talked about -- one, the hiring of Ralph, as he mentioned; and two, the private equity restructuring charge which we had indicated we would be taking in our first -- when we announced our first-quarter results. The actual charge was $1.4 million, slightly lower than what we had initially anticipated. Excluding these two items the comp ratio would have been 62.2% for the quarter or 65.8% for the first half of the year, more consistent with the expectations that we have for the business at this point.

The one other item that I would call to your attention before we turn it over to questions is that in this quarter our GAAP results -- the difference between our GAAP results and our adjusted pro forma results is much larger than usual, and that difference relates exclusively to the $16.1 million charge that we reflected on a US GAAP basis relating to the forfeiture of equity awards by certain of our partners who are staying with us principally in the private equity business and we discussed the reason for that charge again back in the first quarter. So with those comments as a wrap up we're happy to take questions.

Just to preempt a question that I think we'll get, and Bob can correct me if I get these numbers wrong from memory, but I hope I have them right. On the comp ratio, if you look at the advisory comp ratio, the way we look at it is before and after new partners, we define new partners as those that are still within 24 months of having joined the firm because our theory is it takes 24 months for people to gear up and hit their stride.

So taking out the equity -- the stock-based comp in effect attributable to new partners, the advisory comp ratio was 52% and that's kind of the way we look at it in terms of running the business. It was on the advisory side, it was 52% the way we look at it, which is around normal for us. So with that let's take questions.

(Operator Instructions). Daniel Harris, Goldman Sachs.

The restructuring cycle is something I'd like to hear your thoughts about. It certainly feels like we're in the very early stages here, but if you had to characterize it, how would you have investors think about where we are today, how those revenues could grow for the next few quarters and years?

It's a difficult question to answer because the events in the capital markets, especially the credit markets, of recent months make it hard to be specific. We've seen of course an explosion of financing, in particular in May and June. I recall May was the largest month of total corporate financing in the history of the United States. And a whole series of marginal credits successfully refinanced themselves and pushed out or pushed back the pressure on themselves represented by over leveraged capital structures or any other factors that were exerting pressure on them.

Now to what degree that rally in the financing markets continues will have a lot to do with the length of the restructuring cycle. It's really good news and bad news at the same time. The good news is that such a recovery in financing and also the recent uptick in the stock market historically presage a recovery in the M&A cycle. And I personally think we're in the very, very beginning of an up movement in M&A. Don't get me wrong, it's not going to be volcanic, but I think we're in the very beginning of a recovery in M&A.

The bad news is the longer that financing rally goes on, especially as it includes access to the public markets for low rated credits, the greater the degree it could shorten the restructuring cycle. So it's difficult to answer that.

Now Evercore, as I said, has had a quite remarkable performance in restructuring. I could have mentioned a lot of other examples like Sirius XM, like Harrah's, and so forth when I did. And clearly it's going to go on for a while. But exactly how long really depends on this interplay between the restructuring cycle and the M&A cycle. Historically they've been almost perfectly countercyclical, so as one is rising the other is falling and vice versa. And it's just difficult to give a precise answer to your question, but those are some of the factors that enter into thinking about it.

No, I appreciate that, Roger, that's actually very helpful and certainly it seems like your results have benefited quite a bit in this quarter and my guess is would continue to over the next few quarters. And then you touched on it, but I'd like you to talk maybe a little bit about the state of the conversations that you and the bankers at the firm are having with senior managers and executives at the firms that you serve for advisory. Can you compare that to some extent versus the depth of where they were say a quarter or two ago and then how that relates say to the conversation levels you are having more in terms of the normalized environment we saw in say '04 to '07?

Well, two points, because we could really spend all morning talking about that, that's a very good question. One point is, there's a strong sense in the worldwide corporate community, not just American, that the economic recovery is going to be slow and subnormal. I think the black mood that prevailed six months ago, really black, has lifted and now it's really rather -- now it's gray. And therefore it's improved. But it's also very realistic as to what the recovery is going to look like. And your own firms, Goldman Sachs' economic forecast, is illustrative of that, by the way.

Now the other point would be historically M&A volume has correlated to a couple of big things. One is -- three things. One is the level of share prices; a second is the trajectory in the economy; and the third is a catch-all point which would mean -- which would refer to CEO confidence or senior management confidence.

The level of share prices is improving, as I said, that augurs well for M&A recovery. The trajectory in the economy, while still at the very beginning of recovery, is at least better than it was six months ago. And I think confidence, in a nascent way, is beginning to rebuild itself. So that's why I say that I think we're at the beginning of the up cycle or the up movement in the M&A cycle. So those are the comments I'd make on that.

You know what, that's great, Roger, thanks very much. And I'll actually hop back in the queue and ask some more questions later.

David Trone, Fox-Pitt.

Good morning. Could you tell us how things are going, whether it is short-term cyclical or kind of bigger picture longer-term stuff; how are things going at Braveheart and Protego?

Okay, let's go through each of them. First with Protego, as I said earlier -- and I literally was down there two weeks ago -- the Mexican economy is literally a disaster compared to the US or Europe. GDP is expected to be down in double digits, whereas in both the Europe and the US, we are low to mid-single digits.

It is affected by multiple storms of travel, automobiles, dependence upon the US exports. We have a really premier business there filled with really strong people. We are adjusting to the environment. There is virtually no corporate-to-corporate merger activity there today.

So our business mix is changing. We are advising public entities, both the national government and states, on transactions where they are raising revenue by privatizations or other transactions -- or financings. I think the business there will do extremely well in an incredibly challenging environment.

The forecast for the business there is somewhat back-end loaded, and I think we have people there who are both leading the business and working in it who are highly focused on keeping costs under control, and to have those be in proportion to the revenue production. So while the business there is struggling, I would say the struggles are almost 100% environmental.

In London, Braveheart, we have got some very strong people there. I have been there twice, and I joined the firm in eight weeks. They are doing many of the right things. We are missing some key sector and geographic presences. And there is -- I don't think you can judge any of these businesses on one quarter or two quarters, but we are clearly punching below our weight there. And it is a significant focus of management both there and here. And I would say that it is something we are very aggressively working on, and there it is part environmental and part our performance.

Okay, great. Then in the M&A business generally, not talking about your private equity funds but the TPGs of the world and those folks, they have a lot of cash, but obviously financing is tough to play the leverage game. Where do you think that goes in the next -- over the course of the next year?

Well, first I think Evercore will be more active with the larger private equity firms in the next year, both because they will start themselves becoming more active, and we've had a real focus on this for the last two years. We have formed a financial sponsors group here for the first time, for example. And I think that real focus is going to pay off.

One of the largest and best known firms, and it would not be appropriate to name them but one of the top three or four by any standard in terms of size and market reputation, told us that for the first six months of this year we were ranked second in terms of the quality of our coverage of that firm. That would never have happened at any point in our history.

So we are optimistic about how we are going to do, and these firms are very, very resourceful. I keep being asked sometimes -- you didn't ask this -- but I am often asked whether private equity is going to ever come back. And I really wonder about that question because, of course, it is going to come back. These are some of the most creative and capable firms of any kind in finance, and they will be active.

Of course we are not going to see transactions of the type we saw in '06 and '07, probably not again in my lifetime, which incidentally is a healthy thing. But I think 2009, they will be more active than they were in 2008 in various ways. Of course, a number of them have become active on the distressed side.

We are in the process of putting together a large debtor possession financing for one of the companies we represent. And a number of those firms are likely to be participants in that, which you wouldn't have seen three or four years ago.

So they have become more diversified. They focus more on distress. And they are not moribund. I mean, you did see a series of transactions so far this year, whether it is KKR's transaction in Korea on the brewing site or other examples of that like that. So I expect us to be more active with them and them to slowly achieve higher and higher levels of activity at the next year or two or three go forward.

Okay, great. Thank you very much.

Roger Freeman, Barclays Capital.

Good morning. Maybe this is a question for both Roger and Ralph. But Roger, you said at the beginning of the call you view Ralph joining as a monumentous (sic) event for the firm. So I guess my question is what are the meaningful changes we are going to see from you, Ralph? What is going to define you?

Because as I listen to what you said the Company needs to work on, you mentioned Mexico, Europe, recruiting. Those are all things that kind of was a plan to deal with, and obviously one is environmental, so it is nobody's fault. But asset management and investment management is really kind of the thing that I'd sort of use as coming in and defining your legacy around whipping that business into shape. Is that a fair characterization?

Well, first of all, I have to say every time I hear Roger make that introduction, it scares the hell out of me. Because one person never has that profound an effect on an organization, particularly a talent organization. But I think clearly --.

I didn't really predict Europe; I just said it would be a big one.

I might add one thing that when Roger approached me about this, the first words out of my mouth were, if me coming means you going, I'm not coming. So he's stuck with me for a while and vice versa, which I am thrilled about.

But I would say, first of all, if you look at the world that we are living in today and the brand that Evercore has as an organization, which is a very high-quality, high-integrity brand, and if I may be immodest for a minute, the brand that I have in the money management business, that we are an attractive home for very high-quality talent and capabilities in that business.

And I would also say that those businesses today are more attractively valued than they were a year ago. So a logical place for us to focus as a management team and for me personally is number one, to improve over time. And these things don't happen quickly. Unfortunately, there is no magic bullet in money management. Startups are really hard.

But over time, we should be on a path quarter by quarter of improving the contribution of the businesses that we have, and very thoughtfully and carefully exploring opportunities to grow that. I would say also, Roger, that I'm accustomed to working in businesses where the shareholders have always received a fair share of the top line of the business.

And when Larry and I, Larry Fink and I, worked together for 20 years at Black Rock, we always had a nonemployee shareholder, initially Blackstone, which Roger played a big role in. Then P&C, then P&C and the public, then Merrill Lynch, P&C and the public, and now BofA, Barclays, etc., and that is the only one that I haven't had direct contact with.

And in these businesses, in talent businesses, the most important shareholder decision is when you get done running your expenses carefully, the non-comp expenses, and paying your younger people, is how much of what remains goes to the shareholders and how much goes to the most senior professionals in the business.

I think both by focusing on some of these longer-term fixes and doing some of the things like we did with the partnership agreement, we are going to be a company that is sharing with the shareholders a fair proportion of what we generate in top line. And that is something that I personally am very proud of that I have always been a part of, and I think everyone here is committed to doing that.

Okay, that is helpful. And I guess on the investment -- on money management, can you talk about the assets in place today, sort of where you've got the foundation set that you can build around organically, where you might need to be sort of selectively looking at assets in the marketplace?

Yes, I could go through -- in EWM, Evercore Asset Management, $330 million of money under management. It is small and mid-cap core and deep value. Performance is good. We need a few quarters like that so that we can actually start getting asset inflows, and the breakeven there is probably somewhere around $800 million to $1 billion. And then after that your margins, it becomes a contributor.

Evercore Wealth Management just passed $1 billion in assets under management. It is led by Jeff Maurer, former CEO of U.S. Trust, good people. It is a question of getting assets in. The breakeven there is probably somewhere around 2.25 to $2.5 billion.

The trust company is going to be an immediate contributor, and as I think Roger said on the last call, it is in our client base. So hopefully, consistent with prudent fiduciary responsibility, we can help that business grow a little bit.

And then finally in private equity, we have a business today that is filled with extraordinarily high talent people that is a little stuck in the mud. And I think we need to be creative, which we are, exploring ways to put that business into a spot where it offers long-term career opportunities for the people working in it, and where it also has some capital to invest. Because I think we are going into an environment, which Roger talked about a little bit in the last question, where there are opportunities for private equity teams and professionals to put money to work. And we are in a frustrating position where we have got good investors and not a lot of capital to invest.

Okay, great. Then just lastly, Roger, following on your comments about the restructuring cycle and all the capital that has been raised and maybe pushing that out a bit; does it make sense down the road to have some sort of capital markets capabilities there so you can get involved in earlier stage recaps in the future?

Roger, we are giving some thought to that, but I don't know where we will come out. I really don't know how to say more than that because would we develop that capability? I really don't know. We are thinking about it. And Ralph's arrival, given how extraordinarily monumental and incredible it is, it's fantastic, Mt. Rushmore like, has caused us to give some thought to that. But I don't really know where we will come out.

Okay, thanks a lot.

Michael Hecht, JMP Securities.

Good morning, guys. Just wanted to come back to thoughts on the comp ratio. Thanks for the comments on the core ratio, which I think as you guys note in the advisory business, is closer around 52%, which I guess excludes some of the new hiring. But just wanted to come back to the reported comp ratio of 73%. Even when we exclude the one-time comp expenses for Ralph, we are getting an elevated kind of 60% plus.

So just help us think about the expected seasoning of new hires and over what time frame we should expect the reported comp ratio to get closer to your definition of the core comp ratio, which is just for new hires?

Let me handle that, because I have been asked it a lot over the last few weeks. I think it is a mistake to set a hard numerical goal for a comp ratio, because I believe what we should be focused on is on steadily increasing the earnings per-share of this business.

I think that -- and we don't want to be in a position, and I don't think our shareholders, which keep in mind is more than 50% of our shareholders work in this business every day -- don't want to be in a position where we are solving for a arbitrary comp ratio that we have set as a goal rather than for creating shareholder value.

The reality is if you hire a new partner, the probability is they hit their stride somewhere in year two or year three, and certainly not in year one. So it is the highly, highly unusual hire that doesn't have a depressive effect on margins, comp ratio, in the first year and also to a lesser degree in the second year. And I would passionately argue that we have to continue to do that.

Having said that, I stand by the comments that I made earlier that shareholder-friendly businesses in talent businesses, like investment banking and like money management, deliver a fair share of the top-line success to their shareholders. And I would expect that we would have continual, not necessarily every single quarter -- because if we have a quarter where it peaks up a little bit and there is an explanation, I don't want to eat these words -- but the general trend has to be toward continual improvement in our margins and in our compensation ratio.

Okay, fair enough. And then maybe can you talk broadly about any shift in the recruiting environment you are seeing? It seems you and a number of your boutique peers have been pretty active recruiting the last 12 to 18 months. But we have been hearing that the bulls' brackets are getting more aggressive, some starting to pay ridiculous pay packages again. Ghent. I mean, it seems like you guys are mostly done for the year, but how does that impact how you are thinking about your recruiting goals maybe for next year?

Let me comment on that. First of all, there is a seasonal element to recruiting. And if you look at over the last few years what this firm or any other firm has done, they tended to be more earlier in the years than later in the years. So on average, there is going to be -- you should expect some modest slowdown because hires tend to occur earlier in the year rather than later in the year.

Second, there is unquestionably a little bit more aggressiveness on the part of the major firms trying to retain their top talent. I would argue and I pretty strongly believe this, that what we are looking for are world-class talents that really want to be a part of a excellence-oriented smaller partnership type culture.

We are not trying to buy talent or to have people feel that the reason they come here is purely because the next year or two, they are going to make more money. Because the reality is three or four years from now if that is why they came here, they are going to look for the next uptick in comp.

This firm has an extraordinary record of attracting and keeping its talented professionals. And part of that is people come here generally for the right reasons. So while on balance, the aggressiveness of the current employers of this talent makes it somewhat harder to hire people, I would argue that's probably not going to dramatically affect the long-term progress that we make in that area.

Roger, do you -- you've had more experience with that.

No, I don't have anything to add to that. I think that is very well said.

Okay, and then just last one for me on the asset management business. I mean can you just give us a sense of when you are -- I think you guys have said you expect maybe to hit profitability at some point in 2010. Is that still the goal?

And then on top of the acquisitions that you have made to date and your organic growth goals, should we expect you guys to continue to consider acquisitions here to add scale even more quickly?

Well, what I said in the past was that our goal was to achieve breakeven or as close as we possibly could to it for 2010. And I would simply say that there ought to be a very substantial improvement in the earnings performance of that section of our business next year.

Now whether we actually get all the way to breakeven or not, I don't know. That may be a little bit of a reach. But a big swing should certainly occur, as I have said often in the past.

And I agree with that completely. Once again, I think the -- I don't like setting a hard and fast goal because I don't like eating my words. But here again, the trend is going to be aggressively in the direction of improvement in financial performance.

And the answer to your second question is, yes, I think we have to keep an open mind about inorganic opportunities in investment management as well. There is nothing to discuss at this moment, but the comments I made earlier about the attractiveness of Evercore as a home I think are true.

I think that is it. Okay, thank you very much, and we'll look forward to our call next quarter.

See you all later.

Thank you. Ladies and gentlemen, this concludes today's Evercore Partners second-quarter 2009 financial results conference call. You may now disconnect.