Greenhill & Co Inc (GHL) 2013 Q3 法說會逐字稿

Good afternoon, and welcome to the Greenhill third-quarter 2013 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Chris Grubb, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's third-quarter 2013 financial results conference call. I am Chris Grubb, Greenhill's Chief Financial Officer, and joining me on the call today is Scott Bok, our Chief Executive Officer.

Today's call may include forward-looking statements. These statements are based on our current expectations regarding future events that by their nature are outside the Firm's control, and are subject to known and unknown risks, uncertainties, and assumptions. The Firm's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the Firm's future results, please see our 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.

Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made. I would now like to turn the call over the call over to Scott Bok.

Thank you, Chris. The summary of our results is that we generated a reasonable level of revenue for what was a very quiet period for transaction completions globally. We continued to gain significant market share in the global pool of advisory fees. We have a slightly improved profit margin versus year-to-date last year, as a bit higher compensation ratio than last year is offset by a bit lower non-compensation cost ratio. And we have repurchased sufficient shares this year to slightly reduce our share count since last year end.

You will recall that we have consistently talked about having four main objectives for the Firm. One, to increase our market share of the global pool of advisory fees. Two, to consistently achieve the highest profit margins among our closest peers. Three, to maintain a strong dividend policy. Four, to maintain a flat or even declining share count. We are on track to again achieve all four of those objectives for the full year 2013. I will focus on the first of those, and then turn it back to Chris for the others.

Let me start with a look at the market environment for transactions generally. The third quarter and year-to-date statistics demonstrate the continued slow pace of activity in the market, albeit with some important transaction successes for our clients and for the market generally. In the third quarter, the total volume of completed transactions globally was the second-worst quarter in almost 10 years, and the number of completed transactions was the lowest for any quarter in that period.

On a year-to-date basis, the total volume of completed transactions is only down a couple of percentage points from last year, due to a few large transactions supporting this year's total, but the number of completed transactions is down 13%, with $1 billion or larger deals down 15%. All those market declines will likely grow larger by year end, given comparisons to the strong fourth quarter last year. The announced transactions statistics are similar, with year-to-date global announced transaction volume down just 1%, supported by a few large transactions, but the number of announced deals and the number of announced deals of $1 billion greater in size, were both down by 10% compared to 2012.

The impact of the current market statistics is evident in the year-to-date advisory revenue reported by our nine large bank competitors. In the first half of this year, this group showed a 7% decline in aggregate advisory revenue. Based on data from the four banks that have reported third-quarter results so far, year-to-date advisory revenue comparisons look set to show a double-digit decline for this group through the third quarter. Looking at the full year and the strong 2012 fourth quarter revenue results compared to the current backlog in the market, it would be surprising if the full year percentage declines didn't grow to the mid-teens by year end.

Against this backdrop, we are pleased with our year-to-date advisory revenue performance, showing an 11% increase compared to 2012. While our third quarter advisory revenue is down from our run rate over the last four quarters, we are pleased with our ability to generate substantial revenue in a quarter that was a slow one for major completed transactions. On a rolling four quarter basis, our advisory revenue was a solid $312 million, despite what has been a quiet period for deal activity all year. As we commented on our second quarter call, our revenue opportunity for the second half of this year was weighted toward the fourth quarter. So a soft third quarter of advisory revenue should be no surprise.

In our effort to continue to increase our market share for many years to come, we continue to focus on developing the strength and breadth of our client relationships and on developing a business that is diversified by geography, by industry sector, and by type of advice. In terms of geographic diversity, North America, and specifically the US M&A business, continues to be the strongest performing area for us, consistent with the global market statistics by region. But our European business has shown significant improvement year to date in 2013 compared to 2012, in the face of what continues to be a difficult economic and transaction environment in that market. Our Australian revenue declined year over year in what has become a more challenging environment than in recent years.

For the full year, we expect results for North America will be similar to last year, with improvement in Europe offsetting a decline in Australia. An important aspect of our approach to geographic diversity is our ability to not only have strong domestic businesses in each geography, but also collaborate across geographies on meaningful cross-border advisory opportunities. Year-to-date cross-border transaction advisory is up meaningfully compared to last year and represents many of our largest transaction assignments. We believe our entry into the Brazilian market, which I'll discuss later, will further enhance our ability to advise clients on cross-border opportunities.

By industry, we are showing breadth and diversity. As listed in our press release, we completed seven transactions in the third quarter across a range of industries. In the year to date, healthcare is the strongest industry for us, with a good level of activity across our other verticals. Looking at our pipeline of transaction activity, moving forward we expect to see continued strong diversity of revenue by industry. As I commented on the last call, 2012 highlighted our ability to generate significant revenue from sources other than traditional M&A completion fees, with financing and restructuring advisory, special committee assignments, fund placement assignments, and a record level of retainer fees all contributing meaningfully.

However, despite slower M&A completions in the third quarter, year to date 2013 advisory revenue results continue to be driven by higher portion of M&A revenue compared to those other sources of revenue. Within M&A, a particularly large portion of the revenue was driven by completion fees, with M&A announcement fees, restructuring, and financing fees and retainers all lower, consistent with the level of market activity noted earlier. In our capital advisory business, as we commented during our second quarter call, we continue to see encouraging signs that after relatively flat results the last two years we should see growth in that business for the full year 2013.

Let me close with a few thoughts on our expectations for the full year, for us as well as the market as a whole, which are largely unchanged from those expressed during our second quarter call. First of all, it is almost certainly unavoidable that significant year-to-date declines in announced transactions will lead to reduced advisory revenue in the remainder of the year for the industry as a whole. Accordingly, for the full year we continue to expect double-digit declines in aggregate advisory revenue for the nine large banks that are our primary competitors, with year-to-date declines growing somewhat larger in the fourth quarter.

By comparison, our current expectation is for our Firm's full-year advisory revenue to be up slightly, or close to it, compared to the full year 2012. The precise outcome will obviously depend on the timing of specific transactions, but in any event it seems clear that this will be another year of significant market share gains for us. Now I'll turn it over to Chris.

Thank you, Scott. I will cover all financial updates for the quarter, other than advisory revenue. In summary, our year-to-date growth in total revenue was impacted by a small loss on our principal investments compared to a small gain last year. But total revenue was still up with growth of 9% compared to the year-to-date period in 2012. Our pretax profit margin for the third quarter was 7%. And we had earnings per share of $0.06. On a year-to-date basis, our pretax profit margin was 24%, and we had earnings per share of $1.03. Both of which are improvements compared to the same year-to-date period in 2012.

Now I'll go into a bit more detail on compensation costs, non-compensation costs, dividends and share repurchases, and finally I'll provide an update on the continuing liquidation of our remaining principal investments. Starting with compensation. As we've commented previously, our goal is to achieve a compensation ratio that is the lowest among our close peers, and even with the higher ratio in the third quarter there is no doubt we are on track to achieve this objective again this year. In addition, in absolute terms we aim to be below 50%, consistent with our first several years as a public company, and driven by revenue productivity per employee that continues to easily be the highest among our peer group.

For the year to date, we had a 55% ratio of compensation to revenue, above the ratio achieved during the first half of the year. Our hope is to bring the full-year ratio lower, but of course our ability to do that will be dependent on the full-year revenue outcome. Turning to non-compensation costs. Our third quarter non-comp costs were $14.5 million, a decrease from the first and second quarter, and an improvement of approximately $1 million, or 6%, compared to the third quarter of 2012.

There are obviously some differences each quarter, but we now expect the full year 2013 non-comp costs to be down compared to 2012, consistent with the decline we are showing on a year-to-date basis. We would note that we continue to invest in travel and related expenses associated with business development activities where there is an increase compared to last year, while achieving savings in other areas.

Moving to dividends and share repurchases. Our dividend this quarter was again $0.45 per share, consistent with the quarterly distribution made over the last several years. As many of you will have seen in our recent Investor Presentations that can be found on our website, even at the low level of transaction activity over the past couple years, our annual dividend only requires approximately half of our cash flow generated from operations.

Given the very modest capital needs inherent in our business model, we use much of the remainder of our cash flow to repurchase shares. During the third quarter, we repurchased approximately 185,000 shares at an average cost of $49.23 per share for a total cost of $9.2 million. On a year-to-date basis, we repurchased over 1 million shares at an average cost of $51.30 per share for a total cost of $54.8 million, which more than offsets any dilution from stock-based compensation in the current year.

As a result of our share repurchase activities, we continue to maintain a share count that is effectively flat with our 2004 IPO, despite stock-based compensation and the acquisition in Australia, which compares very favorably to both our large and small competitors. We ended the quarter with cash of $30.3 million, and debt of $36.4 million. Our Board of Directors has authorized the repurchase of up to $100 million of our common stock through the end of 2013, of which approximately $45 million remains available. The amount and timing of any remaining repurchases for this year will be primarily dependent on our earnings, and in any event we have already repurchased sufficient shares to continue to maintain a flat share count.

Next, let me comment on our remaining principal investments. We ended the third quarter with investments valued at $22.3 million, which includes both limited partner investments in our previously sponsored and other merchant banking funds of $11.3 million, and our remaining Iridium stake, valued at approximately $11 million. Our principal investments generate a third quarter loss of $2.4 million, resulting from a decline in the share price of Iridium being partially offset by a small gain on our merchant banking fund investments. We continue to sell our Iridium shares and accelerated the pace of selling during the second half of the third quarter, once our reporting obligations related to having held a Board seat ended.

During the third quarter we sold over 1.7 million shares at an average price of $7.26 per share, for total proceeds of $12.8 million. We have continued to sell our Iridium shares during the fourth quarter, and expect to have fully exited our investment shortly. By the end of the year, we expect our principal investments to consist only of our limited partner investments in merchant banking funds, and will have no further commitments to make investments going forward. We expect to realize value from these remaining investments in several steps over a period of years as determined by the managers of the various relevant funds. Now, let me turn it back to Scott.

Before we take questions, I want to highlight three important recruits announced very recently. First, after several years of evaluating opportunities to enter the Brazilian market, earlier this month we announced the recruitment of Daniel Wainstein to open an office for us in Sao Paulo, Brazil. Daniel was most recently with Goldman Sachs, where he had led its investment banking business in Brazil.

The strategy of recruiting one of the top bankers in a geography or industry and building a team around them is one we have pursued successfully throughout our history. We expect to take a similar approach with Daniel and build a team around him that over time will develop a meaningful business for us in Brazil and in Latin America. We're excited to have a banker of Daniel's caliber join our firm, and despite the current challenges facing Brazil and most other emerging markets, we believe Brazil represents an attractive long-term growth opportunity for us.

In addition, we announced last night two important hires in Australia. One, Michelle Jablko, currently of UBS, will be based in Melbourne and strengthen our coverage of clients across all industry sectors In that market. The other, Jason Valmadre, most recently head of equity capital markets in Australia for the Royal Bank of Scotland, will be based in Sidney and focused on expanding our equity financing advisory business in Australia. This brings to six the number of highly experienced managing directors we've recruited across five offices this year.

Our firm has clearly continued to be a magnet for some of the top talent in our industry around the world, and with the many challenges faced by the large banks we think the opportunity to add senior talent like this will continue for years to come. With that, we're happy to take questions.

(Operator Instructions)

First question comes from Howard Chen of Credit Suisse. Please go ahead.

Hi, good afternoon, Scott. Hi, Chris.

Hey, Howard.

Hi, Howard.

Thanks for taking the questions. Scott, In the earnings release you speak about being encouraged by several significant transactions in recent weeks. Are there any common themes amongst those recent deals that make you particularly constructive heading into the end of the year, into 2014 for new deal formation?

I guess I would highlight two things. One is it that it continues to be, I think for us and for the whole market, that the deals that are getting done are the bigger, more important strategic deals, and that the market is receiving them very positively, and obviously that has to be a positive factor in encouraging other companies to undertake strategic M&A. The second one, and this is, there's not enough data points to draw any grand conclusions from this, but it does -- certainly we've seen more success in Europe recently and throughout this year, and obviously that would be extremely encouraging, given that historically Europe was such a big business for us, but obviously it suffered a lot in the financial crisis and the aftermath.

Great. Thanks. And then just another angle on broader M&A recovery. It seems there have been a few dual-track IPO and strategic sale processes in the marketplace. Is that a growing trend you're seeing at this point in the cycle?

We don't actually see much of that. And I'm sure that it's quite likely we probably lose some business every year in those situations. Those are pretty rare. I would say they tend to be private equity owned companies where they're thinking, can I sell the whole thing at once in a strategic deal and get a premium, or do I need to do a 20 or 30 person IPO and sell over time? But private equity has not been a primary client target for us. So we don't come across it too often, as I think it's limited really to that area.

Understood, thanks. And then we've spoken on these calls in the past about how unreliable some of the industry data sources are in predicting your revenues. Since you completed the Caliburn deal, there's this level of quarterly advisory revenues that it feels like you don't fall below around $45 million. While we're all hoping for a broader recovery, can we think of that $45 million-ish level as something you just don't fall below, given retainers and other ambient revenues that you generate in any given quarter?

Who knows? We've been through a lot of up and down environments in this industry over the course of my career. I'm certainly not in a position to sort of make a bold prediction as to what a minimum is. Certainly, I would echo your point, that if you -- this is not an exciting quarter for us in terms of total revenue, but if you look back over the last several years, it seems like we've had kind of one every four or five quarters that looks something like this and you're right, we haven't seen many that look worse. So our goal obviously, and we made some wonderful additions to the firm over the course of the last month, is that we're going to get over time even more diversified than we are today by geography, by industry, by type of advice, and hopefully the highs will be higher than in the past and the lows will ultimately be higher than the past as well.

Agreed. Then last one from me, Scott. I think the last time you might have updated this, your fixed compensation was around $130 million. Just given some of the targeted investment spending that you've been doing with the great cost control you always exhibit, what's that figure today?

I'd say it's about -- there's no material change to that, I wouldn't say. Our headcount is really largely unchanged over the last three years. We ramped up big time in the early days of the financial crisis, but in light of how long the lack of a recovery has dragged out, and how much we care about ongoing profitability, we've kept headcount roughly about the same on a net basis. I don't think there's a big change to that.

Okay, great. Thanks for taking the questions.

The next question comes from Alex Blostein of Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon.

Hi, Alex.

So just picking up on the last question, looking at your advisory revenue, clearly, and Scott you mentioned in your prepared remarks, there hasn't been a ton of completed deals for you guys and the industry broadly this quarter. So I was wondering if you could just give us a little bit more color on what really drove, I guess, the gap between more of kind of traditional M&A completions, and maybe some of the other parts of your business?

Well, it was a quarter with a lot of miscellaneous stuff in it, I would say. We had some things that probably were bigger than they appeared to the outside world in terms of the real scale of them and the compensation for us, and we had just a wide variety of things across, particularly Europe and the US, I would say, in terms of the way we generated revenue. There's not -- it wasn't a really active quarter in terms of completions of almost anything, whether restructuring, whether M&A, or even fund placements, which tend to be weighted toward the fourth quarter. So I would say it's just -- it's a little bit of everything that added up to a quarter that I think is tolerable, given what was just a very, very quiet market backdrop.

Got it. And then on a broader M&A question, you mentioned Europe a couple of times. I was hoping maybe you could drill into that topic a little bit more. In your discussions with clients, and just the backlog sort of that you guys are seeing that we're not seeing, i.e., deals that may be in some early or even later innings of discussion but haven't been publicly announced yet, specifically in Europe, where do we kind of stand today versus a year ago or last year, some sort of a measure would help?

Well, I mean, it's hard to measure that on a quantitative way. I would say, look, Europe is still a very difficult environment. If you look at the overall market statistics on European announcements and completions, it's really been a fairly dreadful year and a fairly dreadful quarter. But I would say our team over there is increasingly enthusiastic and they feel like a healing process is going on. You're not reading stories every day about the Euro being dissolved or about real financial crisis. You look at things like sovereign bond yields for some of the weaker countries and so on. It really seems like stability is coming back in Europe, and again we've seen some deals. They're not all sort of real expansionist deals. In some cases it's kind of focusing your business and divesting things so you can focus on core activities, but it is, I can say for us, starting to add up to a greater level of activity there, and I would say a greater degree of optimism among our team over there.

Got you. That's certainly good to see. Last one from me, Chris, just on comp. I think you mentioned that you guys are running at a 54%, 55% comp rate level sort of year to date. But given your outlook for the fourth quarter revenue, and I guess you guys kind of said fees flattish year over year, is that enough to bring the overall comp rate lower, to kind of the 53% range where you've been last year? Or do you need a little bit of revenue growth to get there this year?

I think it's going to depend on exactly where we come out. It's hard to sees us being very different from where we are in either direction. But we're certainly optimistic we'll do a bit better than where we were through three quarters.

Got it. Thanks, guys.

Thank you.

The next question comes from Joel Jeffrey of KBW. Please go ahead.

Good afternoon, guys.

Hey, Joel.

Just to follow up on Alex's question a little bit. I think in the past you've talked about sort of $1 million in terms of revenue per employee as being what you need to get to, to sort of get below the 50% comp ratio threshold. Is that still accurate?

I don't think we've actually said that. I mean, we've been -- I don't think I've every quantified it quite that closely. We have been the last few years, I mean, at sort of call it $900,000 per employee, which is probably about what our -- if we had a similar revenue to last year, that's about where we'd be again. That's obviously off a peak that was more like a $1.5 million plus before the financial crisis. So I wouldn't say exactly where we're going to get all the way back below 50%. I'm not sure the incremental sort of 10% would do it above the $900,000. But in any event, we're kind of signaling that this year it's not clear we're going to get all the way to that million a person. That would be a pretty material increase over last year. So I wouldn't want to draw too fine a line about it. But clearly, look, we've been incredibly disciplined, I think by anybody's standards, and as soon as we have the ability to push the ratio down to where it was historically, you can count on the fact we're going to do it.

Okay, great. And then in terms of share repurchase activity, it looks like it slowed a bit in the third quarter from a pretty aggressive first half of the year. I know you've got a fair amount of authorization left for the back half of the year. Is there any reason to think we should see an acceleration of that, or levels likely to stay sort of where they were in the third quarter?

I think it's -- obviously, it always depends on revenue for us. We like to keep a balance sheet that has basically a bit of net cash on it. So I would not look for a huge share repurchase in the fourth quarter, unless we really saw things kind of crystallizing in a really positive way for us. We kind of feel like we've done quite a lot this year already. Certainly we're going to have a flatter, better share count for the year, just what we've done already. I think anything we do further is kind of upside from there.

Okay. Great. Then just lastly from me, I appreciate the guidance for the full year in terms of where revenues come out. Since we've got three quarters we should have a pretty good sense for the fourth quarter. In terms of the mix on the advisory side, are you expecting another big pick-up in fund placement revenues? Or any color on that business would be terrific.

I think, again, things can move around more than you might think. Even one significant transaction that falls on September 30 versus October 1 can make a meaningful difference, for example. Fund placement is very much a fourth quarter-oriented business. We've already had one major closing there. I think we're going to have a bunch more. So I think that will be, or should be, a meaningful contributor to our fourth quarter. Exactly where it comes out, hard to tell. But certainly we're still hopeful it's going to be a meaningful up year for us in that business.

Great. Thanks for taking my questions.

Sure.

The next question comes from Brennan Hawken of UBS. Please go ahead.

Good afternoon, guys.

Hello.

To follow up on Howard's question on the $130 million of fixed cost. Is your expectation that, that's going to change next year meaningfully, given the hires that you guys have recently announced here and the build-out in Brazil?

I don't think it's going to change that meaningfully at this point, no.

Okay. And then just to verify sort of the math on this. My guess is that the quarter, given the lower comp figure in dollars we saw, there's probably some reversal of first half accruals, is that right?

That's correct.

Okay, great. And then do you guys anticipate any kind of change to the structure of deferral's, either this year or next, given the sort of challenging and muddle through type of environment that we seem to be stuck in here?

I've always tried to discipline myself and not think about compensation until after Thanksgiving, and this year's been no exception in that regard. We'll take a look then. We want to be competitive. I think it's been interesting that you've seen some of the very big banks taking down comp ratios pretty meaningfully. So we'll see what others do this year in terms of total and structure and all that. Our goal obviously is to do what's right for shareholders, but also to have a compensation package that really incents the team here as well.

Sure, sure. That makes sense. Didn't mean to jump the gun on that one. And then when you think about confidence being sort of the missing ingredient here in this pretty disappointing M&A environment, from your perspective did some of this drama down in DC have any kind of impact on that confidence? I mean, I know you didn't change any of your outlook for full year, so my guess is it's not changing your discussions. But just would be interested to hear any color you might have on that.

This is just one man's opinion, but I was asked that question on -- I was on Bloomberg TV yesterday and said that I really don't think most business people were that focused on what happened in Washington. I think if you look at everything from the stock market to the gold market and anything else, bond markets, people were really quite calm about the fact that somehow they would come to some resolution, which of course they did just in the nick of time, and one might have expected. So I don't think companies were that distracted, and I think they've continued to work on the deals they were working on right through it. Look, it's great to have it resolved. Hopefully that lays the foundation for even more activity going forward.

Yes, let's hope for it. Thanks for the color.

Thank you.

The next question comes from Devin Ryan of JMP Securities. Please go ahead.

Good afternoon, Scott, Chris.

Hey, Devin.

Most of my questions were asked. But in terms of the guidance, three months ago the guidance was for advisory revenues to be up modestly for the year, and then you've been noting in recent weeks that you're expecting revenues to be up slightly or close to it, which you reiterated today. Obviously just a very small nuance. Is that just effectively you dialing in kind of the expectations now that we're much closer to year end and you can see what's going to close? Has there really been any surprise over the last few months in terms of how the M&A environment has developed relative to maybe what you were thinking three months ago?

I don't think there's been a real change in the environment. I talked about things that maybe Europe seems like it's picking up a bit. But no, I don't think there's been any dramatic change. We try to give people the best steer we can in terms of the direction of the business and how things are evolving. Obviously, we're never going to get to the point of offering quarterly guidance, or even annual guidance. We try to give you a detailed view at the mid-year and the end of each year. As you get close to the year, what you realize is that it only takes one significant transaction to fall on January 1 instead of December 31 or vice-a-versa, and suddenly it can swing your numbers a couple percent either direction. That's really all we're doing in trying to slightly change the language we use.

Understood. We appreciate the update. And I guess just moving on to the non-comp expenses, they declined a pretty meaningful 5% from last quarter. Looks like that was driven primarily from professional fees and travel. So how should we think about those line items moving forward? Is there any read-through around business levels? I know that those items tend to be tied to activity, or just how should we think about that decline this quarter in non-comp?

I think it's hard to predict sort of quarter to quarter, but I mean, you've certainly seen a run rate, even over the last three years or couple of years anyway, where it really hasn't moved in absolute terms, and even has trended down a little bit. I don't think we expect any dramatic change there. I think I've said in the past and I'll say again that I think as we get more busy on actual client assignments, i.e., people are too busy to do a lot of business development because they're working on actual assignments with signed engagement letters, that means more of the travel and the day-to-day things people are doing are reimbursable by clients. You can find yourself in a more active environment where not only you're generating more revenue, but you're more efficient on the non-comp cost side as well. So perhaps there's a little bit of that in there. Other than that, we've just run a very tight ship and have a culture where everyone kind of treats the money as if it's their own, and so we got to what I think is a great result year to date.

Thanks for the color.

Sure.

The next question comes from Douglas Sipkin of Susquehanna. Please go ahead.

Thank you. Good afternoon, guys. How are you?

Great, Doug, how are you?

Wanted to drill down a little bit more on the fund placement business. Last year I think it was about $26 million. Obviously you guys have talked about it being better this year. I'm just looking to dig into that business a little bit. One, from the perspective of over the next three to five years, do you guys have any ballpark figure how big that business can be? And two, can you maybe talk a little bit about is the growth this year a market share thing, the size of the markets growing, or a little bit of both?

I think for this year there has clearly, as with all markets, probably been a further healing of markets and a loosening up of the willingness of institutional investors to make long-term commitments. Clearly, you've seen with some of the private equity firms that perhaps you cover, they've returned a lot of money back to shareholders these days. That gives LPs more liquidity, and they therefore want to re-up in new kinds of private equity or real estate private equity funds. So clearly the market has improved some, but that business, very much like the M&A or restructuring business, it really comes down to individual projects, and are you winning the good ones where you end up with a very successful fund raise, maybe even going above what an initial fund raise target was, or are you in ones that are lower quality, harder to do? And I think we've benefited from having some really good assignments this year that we're getting some good outcomes on.

Longer term, I think I've said in the past, I think that business could be twice as big. I'd be frankly disappointed if it didn't become over time twice as big as what it's been for us the last couple of years. Whether we're going to get there, when we're going to get there, obviously I can't say. But I do feel like we've got a great team in both areas, private equity and real estate, and I think increasingly we're getting some really great assignments.

Great. No, that's helpful. And then just to step back and focus a little bit on the hiring again. I know obviously some of these hires come with [guard leaves] and things like that. You can't really announce it. But the timing, usually you're more likely to see this type of stuff very beginning of the year. so maybe you can shed a little bit more light on sort of unique opportunities, or you really needed to have people you now, given pending opportunities? Or was it something that happened several months ago but we can just first learn about it now?

Well, I mean, I don't think I want to be too, just frankly from a competitive perspective, be too specific on all that but I do think the old of rule of thumb that you hired people in the first and first half of the second quarter and then you were done for the year. I do think that's out the window. People end up separating from firms for all kinds of reasons over the last few years, and sometimes just grow very disenchanted with it, sometimes they hit a full career stage where they can go. It's different in every case.

Even the ones who are still happily there, they no longer have, unfortunately for them, the sort you get this huge check in February and then you get your next one the following February. Now they tend to have deferred comp that's paid out over many periods of time, over a good while. So there's no real trigger that you want to wait until the day after that bonus comes. Very often for many big banks that bonus is nothing but paper. So it doesn't do you any good to wait until after the day they get handed that paper.

Got you. Okay, great. Thank you for the insight.

Sure.

The next question comes from Michael Wong of Morningstar. Please go ahead.

Good afternoon, guys.

Hello.

Just one quick question from me. You mentioned a significant increase in European revenue from a relatively low comparable, probably. But do you have a rough estimate of how much the productivity of your European MDs or European employees broadly are below a normalized level?

I don't think I could really quantify that easily. If you compare what frankly is even a higher quality team today than it was some years ago, what they're able to produce in this very difficult environment versus what they did in years before the crisis, it's really night and day. That used to be literally equal to our North American client business, for a whole decade it was. There is huge potential productivity over there. Clearly right now, I don't care how good you are, you're going to be constrained in terms of the revenue you can generate in Europe.

Thank you.

Thanks.

And the last question will come from Jeffery Harte of Sandler O'Neill & Partners. Please go ahead.

Good afternoon, guys.

Hey, Jeff.

Couple questions left. One, in a slow market where revenues can be tough to come by, I see you've moved into Brazil. Are you giving more thought to expanding other parts of the franchise maybe sooner than you would have? Are you looking at expanding into some of the other BRICs, or maybe looking at, say, middle market-type transactions that may not normally be your strong suit?

That's a good question. We're certainly looking at continuing to expand. I think both of those are not at the top of our list. We think Brazil is by far the most attractive of the BRIC countries for us to be generating near-term returns for our shareholders. We think we've got a really unique guy down there who's going to build a great business for us. We're not that anxious to rush into the other ones. We're going to spend a lot of time and global effort really incorporating the Brazil capability into our global team.

Likewise, I don't think we're looking, like many others have, to try to get into a middle market or small cap kind of business. Our main focus is going to be to continue to build out industry expertise. I talked last couple of quarters about how we're doing very, very well in healthcare. That's, among all our industry groups, is probably the one that's gone the furthest in terms of building out really a number of MDs in all the sub-sectors around the world, and we want to follow that pattern in our other sectors and get to that same kind of level of revenue.

Okay. And on the macro level, this was touched on earlier but I wanted to circle back. So macro concerns kind of persist. Do you have a feel for whether, say, tapering when rates started to rise maybe had an impact on companies being more willing or wanting to hurry up before funding went up? Or even just the overall level of uncertainty that the debt ceiling kind of injected into the global markets for M&A transactions?

M&A takes so long to do that I don't think a jump in or a perceived threat of a jump in interest rates, or certainly a few week debt ceiling negotiation is going to be able to -- you're never going to be able to move fast enough to get a transaction done. So I think we'd like to have some stability in the economy and in the political world, and perhaps we're going to have some of that now, and after that I just think it takes time and some continued growth in the economy. And the memories of the financial crisis will fade and companies will see those who are doing deals are getting rewarded for it by their shareholders, and I think we'll see more activity.

Okay. Thank you.

Thanks. Okay. I think that's our last question. Thank you all for joining, and we'll speak to you in a few months. Bye now.

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