Evercore Inc (EVR) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore fourth-quarter and full-year 2013 financial results conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be open for questions. (Operator Instructions). This conference call is being recorded today, Wednesday, January 29, 2014. I would now like to turn the conference call over to your host, Evercore's Chief Financial Officer, Bob Walsh. Please go ahead, sir.

Good morning. Thank you for joining us today for Evercore's fourth-quarter and full-year 2013 financial results conference call. I am 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, our Chairman. After our prepared remarks, we will open up the call for questions.

Earlier today, we issued a press release announcing Evercore's fourth-quarter and full-year results. The Company's presentation today is complementary to that press release, which is available on our website at Evercore.com. This conference call is being webcast live on the Investor Relations section of the 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 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. 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 have noted previously our results for any particular quarter are influenced by the timing of transaction closings. I will now turn the call over to Ralph.

Thanks, Bob. Good morning, everyone and happy new year. Let me start by saying simply that 2013 was another good year for Evercore and the fourth quarter was another good quarter. 2013, the full year, was another record year for Evercore, our 5th consecutive year of significant growth in net revenues and earnings and the fourth quarter was a record quarter in terms of revenues, slightly higher than our fourth quarter last year.

Our operating margins increased to 23.2% from 20.6% in 2012 and our compensation ratio declined to 59.2% marking another year of progress toward our longer-term goals. Our results reflect, in our view, the attractiveness of our independent advisory model to clients globally and the success of our disciplined approach to investment in our business adding clients, growing marketshare and expanding the range of advisory capabilities that we provide to our clients.

We made significant progress last year on most of our strategic objectives. We gained marketshare in the advisory market as our advisory fees grew more rapidly than our independent firm and universal banking competitors. The productivity of our advisory partners increased nearly 15% to more than $10 million of revenue per senior managing director. We recruited five advisory senior managing directors in 2013 expanding our capabilities in Latin America and Singapore, increasing our presence on the West Coast with a new office in Silicon Valley, adding Healthcare Services to our healthcare practice and adding to our ability to advise large institutional investors on their private equity, infrastructure and real estate holdings. Yesterday, we promoted two of our most talented managing directors, strengthening our position in energy and the utilities industries.

Our early-stage businesses were profitable as the Institutional Equities business continued to gain marketshare, our Private Funds business increased revenues by almost 80% and the Wealth Management business finished the year with assets under management of $4.9 billion. In addition, our Private Equity business in Mexico grew during the year, closing our third fund with more than $200 million of additional assets under management. Yesterday, we also promoted the managing director who leads this very successful team to senior managing director.

We delivered solid returns to our shareholders, increasing our dividend for the sixth consecutive year to $0.25 a quarter, repurchasing more than 2.5 million shares, enough to offset the dilutive effect of bonus awards for the fourth consecutive year and last year, in fact, enough to offset also the dilutive effect of any shares issued to attract new talent to the firm. We returned over $120 million to our shareholders through share repurchases and dividends.

Let me very quickly go over the financial data. First, the full year. Full-year net income was a record $103.7 million, up 33% from 2012. Earnings per share for the year was a record $2.25, up 26%. Record revenues of $760 million exceeded 2012's record by 19% and further closed the gap between Evercore and our larger independent firm competitors and widened the gap between Evercore and the boutique advisory firms. Expenses of $583.5 million increased 15% from last year, reflecting the growth in sustained investment in our business and reasonable expense discipline.

The full-year compensation ratio, as I mentioned earlier, declined to 59.2%, driven principally by improved operating performance in our early-stage businesses. And our non-compensation ratio declined during the year to 17.6% for the full year. Full-year operating margins increased to 23.2%, up from 20.6% last year and these are our best operating margins since 2007.

In the fourth quarter, net revenues were a record, $214.6 million, up 1% from the very strong quarter we had a year ago at this time and up 15% from last quarter. Net income was $33 million for the quarter with earnings per share of $0.71. Our operating margins for the quarter were 24.8%, our third best result in the past five years.

Let me now turn the call over to Roger to comment on our Investment Banking performance and the M&A environment generally.

Good morning, everyone. I'm sitting here in frigid Houston huddled against a fire for warmth. Our Investment Banking net revenue in the fourth quarter was $185 million, operating income $44 million, our operating margin 23.7%. That is the second best quarter on revenues, which the firm had ever had in banking, up 15% from the third quarter and down only 3% from the all-time record set in the fourth quarter of 2012.

This quarter saw a record 51 fees of $1 million or more as compared to 48 a year ago. Year-over-year that is and 31 in the third quarter. Total fee-paying clients increased to a record of 182 in the quarter, up from 169 a year ago and 136 in the third quarter. For the full year, Banking revenues were a record $657 million, up 18% from 2012. Operating income was $156 million, a 22% year-over-year increase and operating income has grown by more than 20% in each of the past three years.

Advisory fees were, of course, the great bulk of our revenues, but our Institutional Equities business, still young, had a very strong performance last year, up not too far from 100%. The full year saw a record 132 fees exceeding $1 million. Total fee-paying clients increased to 358, up 10% from the level of 324 in 2012.

We also continued to grow globally in 2013. 32% of our Banking revenues came from clients outside the US. And we handled 47 net and underwriting transactions last year, more than twice the number we did in 2012. We also had a record level in the quarter, a record level of advisory fees related to equity capital markets and debt capital markets advisory work. Very strong performance there.

Productivity per partner, Ralph alluded to this, was quite strong, a key metric for us. We've always looked at this very, very closely. Average revenue per partner on the same trailing 12 month basis we always use was 10.2 globally. Essentially the same as last quarter, but up very strongly from the $8.9 million on the same rolling 12-month basis, which we saw at the end of 2012. And we expect that our share of the M&A fee pool among those Investment Banking firms which report their results publicly will have grown more than 10% for the year once all such firms have reported for 2012. Last year, in 2012, Evercore represented 4.7% of that fee pool.

Let me say a word about our competitive position. I think you know that Evercore has consistently been very strong in this regard. Using the metric of announced transactions on a total dollar volume basis, in the US, we were number one in 2009, we were number two in 2010, we were number one in 2011 and we were number one in 2012. We were not as high this past year, but those results, given the relative weakness of the M&A environment, were quite distorted by one giant deal, the Verizon deal. We're off to a strong start in 2014 in terms of major transactions, transactions like the Chrysler Fiat announcement you saw advising Sirius XM and so forth and I don't see any reason why our leadership position in general will not continue strongly as it has. One always has to parse that data in terms of distorting effect.

Now finally a few comments on the M&A environment. 2013 was a fair, but not a strong year in overall M&A volume on a global basis, not a strong year. Global announced volume in total dollars was down 6% year-over-year and global completed volume was down 4%. And if you remember, 2012 itself wasn't an especially strong year either. Now, the US market performed better than the rest of the world; total dollar volume in the US was up 11%. This is important in assessing Evercore because we have continued to expand ourselves globally. I just said that 32% of our revenues originated in banking from non-US sources, but the firm remains relatively US-centric. So in the US, the largest M&A market in the world, you had some meaningful strengths. And of course, the flipside of that is the rest of the world was quite weak and therefore, the totals around the world, as I said, were down.

The fourth quarter itself in terms of total market volume was not strong. Announced volume globally was down 23% from the fourth quarter a year earlier and 9% from the third quarter. If you look at the number of deals rather than the dollar volume of deals, the pattern is similar. For 2013, total number of deals globally was down 7%. That is announced number of deals and it was down 12% on a completed basis, down 7% in terms of announced, 12% in terms of completed. The US was up only 1% by that measure in terms of announced deals and was down 4% in terms of completed deals.

In fact, if you step way back and you look at the past five years, just look at all the charts on the past five years, 2009 to 2013, the overall market, the overall M&A market, both globally and then the US, has been essentially flat. Now Evercore, of course, as you've just heard and you've seen before, has done very well over these five years and that's because our share of the global fee pool keeps rising. So in a flat market, we've been gaining marketshare. So the question, of course, is what is the outlook for 2013 -- excuse me -- 2014. One has to be cautious because many people have predicted a pickup in volume for some time and it essentially hasn't yet materialized, so it's very hard to know.

My own guess is that we may see a continuation of this split screen global pattern, meaning improvement in the US and relative weakness around the rest of the world. That would be my own expectation. The one change I think may be a rise in large strategic transactions. And I think if you look at what is going on so far this year and you see the types of potential that people in our position see, you see there is some increase in strategic transactions either done or out there in the public trying to get done. As I said, transactions like Chrysler Fiat, transactions like Sirius Liberty Media, transactions like Suntory Jim Beam and of course, all of the stuff going on around Time Warner Cable.

So I would think that you will see, when 2014 is over, more large strategic transactions than we saw in 2013 and perhaps for a few years. I could be wrong on that, but that is what I see today. And if that is the case, you'd say to yourself, well, why would that be? And I think the answer may be that historically when stock prices rise strongly, deal volume tends to follow and improve and 2013, of course, was an extremely strong year in the equity markets; we all know that.

Now, if 2014 turned out to be a sharply down year in equities, this expectation might not prove out, but historically when you have a performance in the equity markets like 2013, it provokes large strategic transactions. So I think that may be the sequence we see again this year. If I'm right on that, Evercore should do reasonably well. If I'm wrong on that, and we see another flat year, Evercore will still do reasonably well. That's it for me, Ralph.

Okay, thanks, Roger. Let me just go very quickly through the new businesses. Our Institutional Equities business for the year generated $42.2 million of revenue as secondary revenues increased 43% and underwriting revenues increased more than that. This quarter, the business generated $12.5 million of revenues, a record for the quarter, as secondary revenues increased 36% from last quarter. Expenses were $12.2 million for the quarter and $40.9 million for the year. So our Institutional Equities business, despite the fact that volumes declined again last year, was profitable for the quarter and for the full year. The business continues to add clients and grow revenues and to work closely with our capital markets team to expand our participation in equity offerings. We now have research coverage of 351 companies and serve over 375 clients.

Our Private Funds Group completed closings on $620 million of new capital in the fourth quarter, reporting its best revenue quarter and a record year in both revenues and operating profits. The pipeline in this business coming into 2014 remains strong.

In Investment Management, our business delivered a record year and a record quarter. Net revenues were $102.8 million for the year, a 24% increase from the $83 million we experienced last year. Operating income was $21 million for the year delivering an operating margin of 20.4%. Operating income for the Investment Management business in the fourth quarter was $9.2 million on net revenues of $29.2 million aided partly by strong performance fees and gains in our private equity investments, which are modest, but still went up in value.

Assets under management increased 3% to $13.6 billion in comparison with the end of the third quarter. Net outflows for the quarter, some of which involve a sale of a small part of our Wealth Management business back to one of our partners, of $319 million were offset by appreciation of $742 million. Our affiliated institutional asset managers continue to focus on investment performance and their clients and we are encouraged that investment performance for the second straight year has remained strong and at Atalanta Sosnoff, the outflows slowed to a trickle in the fourth quarter. Our Wealth Management business is performing well. It just had its fifth anniversary. It's adding talent, clients and assets under management and it ended the year with $4.9 billion in assets under management. Bob will now go over a couple of non-comp and other financial matters and then we'll conclude and answer any questions that you have.

Thanks, Ralph. Just quickly, non-compensation costs were up 4% in the fourth quarter when you compare them to the end of the third quarter, principally reflecting higher costs associated with occupancy and information services. The occupancy cost increases reflect in part the addition of offices in Menlo Park and Singapore. The metric we manage to, which is cost per person for the quarter, was $31,000, which is comparable to prior quarters.

On taxes, the adjusted pro forma tax rate for the quarter is 37.2% and 37.8% on a full-year basis compared to 38% in 2012. As we have indicated before, changes in the effective tax rate are principally driven by the level of earnings in businesses with minority owners and earnings generated outside of the US. As Ralph has indicated, both the Institutional Equities and the Wealth Management business reported profits in 2013, which had a positive impact, which was offset by a modest decline in the percentage of earnings from non-US clients.

Our share count for adjusted pro forma earnings per share was 46.7 million shares, an increase of 800,000 shares. This increase was due principally to the effect of a rising share price on both the Mizuho warrants and unvested restricted stock units. As we have discussed in the past, our average share price for the quarter increased by nearly 16%.

Our cash position remains strong as we hold $348 million in cash and marketable securities at the end of the year, but our current assets exceed our current liabilities by approximately $250 million. We completed the sale of Pan-Asset Management in the quarter, which we had indicated in our third-quarter call and finally, our Board has declared a dividend of $0.25 per quarter at the end of the fourth quarter. Ralph?

Hey, Bob, Ralph? There's one thing I neglected to say; let me just insert it here if you don't mind and it will just take a minute. I neglected to just be a little more specific in terms of the five senior managing directors whom we recruited in banking during 2013. I think those who follow us know that Evercore is very steady in this regard. We tend to add around five new senior managing directors from the outside each year; sometimes it's four, sometimes it's six, things like that, but fundamentally very, very steady.

We did that again last year -- Keith Magnus to run Singapore, Scott Cameron to run software banking in Silicon Valley, Matt McAskin to run Healthcare Services, Nigel Dawn to run the other side of the private fundraising business. Richard Anthony runs the primary fundraising business, so to speak and Nigel will run the secondary market business, making markets in effect in LP interest, in some cases sponsors themselves and Fernando Soriano to cover Latin America and multinationals. And as Ralph said, we also promoted two bankers internally in the US, Lance Dardis in Houston and Marcus Thompson -- excuse me -- not in the US -- Lance Dardis in Houston and Marcus Thompson who covers utilities in Asia. So I just wanted to be specific on that rather than too broad.

Terrific. And then Roger is in Houston today to personally congratulate Lance on his promotion.

We ended the year with 66 banking partners, 66 banking senior managing directors. Again, a consistent increase over the year earlier.

Okay, thanks, Roger. That's a good segue to my final comments and I would say that our quarterly and full-year results reflect both the strength and the potential of our business model and our franchise. As we begin 2014, our priorities remain the same. As Roger just suggested, we will continue to add A+ talent, which drives the future growth of our advisory business. Productivity continues to be a priority for us. At the end of 2013, we delivered, as I said earlier, $10.2 million of revenue per senior managing director globally. We believe that performance is at the top of our industry and we certainly aspire to sustain that position.

We remain committed to controlling costs, reducing our compensation ratio over time and as well reducing our non-compensation costs per employee. We will continue to return our earnings to shareholders through dividends and share repurchase transactions, more than offsetting the dilutive effect of employee equity granted as compensation. We believe that our momentum in 2013 will be sustained in the new year and we remain very busy across the firm. That completes our introductory comments. We are now glad to take questions from anyone on the call. Thank you.

(Operator Instructions). Douglas Sipkin, Susquehanna.

Can you hear me okay?

Yes, I can.

Okay, great. So just two questions. One, first, I appreciate the update and sort of the view on the potential for maybe an uptick in strategic activity in 2014. I was curious if you had any pulse or read into maybe debt advisory restructuring activity into 2014 given, I know it's recent, but some of the turmoil or volatility abroad in the emerging markets or just a little bit more movement in interest rates. Is that feeding any sort of visibility on more of that type of business into 2014?

Well, is this a question about restructuring?

Restructuring, debt advisory, what have you, yes.

Well, let's parse your question into two halves. One is restructuring itself and the other is a broader debt advisory. Restructuring volume, and, as you know, we refer to restructuring as the business of advising financially distressed debtors. Restructuring itself tends to be over very long periods of time, almost directly countercyclical to M&A volume. When M&A volume rises, it's usually because economies improve, markets improve, distress levels decline, default rates decline and so when M&A volume improves, especially if it gets into a serious multiyear upswing, restructuring volume declines and vice versa.

So restructuring remains a very important business for Evercore. We happen to be working on the largest single restructuring in the market now around the world and we've gotten better every single year at this business. It's hard to find specific data, but I think, for 2013, we will wait for the data and it's never perfect, but I think we probably were one, two or three in this business around the world depending upon the final statistics on the debtor side, which is where all the economics are. So we are in a period of relatively slower global restructuring volume because economies are improving and markets, of course, have been extremely strong as it relates to financing and so forth. But not bad restructuring volumes. Still a very important business for us, including at this moment in the cycle.

Now on the advisory side, we had the strongest year we have ever had. I think I said -- Ralph, correct me -- I think we advised on 47 separate debt and equity capital market situations.

Yes.

Most of those do not relate to restructuring and they relate to, for example, buyouts and more non-restructuring transactions, especially obviously on the equity side. So there's two different dynamics going on here and that's the best answer I can give you.

Okay, great.

I would just add one modest point and that is that, over the last two or three years, we have been steadily increasing the types of transactions on which we advise our best clients. So the debt advisory business, which as Roger indicated, had its most consequential year last year is a business that three years ago we really weren't particularly active in. Similarly, obviously advising on IPOs and participating in equity underwritings is a business that we've increased significantly our activity in over the last three years. And this has allowed us to be more relevant to our clients on a broader array of transactions, which they consider important to them.

Great, that's very helpful. And then just one follow-up. Obviously, you guys are growing and you are getting results; that's very clear. I guess thinking about from a longer-term perspective, do you guys actually have any sort of long-term compensation ratio goals or is it really something that needs to be adjusted as you see opportunities to hire and grow and gain marketshare?

What we've said consistently is that we expect to make steady progress in reducing our compensation ratio toward 55% or so, perhaps a little higher than that and that progress is obviously affected by a number of things. It's affected by the overall activity in the market. If we have, for example, a stronger year in M&A volume, that will tend to positively or accelerate the progress or the timing of the progress that we make. It's also affected very importantly by the investments that we make in our business. So almost universally when we hire new senior managing directors and teams to support them, we get the expense in the year that we hire them and there is very little revenue associated with that, not because they aren't terrific new additions to the firm, but because on average they probably join us late in the third quarter or early in the fourth quarter after they've had garden leave and it's very difficult to book revenue in the three or four months that they are at the firm.

So we've said publicly over many quarters that, first, we expect to be judged on a trailing 12-month basis in comp ratio because it will bounce around quarter-by-quarter and second, that we expect to make steady progress toward our longer-term goals. 2013 was a year of modest progress. Our comp ratio fell from 59.7% to 59.2%. If the environment continues to be good and we don't have too high a hiring opportunity, we would expect to continue to make progress.

Great. Thanks for answering my questions and congratulations on a great year.

Thank you.

Thank you.

Steven Chubak, Nomura.

Hi, good morning. So first question relates to capital management. Just given the robust earnings growth and the commensurate increase in the share price that we seen over the last 12 months, not surprisingly, the pace of dividend growth, while certainly healthy, has lagged somewhat. I just wanted to get a better sense of how you are thinking about managing growth and the dividend going forward, whether it is a long-term yield or payout that you are specifically targeting or should we expect the steady pace of dividend growth we've seen in recent years? So somewhere in the vicinity of 15% per year?

Well, obviously, this is a decision for the Board, not for solely the people on this call, but historically our Board has tended to opt for the steady increase consistent with the paying capacity of the business. So absent a change on their part, I suspect that's probably the most logical expectation assuming the business continues to thrive.

Thanks. And then just as a follow-up to Doug's question on the comp ratio, I guess looking at the IB segment specifically, given the revenue strength over the course of the year, I was somewhat surprised to see a year-on-year step-up in terms of the overall comp ratio. And I understand that there are some dynamics that need to be considered as it relates to SMD investment, but didn't know if there was maybe another item which we could attribute it to, whether it be a higher cash versus deferred component or something along those lines?

It really relates to SMD investment and also the fact that the timing of that investment or the timing of people joining this year was a little bit later on average than in previous years, which meant that the ratio of impact on revenue, which is always modest, but was even more modest this year versus the expense was slightly skewed.

Okay, thanks. That's actually quite helpful. And then, Roger, last one from me. The detailed macro color and outlook commentary was certainly quite helpful, so thank you for that. I was hoping you could comment on some of the concerns brewing in the emerging markets as it relates to expectations for cross-border deal activity specifically and maybe on the outlook for Brazil and Mexico, in particular, just given your presence in both regions?

Well, I don't want to pass myself off as an expert economically or financially or in any other way on emerging markets. So I am going to be brief in my response. Just taking your question specifically, again, like an earlier question, you have to parse it. So Mexico I think is in a long-term quite positive economic upswing. Mexico, by the way, had its best year ever for Evercore this past year, our business in Mexico. I don't know if we have the very best business in Mexico in Investment Banking because we don't have the data necessary to make that judgment, but, if we don't, we certainly have one of the very best.

So I think Mexico, the outlook for Mexico is good and I think this whole question of Pemex reform and energy reform in Mexico is going to prove to be a really big plus assuming that they actually proceed to implement it, which it appears that they will do. We are very focused on that because, among other things, last year, Evercore was the number one-ranked firm in the world in energy M&A, literally number one. We did more energy M&A transactions than any other firm in the world and by the way, that -- probably when the data is in -- will turn out to have been the biggest sector in the world. Just in other words which industry saw the most M&A? I think it will turn out to be energy. So we were number one in the most important sector in the whole world. And Mexico is very important going forward in that.

Brazil and certain other countries, I don't really have any great wisdom to add other than what you would read about this. Of course, the commodity-dependent countries, or many of them, have seen weakness as commodity prices have weakened in so many cases. And that is true I think in Brazil; although Brazil also saw a lot of -- kind of a bit of a credit bubble, which is now deflated also. But there are so many different factors that work not the least of which is continued weakness in Europe. Europe, as seen, is growing perhaps 1% in 2014. That is the consensus. That is obviously relatively -- it's obviously very subdued and so Europe -- and I'm particularly referring to Continental Europe -- has been weak from an M&A point of view and historically, that has been the second biggest market behind the US.

So you have a situation where you have weakness in Europe, Asia is still relatively undeveloped from an M&A point of view, improving, but still less developed. You have a lot of commodity-driven economies coming back to earth so to speak and the whole picture spelled in 2013 real weakness outside the US. That is really the best I can observe.

That's extremely helpful. Thank you for taking my questions and congrats on a great quarter.

Thank you.

Joel Jeffrey, KBW.

Good morning, guys.

Good morning.

Good morning.

Just thinking about the Institutional Equities business, I know you saw a really nice pickup in the revenues quarter-on-quarter and year-on-year. But kind of thinking about the pre-tax margin in that business, what level of revenue do you need to get to when we'll start to see that really expand?

We would hope that that would begin to happen this year and here, again, I think the answer is quite similar to the answer on the comp ratio. We expect ultimately that our Institutional Equities business will be able to produce margins comparable to our advisory business. Obviously, we are not there yet. We made a lot of progress from 2012 to 2013. We expect to make additional progress 2013 to 2014. I'm not smart enough to know -- be able to predict precisely which year we'll achieve that longer-term objective, but our hope would be, at some point over the next two to three years, we would see margins in the Institutional Equities business that are comparable to our advisory business as a whole.

I would say also that here again, while we don't contemplate any additional investments in this business at this particular moment, we have from time to time responded opportunistically. We added a couple years ago research in the transportation sector, which has worked out very well for us, particularly in shipping and airlines. Last year, we added research and specialty sales in REITs. That was also additive, but, when we do that, obviously, the very short-run effect, just as in our advisory business, is depressive to margins and increases a little bit the comp ratio. So absent any additions, none of which are contemplated at this moment, we would expect over the next two to three years to get to margins comparable to those that we have in the advisory business.

But there is no specific say $20 million per quarter in terms of revenue where you think you can (multiple speakers) --

No, no --

-- double-digit (multiple speakers)?

I found in a very long career that setting specific targets either for revenue or for profit or for margins at a specific time is a recipe for embarrassment. We are highly focused on it, we expect to make steady progress and we'll make that progress consistent with what the market opportunity provides us.

Okay. And then just in terms of the gain you guys had on the equity earnings from affiliates, can you just give us a little bit more color on sort of where that came from and then sort of how recurring that could possibly be?

Joel, our largest affiliate where we pick up equity earnings is we have a noncontrolling stake in a hedge fund of funds manager. They report their performance fees, as is common in that business, when they realize them. So they had a phenomenal year in terms of their performance this year. They cleared high watermarks, which they had not cleared in 2012, which really gave rise to the outperformance in the quarter. Whether they will replicate in the future is obviously a function of their performance for 2014 and beyond.

Great. Thanks for taking my questions.

Brennan Hawken, UBS.

Good morning, guys.

Good morning.

So I guess first on capital, it seems like buybacks were particularly small this quarter. Could you give some color on that division? Did you choose to just keep the powder dry or was there something else going on?

Look, I think we, like any firm, we focus on deploying our capital, A, when it is available and B, when the market offers us that opportunity. We, entering the fourth quarter, had achieved well in excess of our share repurchase goals for the year as, just to refresh everyone's memory, we committed in our proxy last year to do going forward what we had done in the previous three years and what we did last year as well, which is to repurchase a sufficient number of shares to offset the number of shares issued as part of compensation and bonuses at the beginning of each year. Entering the fourth quarter of last year, we had not only repurchased a number of shares sufficient to cover the shares issued for bonuses, but we had also repurchased enough shares to cover shares that were issued to attract new talent to the firm, that which had already been attracted by the end of the third quarter and that that we actually attracted during the fourth quarter. So we basically felt that there was -- we had essentially completed our goals for the year and so any additional repurchases were primarily -- Bob, correct me if I'm wrong -- related to net settlement --

Exactly.

-- of shares that may have been off-cycled related probably to prior hiring --

Prior new hires.

-- that we had done.

Okay. So it more had to do with that than maybe an opportunity to try to be more opportunistic given how strong the stock was in the fourth quarter?

Well, look, I mean -- I don't think any management would sit here and say that you don't -- all things being equal -- you'd rather buy this when you repurchase the shares, you'd rather buy them at a lower price rather than a higher price, but we have a very consistent program of repurchasing, as I indicated, at least as many shares as we issue for bonuses and we expect to do that year in and year out regardless of the share price. And within the year, we are obviously going to try and do as good a job for all of you as we possibly can, but this is a very disciplined steady approach and our goal is very much absent changes in share count that come from changes in our share price, which affect both the number of shares in a fully diluted calculation for the Mizuho warrants and for our bonus equity, we don't expect a change in our share count related to the basic functioning of our business or our compensation policies.

Cool. Thanks for that. And then excluding or sort of holding constant the noise from hiring the additional SMDs that you guys brought on, was there a direction that deferrals went this year versus prior years? I know last year, I think you took down deferrals a bit in favor of cash comp. And so was there any further change to that this year ex the noise from (inaudible)?

The schedule deferral rates were identical to last year and I believe last year was identical to the year before. So we have held exactly steady over the last three compensation years. The actual rate of deferral can vary modestly depending upon the skewing of high compensation versus low compensation people. So there's always a little bit of fluctuation in the actual rate of deferral that is the result of those schedules, but I suspect that would be very modest in its effect.

But if the question is did Evercore's policy on deferrals change in 2013, the answer is no. The answer is no.

Okay. It was more about just the makeup of deferrals as a percentage of award comp and such, but it sounds like that answer is no as well.

It's also no.

Yes, perfect. And then last one from me, when you guys think about 2014, I mean obviously you want to pick your spots as far as hiring goes with picking out the best or bringing in the best talent possible, but is the bias to grow outside the US more so than broadening out the platform within the US or do you have a bias based upon Roger's outlook where US growth will probably be better than --?

I mean the answer to that question also is no. Do we have a bias for growing outside the US? The answer is no. Evercore has quite a few years ahead of it in terms of what I call filling in simple and obvious holes and that means adding verticals, that means broadening out certain verticals. That means expanding geographically and so forth. And so we will be adding partners in the US and we will be adding them globally, but we don't have a bias of the type you talked about because we are always looking simply for straight A talent. Evercore doesn't hire anybody that we don't believe is an absolute straight A. I think we've been very consistent and successful in that regard and we are looking in effect both in the US and outside the US.

Okay. Thanks for the color.

Devin Ryan, JMP Securities.

Good morning, gentlemen. How are you?

Good morning.

Just another question on hiring. I'd love to get a little bit of color around the recruiting dynamic, really just any changes in the cost to recruit just given that a number of the senior, kind of the grade A talent that you are hiring from, some of the firms have been paid a lot of comp in stock in recent years and that stock has obviously done quite well. So I know Evercore's stock has done well also, so I am just trying to kind of think about the puts and takes there and really if anything has changed from a competitive dynamic and the cost to recruit?

I would say not particularly, but the big point is that hiring is hard. This may be the hardest single thing we do at least in terms of our strategic development. Gigantic efforts go into hiring and it takes that effort. So no, no particular changes, I would say, in our ability to hire year-over-year. I think it is quite strong given the firm's performance and the overall perception of Evercore. But it's not easy. It wasn't easy last year, it wasn't easy the year before and it won't be easy in 2014. It's just always very challenging. We continue to do well. I am confident we will do well in 2014 as well, but this is not an easy thing to do, but there is no -- I wouldn't say there is no meaningful increase in difficulty that has occurred recently.

Got it, thanks. And then just a follow-up. I appreciate the commentary on what you are seeing on the larger strategic front, Roger. I guess I am curious what you're witnessing with private equity clients. Are you seeing any changes in appetite from them on the larger deal front where they really seem to be absent and really just any changes with private equity firms more broadly, particularly if corporates are becoming more engaged and maybe adding to that competitive dynamic?

Well, of course, a couple of big points. One, financial sponsors, as we call them, have been every single year over the past several increasingly important markets for Evercore. We've done quite well with financial sponsors and continue to do better and we pay a great deal of attention to it. Secondly, they have, of course, been hugely active on the sell side. I think Leon Black said earlier last year that Apollo's goal was to sell everything that wasn't locked down. I think that's a quote and that is a metaphor for a lot of the approaches that the larger private equity firms at least have taken over the past year or so. So they've been very, very active, but especially on the sell side and of course, in general, they've been doing quite well in that regard.

Thirdly, it's a difficult environment on the buy side and any of them will tell you that and that's because prices are relatively high and it's difficult to make a lot of deals that might interest them to actually work from a return point of view. So when you take into account the sell side and the buy side, this is a very, very important market, at least for Evercore. But at least last year was not an easy one for them on the buy side in terms of the macro environment and that may be the case again in 2014.

Great. Appreciate the color. Congrats on the good quarter.

Thank you.

Alex Blostein, Goldman Sachs.

Hey, good morning, everybody. Roger, just to follow up on the environment again I guess. In your conversations with the Board and the senior leaders of various firms last year, to what extent do you think that the higher equity markets actually prevented some of the decision-making and now that you've continued to see a pretty decent macroeconomic backdrop, but clearly slowing kind of equity rally, do you think that could actually accelerate some of the dealmaking?

I doubt it. First of all, what we've seen over the last two weeks or so has been, by any historical standard, a very modest correction. Whether it turns into a larger correction, whether the market promptly moves a lot higher, I don't know. I don't have any idea. As I always like to say, if I knew that answer, I could be phoning this in from my very large yacht, which I don't have because I don't know that answer. But unless the equity markets take a bad turn and for a prolonged period, equity market conditions are considered quite good by corporate America and their global counterparts. And the environment, at this very moment, from the point of view of equity values for making strategic steps inorganically, is a good environment.

So in other words, the events of the past two weeks have negligible impact on the outlook for larger strategic transactions, although who knows where the equity markets will go and who knows what actually will play out. Right now, this very modest correction is not a meaningful development.

Okay. Helpful. Bob, one for you. Just real quick on the comp, can you give us a breakdown of kind of salary benefits, amortization of (inaudible) for this year and then more importantly the view on our share amortization for 2014?

I don't think we've ever gotten into the detail of salary and benefits and the like. Alex, obviously you would expect the amortization of prior year awards for 2014 to go up consistent with the overall growth of the firm over the last number of years. Each year as the firm has grown, well, our policy, as Ralph and Roger have said, for deferrals has been essentially constant, constant for three and essentially constant before that. Our firm has grown, so we have larger layers of deferred comp that are coming through to be amortized in future years and generally our grants are over four years.

And I would just add one thing because we do look at this very carefully. Our deferral rates are generally at the mean or median or below of our competitors. They are what we feel is appropriate for incenting our professionals to be equity owners in the firm and for retention purposes and they don't really go beyond that in any way. And as I said, they are at or below sort of the mean or median of both our smaller and larger competitors.

Got it. And I guess just a last one for me, when you guys think about the Mizuho warrants with the share price obviously coming up, these become more and more dilutive to the overall share count and with the cash position continuously getting better on the balance sheet. Can you just update us on the thoughts about potentially taking them out or how would that process I guess even work?

Well, this is their option, not ours.

Okay. Fair enough. Thanks.

Hugh Miller, Sidoti.

Good morning.

Good morning.

So I had one quick question on the top ratio within the Investment Management segment. Obviously, a lot of moving parts in this particular quarter, but was wondering if you could just give us a sense of the primary drivers of causing the improvement in leverage there with the comp ratio trending all the way down to 43% and is it safe for us to assume kind of the go-forward basis kind of trending back up towards where it was for the full year of 2013?

Once again, we're not going to forecast or predict. I did indicate in my remarks that, in the fourth quarter, and you can certainly see that, revenues in the fourth quarter were 29%, which are -- are $29 million plus, which are roughly 28.5% or so of our total revenues for the year. So obviously, there was some extraordinarily higher revenues in the fourth quarter. A little bit of that was the growth in assets under management, but more of that in the fourth quarter was performance fees, as I indicated and some upward adjustment in the relatively small private equity seed investments that we have in the various funds that we've had both historically and the Mexico fund that we continue to have as a business today. So there is some element of that in the fourth quarter, which obviously helps revenues, it helps margins and it helps the comp ratio in that particular quarter.

The one additional point that I would make is, as we've said on a number of calls and in meetings, one of the ways that we will make progress on the comp ratio coming down in the long term is the improvement in the results of the early stage business. So as Ralph has said, the Wealth Management business has moved into profitability. So as we have indicated, you should expect that, as they move to profitability, their comp ratio will move towards the targets we are looking for.

Okay. And there was nothing that was kind of an accrual reversal from prior expenses that trickled through in the fourth quarter?

No.

No.

Okay. And the other question I had was just with regards to -- certainly I appreciate the insight that you gave us on the global outlook and also some of the commentary around the European segment with expectations I guess from others for a very modest rise for that region, but wanted to get a sense given that that is still a decent portion of your exposure, what would you think would have to happen in order to kind of see a pickup in deal activity 2014 for Europe.

This is Roger. More growth.

Just economic growth is probably the biggest driver?

Yes. I mean if you step back and say to yourself what drives -- and let's just talk about strategic deals rather than sponsor deals -- what drives strategic deals. Typically, the things that drive strategic deals up are improving economic conditions and improving top-line revenues per company, improving equity market conditions, robust credit market conditions and lack of big threats, so to speak, threats that might disrupt that environment. Well, you don't have those conditions in particular, at least as a whole in Europe today. So if I was an economist, I probably could give you a long answer, but the short one is more growth.

Okay. And has the discussion at all changed with some of the executive CEOs that you talk with about just confidence in the longer-term outlook for that region?

Well, most people I speak to expect a long, slow, rather painful recovery. I mean everyone reached the same economic analyses and they tend to forecast very slow growth for quite a long time. So that turns into the expectation that most decision-makers have for the region.

I would just add one thing and that is that if you look at the European financial system, two things are true of it. One, the banking system is quite a bit larger relative to GDP than it is in the US. And second -- so it's important to supporting growth and second, relative to the significant recapitalization of our banking system that we did through equity offerings in 2009 after the stress tests and through retained earnings, which have substantially exceeded dividends and repurchases since then, we have really strongly recapitalized our financial system. That has not been done to anywhere near the same degree in Europe, so you don't have a banking system in Europe that is as much on the front foot as it is in the US. And that is also going to be a dampener on growth there.

Sure. Point well taken. I certainly appreciate the insight. Thank you very much.

Thank you. There appear to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.

No, thank you very much and we look forward to talking to you next quarter. Thank you.

Thank you. This concludes today's Evercore fourth-quarter and full-year 2013 financial results conference call. You may now disconnect.