Evercore Inc (EVR) 2009 Q3 法說會逐字稿

Welcome to the Evercore Partners' third quarter 2009 financial results conference call. (Operator instructions.) This conference will be recorded today, October 28th.

I would now like to turn the conference over to your host, Evercore Partners Chief Financial Officer Robert Walsh. Please go ahead, sir.

Thanks very much and good morning. I'd like to thank you all for joining us today for Evercore's third 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 Robert 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 third quarter 2009 financial results. The Company's presentation today is complementary to that press release, which will be 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 one hour after the conclusion of this call for 30 days.

I want to point out that during the call -- 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 to 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 a detailed disclosure on these measures and to 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 previously noted, 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 Ralph.

Thank you very much, Bob. First of all, let me apologize in advance for Roger and me. We both have colds, so we probably won't sound too great.

This was an encouraging quarter. Financial performance, first of all, revenues were up. They were at $83 million. That's up 49% from the same quarter last year and up 17% linked quarter versus the second quarter of this year. And year-to-date, we're up 29% versus last year, which we consider encouraging given the challenging environment that we're in.

Importantly, the sell through of revenues to earnings was improved. Our net income of $11 million or $0.29 a share was a fourfold increase from the same quarter last year, and almost threefold from the second quarter of this year. And year-to-date, our net income is roughly 30% above last year.

Our margins, pretax margins, improved. They're still not meeting our longer term expectations of 30% to 35%, but they did achieve 23% in the third quarter. And our comp ratio was roughly 60%.

We've said repeatedly that we expect, over the next period of time, to make steady progress toward our longer term goals of pretax margins of 30% to 35% and a comp ratio of 50% to 55%. And we definitely are making progress on that path. We think we should be -- because of the lumpiness of our revenues and earnings that Bob alluded to in his introductory remarks, we believe the best way to judge that is on a trailing 12 month basis. And here again, we made progress.

We have a business that does require significant amounts of incremental capital. We therefore believe that we are in a position to return a substantial portion of our earnings during each period to our shareholders through dividends and share repurchases. Accordingly, the Board increased the dividend this quarter from $0.12 to $0.15. And over time, you should expect us to repurchase, at a minimum, shares issued to our senior professionals in year-end comp.

In terms of the business itself, advisory, which Roger will discuss in detail, continued to perform very well in a challenging environment, reflecting a strong position in both the restructuring business and the advisory business.

Geographically, Mexico, despite extraordinary headwinds, did well. We made money there. Europe continues to be a challenge. And during the quarter, we implemented a greater unification of our advisory business, running that on a more integrated basis between the US and Europe because we believe our clients expect that, and we want to deliver the very best of Evercore to each and every one of our clients. And Roger will provide much greater detail on the advisory business.

In investment management, I've said repeatedly our goal is to achieve a breakeven run rate by the end of next year. And we're on a path to achieving that. Assets under management were up $700 million to $3.6 billion at the end of the third quarter. Roughly half of that increase was in our Mexican business, PCB, which tend to be a little bit lower fees, which is why don't expect as big a pop in revenues as you might expect from -- otherwise normally from a 25% plus increase in one quarter in assets under management.

Our fee-based revenues did exceed $10 million for the first time since we went public. And that includes $4 million from ETC, the business that we closed on in the second quarter.

Importantly in investment, performance was good. The EAM funds, small and midcap value and growth, are both doing well. Our Evercore wealth management products are performing well. PCB in Mexico is performing well. And my experience in this business tells me that, under normal circumstances, good investment performance, if it continues, is a precursor for asset growth.

In terms of the operations of the business, I mentioned earlier our comp ratios for the quarter were a little over 60%. Judging -- in looking at our trailing 12 month comp ratio, the progress we made this quarter brings it down from 76.5% roughly, as of the end of last quarter, to 72.5% at the end of this quarter. And we are committed to making steady progress in reducing that to 50% to 55% over time.

Non-comp expenses were a little bit higher than target, primarily associated with transactions that closed in the period. And Bob will give you more insight into that.

With respect to -- I guess I've been here five months now. This is my second earnings call. And I think in terms of the priorities of the Firm that we're focused on now, clearly we believe, given the unsettlement in the financial industry as a whole, that we are -- have a pretty unique opportunity at Evercore. If you could describe that vision in a sentence or two, it might very well be that we have a chance to create the Goldman Sachs, Morgan Stanley, Lehman Brothers of the early to mid '80s.

And since Roger and I were both at Lehman during that period of time, I can tell you that that was a firm that was truly filled with extraordinarily talented people who competed on the basis of their ideas and their relationships and their intellectual capital. Lehman, the firm I'm most familiar with at that time, had roughly $150 million of tangible equity at that time, not terribly different from what we have here.

And those were businesses that were extraordinarily profitable and were in essentially three businesses, the advisory business globally, the institutional money management business, and non-proprietary parts of capital markets where there was not any real risk of balance sheet. And I think there is certainly the opportunity for Evercore to become a firm like that in the coming years.

In terms of what are we focused on going forward, clearly in the advisory business the goal there is to continue to recruit absolutely top line talent. We added five people in the past year. We certainly have a goal each and every year of adding four to seven senior partners. We're focused in the sectors that we aren't covering fully today.

We clearly are focused particularly on Europe, where we're punching a little bit below our weight. And now is the time that we're -- should be lining up and recruiting the people that we hope to have join us in the first quarter of next year. And as I've said repeatedly since I've been here, and certainly has been executed brilliantly before I came here, recruiting top line talent is a business in and unto itself. It takes as much focus and dedication as going after a client.

In investment management, we're really focused on two things -- first and foremost, steady progress in the businesses that we have so that we can achieve the goal that we've set of run rate breakeven by the end of next year. And then second, the thesis, I think, that I articulated in our last earnings call that I would expect that the combination of Evercore's extraordinary brand and my modest brand in the money management business, that we would see numerous inorganic opportunities.

I may be saying this for seven quarters in a row without doing anything, so don't get excessively excited about this. But, we've certainly -- there's a lot of activity in the sector. We're looking at a lot of things. And as I've said before, if we ever did anything, it would be -- it will be in the model that we have started in our money management business, which is a holding company model where we would own part interest in the firms, effectively being partners with very talented investors. And anything we do here will be done on an accretive basis.

And then finally, we are looking at a part of the capital markets that is -- meets the criteria that I outlined earlier, the cash equities business based on a research-based model. Many of you who are on this call work in firms who operate with those -- with that type of a model, where you have research and very high quality salespeople. It's a model that's carried forward by many boutiques.

We believe that business can earn very good money in and unto itself, and that it offers us an opportunity to expand somewhat our relevance to our large clients by either helping them raise capital or by advising them on their capital markets transactions. So, that's something that we are evaluating reasonably actively at this point in time.

Let me now turn it over to Roger, who will talk in detail about the advisory business.

Good morning, everyone. Well, the Firm simply had quite a good advisor quarter, and is having, given market conditions, especially M&A market conditions, a very good advisory year. We had $71.6 million of advisory revenue for the quarter. That's the third highest advisory quarter we've ever had, which, given, as I said, market circumstances, is encouraging. It was up from $68.4 million last quarter and $56.8 million on the revenue side a year ago -- the year ago quarter.

Our margins in advisory strengthened, as you can see in the press release. Our comp ratio declined, and it's 56.5% for the quarter. One particularly good thing, I believe, is that the results on advisory were well balanced between restructuring and M&A. We had good performance on both sides.

Some of the major restructuring assignments that assisted us in the quarter were General Motors and CIT. And then, some of the M&A assignments which assisted us in the quarter were Sanofi-Merial, the sale of Iridium, EMC, Data Domain, and a financial advisory assignment, a very important one, in Mexico for the federal government.

Also, the mix of our revenues was encouraging. We had 11 fees over $1 million, but we also had 78 fee paying clients in the quarter, which is up from last quarter. So, we have on the one hand a series of healthy fees, but on the other hand a lot of fees.

I think you all know or, if you don't, I'm going to be very, very happy to remind you that Evercore is far and away the leading firm in this market -- in the United States market in the M&A business. And while the data on restructuring is just not very precise, the Thompson Financials of the world and the Dealogics and so forth don't keep it the same way, I'm quite convinced we're in the top three in restructuring this year, which is particularly gratifying after making such a big commitment to that.

But, on M&A year-to-date, we have done more than twice as much business as the next ranking firm. We've done more business than the next two firms put together. I'm using Thompson Financial data. Rather remarkably, we are the fifth ranked investment bank in the United States through September. The first four are Morgan Stanley, Goldman Sachs, JPMorgan, and Citi, and then Evercore, which, when you consider that we have 41 partners in banking and 140 people or some number like that -- I'm sorry. What would be the total number? What would be the total people in banking?

One thirty in the US and 190 all together.

Okay, so 200 people, 41 SMDs, 200 people. To be the fifth ranked investment bank in the United States, when most of our competitors have four, eight, 12 times that, I think says a lot about Evercore. And as you know, for the decade so far, in other words beginning in 2000, we've also done approximately twice as much business as the next closest firm.

Now, I just want to make one comment on why I think that is, and then we'll talk about the outlook. I think that's because of two factors. One, from inception, Evercore has defined banking in a very specific way. And we like to call it classical banking, but what it really means is a real commitment to the intellectual side of finance. And our partners are not salesmen, they're not coverage people, they're not people who walk around with the same book on a given day to eight different clients. They are real bankers in the historical sense of that term.

Now, that definition of banking in turn led us, over all these years, to recruit, of course, people in that mode or that mold. And that has led us typically to recruit at quite senior levels because it's those levels where you find people who have that commitment to classical banking.

So, the combination of our approach to banking and the relatively senior nature of our partners and the fact that Evercore, yes, pays what it takes to get them, I think has given us quite a stronger franchise in banking and such a giant lead among comparable firms. We just have a better cadre of authentic and senior bankers.

Now, finally a comment or two about the outlook. My own view is that the merger and acquisition cycle is beginning to strengthen. I'm quite convinced of that based on our own -- what we see ourselves. I would emphasize, though, that that strengthening is likely to be quite gradual. It reflects a very basic combination of factors which historically have produced higher M&A volume, namely rising share prices, very low interest rates, a sense that economic conditions are at least beginning to improve, and in turn improved confidence at senior management levels. Those are the factors that always have produced higher levels of M&A activity, and they are manifesting themselves again.

Now, historically, as you may recall from a lot of our presentations, the M&A cycle and the restructuring cycle have been quite countercyclical to each other. I mean, rather at -- I won't say it's perfect countercyclicality, but it's very close to perfect. And so, the big question is whether the restructuring cycle will wane as the M&A cycle recovers as historically it has. There are a lot of people who think the restructuring cycle will be longer than it has historically been, including some of our peer firms. We're just going to wait and see.

We have a lot of momentum in restructuring, and if the cycle turns out to be longer than it has historically, we will really benefit from that. But, it's too early to judge how that historical countercyclicality will play out, for example during the next year. We just can't judge that yet.

So, on that note, I think I'll stop.

It's Bob. Let me just wrap up with a few points on the financials and then we'll take questions.

As both Ralph and Roger have indicated, revenues were strong in all aspects of our business. One point I would highlight is that the revenues from our international clients and our international investment management activities on a year-to-date basis are now about 20% of the total revenues, still lower than they have been in the past. But, it certainly is significant improvement in the quarter.

On the comp ratio, it is down predominantly as a function of the growth in revenues. The other factor I would just highlight is, while this quarter benefits from the absence of some of the one-time costs we highlighted in the second quarter, the absolute amount of that decrease is offset in part both by higher revenues but also, as you all know, the costs of our new partners that we bring in predominantly in the third quarter, or at the end of the second quarter and in the third quarter, really begin to impact our full year results in the third quarter and then again in the fourth.

In terms of our non-comp costs, as Ralph indicated, they did rise slightly, a bit ahead of our expectations. We had anticipated some uplift in the costs as we now have a full quarter's results for all of our new investment management businesses. And as we highlighted in the press release, transaction related costs on the advisory side of the business were up slightly. These are the costs that are not reimbursed by clients were up slightly this quarter for some one-time -- or related to some transactions that closed in the quarter.

I'm sure you all noted that our share count increased significantly. This is predominantly a function of the rapid rise in our stock price during the quarter and that affect on the earnings per share calculation. It also reflects the full quarter effect of the equity Ralph purchased in the second quarter.

And finally, our balance sheet remains very strong as our liquid assets, our cash, cash equivalents, and marketable securities grew again in the quarter up to $288 million.

So, I'll wrap it up with that and open the call for questions.

Thank you, sir. (Operators instructions.) The first question is from the line of Devin Ryan with Sandler O'Neill.

Hi, Devin.

In the M&A business in the sectors where maybe you are seeing a pick up in conversations with clients and they're actually starting to think about doing deals, what would you say the hold ups are from actually getting deals announced? Is it disagreement on price or the ability to finance the deal, or is there something else there? Just any color would be appreciated.

Hi, Devin. It's Roger. Well, keep in mind that most deals, although not all, are long in the making. I mean, earlier this year we announced -- or it was announced that Pfizer and Wyeth were merging. We represented Wyeth. It was the biggest merger in the United States this year, and the second biggest of the past five years.

That took a year, give or take, between the initial discussions between the companies and the announcement. And we announced this quarter our representation of ACS in the pending sale to Xerox. We initially began working with ACS at least a year ago.

So, in my experience, most transactions take a long time to evolve. I don't think there's anything particular holding them up right now. It's just that they take, as I just said, a long time to marinate, so to speak. And that's just the nature of the business. So, a transaction announced tomorrow anywhere, three cases or three times out of four, will have been in the works for four months, six months, eight months.

That's just the reality of it. On any given day, there can be factors that affect a deal, negotiations on price, whatever it is. But, there's no generic response or across the board response to your question. I think the conditions for -- the conditions in the M&A market, as I said in my remarks, are improving, but they're improving slowly.

Okay. Thanks for that color. In terms of, I guess, your comment obviously that the low interest rates are a positive, do you view the potential for rising inflation maybe as a risk to an M&A recovery? Or, just trying to think about what the risks are to an M&A recovery.

No.

Okay.

No, I'll be happy to elaborate.

It's just he's got a bad cold.

No, none of the CEOs that we work with see inflation rearing its head over the next couple of years. And most of the smart ones don't think they can look out more than a couple of years. So, they're not concerned right now. And there may be an exception here or an exception there. By and large, they're not concerned right now with inflation. There is no inflation. The economy is so weak that pricing power is really muted.

So, the answer -- that's why my answer is no. I haven't talked to a single CEO in a month who raised concerns about inflation over the medium term. If you asked them about five or 10 years out, they might have a different answer. But, they don't feel they can see out that far, and no one else can either.

Got it. Okay. No, that's helpful. Thanks. And then just lastly, looking at the investment management business, you guys are clearly, I think, making solid progress moving that business towards breakeven. Can you run through each of the businesses just quickly and highlight -- I know you kind of did this on the call, but just are there certain businesses that are progressing better than your original expectations where maybe asset growth is ahead of schedule or businesses where the opposite would be true? And also, in the release you guys don't give asset under management by business. I don't know if you guys have those numbers or are disclosable.

Yes, I think as a general matter, and this is really based on my experience at BlackRock. The nature of the investment management business is such that when you have a diversified portfolio of products or businesses, at any given point in time lots of things affect the trajectory for them, the demand of institutional or individual investors at any given point in time for the product that they are making at that point, their relative investment performance compared to others in that same business, and very often, just the period of time that you are in business and the trajectory of your investment performance.

So, I really do look at these as a business, not as each one individually. And I think that's the way we should look at them, quite honestly. The businesses that are very much on a -- I think the newest business, Evercore Wealth Management, they talk about their business directly to their own clients. That business started just about a year ago. It has about $1.3 billion under management right now. I think you'd have to say that that's an impressive trajectory for a first year of a -- in the money management business.

And I think the performance -- our EWM business, talk about a sector that you didn't want to be in the last year, small and midcap value.

EAM.

EAM. I'm sorry. What'd I say?

EWM.

Oh, I'm sorry. EAM, Evercore Asset Management. And they're -- the performance of every single small and midcap value manager, in fact every large cap value manager, was horrendous last year. It has been exactly the other side of that hill this year, staggeringly good. And the -- I think you could probably count on one hand or one finger the number of awards that were made in small and midcap value by institutions in the first six to nine months of this year.

So, even through there aren't major awards there, the right things are happening. And my experience in the business would tell me that, over the next year, their performance will be rewarded. Our business in Mexico is -- just passed the $1 billion assets under management mark. It's on a very good trajectory. And our private equity businesses are operating at roughly a breakeven this quarter.

But, once again, I really -- I don't mind giving you this information, but I think that as we get -- as we grow in this business, it'll be significantly more important to look at the aggregates than it will to be to get granular with each and every one of these.

And we're not going to break out AUM by business.

Yes.

Okay. Okay, great. Thanks for taking all my questions.

Well, thank you.

Congrats on a good quarter.

Thank you. Other questions?

Our next question is from the line of Roger Freeman with Barclays Capital.

Hi. Good morning.

Hey, Roger. How are you?

Good, thanks. Sorry about the dual colds, but I guess it's proof that you two are working together pretty closely.

I assure you it wasn't as a result of a kiss.

I wasn't going to go there.

Smart thinking.

I guess -- well, let me first start out with a sort of macro comment, Ralph, the -- or a question. Your commentary around sort of over time creating a Lehman like business 1980s style, which, of course, that rings close to home to me. But, what -- there's a lot in that, and I know your probably just throwing that out as a framework. But, to build a capital markets business, research around that. I mean, is a -- it would be a fairly significant commitment. I mean, is this something you see made over a number of years?

Roger, let me just say one thing, and then Ralph will answer it and he'll elaborate. Don't misunderstand the comment. Evercore is going to remain a boutique no matter what. And everybody -- it's like the old Potter Stewart line about pornography. Everybody knows a boutique when they see it.

So, we're not going to change that. That's immutable and permanent. Go ahead, Ralph.

We agree on that.

We do.

Well, let me --.

And let me just explain to you, Roger, I think, and to everybody that as we look at our business, we want to be in businesses -- or we compete on the basis of our ideas, our intellectual capital, and the strength of our relationships. And clearly the advisory business, M&As, restructuring, strategic advice, is one of those businesses. Clearly, the investment management business is one of those businesses.

To take your example of the Lehman of -- or my example of the Lehman of the 1980s, one looks at capital markets. The vast majority of capital markets businesses that Lehman was in at that time would not meet that criteria. The commercial paper business, the fixed income business, those are balance sheet businesses.

I would say that --.

Which obviously we would not be in.

Which we won't be in.

Right.

But, the one area that it seems to us that is worth exploring, and it's a model that has -- most of the analysts on this call are in firms that are boutiques that have precisely this model, a combination of a cash equities business and a advisory business.

We have an extraordinary advisory business. And we do believe that it is worth exploring whether we could incrementally add to the value of this firm by adding what we think is probably the one business in capital markets that would meet the criteria that we've outlined, keeping in mind that -- what I said at the outset, that we're going to be in businesses where -- that don't require incremental capital and where we can return to our shareholders, in the form of dividends and stock buybacks, the vast majority of our earnings.

There are very few -- to the best of my knowledge, there's one business in capital markets that you can do that with, and that's cash equities. But, even there, we're talking about doing this is a way that is measured and careful, and we would only do it if we can find Evercore quality people and in a way that's benign for shareholders.

Okay. That's very helpful and obviously makes a lot of sense. But, just to tack on, a basic fixed income trading business doesn't necessarily need a lot of capital, either, if it's liquid.

Roger, it's pretty easy. We're not going to do that.

Okay. Great. Then you've answered it. Okay. So, let me jump in a couple of other quick things. The -- oh, okay. Roger, your comments about the balance of revenues in the advisory -- or balance revenues between advisory and restructuring.

Yes.

Can you just clarify a little bit more? I mean, are you talking about balanced revenues in the quarter, or just a better balance?

I'm just talking about a good balance. And we're not going to break out, as we never have, the division between the two. It's just a reasonably good balance. That's all I'm going to say.

Okay. And then, just on asset management -- or investment management broadly. I know you're not giving the individual components of AUM, but I think you said like roughly half the increase was in the Mexican business. So, for the other half, I guess is it with a -- was wealth management the large recipient of that?

It was predominantly in wealth management and EAM. And the only reason I said that is that I didn't want people multiplying a growth in AUM times our average fees per AUM, because in Mexico this is more of a cash or short term fixed income and the fees are lower as a consequence.

So, in wealth management, how do you -- how are you looking out maybe over the next couple of quarters? Because I think you're coming up on a year since that deal was done, and I think some of the non-solicitation agreements run out. So, fair to assume that that's going to pick up in terms of flows?

I think that -- I think we try very hard to avoid making projections, both on paper and on this call. So, I'm not going to answer that question. I think -- I will say that we're pleased with the progress in the business.

All right. Just lastly, Roger, can you follow up a little bit on the -- I guess Ralph made the comments on the unification of the European and US advisory businesses. What does that mean from a practical standpoint?

Well, what it means is that if you think about our client -- the client base of investment banks in general and particularly of Evercore, because we have a -- we tend to have a -- while we do many smaller and medium sized transactions, we seem to have a particularly strong position with the largest corporations around the globe.

And, I mean, the reality is that companies domiciled in the US think of themselves as global companies, and companies domiciled in Europe think of themselves as global companies. And they expect to be covered in a unified way by their advisors. And so, our clients, we believe, think of themselves as global companies and we believe, therefore, that our advisory franchise, in order to be responsive to them, should think in exactly the same way.

And I would cite as an example, a month ago we made a call on a client that happened to be domiciled in Europe. We had a -- one of our European bankers was on that call. Roger was on that call. And the industry specialist was on that call, who happened to be located in New York.

And Ralph was on the call.

And I was there as well. But, that to me is the prototype of what our clients should expect of us, delivering, without regard to where the banker happens to be domiciled, the very best of the firm. And to give -- just to make it more poignant, we were told by the CEO we had a half an hour for the meeting, and the meeting lasted almost two hours.

And I walked out of that meeting saying that's -- this is what we should be providing to global clients of Evercore. And I think there are very few firms that could have fielded a senior level team of that nature and engage that CEO as we did.

Great. Thanks for that.

Okay.

Our next question comes from the line of Michael Hecht, JMP Securities.

Good morning, guys.

Morning.

Just wanted to follow up starting on the M&A business, I guess. Can you just help us maybe characterize your current backlog of traditional M&A assignments and restructuring deals just relative to a quarter ago? I mean, I'm obviously not looking for a number, just kind of a qualitative comment about the directionality or the trend.

Well, as you know, we don't release our backlog and we don't talk about the composition of our backlog. So, I'm saying this with a smile. Since Ralph is the diplomat in the firm and I'm kind the tough guy, the answer to your question is no.

You couldn't tell that from this call, could you?

The answer to your question is no. But, I would say our backlog is improved and that it's, at the moment, quite well balanced. And that's all I'm going to say.

Okay. It's helpful. And then, you mentioned in Europe you're still kind of punching below your weight. I mean, how much of that is kind of market share versus what seems to remain even more depressed M&A trends in Europe versus the US, if that's in fact what you guys are seeing? And then, maybe just a little bit on your outlook for the recovery internationally on the M&A side.

It's both. We have an inadequate market share of a more depressed market.

We don't have as substantial a team in Europe as we will have.

Right.

We're both -- we're too small, we're -- we don't have the sectoral capabilities there or -- and we're not, to the degree we can, deploying the ones we have here over there. We just have a lot of work to do, but we will get there.

And I think in fairness, and it's something, quite honestly, I believe to keep in mind as one looks at these myriad of boutiques popping up today.

I mean, Evercore as a US business has existed for 14 years. And we had a partners' meeting yesterday to preview the earnings call, and I think it's fair to say that you can look at this business today and see that it has some real genuine opportunities in front of it that might not have been true three, four, five years ago. And some of that is a function of time and a lot of it is obviously a function of extraordinary execution and great talent.

Our business in London is three years old. And that is -- seasoning and building a brand is not unimportant in a business where you're trying to command the attention and fees of CEOs, board members of the equivalent of Fortune 500, FTSE 100 companies, or whatever.

And so, I think it's a bit unfair to sort of say that we're doing great in the US and we're doing horribly in Europe because those businesses are truly at very different points of maturity.

Right. Okay. That's fair. And then, just to come back to the strong growth in assets this quarter, the 25% AUM growth.

Yes.

Can we get some sense of the breakdown of kind of flows versus appreciation? I mean, the global indices were up 15%, 20% in the quarter. I mean, is that a good way to think about appreciation versus inflows?

Well, I don't know if we have even that exact number. But, I think if you look at our businesses, the amount of equities that we have is probably less than a few -- it's probably $700 million, give or take. So, the rest of our businesses are either private equity or fixed income, which would have -- would tend to have a flattish type result in terms of market appreciation.

So, the vast majority of that, using that kind of data, would suggest that it is flows rather than appreciation.

Got you. Okay. That's helpful. And then, just to follow up on the commentary before about the cash equities business. And, I mean, I guess another way to ask, are you guys thinking about an organic build out there, or something you think make more sense to pursue acquisitively to get a certain level of scale and infrastructure? And then, a broader question on that is, I mean, do you worry that part of the reason that Evercore has been able to gain share in M&A, as you point out in your comments, is your unconflicted status relative to larger firms? Don't you think entering capital markets and cash equities starts to blur the lines of differentiation between the --?

The answer to your first question is that our plans aren't that far advanced yet. And the answer to your second question is we're not concerned about that. And the reason we're not concerned about that is because, if we do this -- and there's no assurance we will. We may not. I want to be very clear about that. We may not.

But, if we did it, we would do it on very much a boutique basis. It would be a -- we're not -- we have no interest in either using our balance sheet or trying to compete against XYZ big securities firm. And we would envision serving our clients with this capacity rather than --.

Competing.

Competing against them. Evercore has never competed against its clients and never will.

I mean, basically where you get into trouble in these businesses in conflicting with your clients is when you're deploying the firm's capital for the benefit of the firm rather than for the benefit of your clients.

And it's interesting. I had a banker visit me the other day, and they described the process in their own firm before they took on an advisory assignment. And they said one of the things that they always ask themselves is was there -- before they took the advisory assignment, was there an opportunity to make money as a principal with this company. That is what happens when you have a large balance sheet and you have to earn high returns on that capital.

I think we've said myriad times, and certainly have said a number of times on this call, that our goal is not to build up our balance sheet but rather, to the extent that we produce earnings, to return them in the form of dividends and share repurchases to our shareholders. And by definition, I think that implies that -- and requires that our business be a business of agency activities that serve our clients.

Okay. That's fair. That's very helpful. Thanks. And then, just last housekeeping question for me. Tax rate at 42% a little bit elevated? I mean, I think you guys talked about the mix of non-US maybe being a little bit heavier. So, how do we reconcile that and what's a good expectation for tax rate here?

As you point out, Michael, the tax rate moves as the mix of business and the expected mix of business for the year is factored in. It -- I would not expect any material shift in that number based on the way we look at the business today.

Michael Hecht. Okey doke. Great. Thanks a lot, guys, for taking all my questions.

Sure.

Thank you.

The next question is from the line of Daniel Harris with Goldman Sachs.

Hi. Good morning, guys.

Hi. How are you?

Good. So, one of the question I was thinking about, you have a lot of capabilities in the US and you're building out in Europe. If you think about your partnerships and joint ventures in the Far East or South America, do you ever consider building up your own headcount down there as well, or in the Far East?

I think the -- we just went through -- in fact, our partners from Citic Securities in China are here all week. We had a board meeting and a number of client calls together.

And I would say that as a general matter where there are -- where we have a relationship with a large enterprise in a large market, as we do in China and in Japan, that those are likely to be the way that we, for the foreseeable future, pursue those markets.

I think if you look at our relationships in the Americas, we own a business in Mexico and we have a -- we own what was originally a boutique firm in Mexico, and we have a strategic relationship with a boutique firm in Brazil. And I think we're constantly evaluating what is the best structure in those markets, and we'll continue to do that.

Thanks. That's very helpful, Ralph. And so, you guys talked a little earlier, and I think this is not much different from anything you've said in the past about a target of four to seven senior hires over the course of any given year. My guess is from your commentary today that a significant amount of that may be focused on Europe next year. But, how should we think about that if Europe is going to grow or it's going to be one of the areas you guys will want to focus on more, does that mean that you are going to hire less in the US, or would that be elevated?

Well, first of all, I really wouldn't draw the conclusion that you just did. It isn't necessarily the case that our hires in Europe will be -- or that Europe will be the focus of our hiring effort. We are focusing primarily on sectors right now and continuing to build out our sectoral coverage. We have today 2.5 times the number of sectors we had when we went public three years ago, a little over three years ago.

And so, we're looking for the best people in sector X or sector Y or sector Z where we feel we're not yet addressing it correctly. And that may not result in a particular surge of Europe hiring. Eventually, we'll have a large team in Europe, but I'm not sure it'll be -- all play out in the next six to nine months.

So, I don't think that's quite the right inference. We're just going to continue to hire high quality people with two perspectives, one, sectoral, as I just said, and two, best athlete.

I would add to that that it's not like we sit here and say we want a minimum of four and a maximum of seven. I think that it's -- we're going to -- if there is a person either sectoral or general or geographic that we believe can add materially to our franchise, we're going to hire them. And if we find three of those, we'll hire three. And if we find eight, we'll hire eight.

And it really is -- and there are two factors underway here. One is that -- and one that shouldn't be ignored is that there are fewer of these type of people in the larger firms today than there were a year ago, and there were fewer a year ago than there were two years ago. So, the pond in which we're fishing is a little bit more limited because many of them have already devolved from the -- some of the larger, full service firms.

Okay. No, that's helpful. And then just lastly for me, have you seen any difference in terms of the experiences you guys are having with financial sponsors today? Obviously, my guess is they're more active than they were six, 12 months ago. But, do you think that that changes over the next few quarters? Do they get more involved with the market, or do you think it's going to continue to be more strategic in nature?

Well, over the next few months, I think you're going to see more on the strategic side than you are on the financial sponsor side. The sponsors today, yes, are getting more active. A lot of them, however, are focused on monetizing assets they have. And I think there's, at the margin, a little greater emphasis on that right now than there is on the buy side.

But, financing conditions, while improving very dramatically, are nevertheless still less buoyant than we saw a while -- a lot less buoyant than we saw a couple years ago. So, for the next few months, I just can't see beyond that, I think you'll see more strategic M&A than you will financial sponsor driven M&A. And as time goes on, maybe that will better balance itself. But, the bottom line is, they're more active. They're recovering.

Okay. Thanks a lot.

Our next question is from the line of Joel Jeffrey with KBW.

Good morning.

Hi.

Morning.

Just a couple of quick follow up questions. Roger, you had said that, and I think you've said this for the past couple of quarters, that CEO confidence is starting to improve. What are they telling you are still their main concerns with getting even more positive?

Well, I think there's a sense that the economy is showing a few signs of life, but only a few. So, I talked to two CEOs who attended The Business Council meeting about a week ago. The Business Council meets, I think, twice a year, and it's, give or take, 100 of the leading CEOs or just -- or former CEOs. And every meeting, they -- each CEO fills out a survey, and at the end of the meeting they release the results of the survey to the CEOs. And 60% of the CEOs at this meeting projected growth for 2010 of less than 2% in real terms. So, a better year but not a very good year.

And that is what I think is -- that's a good metaphor for the way CEOs are thinking. Business is showing some signs of life, but only a few.

Okay. Great. And then, on the investment management side, you commented that a lot of this -- the increase in assets under management came out of the -- out of your Mexican business. Is that something that's likely to be sort of a one time thing, or is there something down there that's causing significant growth?

Well, in this particular case, it was more of a one-time thing because it was related to one of the advisory assignments that we had there. And so, it's basically some -- a big financing was done that we advised on. And some of that -- the proceeds of that financing weren't immediately needed and we were given the opportunity to manage the money.

Okay. Great. Thanks a lot.

Yes.

Our next question is from the line of Ken Worthington with JPMorgan.

Hi. Good morning.

Hey, Ken.

Morning.

Maybe first, to help with the outlook on advisory, can you give us any color on if and how you're moving resources around within advisory? I'm not sure if there's anything worth noting in terms of movement by either sector, geography, or service.

Well, at the -- at all the levels below a senior managing director, meaning partner, resources are quite flexible and we have the capacity to move them really very easily, and we do move them easily. So, we have the capacity, for example, to move resources at those levels to restructuring if there's a surge in restructuring needs, and there has been in recent months, or flow them back to the M&A side if there's a need there. And we obviously have the capacity, if we all of a sudden have an assignment, for example in Greece, which we do right now, to staff that from New York and so forth.

So, I would just describe us at having great flexibility beneath the level of senior managing director. At the SMD level, you typically have -- not in every case, but you have a lot of industry specialists and you're not going to take a financial institutions person and put them on a oil and gas deal.

So, the flexibility primarily is below the SMD level, and it's very considerable.

The reason I asked the question, and maybe I misjudged the question, but it was a try to look at where you see the business going as opposed to maybe moving resources in reactions to mandates won. So, is there -- do you move resources around to try to get ahead of things, or is it really just more reactionary? And if it is to try to get ahead of things, again just are you seeing specific trends or opportunities and what are they?

First of all, I think you have to look at -- I would answer that, in some respects, the same way I answered the investment management question. I don't think anyone is smart enough to tell you this sector or that sector is going to take off in the next six to 12 months in M&A.

So, what you want to be is, number one, have the best people, period full stop, and number two, be diversified. And I think the fact that we cover 16 industry sectors today versus seven when we went public on average, should mean that we're going to be a broader participant in whichever sectors happen to be active at that particular point in time.

Second, very often what stimulates activity in a sector is a deal done by someone in that sector and not fundamental things that you can analyze. And when a transaction occurs, other competitors start looking at their position and, in effect, deals become self-fulfilling in a sector. And who the hell can predict that? So, the answer is you want to be diversified.

Okay. Thank you. Maybe moving on the Mexico, can you give us an update on the business environment in Mexico? I think that's probably the region, even though it seems like it's your smallest by SMD count, where we have the hardest time getting a sense of how the environment is. So, how is the business environment south of the border and what is the outlook there?

The business environment in Mexico is very challenged. You can see that from the basic data. Mexico has had a very difficult year, a very challenging year. Part of that relates to its economic connection to the United States, which is such a big one. And obviously the weakness here, part of it relates to specific issues they have had there from swine flu to drug related issues and other things. But, the business environment is quite challenged.

But, it seems like you're still winning mandates there. And maybe from the prepared remarks, it almost seemed like Mexico is even doing better than Europe.

Well, it's a -- if you measure it by -- it's a very disciplined business, and we have a business there that participates both in local and cross-border and in public and private sector. And I think the diversification, once again, of our business there and the creativity and the very disciplined cost control, we have a business that, by all accounts, shouldn't be making money, if one looks at the headwinds economically, and is.

Okay. Thank you. And then, to follow up on a previous question on the investment management business, it seems like you don't want to give sales information. Is that something that we actually can get either offline or in the future? It's a very basic piece of information. Since we can't judge performance effectively from where we sit, sales becomes the way we judge success of the business. And I think all the other publicly traded companies give us sales figures.

Okay. It's a fair question. We'll address that.

Okay. Great. Thank you very much.

There appear to be no further questions. I would now like to turn the floor back to Ralph Schlosstein for closing comments.

I just want to thank everybody, and most importantly thank the extraordinarily talented professionals in our business for the performance this quarter. And hopefully, we keep it up. Thanks very much.

This concludes today's Evercore Partners' third quarter 2009 financial results conference call. You may now disconnect.