Cowen Inc.
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good morning, ladies and gentlemen, and thank you for joining the Cowen Group, Inc. conference call to discuss the financial results of the 2013 second quarter results. By now, you should have received a copy of the company's earnings release, which can be accessed at the Cowen Group, Inc. website at www.cowen.com. Before we begin, the company has asked me to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Cowen Group, Inc. has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the company's filings with the SEC, which are available on the company's website and on the SEC website at www.sec.gov. Also, on today's call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release. Now I would like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.

[Peter Anthony Cohen:]

Thank you, operator. Good morning, everyone, and welcome to Cowen's second quarter earnings call. With me today are Michael Singer, CEO of Ramius, our Asset Management subsidiary; Jeff Solomon, CEO of Cowen and Company; and Steve Lasota, our CFO of the parent company. Let me start with an overview of our performance on the quarter, and then we'll get to Jeff and Michael to talk about the businesses in a little bit more detail. The general environment in the second quarter was quite a change from a year ago as everyone knows. Last year, we had a pretty volatile quarter in terms of equities and credit. The ongoing sort of repercussions of slowing U.S. growth and Asia and the possible debt concerns in Europe made for a tough second quarter last year or a tough environment. And interestingly, while many of these concerns are still with us today, and along with the uncertainty of the Federal Reserve Board's tapering the second quarter is one of the most favorable revenue quarters for us in quite a while with our broker-dealer, as we saw our new issuance in both equities and debt, along with an increase in our commission business. Ramius, our asset management business continues to do well with positive contributions in terms of performance on the part of our funds and asset growth across a wide range of the capabilities on our platform. With this as a background, in the second quarter, the firm reported Economic Income of $1.5 million on economic revenue of $81.1 million. This compares to the first quarter of this year, where we reported economic revenue of $75 million and an economic loss of $1.2 million. At Ramius, we are continuing to reorient the business under Michael Singer's leadership. Assets under management increased by $110 million in the quarter and nearly $1 billion for the first 6 months of the year to reach $9 billion today. We have continued to expand the range of products offered within our core capabilities, with the launch of 3 new vehicles in the quarter and 3 more to come by year end, which Michael will talk about in a little more detail. We launched, coupled with flows into existing strategies made for productive quarter of asset raising, with $317 million of net client inflows, coupled with $74 million of net positive performance. However, this was offset by the sharp movement in the Australian dollar-U.S. exchange rate, which reduced assets under management from our Australian mandates by $281 million since we hedged the currency exposure for our clients. And that's how you get to the net number I cited before. Michael will give you a little bit more detail in a few minutes. Our broker-dealer Cowen and Company saw significant revenue in both the investment bank and Sales and Trading businesses, which Jeff will talk to. Today, we have established ourselves as the #1 non-bulge equity underwriter in Life Sciences and the #2 high yield placement agent in the sub-$200 million debt offering space. Given our position in both Equity Capital Markets and Debt Capital Markets, we were well positioned in the quarter to benefit from a favorable environment for Capital Markets financing in all of our sectors. The Equity business also continues to show very positive momentum. In 2012 we bought -- brought in a new Director of Research, co-head of equities, and their leadership has had very substantial positive impact as reflected, I think, in our numbers. Unlike many of our peers, our brokerage revenue has increased year-over-year in the last 3 quarters. And by the end of this year, we will have expanded the number of companies under coverage to a level that is expected to bring us closer in line with our larger peers. Overall, we continue to keep a tight rein on expenses across the entire business. Steve will go through some of those details in his section of the call. Total non-comp expenses were only marginally higher year-over-year, even while revenue was up 22%. And considering that the second quarter of 2013 included a full quarter of Dahlman expenses, this is a noteworthy result. Also, fixed non-comp actually fell by $700,000 from the year ago quarter, and were essentially flat when compared to the first quarter of 2013. Again, this is despite the increased expenses from Dahlman Rose. Variable non-comp increased from the prior year as a result of the higher trading volume and increased marketing activities across the firm. You can see we've taken a lot of cost out of the business in recent years and worked with equal intensity to rationalize the Dahlman expenses as quickly as possible. We are continuing looking for additional ways to lower our cost structure without sacrificing the level of service and product offerings. Though the investment income was down -- investment income was down from the prior quarter, we continue to maintain a strong balance sheet, with $506 million in equity, of which $405 million is invested capital. This capital provides stability to our business and has been the foundation for our ability to execute on our plan. There are, we would say, a very few firms that have the flexibility to opportunistically invest in order to force their future growth. And I would say that this was probably the least productive quarter on the balance sheet since the third quarter of 2011 during the European debt crisis, so our numbers or the operating businesses are beginning to show through to a very substantial extent. As I've discussed before, it's becoming more and more challenging for smaller or less well-capitalized firms to succeed in our businesses. And to this end, we've been building a firm that can thrive in this market over the long term. We plan to achieve this by moving in an intelligent and methodical manner, while keeping our operating expenses in check. Our ability to report a modest operating expense increase with revenues up 22% in the quarter, while fully absorbing Dahlman -- is the testament to the work done by all the people in this firm. It's exciting time to be part of this Cowen. However, despite our progress in the quarter, there was a lot of work still to be done. We still see a lot of opportunity on the expense side and in revenue creation side. And while the market remains challenging, we probably would have been more optimistic. Our colleagues worked very hard over the last few years. And for that, I would like to, again, thank all of them for their continued commitment, dedication and for those of you who have been our stockholders for your patience. Let me turn the call over now to Michael, who will talk about the Asset Management business.

[Michael E. Singer:]

Thank you, Peter. I've been very focused in several objectives since I joined the firm 8 months ago. First, increasing AUM in revenues within our exiting investment capabilities; second, reorganizing ourselves in distribution efforts; third, realigning our expense base; and finally, fourth, creating bolt-on products for our existing capabilities and recruiting new investment capabilities to our platform. I'm pleased to report that we're moving in the right direction on all fronts. I'll give you a brief update on each of these objectives. First, the AUM revenues. AUM has increased from $8 billion at the start of the year to $9 billion as of July 1. The key drivers to AUM growth in the quarter and the first 6 months of the year come from our alternative solutions, real estate and activist capabilities. Our marketing efforts have centered on 7 existing investment capabilities

[Jeffrey Marc Solomon:]

Thank you, Michael. As many of you know, we've done a lot over the past couple of years to rebuild talent. The results you see today are a direct result of our commitment to be the superior -- to be -- to provide superior domain expertise within our core areas and leverage that expertise within our banking and sales and trading franchises. Over the past few years, we've seen our banking and capital markets franchise gradually strengthen as a result. More recently, our Sales and Trading business has begun to show a year-over-year quarterly revenue improvement despite declining market volumes. These trends continued into the second quarter of 2013. Our results also reflected the first 4 full quarter with Dahlman Rose in our numbers. To give you some highlights on our performance during the quarter. Banking revenue was $25.6 million. This was our highest revenue quarter since the second quarter of 2007. During the quarter, we closed on 24 deals across all of our product lines, compared to 17 a year ago. We completed 17 equity underwritings, 4 debt capital markets transactions and 3 advisory assignments. The IPO market was quite favorable, particularly for emerging growth companies, which is our sweet spot. We were involved on 7 IPOs, and we acted as a book runner on 4 of them. Debt Capital Markets had its best quarter since 2010, which is when we started this business, and accounted for more than 25% of banking in capital markets revenue. The deals completed -- during the quarter, covered a variety of sectors, including technology, consumer, health care and industrials. Our pipeline continues to be robust and reflects a diversity of mandates in both -- in terms of both product and sector mix. However, the increase in DCM activity makes the revenue recognition a little more lumpy than we have seen in the past. So we're confident about our ability to hit our budget numbers for 2013. We see significant opportunity in our core industry areas, and we are actively marshaling our resources around very specific opportunities that we've already identified. In the past year, we've been working on strengthening our relationships within the VC and PE communities, and our efforts there have opened up several doors, which is resulting in a number of new mandates in both debt and equity. Brokerage revenue was up $33.3 million -- was at $33.3 million for the quarter, which is the best quarter since the second quarter of 2009. While overall market volumes have continued to decline, our growth can be attributed to several steps taken over the course of the past 1 to 2 years. Just to remind you of some of the changes we made. We added new capabilities, such as electronic trading with the ATM acquisition last year, which gives accounts different ways to pay us and allows us to provide them with innovative ways to access liquidity across the various equity venues. New management tools have given our sales and trading team a clearer view into their accounts, which allows them to focus their efforts on the accounts where we can have the most impact. The Dahlman Rose acquisition introduced us to new account relationships and deepen their relevance to existing accounts. We reorganized our account teams as part of that integration effort to reflect a collaborative coverage model, and the result has been better service for our clients all around. Finally, we've added to our research platform. We now have 42 publishing analysts, which is up 50% year-over-year. Our coverage universe has grown to a similar rate and our -- and we are targeting approximately 700 plus companies under coverage by the end of the year. Importantly, the quality of our research has remained just as high as it always was, if not even better. As a result, we're delivering much more content and delivering in a much more targeted manner in ways the clients really wanted, and they are responding. We are seeing an early uptick in the all-important vote counts in several clients, though the full impact of our new position is expected to take a few cycles. With these changes, we have improved our position substantially on select accounts and broken into the top 10 and some others. It is clear that we have the ability to improve our standing at many more accounts if we stay focused on delivering quality content in corporate access. Finally, as it relates to Dahlman Rose integration, our team did a really excellent job on completing the integration on schedule, and with little disruption to our clients in our daily business. We could not be more pleased with that outcome. In summary, our performance this quarter would suggest that we're doing something different than our peers and our performance has given us another reason to remain focused on the tasks at hand. The increased diversity in revenue and the opportunities we see ahead of us give me greater confidence in our ability to accomplish our goal of building a world-class platform that can provide our shareholders with sustained growth opportunities, but it's all about execution and we are squarely focused on that. I just want to knowledge the efforts of all of our colleagues at Cowen for their hard work. You guys really rose to the challenge this quarter and really helped to put us -- helped us to put up our best top line numbers in a very long time. With that, I will now pass the call on to Steve Lasota, who will give you an update on our financial performance.

[Stephen A. Lasota:]

Thank you, Jeff. During the second quarter of 2013, we reported GAAP net income of $1.1 million or $0.01 per share, compared to a GAAP net loss of $7.9 million or $0.07 per share in the prior year period. In addition to our GAAP results, the management utilizes non-GAAP measures, what we'd term as Economic Income, to analyze our core operating segments' performance. We believe Economic Income provides a more accurate view of the operating businesses by excluding the impact of expenses associated with one-time equity awards made in connection with the November 2009 Ramius-Conning transaction. In 2013, we no longer have these expenses. Certain other acquisition-related expenses and other reorganization charges, goodwill impairment and Economic Income also exclude the impact of the Conning rules that require us to consolidate certain of our funds. For the 3 months ended June 30, the company reported an Economic Income of $1.5 million or $0.01 per share, compared to an economic loss of $6 million or $0.05 per share in the 2012 second quarter. Second quarter Economic Income revenues were $81.1 million, an increase of $14.9 million, compared to $66.2 million in 2012 second quarter. The increase in revenue was primarily attributable to an increase in investment banking, brokerage and incentive income, partially offset by a decrease in investment income. We generated $3.6 million in investment income during the second quarter. We ended the quarter with $405 million in invested capital. On the alternative investment side of our business, we recorded management fees of $14.6 million during the second quarter, which is unchanged from the prior year period. Incentive income increased to $3.8 million from incentive fee income of $2.6 million in the comparable prior year period. In our broker-dealer segment, second quarter Investment Banking revenues were $25.6 million, an increase of 57%, compared to $16.3 million in the prior year period. We completed a total of 24 transactions across all products in the most recent quarter, compared to 17 transactions in the second quarter of 2012. Brokerage revenue was $33.3 million in the second quarter, an increase of 36% or $8.7 million over the prior year period. The increase in the current quarter was primarily due to an increase in commissions earned related to the Cowen's electronic trading in cash equities business. The increase in commission is partially attributable to an increase of the number of stocks covered as a result of the acquisition of Dahlman Rose. In the second quarter, we reported compensation and benefits expense of $47.7 million, a 15% increase, compared to $41.6 million in the second quarter of 2012. The increase is primarily attributable to an increase in headcount due to the acquisition of Dahlman Rose. For the second -- for the quarter, we reported an aggregate compensation to revenue ratio of 59%, compared to 63% in the second quarter of '12. In the quarter, we incurred $1.3 million in compensation expenses for activities in which the company gets reimbursed. Moving to our non-comp expenses. Fixed non-comp expenses in the current quarter decreased by 3% to $23.8 million as compared to $24.5 million in the comparable prior year quarter. This is primarily due to reduction in professional advisory fees and IT-related services. The decrease was partially offset by an increase in depreciation and amortization costs and occupancy and equipment costs related to the Dahlman Rose acquisition, as well as the KDC acquisition in the fourth year. Variable non-comp expenses were $8.6 million in the second quarter of 2013, up 20%, compared to $7.1 million in the second quarter of '12. This is due to an increase in floor brokerage and trade execution costs related to 2 acquisitions completed during the second and fourth quarter of 2012, and 1 in the first quarter of '13, which generated increased trading costs and is in line with the increase in associated revenues. Marketing and business development expenses were also higher in the quarter due to increased marketing activity firm-wide. While Economic Income is a pretax measure, I'd like to briefly touch on our tax situation. After the acquisition of LaBranche, Cowen had significant operating net operating losses or NOLs in the U.S. that carried flowed into the future of $366 million. The associated gross deferred tax asset currently amounts to $147 million. There was a 100% valuation allowance against that asset, but it is a significant value to the firm. Higher [indiscernible] associated with the acquisition of Cowen and Company in 2009 and LaBranche in 2011 partially limit the amount of NOLs the company will be able to utilize annually, but a significant amount of future earnings will be shielded from taxes by this asset. Turning to our balance sheet. Our stockholders' equity amounted to $506 million at June 30, and our book value per share was $4.29. Tangible book value per share, which is a non-GAAP measure, was $3.87 per share, compared to $4.04 per share at the end of 2012. Finally, moving to our share repurchase program. In the first quarter, we repurchased approximately 833,000 shares, a result of net share settlement related to the vesting of equity awards. We did not repurchase any shares in the open market. The total cost of the program in the quarter was $2.6 million or $2.98 per share. Since we announced our original repurchase program in July of 2011, we have repurchased 8.2 million shares in the open market and an additional 3.9 million shares as a result of share net settlement related to the vesting of equity awards. The total cost of the program through the second quarter of 2013 was $33.6 million, which represents an average price of $2.78 per share. As of June 30, we have approximately $12.2 million remaining under the current program. I'll now turn the call back to Peter for closing remarks.

[Peter Anthony Cohen:]

Thanks, Steve, Jeff, Michael. Well, ladies and gentlemen, that's kind of it. Why don't we just open it up for questions at this point?

[Operator:]

[Operator Instructions] Your first question comes from the line of Joel Jeffrey from KBW.

[Joel Jeffrey:]

Jeff, I just wanted to go back to a comment you made on DCM activity. I think you said it could be lumpy sort of going forward. Did you guys see any kind of sort of pull forward in terms of deal activity because of rates going up? And how should we think about this kind of going forward?

[Jeffrey Marc Solomon:]

No, I don't think we saw a pull forward. These are just there. They're -- they take a fairly long time to execute from start to finish in terms of -- and they tend to be a bigger piece. So when we -- sometimes, it happens at the end of a quarter. It could end up in one quarter or another quarter, but there's been no pull forward in terms of activity. Nobody, at least as far as I can see in our backlog, has rushed in here. That wouldn't have already been doing it anyway. And I think, from our standpoint, the rate backup is certainly something that we're talking about with clients. But we're really talking about the -- a part of the marketplace that is less rate sensitive and more focused on growth equity and using debt as -- or growth financing and using debt as an alternative to maybe doing equity financing. So not really seeing any change in activity because of the backup in rates.

[Joel Jeffrey:]

Okay, great. And then thinking about the, certainly, the investment banking and the equities business. Can you give us a sense for how much of the business in the quarter was contributed by the Dahlman acquisition? And maybe how much was from electronic trading?

[Jeffrey Marc Solomon:]

We don't break those numbers down, Joel, and it's hard to say. What I can say is a couple of things. It's hard to say how much of it is a result of Dahlman activity because when clients are paying you, they're paying you across all the different industries. It's very difficult to track which trade from which clients go to which sectors. What we can say is that we're seeing meaningful increase in the votes that we're getting, and the early -- the early votes we've gotten back suggest we've moved forward quite a few notches by adding the content from Dahlman. And the clients -- we've noticed an increased in the overall trend that we've done with clients quarter-over-quarter. So that suggests that they have more room to pay us because we're providing them with more high-quality content. It's hard to track specifically how much of that is Dahlman related and how much of that is Cowen related. But what I can say is that 40% of the research being published -- research analysts weren't here a year ago, and so we're still working feverishly to make sure that we get them up and on the boat. I think we did more travel in the second quarter than we -- well, certainly, more travel in terms of research visits and client visits in the first 6 months than we did in the entire year last year, so it gives you an indication as to the volume and the quality of those reports. So we expect to see some increase significantly, both because of the Dahlman acquisition, as well as the efforts we made internally. On the second question, we've -- the acquisition is actually proven to be quite successful. We are seeing much more flow through the electronic market than the ATM was seeing on its own. The clients are turning us on. What we kind of look at internally here is how many new clients are we adding, and then how many clients did we add that are beginning to use the product, how many are active. And those numbers have increased nicely over the course of the past year. If you look at Traders Magazine, for example, the last month, we've been developing some interesting technology that's really innovative. And our market positioning really is much more to be broker neutral since we don't do dart pools. And if you're on the by-side deck, you are really going to see how you're going to access all 52 venues. You want to do it with somebody who doesn't have an ax to grind and can find you the best liquidity without conflict. That's the product that we have. And it's -- certainly, we're seeing from clients a significant response to that.

[Joel Jeffrey:]

Okay, great. And then thinking about the investment income. Sort of given the assets that you guys have invested in the sort of historical returns. I mean, is it a good way to think about this sort of a $40 million to $50 million typical run rate in terms of revenue?

[Peter Anthony Cohen:]

Well, Jeff?

[Jeffrey Marc Solomon:]

I mean, it's kind of worked out to be that. Our internal rate of return on our invested capital has run somewhere between 16% and 17% fairly consistently for a very long period of time. We actually were kind of on track towards that number. June was an interruption. And what happened in the bond market, the equity markets resulted in our giving back some income that we've made in April and May. And I think July, we're back in sort of earning that -- getting back on that track, we'd put it that way. So I mean, I think if you think about that kind of return on our invested capital, the liquid portion of our invested capital, that would be a good way to look at it. The liquid portion. That makes some of the older private stuff that will be sort of maturing over the next few years as lumpy. So we'll have some quarters better, then some quarters, worse. And we're migrating towards more liquid balance sheet in general, though, over -- that's our objective, to deploy more of the -- more of our capital in the Asset Management business to see some of the new products and to take advantage of some of the capability that we put in place over the last few years.

[Joel Jeffrey:]

That was actually a pretty good segue into my next question, which was where you're certainly seeing the best opportunities to invest the firm's capital.

[Jeffrey Marc Solomon:]

Well, look, we've had a great run in the credit for the last few years. We don't -- I mean, don't see that quite as the opportunity now that we did then. Merger arb is an event that's been a productive space for us and we continue to press, and when I say press, meaning, allocate capital in that space. More health care royalties business has been a great place to have capital. The income on the royalties business, though, is very, very back ended so it's not showing through. But based on what we see, we think it's a place we'd like to have more capital over time. And other than that, I mean, we're just sort of being very, very careful right now as to where we allocate capital. Less going into less liquid assets because now that we're a public company, we don't have the luxury of taking a very, very long-term view on like some of our real estate investments.

[Joel Jeffrey:]

Okay, great. And then just lastly for me. The quarter-on-quarter increase in the shares outstanding. What drove that?

[Stephen A. Lasota:]

That was vesting in the second quarter of shares that have been granted for compensation purposes in the prior years.

[Joel Jeffrey:]

Okay. And should we expect similar increases on a sort of quarterly go-forward basis? Or is this more of a sort of one-time?

[Stephen A. Lasota:]

It's usually -- the way the vesting works, it's usually in the second quarter of each year, so you won't see it in the third and fourth quarter.

[Jeffrey Marc Solomon:]

Yes. And we -- since we knew we were going to buy back stock through providing in this settlement for those people vesting, we were pretty much out of the market on a buyback during the quarter. Now that second quarter is out, the window will open Monday for us. We don't have any vestings coming up of any consequence, so we will probably be carefully in the market, looking at acquiring stock opportunistically.

[Operator:]

Our next question comes from the line of Keith Goffman [ph] of [indiscernible] Credit Capital.

[Unknown Analyst:]

You essentially answered my question on the last -- with the last gentleman. I just want -- on the $3.6 million of investment income, what percent return do that represent? Is that against the $400 million of liquid invested capital?

[Peter Anthony Cohen:]

Yes. Well, the $400 million is invested capital. Of that, $200 million, we deem highly liquid and then the other $200 million is moderately liquid or liquid. We have a very big stake in our historical real estate assets and our real estate funds. That stuff will be liquefying. So you really have to think about it in terms of the $200-ish million of liquid assets. You could just figure it out yourself.

[Unknown Analyst:]

Right, right, right. And against that, you said you're kind of looking at kind of the IRRs what you said 16% to 17% over the...

[Peter Anthony Cohen:]

Well, that's what it's been historically.

[Unknown Analyst:]

Historically. That's historical. I got you.

[Peter Anthony Cohen:]

Yes. For about 18 years now.

[Operator:]

Our next question comes from the line of Mark Lane from William Blair.

[Mark Lane:]

On the broker-dealer side, good revenue quarter. It seemed like decent momentum. Business is still unprofitable, though. So what is the path towards profitability? You talked about all these opportunities to take expense out of the business. What's the path?

[Jeffrey Marc Solomon:]

Well, I think, first of all, we see significant opportunities for revenue growth to just -- based on the fact that we're one quarter into the Dahlman acquisition, and there's a number of areas in terms of banking and in the equities division that we haven't had seen the benefit of plugging in. So I think when I look at the path to profitability, for us, it's being able to leverage the fixed cost structure. We'll continue to look at ways to eliminate the fix cost structure. Certainly, the fact that we brought fixed non-comp down in the quarter, which we did in acquisition of another firm should give you an idea of how successful that effort is. So we've had 0 change in fixed costs year-over-year, yet we acquired another firm of a significant size and at significant cost. So some of that will continue to show through, but I think that the real opportunity to the broker-dealer here is to continue to drive revenue. And we expect to see that over the course of the back half of the year, market conditions, notwithstanding.

[Mark Lane:]

But can you take out more fixed non-comp expense in the second half? Or is this, as you just described, completely a revenue story?

[Jeffrey Marc Solomon:]

I think we can always do better. I'm not expecting there'll be significant improvement in fixed non-comps. Like I said, we did a remarkable job in a very short time of merging 2 firms together and taking out more than 100% of the costs of the combined firms. I mean, that's pretty remarkable. And to be able to do that in a single quarter, I think, is a pretty good track record. Obviously, we'll continue to look for ways to bring fixed cost into line, but I'm not expecting there to be a significant reduction in fixed costs. I think the biggest challenge we have is in long-term real estate and the leases. So over the next couple of years, as we migrate out of some of the higher cost space that was -- that we had in various locations, that will run down over time. And we know that that's embedded gains, but there's not -- you're not going to see that on a quarter-over-quarter basis. That's something that we're just working on reducing over the long haul. And obviously, anything we can do on vendor contracts come up to drive down pricing based on the new realities in the world. We're doing that. So I think the team has done an exceptional job. And I really -- I have no complaints about it. These guys have done a great job, and we'll continue to look for ways. But it's really about leveraging the fixed cost structure on the revenue side at this point.

[Mark Lane:]

Okay. How about on the comp side? The segment detail hasn't been disclosed yet, but you're probably still in the broker-dealer segment north of 60% comp ratio. What's -- I mean, in a business where it's difficult to forecast revenue, what's your longer-term goal in terms of that comp ratio?

[Jeffrey Marc Solomon:]

So we obviously look at compensation across the entire platform. And we pick and choose the areas where we want to make investments in the businesses we think will be long-term successful. The good news is that it's largely variable at this point. We made some significant investments over the course of the past few years in personnel. The real risk in that business is when you make investments in people and it takes some time to get up and running. You have a revenue mismatch relative to the computation for those people. So in doing a rebuild process, you're always paying forward and expecting to get the -- our part of the ROI in those investments in the back -- on the back end. I would say that the hires we did in the banking and Capital Markets in 2010 and 2011, where we made significant investments and didn't have the revenue really to pay for, are starting to come home. And that's been great. I mean, you can see real revenue contributions in the investments we made during those years, and in spots where that's not happening. We're moving on and repositioning and doing the right things to really drive the business. The good news is, at this point, it's largely variable in nature. So as we produce more revenue, we'll be able to pay more and that's a good feeling.

[Mark Lane:]

So back -- the last question. Back to the share repurchase program. So we've had this consistent debate about use of the balance sheet. You have significant excess capital. Your stock is trading under -- well under tangible book. Investment income results have been volatile. You look back over the last 2 to 3 years, you're issuing stock to your employees at tangible book. You're diluting current shareholders. I mean, at the very least, why can't you draw a line on the sand and say, "Hey, we're not going to let the diluted share count increase at all."

[Peter Anthony Cohen:]

Because we're running the business for the long term, not for the short term. And we will -- as we do, we look at our liquidity, we look at our investment opportunities. We're growing the business and we look at our cash needs on a rolling forward, 30-month kind of time frame all the time, and we will continue to buy stock back as we feel that we can do that without impairing where we want to take the business over the next 2 to 3 years and our cash needs to do that. And I mean, I -- we had this debate and I think that where you and I are quite different is that having liquid capital and a lot of it is the greatest safety valve in this business and allows us to be opportunistic, like in Dahlman Rose, like the electronic trading business that we bought and 5 other things that we're looking at right now that we can look at because we've got the capital. And it's going to stay that way.

[Jeffrey Marc Solomon:]

Yes. And just to echo that, Mark, very specifically. It's hard to look at it on a quarter-over-quarter basis. And when we think about our capital base and we think about our ability to attract and retain talent, both Asset Management business and the broker-dealer, the fact that we have a balance sheet that is easy for people to understand gives them a very real sense that we're going to be around for a very long time in a world in which we've seen our competition get crushed because they don't have the financial wherewithal to withstand downturns. It is a great marketing tool for us, and we're able to do things that other people can't because the question of -- the existential questions do not come up with us. And that is a very key piece. Having said that, we'll continue to look at it. We're all shareholders here, and we'll do the right things to drive value and to drive book value, certainly, book value per share. And -- but it is a marathon, not a sprint. So we're not going to do anything to put us in a position where we can't continue to grow the business.

[Operator:]

You have no questions at this time. [Operator Instructions]

[Peter Anthony Cohen:]

All right, then. Thank you, all, for attending the call today. I look forward to speaking to you on October. Everybody, have a very happy, healthy August. Enjoy the summer. It's going to end soon enough, and we'll go back to the coal mine. Operator, thank you.

[Operator:]

Thank you. Ladies and gentlemen, that concludes your conference. You may now disconnect. Have a great day.