Evercore Inc (EVR) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Evercore Partners' full-year fourth-quarter 2009 financial results conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. (Operator Instructions). This conference call is being recorded today, Tuesday, February 2, 2010.

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

Thank you, and good morning. I appreciate everybody joining us today for Evercore's fourth-quarter and full-year 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 fourth-quarter and full-year 2009 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 one 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 and 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 mentioned, is on our website. We will refrain from repeating the information included in the press release and then focus instead on key opportunities, challenges, and changes in our business.

We continue to believe that it's important to evaluate Evercore's performance on an annual basis. As we have 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 Ralph.

To follow up on the caveat that Bob just gave that one shouldn't focus excessively on any particular quarter's results, nonetheless, I would have to say that the fourth quarter was a very encouraging quarter -- strong quarter in really almost every respect. We had record quarterly revenues overall and record quarterly revenues in our Advisory business as well. Our asset management business achieved $4.5 billion of assets under management, which is reasonably strong growth from the third quarter. And obviously our financial results are also encouraging.

The revenues for the fourth quarter of $109 million represent a more than 200% increase from last year and a 31% increase from the third quarter. I think, importantly, as we've discussed on the previous two calls that Roger and I have done together, we improved significantly the sellthrough of our revenues to net income. In the fourth quarter, our net income was up 50% as opposed to -- versus -- linked quarter in the third quarter -- as opposed to a 31% increase in revenue. And for the full year, our net income was up 700%, 800% from last year's level.

Margins, which we're very focused on, continue to improve. I believe we are making steady progress toward our long-term expectations of 30% to 35% pretax margins. And once again, I want to caution everybody to look at that on a trailing 12-month basis rather than in any particular quarter. But our operating margin in the fourth quarter was 28%. Operating margin for the year was 19%.

With respect to our comp ratio, we also continued to make progress, with the trailing 12-month comp ratio down to 64% from 72% last quarter and 76% at the end of Q2. And obviously for the fourth quarter, because we did have such a strong quarter, the comp ratio was approximately 58%.

Non-comp expenses, which we're also very focused on, you will notice a little spike up this quarter. That is really a function of the entrants of new business and some one-times associated with the launch of our Cash Equities business. We continue to focus very strongly on keeping costs under control. But you should expect a marginal tick upward in those as we build some of the businesses or expand our Advisory business, which we will talk about a little later.

And finally, I think -- and proudly from the firm's point of view, as a result of the success that we had last year, which Roger will talk about in the Advisory business in a moment, we were selected by IDD as the Investment Bank Boutique of the Year, and we also were awarded Restructuring Deal of the year in CIT and the healthcare M&A Deal of the Year, representing Wyeth and its merger with Pfizer.

Roger is going to now talk about our Advisory business. And just when we get to the Q&A part, I just want to point out that true to what we've described to you often, Roger and I are not in the same room. He's actually on his way to a client. So, if you ask, when we get to the Q&A and you ask questions and we both answer at the same time, that will explain it. Roger?

Good morning, everyone. I hope you can hear me clearly. Continuing Ralph's theme, we had a very good fourth-quarter on the Advisory side of Evercore, and a very good year as a whole there. We had record quarterly Advisory revenue of $99.2 million. We had pretax income in that business of $35.7 million, reflecting a 36% pretax margin. Our comp ratio was 53.5%, including all costs related to newly added partners. It was 46.5% if you exclude the amortization of equity-based comp issued to new partners. And those are good numbers.

For the year, we had record US Advisory revenues, US -- $261 million. The previous peak had been $235 million in 2007.

From a global point of view, our revenue was $287 million. That's the second best ever globally, with the previous peak having been $295 million also in 2007.

Some of the key metrics, the firm had 162 fee-paying clients in 2009, up from 149 the year before. We participated in 16 transactions carrying fees greater than $1 million -- $1 million per transaction. That's a record for us. Four of those were greater than $10 million.

Our average revenue per SMD per partner rose to $8.5 million from $6.1 million in 2008. That's a global figure. And we've watched that quite closely because productivity is perhaps -- as important a measure as any as we see it.

Now, what's behind this performance? First and foremost, we had an extraordinary year on the restructuring side, our best ever by some margin. And it reflects not only an extraordinary team of partners, and those who support them on the restructuring side of Evercore, but the culmination of many years of effort. And you have heard me over the years say many times that our goal is to get into the top three in restructuring. I must have said that 10 or 15 times over the years. And actually, we achieved that to the best of our ability to tell in 2009. The data is not perfect in terms of who did what business. Not everything is disclosed. But to the best of our ability to judge, we did finish in the top three.

Now, on the restructuring side, we advised on the largest restructuring in 2009 in the world. That was General Motors. We were the only advisor to General Motors on its bankruptcy and the only overall restructuring advisor.

We advised on three of the other six or seven top deals, largest deals -- CIT, LyondellBasell, and MGM Mirage. And, our team of partners, which will shortly expand further, is just clicking on all cylinders. It's really a remarkable group. And we are all extremely proud of the performance the firm had in the restructuring business in 2009, including because it's as much the most challenging and intellectually demanding part of banking as there is.

But Evercore also had a good year given market conditions in the merger business. We advised on the largest US merger of 2009, Pfizer Wyeth. We also advised on the third-largest merger last year, Burlington Northern and Berkshire. We represented Wyeth and Burlington in those two situations.

I might add that the Pfizer Wyeth merger was the largest in the United States since 2006, when AT&T's BellSouth occurred, and we also advised on that one. So it's interesting at least to me that Evercore has advised on both of the largest mergers of the past five years.

And, our performance in the [lead tables] this year, which we look at; I won't say -- we don't plan our business that way; we don't run a market share driven business at all. But nevertheless, our performance there was quite remarkable. Evercore finished sixth among all firms in the US on both announced deals and completed deals in M&A in 2009. That's our highest position ever.

And, to give you a flavor of what it means, the only firms that finished ahead of us were Goldman Sachs, Morgan Stanley, JPMorgan, Citi, and Barclays. So we finished ahead of Bank of America Merrill, Lazard, Credit Suisse, and so forth. And for a firm like Evercore, with 240 people, all people at all levels doing banking, to do as much business as all but six firms, most of whom have five, 10, or 15 times as many people doing the same thing, I must say is quite remarkable.

As far as the boutique category is concerned, Evercore dominates that in the United States. We did approximately 3 times as much business as the next highest ranked firm among boutiques. We did about $200 billion of business in 2009 in mergers. The next top-ranked firm did 67. For the decade as a whole, meaning 2000 through 2009, we have done approximately twice as much business as the next top ranked firm.

And, my final point is the following. I think if you think of how investment banking has evolved or is evolving, it's really evolving into a three tiered structure. The handful of giant firms we are all familiar with; Evercore and Lazard in a league essentially containing the two of them; and then a group of true boutiques. Because while we are obviously nowhere near the size, nor do we aspire to be ever, of the great big universal banks, our business has expanded to the point where we are not really comparable to most of the firms that the press refers to as boutiques.

And so increasingly, our footprint, whether it's sectorally, where we have continued to expand -- we now cover something like 21 industry verticals and that's going to go up again in 2010 -- or globally, where we're putting a tremendous effort into our, for example, our joint venture with CITIC in China; we're continuing to expand in Mexico and Brazil; and we are committed to strengthening our position in Europe. And I think 2010 will see progress there. The firm is really very different than it was at the time it went public in mid '06.

As you all know, we continue to add to our banking partnership. We added six partners in 2009. I expect us to add a similar number. I don't mean six precisely, but a similar number in 2010. We've never been in as strong a recruiting position as we are today, ever. And we are going to keep the pedal to the metal in terms of sectoral expansion or verticals, globalizing the firm and adding the greatest talent that there is. So on that note, I think I will hand it back to Ralph and to Bob.

I think Roger neglected to mention one thing about our Advisory results, and that is that they are also proof positive of the benefit of having him spend a good portion of his time focused on clients rather than having to spend some of his time as part -- CEO as well.

It was part-time.

Anyway, let me talk a little bit about our Investment Management and Wealth Management businesses. As we have said on previous calls, those businesses are clearly in a growth mode. From a financial point of view, I look at them in a transition from a business where you are investing to one where we begin to harvest profits from the business. I've said on previous calls and in numerous meetings that with respect to the businesses that we're in, our Wealth Management business, our Institutional business and our Private Equity business combined, we expect to be run rate break even by the end of next year, and we are clearly on a path to achieving that.

Assets under management, which is an important metric, but certainly not the one necessarily 100% correlated to profitability, were up meaningfully in the fourth quarter to $4.5 billion. That's up 26% from the end of the third quarter. Our fee-based revenues were up 150% this year versus last year.

Very importantly, and I think I've said this before, the best leading indicator of growth or asset flows in the asset management business is historical investment performance. And in that respect, we had a good year. All of EAM's products finished, all but one, finished ahead of its benchmarks -- and in most cases, materially ahead of their benchmarks. Our funds in PCB in Mexico, both their quarterly and annual returns are above benchmarks.

And in our Evercore Wealth Management business, our equity and balance products also were ahead of benchmarks. So those portend for hopefully continued momentum in those businesses.

I've also said that we continue to explore opportunities to increase the [health] of our Investment Management business inorganically. One of my theses when I came here was that the combination of Evercore's brand in the financial industry and my brand in money management could make us a good home for very high-quality firms that are looking for a partner to help build their business. And if the amount of inquiry that we are receiving, incoming, is an indication of that, I would say that we certainly have at least more than anecdotal evidence that that thesis has some merit to it.

With respect to a number of other strategic items, let me tick them off quickly. Hiring -- obviously we're in the hiring season now. Bonuses will be paid over the next month or so. We continue to follow the recruiting and hiring philosophy that Evercore had in place long before I was here. And it's worth reiterating because it's really important to the essence and the success of the firm. And that is we do identify sectors or industries or geographies where we feel we should add.

And then we go out and we try to find the best one or two or three athletes in that sector, and we try to get them to come to the firm. And if we can't get one of those people to come to the firm, we wait. Because, having been here for eight months and Roger having done this for 40 years, I think both of us can confidently tell you that the amount of revenue that an A+ or an A can generate is materially higher than what a B+ can generate. And that, again, is materially higher than what a B can generate. And, this is a business that really requires that we hire the very best talent. So while we have identified sectors such as real estate, energy, consumer, building products, and housing that we want to be in, it's highly predicated on finding the right people to fill those positions.

As we have talked before, we are intensely focused on enhancing the depth and breath of our team in Europe, and that is a major focus of our hiring activities. And once again, these things are -- I caution everybody -- they are binary. And even if you feel you have an 85% chance of getting someone, when it comes time to make the decision, it's either yes or no. And the probability never really gets factored into the equation.

But, we are heavily focused on hiring.

I would say that with respect to the environment, there are both pluses and minuses. I would say that the level of unhappiness at some of the larger universal banking firms remains high. At the same time, as you've been reading in the press, compensation at those firms has been largely in deferred compensation, so that what people would leave behind and therefore somewhat the cost for us of hiring is affected by that. So that's clearly a major focus of ours.

Second, I talked a little bit about Investment Management. There we have a two-pronged strategy. Number one, to continue to get the existing Investment Management and Wealth Management businesses to a point where they are contributors to profitability in 2011 rather than a drag on profitability. And then, we are evaluating a number of potential opportunities both in the alternative space and in conventional Investment Management.

And as I've said before, we would expect anything that we do in that sector to be an immediate contributor to earnings, not dilutive of earnings.

We announced in December the launch of our Cash Equities business and the expansion of our Capital Markets Advisory business. We have assembled a really strong team of people to get that business off the ground. And I have to tell you that the reverse inquiry that we have received in response to that has been extremely strong.

Both from our clients, who are appreciative of the fact that we have the capabilities and relevance to them on what for most of them is the second or first most important thing that they think about being, in some cases, strategic transactions and in some cases, how they capitalize themselves and how they interact with the equity market. So having the capacity to advise our clients and to be helpful to them, ultimately in execution of their activities in the equity markets is something that clients are receptive to.

And in terms of the talent inquiry, I have to say it's been stunning to us, the number of very, very high-quality analysts and salespeople who are attracted to a very high-quality, focused business that competes solely on the basis of its intellectual capital and its relationships, and is housed in such a prestigious organization.

So, obviously we're in our early stages there. We expect to get our underwriting license in the next week or two, maybe three; Adam Frankel has just laughed at me. And obviously the license to actually trade equities or to cross equities will take a little bit longer, probably some point early in the second quarter. But we are very encouraged by the inquiry and our outgoing calls as well.

And finally, let me just talk briefly about capital management. We've said repeatedly that we intend to be only in businesses that have low or no capital [intensivity]. That financial strategy allows us to return the vast majority of our earnings to our shareholders in the form of dividends, which we increased to $0.15 last quarter. And we will do an annual review in connection with our third-quarter earnings each year with respect to our dividend policy.

And then very importantly, as we do issue, and we do this to a much lesser extent than both our large and small competitors, but we do have some share issuance as part of year-end compensation. We've set a goal and a policy of buying back at least the amount of shares that we issue in connection with year-end comp. And clearly by staying in businesses that require no or very little capital, we are able to use our free cash flow for that purpose.

Let me now turn it over to Bob, who will review the financial highlights.

Thanks, Ralph. Ralph and Roger have addressed many of the significant financial metrics. So I won't repeat them. Just a few points that I know some of our investors are interested in. In terms of revenues from clients outside of the US for 2009, it's 18%. That's down a bit from prior years. But I think that's consistent with the strong contribution that restructuring has made to our results overall.

In the fourth quarter, we trued up our effective tax rate to a full-year rate of 43%. There's really two drivers of that. One, the extent of losses associated with the entities in which we have partners, minority interest holders. Those have the effect when there are losses of pushing up our effective rate. And the other factor is state and local taxes.

From a US GAAP perspective, the reconciling items for the fourth quarter are largely consistent with prior periods. For those who look at it, you will note one item which harks back to the second quarter, a $4 million reconciling item associated with a US GAAP charge required for the forfeiture of equity.

And then lastly, our balance sheet remains strong. We have liquid assets, cash and marketable securities of nearly $350 million at the end of the year, and positive working capital of approximately $275 million.

So with that, why don't we open it up for questions?

(Operator Instructions). Devin Ryan, Sandler O'Neill.

In the restructuring business, I just wanted to get some thoughts on whether you guys are seeing any drop-off in restructuring activity and new engagements, or do you expect we will see a drop-off, especially if the equity and debt markets continue to open up?

Roger, do you want to --

Well, that's the great big question for 2010. And if you look at, as you just cited it, Devin, what's happened in the credit markets and the white-hot rally that's occurred there, and for example, that 2009 was an all-time record in high-yield issuance, you know that that means that the level of restructuring activity as a whole, globally, for everybody, will soften. And the question is, how much will it soften? And the related question is, will the M&A side pick up accordingly?

You may remember that we've often used a chart which tracks the two cycles over a long period of time, restructuring on the one hand and M&A on the other, and shows that they are almost perfectly countercyclical. And so, history would say that as restructuring activity weakens, in relation to this economic recovery, which we're beginning to slowly see, that M&A activity would strengthen. And that is, so far, the pattern that's occurring.

Our own view is that we're in the early stages of a classic five to seven year M&A up cycle. All the events of 2009 or at least the second half of 2009 suggest that, but the emphasis should be on the word early. We don't expect this year to be like the space shuttle as far as global or US M&A volume is concerned, but we expect it to be better than last year. Again, speaking for all activity, not just Evercore.

And so the real question is, will M&A improvements offset an inevitable weakening or softening in restructuring activity? It's too soon in the year to know that. We don't know the answer to that. But that's the big question for 2010.

Got it. Okay. Thanks for all that color. And then just secondly, on the Investment Management business, it looked like management fees in institutional asset management dropped off just a bit from last quarter even though it sounds like AUM continued to increase. Just wanted to see if I could get any color on what's going on there.

Sure. Essentially, really you have two things that were -- partly as we talked about in the last call. Some of the AUM growth is in relatively low fee fixed income business in Mexico. So it under punches on an average fee per AUM basis.

And then the second thing is that in our ETC business, the trust business, fiduciary trust business, we have a mix of predominantly recurring fees, but some amount of advisory or consulting fees. And those were basically a knot in the fourth quarter. So, that's kind of the noise that would look -- whereas we're very happy with the positive momentum there, where there is a disconnect between the top line and the AUM. And then there's also a little bit of an impairment in connection with [pan asset].

Got you. Okay. And then just lastly, on the share count, it looks like it jumped about 6% from last quarter. Was this all related to new hires, or was there anything else going on in there?

It relates to the rise in the share price that really occurred in the third quarter, but we have the full weighted average effect, Devin, in the fourth quarter, things like Mizuho coming in, etc. That's really the driver. There are some new hires and there is some new hire equity, but it has a more muted effect simply because of the dynamics of a weighted average.

Got you. Okay. Thanks, guys.

Roger Freeman, Barclays Capital.

Good morning. I guess for maybe first on the Capital Markets, business, can you maybe talk to how the hiring has gone so far? Maybe if people aren't actually signed, maybe the 95% confidence rate, how many folks you have signed on so far?

Well, as I said earlier, 95% confidence is binary, one and zero. So we're not going to make any pre-announcements. We have begun to build out a little bit of the infrastructure. We've hired a COO. And I would say, and I was just reviewing this before I got on this call, we've received 30 incoming calls from noted analysts and a similar number of inquiries from very high quality, productive salespeople. And, we're going to take the same measured approach to hiring that we take in our Advisory business.

First of all, we can't make a nickel in the Cash Equities business until we have our license, which is going to be early in the second quarter. So, it's not like there's a gun at our head to bring a lot of people onboard quickly. And, one of the very, very good fortunes that we have and the way we set up this business is that we have as partners in the business, some real pros. Obviously, Charles Myers running the business has ran a very profitable business at Fox-Pitt Kelton. And Bart McDade ran the equities business at Lehman before he became President. Jim Burley was the head of equity capital markets at Merrill globally for seven years.

So, I would say that we would be foolish not to take advantage of the enormously talented group of people that we have investing in this business and helping us get it off the ground properly. And we're going to do it in the same, very careful way that Evercore's Advisory business was built.

Yes, that's helpful. And actually, you had brought up an interesting point before about targeting the A+ folks and waiting if you can't find them. So I guess you talked a lot here about the -- what sounds like pretty robust incoming inquiries. But how is that overlap with say what your target list was?

Well, it's -- there is a -- I think as we've said before -- the maximum profitability will come from finding analysts and salespeople who are in the largest portions of the equity markets and where we also have strong banking and advisory capabilities as well. The largest sectors of the equity markets are [SIG] and [TMT]. So we're focused initially on those two sectors. There is also -- happen to be areas where we have quite strong banking franchises. So we will not only have the commission dollar opportunity, but we will also have the equity capital markets and underwriting opportunity.

Logical sectors after that in terms of importance to the equity markets are sectors like energy, healthcare, consumer. And then logical sectors for us where we have strong banking are things like healthcare, and for example, transportation, which might not be a particularly large section of the market cap in equities, but is a very, very strong portion of our banking franchise.

Okay, got it. And I guess, just as you -- as you kind of think about the hiring environment, maybe capital markets, but also your core businesses, have you -- we've heard this from some other non let's say bulge-bracket firms where while so the hiring environment -- it got more expensive in the back half of the year -- as it got into year end and folks were starting to find out how little cash they were going to get paid, that there's been an increased step up and reverse inquiry back to the I say boutique, but I probably shouldn't say that. Have you picked that up?

Roger, let me just interject. We really don't hire that way. We do it -- and we've discussed this -- you and I have discussed this before and I've discussed it with others on these calls. We try to figure out the sectors where we aren't represented or should be more fully represented. And we then try to just find out through our own sources -- typically we don't use headhunters -- who the very best people are in those sectors, the very best. And then we typically reach out to them.

So, it's interesting when people call -- and I don't personally know whether the level of incoming phone calls is higher or lower because I don't pay any attention to it. But that's just not how we hire. We're in the strongest position, as I said in my opening comments, than we've ever been from a recruiting point of view. And the reasons for that are obvious given our results in 2009 and our momentum over many years. But that's not how we hire, responding to incoming calls. I don't think we've hired more than two people that I can recall at any meaningful level for years just based on somebody who called us up.

Although it sounds like in the Capital Markets business, just because you are building, it seems that maybe that's a little bit different.

Well, that may be. I'm referring to banking. (multiple speakers)

And I'm sorry for concentrating on hiring and comp, but that's key to your business. The comment you made about the costs of taking equity or buying folks out of their equity given higher deferred comp costs, can you compare that with, historically, maybe the percentage was lower, but you were hiring people that had -- obviously the A+ folks had years of built-up equity in their firms and obviously those stock prices are a lot lower than they were. So --

(multiple speakers) it's a complicated thing. Because first of all, people got paid a fair amount of stock in 2008. And as you recall, that stock was generally priced at or near the bottom of the market. So whatever they thought they got last year has, for the first time in quite a while, appreciated in value rather than depreciated in value.

And second, this year, I would say most of the people that we would be interested in hiring probably got somewhere between 75% and 90% of their compensation in deferred this or deferred that. So, those two things tend to increase the expense a little bit.

I do believe that as that happens, and I think this is -- the point, Roger alluded to is a really important one. We're not looking to hire people who are coming here because we're going to outbid where they are today. We want people who are committed to having a career at a place that is absolutely dedicated to and focused on our brand of banking, which is independent, classical advice, unconflicted, focused heavily on the things, the Advisory assignments, that are most important to our clients. So it's a career decision. It's not a one year or a two-year comp decision.

And, I really believe that sort of the yin and yang of the costs are a little higher, the costs are a little lower, we want to get the people who are really committed to doing the classical investment banking that was practiced when I started in the business in 1980 and certainly before when Roger started earlier than that.

Yes, when I started, in 1780.

I was trying to be polite. But anyway, I actually think we're going to get to a world where people are going to -- these are all grown-ups. They spend their times advising CEOs. And if they have $4 million of stock in XYZ firm that has a volatility that would literally pop your eyes out over the last year, are they literally going to say you have to replace that for every T&I? I don't believe so. I think will be able to have conversations with the right kind of person that doesn't say, okay, you have $4.286 million of XYZ stock and we will give you $4.286 million of EDR stock. Because, in the long-term, we're talking about people who are making hopefully ten-year plus career decisions. That's in the wash.

Ralph, I have to excuse myself in about six or eight minutes, so if anybody has any more questions for me they should serve them up.

Ken Worthington, JPMorgan.

Good morning. Good, I caught Roger. In terms of the European advisory business, I think you suggested over the last quarter or two that it was under hitting its potential. How did the business perform this quarter? And are you satisfied with its position as we start 2010?

I'll let Ralph answer some of that, but the short answer to your last question is no. We are, as Ralph likes to say, punching below our weight in Europe. And we have to strengthen it, and we have a lot going on vis-a-vis strengthening it. But the proof is in the doing, and when we have something to say, we will say it.

But I would say beyond obvious goals in terms of shareholder return and our P&L, our number one strategic goal is strengthening Europe, and that's getting tremendous attention here. Europe had a tepid year in 2009. I don't have the figures right in front of me because I'm out of town, but Bob can turn to those if you want them. It had a tepid year and it has to get better and it will get better or somebody else will be on this call, not me.

Can you talk about what you are doing to kind of improve the performance in Europe? You said you have a lot of things going on. Anything you can share?

One-word answer -- recruiting. And the answer to that is no. Nothing we can share. But we will have something to say at some point over 2010, and I hope it will be pretty exciting.

Ralph, anything --

(multiple speakers) answer.

No, the only -- I would completely agree with what Roger said. I guess I would make one other point. M&A in the US was down roughly 40% last year. It was down a little bit more in Europe, so the environment there is a little bit less conducive to revenue production. And I would also say that you asked how was the fourth quarter and are we satisfied. My response would have been better and no.

Okay. Fair enough.

The first question on the call was about the distressed business. Maybe continue on that. Can you give us color on the pipeline in the distressed business today versus what it may have been three or six months ago? We've got --

I understand the question. You know that we don't break out our backlog, and we certainly don't break out our results or our backlog by distressed advisory versus merger and acquisition advisory. So I don't have any numbers to give you. But the macro picture is the one I referred to in response to the first question -- Devin's question. History suggests that we're at a point where restructuring activity would soften, gradually, not precipitously and M&A activity would strengthen, again, gradually. That's the point at which I think we are in the historical cycle.

And so, you all have your own judgments as to how rapidly the cycle may turn or how slowly and what they mean for the investment banking business. But, it's certainly likely that restructuring activity as a whole will be weaker in 2010, and it's likely that merger and acquisition activity as a whole, not Evercore, but as a whole, will be stronger. And the question, of course, is the pace and how much. And that's an imponderable. We just don't know at the moment.

Okay. Just lastly for Ralph, in the Wealth Management business, how many producers do you currently have in the business? How did it grow over the last quarter? And do you have any goals, rough goals, as to how big in terms of producers you would like to be by the end of this year?

As a general matter, you have "two types of producers" there. You have portfolio managers who are interacting with clients and working with them on both asset allocations and security and manager selection. And we are pretty well built out there for the time being. And where we are adding a couple people is in the pure sales function. So, adding a couple hunters versus skinners.

And -- but as a general matter, we here, and there in management, and therefore, the management of Evercore Wealth Management is highly focused on the financial goals that we have set out for the Investment Management and Wealth Management business as a whole and for this business, particularly. And, obviously, the way you convert a business that's in an investing mode to one that's a contributing mode is you grow the top line more rapidly than you grow the expense line. And that's a very big part of 2010 in that business.

Do you have any numbers around the size of the business as it stands today?

Yes. Well, why don't I have -- the total headcount of professionals in that business is around 30.

Thank you.

Michael Hecht, JMP Securities.

I just wanted to follow up, and I'm not sure if Roger is still on or not, but I just wanted --

I am on; I'm on for another 1 to 2 minutes.

Okay, so I just wanted to follow up on the outlook for M&A activity. And you could talk about whether you are surprised by how slowly it feels 2010 has kind of started off. What's the level of CEO confidence you are hearing? In your view, is the economy and the credit markets at a point where they are really healthy enough to support a healthier pace of activity across both strategic and financial sponsor activity?

Well, first of all, I'm not surprised by what's happened so far in 2010 because 2010 just started. And you can't judge a year by what went on in the first 31 days of it or 32 days of it. Again, I expect in 2009 to show overall M&A volumes, both globally in the US, to be higher than 2009 -- 2010 higher than 2009. I'm quite confident of that.

Why am I confident? Because all the factors that historically suggest that, including the obvious point that the cycle has turned, and that the up cycles tend to be prolonged ones, are in place. You have, of course, continued rock-bottom interest rates. You have an improving, even if it's very slowly, economy and all the flow of data we've seen in the last, for example, two or three business days, confirms that. From the point of whether it's fourth-quarter GDP figure or whether it's manufacturing shipments and so forth, they all confirm that the economy is showing signs of life.

And you have generally rising equity prices. And all of that plays into higher levels of confidence at senior management levels around the world and the United States. And those are the factors that typically make for higher M&A activity. So, I think it's really likely that the cycle will continue to strengthen. And those are the fundamentals that always have that effect. And I can't imagine why they wouldn't again this time.

Okay, that's helpful. And then, just in terms of -- I'm sorry if I missed it. Where did we end the year in terms of SMDs? And then what's your target or your budget for SMD additions on the core M&A advisory side? I think (multiple speakers)

You might have missed it. I said that we added six Advisory partners in 2009, and we will add a roughly similar number in 2010. That isn't to say precisely six; it could be five, could be seven, could be four, but a roughly similar number. That's been our pace in recent years and we're going to stay on it.

Okay, that's fair. So I had you at like 40 at the end of the third quarter, so that was about six for the year.

Yes, actually, if you include Charles Myers, who's running our Cash Equities business, we ended the year with 42 SMDs.

Okay, got. That's great. And then just on the overall -- can you tell us whether your overall backlog, including both core M&A and restructuring on the Advisory side is up or down versus a quarter or a year ago? It sounds like you're seeing a nice gradual build, but clearly up; I just wanted to make sure I have that right.

I think you have to -- I think probably the best way to characterize it is stable. And obviously, when you have a quarter as we did, where some substantial transactions close, it would be a challenging thing to have a significantly up backlog at the end of a quarter that was so successful. But, it's stable.

And I think that if you listen to what Roger said and what I've said to a less extent because I haven't focused as much on the Advisory business in this call, on the one hand, we are extremely encouraged by our position in the industry and our footprint in the industry and the opportunities that we have sitting in front of us relative to our competitors.

But there are clearly some uncertainties, both with respect to the pace of recovery in the M&A business, and the pace of activity in the restructuring business. And as Roger said, after 32 days, you can't reach conclusions about that. I think all that does is highlight that in any given quarter, you're going to see some amount of volatility versus other quarters.

Okay, that's fair. And then just one last one for me. I just wanted to see if you could give any more color on the Cash Equities buildout. I know it's still early days, but I was just hoping you could help us or maybe over time you can help us on thoughts on budgeted spend, a little bit more on the timeline. And the way to think about it for 2010, basically, the Cash Equities build out weighing on comp ratio trends and continuing to drive a gap between your pro forma and GAAP comp ratios?

Yes, I think it's a little early to do that. I think we -- the way we've set this business up with -- where we are starting with an ownership position that's well above majority but not 100%, where we have other people putting money in, a real consequence dollar for dollar with us, and where we've created an equity ownership opportunity for the people we hire in the business, which we believe, based on the discussions that we've had so far, will allow us to hire people at a current cost significantly below what they are making today -- that we have done this in an extraordinarily shareholder-friendly way.

How to quantify that is a little more challenging because it depends on both the timing and the seniority of the actual hires that we have. And I'm not in the business of making predictions that don't turn out to be true, which is why I don't make many predictions.

And Michael, it's Bob. I would not expect in this business that we're going to have differences between GAAP and adjusted pro forma comp ratios for this. The numbers are just going to impact both (multiple speakers)

Yes. It will be completely transparent what we're doing.

Yes.

Okay, no, that's fair enough. Thanks for taking all my questions and congratulations on a nice quarter.

Bill Tanona, Collins Stewart.

Good morning, guys. A couple of quick housekeeping items. First, in terms of the special charge, I guess first, when will that no longer occur? And then second, can you kind of help us understand why it was so much in 2009? I mean $20 million seemed like a big number for the closure of a private equity fund that never got off the ground.

Actually a significant part of that, Bill, relates to not just the private equity, but more broadly to restructuring the equity compensation for partners who continue to stay with Evercore, but they've given up a significant amount of equity in the process. And GAAP requires the full extent of those shares to be recorded even though we've reclaimed the shares. So in the fourth quarter, as an example, we have a $4 million charge for GAAP. And I have to find my note. We reclaimed -- Paul, help me.

About 320,000.

320,000 shares in the process. So that's the largest driver of that, Bill, which is why we keep it out of the adjusted pro forma numbers.

And then when does that end?

When the ownership positions of people is completely in proportion to their contribution to the business, which is a process that doesn't happen instantaneously.

Okay. And then --

These are all things that are good for shareholders even though the accounting may not --

Would not suggest that.

Would not necessarily suggest that.

Okay. And then I guess just added to that in terms of the additional compensation as it related to the modification of the LP units, that obviously happened in the third quarter, but how long will that extend for as well?

That's going to extend for quite a while, Bill. What we did was we took an expense which was event-based. It was going to occur based on the transition in equity ownership of three partners and moved it from that unique approach to a more conventional time-based methoding. So we are simply taking a charge which was going to happen inevitably, and amortizing it over time rather than waiting for a couple of big hits.

Just to be specific, there was a not inconsequential like 6 million shares of stock that were owned by IPO partners that were unvested and the vesting was triggered by truly exogenous events like someone getting hit by a bus, which I think we all felt were totally inappropriate for a public company. So, in July, we filed an 8-K that identified all these amendments to our partnership agreement. And what we did is we put those 6 million shares roughly on a vesting schedule, a five-year vesting schedule, and that has, by the way, two benefits.

Number one, it gives visibility to the shares so it significantly increases their retentive value. And second, it gets rid of what I would claim to be a not particularly shareholder or public friendly provision in the agreements.

And in the adjusted pro forma representation, we've always included all of those shares as if they were outstanding on day one.

Okay, great. And then in terms of putting this altogether, as we think about comp in 2010 and beyond, how should we think about the comp ratio, one, in terms of a target; and then I guess two, I guess what you said on this call is that included in that figure would be the buildout of the Cash Equities, but exclude these costs that are associated with the vesting.

Okay. What I've said is that our longer-term goal is to have a 50% to 55%, comp ratio on a trailing four-quarter basis. And, the reason I don't pick a precise number is I think because you can land on a precise number, is I don't think it necessarily fosters long-term value creation in the Company. And let me be very specific.

If we were in a complete steady-state not hiring anyone, I believe it should be closer to 50%. But if an opportunity comes along to hire either a superstar or great people in the Advisory business or to add a business, it's going to drift up. And I would argue that that's contributory, assuming that we both choose well and execute well, they are both important to the long-term shareholder value of the business.

So we're not going to be mindlessly committed to a number. Because if you do that, what you are essentially saying is when you have that opportunity to really add to the value of the business, you are asking the existing employees to pay 100% for that addition. And that's not a recipe for long-term stability in the business. Those costs should probably be shared by both employees and shareholders.

Clearly, if the number one goal that we had was to get that comp ratio to 50% to 55% as quickly as possible, we would not be as active as we are in trying to take advantage of what we see are significant opportunities to expand our business today, both additional hires in businesses that we are in and in the Cash Equities business itself. So, what we are highly focused on is the per share value of this Company and adding to that in a very disciplined, controlled way. And so that's a long answer, but it is a nuanced set of decision making.

Great. Thanks for the color, and then, lastly, on the Cash Equities business. If you wouldn't mind just kind of helping us understand a little bit more of the dynamics. I know we've asked a lot of questions on this. But first, my understanding is that the strategic partners, so Jim and Bart and Myers, they're going to be contributing cash to this venture itself?

Yes. Basically, the rough numbers are -- at the very beginning, the day we opened -- the day we announced this, Evercore owned roughly 80% of this business; and the strategic partners Charles, Jim, and Bart owned roughly 20%. We have both agreed that we would set aside 20% of the equity, which, by the way, for the research people and salespeople that we're hiring, they also will be purchasing that equity. We have sort of set as roughly $15 million as an initial valuation. So effectively, $9 million of that would be coming from Evercore, $3 million from the strategic partners and $3 million from the people we are hiring in the business.

And I think that that is reflective of our best guess of what could be sort of a worst-case burn rate this year. And, we've done that.

And there's a remarkable focus that comes when you have very talented people dipping into their pocket and shelling out money side-by-side, with, in this case, Evercore. It's a very good thing. And that alignment of interest is something that we try to maintain in all of our businesses.

I do want to point out though that the roles of the three people that we discussed are quite different. Charles has been hired as a senior managing director, and he's a full-time employee. He's running this business. And you should think of him, although he runs a different business, as you would any other senior managing director of the firm.

Jim Birle has started with us as a senior advisor because he wasn't prepared when he started to commit to working full-time, although he is -- to pick the number Roger picked; he has already worked 32 days this week. And he's responsible for our equity capital markets activity. So he's really on the banking advisory side of our business, working with our clients on how they access the equity markets. And I can't tell you how valuable it is to our clients to have that kind of capability in an independent advisory capacity.

And Bart and his team are investors. They are active investors. They are here a couple days a week. But they are extraordinarily helpful, as are, obviously, Jim and Charles, who are here quite a bit more in helping us not only get the business off the ground in the right way, but attract and identify the very best talent.

Great. Well thank you for answering all the questions.

All right.

There appears to be no questions in queue at this time. I would now like to turn the floor back to Ralph Schlosstein for any closing comments. Please proceed.

Okay. Thank you very much for your time and attention and I hope we can produce this again. Take care. Bye bye.

This concludes today's Evercore Partners' full-year and fourth-quarter 2009 financial results conference call. You may now disconnect. Thank you and have a wonderful day.