Cowen Group Management Discusses Q3 2013 Results - Earnings Call Transcript

| About: Cowen Group, (COWN)

Cowen Group (NASDAQ:COWN)

Q3 2013 Earnings Call

November 07, 2013 9:00 am ET


Peter Anthony Cohen - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Operating Committee

Michael E. Singer - Chief Executive Officer of Ramius

Jeffrey Marc Solomon - Chief Executive Officer of Cowen & Company and Director of Cowen Group

Stephen A. Lasota - Chief Financial Officer, Principal Accounting Ofifcer and Member of Operating Committee


Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Devin P. Ryan - JMP Securities LLC, Research Division


And good morning, ladies and gentlemen, and thank you for joining the Cowen Group, Inc. conference call to discuss the financial results for the 2013 third quarter. 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

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

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 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 go ahead, sir.

Peter Anthony Cohen

Thank you, operator. Good morning, ladies and gentlemen, and welcome to our third quarter earnings call. With me here today are Michael Singer, CEO of Ramius; and Jeff Solomon, CEO of Cowen; and Steve Lasota, our CFO and a few other people. I'm very proud to report a profitable third quarter, another record revenue quarter since the Cowen/Ramius combination, which really took place 4 years ago this past Monday. These results, inspite of the environment, reflects a lot of hard work goes -- over the recent years to transform ourselves and to affirm that we can be successful in the current market environment. Four years ago, when we merged Ramius into Cowen, both businesses were facing headwinds in their respective areas that required significant transitions in order to make them competitive.

Today, Ramius is back to being an excess of $9 billion alternative investment management platform and it's growing. It comprises 7 different unique outlook providing investment capabilities, selling into several different distribution channels. Ramius, so far this year, successfully raised $1.2 billion in assets and has launched several new products. Today, Cowen and Company has become a leading provider of equity research on U.S. equities and investment banking advisor emerging growth companies. Over the past year, we have continued to gain market share in our equities business and have invested we believe intelligently in our research franchise, which will match many of our larger peers by year end in terms of number of stocks under coverage.

In addition, our investment banking is becoming a leading equity underwriter and the leading private placement agent in private high yield offerings of our core industries.

Here are some financial and operating highlights from the third quarter. The firm reported Economic Income of $3.7 million in the quarter on economic revenues of $92.1 million. This compares to third quarter of 2012 when we reported economic -- an economic loss of $8.9 million on revenues of $66 million.

At Ramius, AUM grew by $234 million in the quarter and $1.2 billion during the year. Ramius launched 2 products in the most recent quarter and 6 products so far this year. Mike will provide you with an update on the Ramius business and the details behind all that in a few minutes.

Cowen and Company have broke a deal ahead, another record revenue quarter in the investment banking Sales and Trading businesses. This past year has been a favorable capital raising environment, and that allowed our strength to shine in both equity and debt.

On the Sales and Trading side, we continue to make inroads with accounts to find value in the services that we provide, and we continue to move up in the broker boat. Jeff will discuss these things with you in a few minutes.

On the expense side, we continue to keep expenses under control while assuring we do not constrain future growth opportunities.

In the quarter, total non-comp expenses rose by a moderate amount year-over-year primarily due to acquisitions, which were in the third quarter but didn't exist last year. An increase in variable cost due to 40% increase in revenue.

Turning to our balance sheet. We ended the quarter with $511 million in equity, of which $407 million was invested. We generated $12.3 million in investment income to report a return of approximately 3% on our investment portfolio.

Our strong capital base has been the foundation in the firm. This market environment remains very challenging for small or less well-capitalized firms to sustain themselves and we think our capital gives us a very distinct advantage. Our balance sheet continues to enable us to capitalize on a variety of opportunities that may present themselves and to invest in the future of both of our operating businesses.

Over the past year we continued to buy back stock, as we saw the opportunity to do so at a discount to book value. Since June 2011, we have purchased approximately $25 million worth of stock in the open market, pursuant to the share purchase program that our board put in place, and an additional $11 million worth of stock from employees to settle backs obligations on investing shares. Our average price on these purchases is $202.82. We will continue to repurchase shares intelligently even as we have seen an increase in our share price.

And to that end, we announced today that Cowen's Board of Directors approved the $15 million increase in the share repurchase program, which brings the total availability under the program up to $25 million, which is higher than it's ever been since we started the buyback program.

And just a note on that, we will -- as we always have balance -- our investment opportunities with our balance sheet and into the businesses and our cash flow with the buybacks so that we remain in a very healthy capital position, while we continue work in strengthening the capitalization intelligently.

Finally in September 2013, Ramius' legacy multi-strategy funds received a significant distribution from Lehman Brothers International, LBIE, which was subsequently distributed to the funds and investors in respect of the Omnibus Trust Asset claims held by our funds from 2008. As a creditor of LBIE, we proactively joined the unsecured creditors committee of LBIE and, in coordination with the administrator, worked diligently for 5 years towards a novel solution that would ensure that our clients' assets would be recovered. The resulting distribution in September of this year from LBIE is the landmark event of Lehman's global bankruptcy, and our funds expects to recover in excess of 100% of the value of the claims registered in December -- in September of '08.

This outcome from our firm and our investors really highlights what makes us different we think as a organization. I can think of no other fiduciary that would spend the kind of effort and money we did over long time to ensure that 100% of the assets trapped as a result of the bankruptcy were returned to their rightful owners. I commend the efforts of our team for really making a difference on behalf of our clients.

And just a side note, many of our peers basically chose to sell their claims into the open market at cents on a dollar. Originally these claims are trading as low as $0.20 on the dollar. We believe that we will end up returning probably close to 125% of the balances that were there on September of '08.

Lastly, I'm gratified to see the progress we continue to make as a firm. However, in our business, we need to constantly assess where we are, where we want to be and plan our next forward move. We still have the long road ahead of us. And I want to take this moment to express my thanks and appreciation to all of my colleagues at Cowen and Ramius, and Cowen group parent company for their hard work, not only for the quarter's performance, but for all their hard work over the last few years that allowed us to transform the firm to where we are today.

I will now turn the call over to Michael, who will talk about Ramius, our Asset Management subsidiary.

Michael E. Singer

Thank you, Peter. I'm pleased with the progress Ramius made in the third quarter on the initiatives we set out earlier this year. As a reminder, they are: First, increasing AUM in revenues within our existing investment capabilities; second, reorganizing our Sales and Distribution effort; third, realigning our expense space; and fourth, creating bolt-on products for existing capabilities and recruiting new investment capabilities to our platform. I'll give you a brief update on each of these objectives.

First AUM in revenues. AUM increased from $8 billion from the start of the year to $9.3 billion as of 10/1. AUM growth in the quarter came from our alternative Solutions business, real estate and value active [ph] capabilities. We launched several new funds this year, which enable us to further expand our AUM potential. Management fees and incentive income collectively were up 14% year-to-date to $57.6 million versus the prior-year period.

On the sales and distribution side, given our 7 different investment capabilities, the various product contracts we offer and the different types of investors we seek to address, institutions, high networks [ph], mass affluence, we believe that a general specialist marketing approach on the direct institutional selling side and a dedicated platform team on the other side is really the right approach. And it is producing results.

Regarding our expense space, we are on track to meet our '13 expense savings goals. We've been paying careful attention to the expense line to ensure that we meet our objectives for the year. However, we note that management and performance fees will unlock our true earnings potential.

In terms of extending our product suite, we launched 2 new funds this year. So far this year, we've launched 6 new products and 1 new capability. When we talk about creating bolt-on products through our existing product capabilities, a good example of that is what we've done with the Ramius debenture of an equity fund, which we launched in October.

This is our fourth alternative investment mutual fund. It's an actively managed alternative mutual fund that provides investors with data liquidity and exposures to a broad spectrum of transformative corporate events, including activism, merger and special sets [ph]. We believe this is the only alternative mutual fund with this particular equity of that investment program. The early feedback from our marketing team and investors out there has been very positive. Overall, we've made a lot of headwinds in the first 3 quarters of the year. AUM is substantially higher than 1 year ago, our revs are up, and we've reduced expenses. However, the real x factors is performance fees and the elasticity that, that will create in our P&L.

Of course, our greatest asset is our people, we have an incredibly group -- incredibly talented group of passionate and motivated investment professionals. Our goal is to provide them top-quality institutional infrastructure, sales and marketing and know-how so they can do what they do best, generating outstanding risk adjusted returns. I look forward to discussing Ramius' progress with you during our next quarterly call. I will now turn the call over to Jeff, who will give you an update on our broker-dealer at Cowen and Company.

Jeffrey Marc Solomon

Thank you, Michael. As Peter mentioned in his opening remarks, Cowen and Company reported revenue of $62 million for the quarter, another record since the Cowen/Ramius business combination in 2009. It is also the seventh consecutive quarter of sequential revenue improvement since the fourth quarter of 2011, where we reported $33 million. We are a far cry from where we were 3 years ago, and the path to achieving this kind of success has taken some time. However, breaking even is not where we want to be, so we continue to focus on the things that will help us to consistently improve upon these results. As most of you already know, our focus in Cowen has been to establish ourselves as thought leaders in our core industry sectors by providing our clients with unparalleled domain expertise, advice and execution through a deep commitment to high-quality research and investment banking services.

Over the past 3 years, we've invested around our core competencies in capital markets in banking by building a broader product suite that we thought would enable us to provide a level of service to our clients we didn't think was being achieved by our competitors. We knew that we had an outstanding research platform and believed that by building upon that platform, it would prove to be a critical differentiator versus our peers, so we made targeted incremental investments within our research group. And we also made key leadership changes in banking capital markets, equities and research that have enabled us not only to try the more certain strategic course, but have ushered in a new era of cooperation and accountability in our organization that is now the backbone for how we execute for our clients.

All of these actions were designed to get each of our divisions functioning in a manner that can leverage our strengths and align our resources more productively, so that we begin to put some distance between us and the others who claim to do what we do. Today we're starting to see evidence of those efforts. Now our results have been buoyed by a more robust capital raising environment to be sure. Our franchise is positioned well to take advantage of these markets because we're in a much different place compared to where we were 3 years ago when we began these efforts.

Here are some highlights from the quarter. Banking revenue was $27.7 million. We closed on 28 deals across all of our product lines, compared to 15 a year ago. We completed 20 equity transactions, 7 Debt Capital Markets transactions and 1 advisory assignment. The IPO market continued to be robust. We were involved in 7 IPOs where we were a book runner on 2 of them. Our Debt Capital Markets business continued to gain some real traction by accounting for almost 40% of our banking revenue, which is the highest level since we've established that business in 2010.

Collectively, our wins in debt and equity span all of our core sectors: Healthcare, tech, consumer, energy, transportation, industrials and metals and mining. Brokerage revenue was $32 million for the quarter, the second consecutive quarter where we reported brokerage revenue greater than $30 million. This was a noteworthy result given the traditional summer slowdown in equities against a broader decline in overall market volumes. For the year, our equities revenues have increased 20% year-over-year, compared to 5% year-over-year decline in market volumes as a whole.

The gains in our equities revenue are due in part to our acquisitions, but also due to several other important operating factors. First, there's new client mapping tools and disciplines, which allow our sales and research to have a much more granular view into each of our accounts, which has enabled us to focus our efforts in areas we can move the needle with each client. Two, we provide more content in corporate assets following the Dahlman Rose integration, which began in earnest in April, we're now delivering more content than ever. We have 42 publishing analysts and are on track to have approximately 750 companies under coverage by the end of the year. This compares to about 400 companies under coverage a year ago, and so it's really been a remarkable improvement.

Our number of corporate access events has also increased 28% year-over-year. And the third is the integration of our algorithmic Trading and Securities lending businesses, 2 team acquisitions that have really helped to bolster our revenue significantly. As a result, we've been able to establish greater relevancy to our commissions and clients. On this point, one of the best ways for us to measure our success in penetrating accounts is through the research built, which Peter mentioned earlier. We've seen our position there begin to improve steadily. In fact, according to a third party market research, we had the largest market share increase among any peer firm in the survey, excluding the bolts bracket and electronic trading-only firms. This market share growth is a testament to our strategy of being able to make an impact, even when the overall market for equity volumes continues to be challenging.

While I am pleased with the performance of our banking and equities businesses in this environment, we take nothing for granted, and there are many areas for improvement. We continue to work hard to drive results. Our hope is evident that we are in a better position today than we've been in a long time. To all of our colleagues at Cowen, I just want to let you know how proud I am to be a part of this team. While we have much more to do, through your collective efforts, we've not only achieved our best operating quarter since the merger, but we put ourselves in a position where we can win consistently.

With that, I'll now pass the call to Steve Lasota, who will give you an update on our financial performance.

Stephen A. Lasota

Thank you, Jeff. During the third quarter of 2013, we reported GAAP net income of $3.6 million or $0.03 per share, compared to a GAAP net loss of $10.6 million or $0.09 per share in the prior-year period. In addition to our GAAP results, management utilizes non-GAAP measures, what we term is 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/Cowen transaction, certain other acquisition related expenses and other reorganization charges, goodwill impairment. Economic Income also excludes the impact of accounting rules that require us to consolidate certain of our funds.

For the 3 months ended September 30, 2013, the company reported Economic Income of $3.7 million or $0.03 per share, compared to an Economic Income loss of $8.9 million or $0.08 per share in this 2012 third quarter. Third quarter Economic Income revenues were $92.1 million, an increase of $26.1 million, compared to $66 million in 2012 third quarter. The increase was in all revenue sources, investment banking, brokerage, management fees, incentive fees and investment income.

We generated $12.3 million investment income during the third quarter, an increase of $3.2 million over the prior-year period. We ended the quarter with $407 million in invested capital.

On the alternative investment side of our business, we recorded management fees of $14.3 million, compared to $13.4 million in the prior-year period. Incentive income increased $4 million year-over-year to $5.7 million in the third quarter.

In our broker-dealer segment, third quarter investment banking revenues were $27.7 million, an increase of 48%, compared to $18.7 million in the prior-year period. We completed a total of 28 transactions across all products in the most recent quarter, compared to 15 transactions in the third quarter of 2012. Brokerage revenue was $32 million in the third quarter, an increase of 41% or $9.3 million over the prior-year period. The increase in the current quarter was primarily due to acquisition, as well as continued improvement in overall commissions and trading with customers related to the company's electronic trading and cash equities businesses.

In the third quarter, we reported comping [ph] benefit expense of $53.8 million, a 16% increase, compared to $46.2 million in the third quarter 2012. The increase is primarily attributable to an increase in headcount due to the acquisition of Dahlman Rose and others, with a quarter report on aggregate compensation to revenue ratio of 58%, compared to 70% in the third quarter of 2012. In the quarter, we incurred $1.4 million in cost expense to activities in which the company gets reimbursed.

Moving to our non-cost expenses. Fixed non-comp expenses in the current quarter increased by 5% to $25.4 million, as compared to $24.1 million in the comparable prior-year quarter. This was primarily due to an increase [indiscernible] and depreciation and amortization cost due to the Dahlman Rose acquisition completed during the first quarter of 2013 which were only partially offset by lower service fees.

Variable non-comp expenses were $6.9 million in the third quarter of 2013, up 20% compared to $5.7 million in the third quarter of 2012. This is due to an increase in floor brokerage and trade execution related to general revenue increase in the company's overall business, as well as 2 acquisitions completed during the second and fourth quarter of 2012 and 1 in the first quarter of 2013. The increased trading costs are in line with the increase in associated revenues.

Lower Economic Income is a pretax measure, I'd like to briefly touch on our tax situation. After the acquisition of LaBranche, Cowen had a significant net operating losses or NOLs in the U.S. to carry forward into the future of $360 million. The associated growth of per tax asset currently amounts to $143 million. There is a 100% valuation allowance against that asset, but it has significant value to the firm. IRS will to associate [ph] 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 significant amounts of future earnings will be shielded from taxes by this asset.

Turning to our balance sheet. Our stockholders' equity amounted to $511 million at September 30, and our book value per share was $4.35. Tangible book value per share, which is a non-GAAP measure, was $3.94 per share, compared to $4.4 per share at the end of 2012.

Finally moving to our share repurchase program. For the quarter, we repurchased approximately 725,000 shares in the open market and 100,000 shares as a result of net share settlement related to divesting of equity awards. The total cost in the quarter was $2.8 million or $3.43 per share. Since we announced our original repurchase program in July of 2011, we have repurchased 8.9 million shares in the open market, and an additional 4 million shares as a result of next year's settlement related to divestment of equity awards. We have spent approximately $25 million in share repurchase and another $11 million in share net settlement at an average price of $2.82.

As of September 30, we had approximately $10 million remaining under the current program. On November 6, Cowen's Board of Directors approved an increase for the company's share repurchase program that authorizes Cowen to purchase up to an additional $15 million of Cowen's Class A common shares. The $15 million increase in addition to the company's existing $35 million share purchase program announced before, of which we have $10 million left for a total of $25 million.

I'll now turn the call back to Peter for closing remarks.

Peter Anthony Cohen

Thanks, Steve, Jeff, Michael. Why don't we open this up to questions right now?

Question-and-Answer Session


[Operator Instructions] This comes from the line of Joel Jeffrey at KBW.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

A quick question on the comp ratio. It looks like it kind of stayed steady around where it was in the last quarter. But given the sort of increase we saw in investment income, I would've thought it might have come in a bit lower than that. Can you just talk a little bit about how that business line has comp versus some of the other business lines?

Stephen A. Lasota

Sure. Joel, it's a revenue mix that affects our comps to rev ratio. We -- as you can tell in the quarter, we did more investment banking and that's usually a little bit higher payout than it would be on brokerage. And we also, on the investment income side, we had a little bit of adding risk as well. So it's just the fact of where the revenue is coming from and who's getting paid off of that revenue.

Peter Anthony Cohen

Yes, so it's the mix, Joel, of the revenues. And I think that from years past, we have learned to be very careful during the year with our comp accruals. Because whatever you think until you get down to the end of the year and you get into final discussions with everybody, comp is always subject to discussion at year end. So we're hoping that we are being very conservative in our accruals.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And sticking on the sort of expense side of the equation. In terms of fixed non-comp expenses, going forward, if you guys are sort of not doing acquisitions in the near term, is there any reason to think that, that's going to pick up meaningfully?

Peter Anthony Cohen


Stephen A. Lasota

No. The fixed non-comps, Joel, should actually come down a bit but not significantly. As you know, we've taken a lot out in the past few years. There are a couple of little things that we're working on now, office space that is rolling off in certain locations, things like that. But for the most part, the fixed non-comps should come down a little bit or stay steady. It's a variable cost that will be affected by how much business we do.

Peter Anthony Cohen

Yes, Joel, we've picked up Dahlman Rose's lease obligations when we acquired them back in March, we're coming up on having -- there were 3 years left on those leases, kind of 2 years to go. Come this March, we've got a particularly large lease that's being renegotiated right now because it's rolling off next year. We'll see if we can get considerable amount of money from that and a number of other things. Steve's point, we don't see any reason why those numbers shouldn't stay kind of very much in line as we grow the firm. We actually have [ph] the leverage is leveraging that infrastructure.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then in terms of the distribution you guys got from the Lehman Brothers settlement. Did that flow through the investment income line and then what you paid out to your, I guess, the fundholders come through the noncontrolling interest line?

Peter Anthony Cohen

Those -- I mean, we had remarked and had to remark those claims all the way along. So -- but from the firm's point of view, whatever the firm's portion of that was basically baked in over the last 4 years. And the distribution basically just creates cash flow for the firm. But the firm's portion of that was not that material relative to what we distributed to our customers. No effect really on the capital line.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then just lastly from me, maybe more of a big picture question. I mean, we're starting seeing a really nice pick-up in IPOs and UCM activity. I think that we did get to the point where there's some media speculation that there may be a bit of sort of froth in the market at this point, given some of the companies that have come public. I mean, do you think this is -- are we in that sort of situation or it's just kind of a catch-up given the amount of sort of bad market activity we've had over the past few years in the issuance markets?

Peter Anthony Cohen

I mean, I think it's a reflection on a couple different things. So first of all, the sectors that we're in are consistent money raisers. So the fact that we had so many healthcare companies become public, only means that we've set ourselves up for, assuming markets or not, horrible, we've set ourselves up to do consistent fund-raising with these clients for extended periods of time. What I'm most impressed with is our repeat business. And so I don't think I want to comment on whether or not I think it's frothy. If you look at the number of IPOs this year, it's more than we've had last year. More than any time in 2007. If you look at the average number of IPOs we've done this year versus what it would take to kind of replenish lost listings, we're nowhere close to that number. So I think the market, as long as there's flows into the equity market, we'll continue to see absorption of these new issues -- there -- meaningfully. And so as long as equity -- money is flowing in equities and the markets are reasonably stable, they don't even need to be trending up. They just need to be reasonably stable. I think we'll see capital raising activities continue. Of course, Joel, if the government had -- I will tell you, if the government hadn't sort of fixed the challenges at the beginning of October, the amount of new financing activity that we'd have been getting done would've been diminished. I mean, it's really that simple. I think there's a lot of people there trying to cram themselves into the fourth quarter because they were worried about what's going to happen again in January. So we're seeing obviously a pickup in activity in this quarter significantly.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Are you also seeing a pick-up in Debt Capital Markets activity? Again, the third quarter appeared pretty strong for you guys as well.

Peter Anthony Cohen

So -- I mean, we see a pretty narrow -- we're focused on a very narrow part of the business, which is creating debt financing for emerging growth company. Actually, we're busy as we have been. The good thing about our backlog as we've been executing on these things to keep adding things to the backlog. So we're not burning off backlog and not replenishing. And like I said in my comments earlier, the impressive part about the Debt Capital Markets business is it really has applicability to the entire range of companies we cover. There are always companies in each of those sectors that are smaller companies that could avail themselves of creative debt financing solutions, and that's a niche we've carved out. But it's just our very few competitors. It continues to look pretty good for us.


We have another question for you, it's from Devin Ryan at JMP Securities.

Devin P. Ryan - JMP Securities LLC, Research Division

So question on the alternatives business. Just -- obviously markets have recovered at highs now and I'm just looking at the performance fees and trying to think about kind of the potential there. We're still well below kind of where we were pre-crisis on that front. And so I guess just what needs to change to really see a big step back up on the performance fees and kind of what is the expectation on that front? I know it's something that was addressed during the call.

Peter Anthony Cohen

Sure. I mean, 2 things will drive that. One is the product mix. We have products that charge performance fees. We also have alternative mutual funds. We also have a Solutions business. And two is of course, the performance and how performance fees work these days. So right now we have in the liquid format, 3 capabilities that provide performance fees, 2 of which, which can be substantial. The others are either private equity or either mutual funds. Going forward as part of our product mix, we'll look to put on products that can generate performance fees because that is really the x factor in the business, that's what can really drive the P&L. And then second is, how are the performance fees constructed these days and how products are performing. So performance fees have gotten trickier because fees have become compressed. And the way they've become compressed in the performance fees side is it used to get a straight 2 and 20, no restrictions. Now you don't get to, and on the performance fee side, it's not uncommon now to get your performance fee over a prep or a preferred return, which means some portion, it won't pay performance fee, so we're dealing with that. And secondly, our products this year, one is a credit product so you're not going to hit homeruns this year in credit. And then second, in some broader businesses, these are markets where hedge funds don't keep pace with such a buoyant equity market. And we've done fine. We haven't crushed relative to the market, but that's not what we're doing. We're looking to provide good risk adjusted return, high sharp and protect. So going forward, I think our product mix would move towards more performance fee paying products. And if market's aren't this hot, I think we'll do better in the markets than these performance fees will rise.

Devin P. Ryan - JMP Securities LLC, Research Division

And then I guess just a follow-up on fundraising within alternatives and maybe you spoke to it a bit in terms of the products. But given kind of the improvement in markets maybe in sentiment here a bit, any change in expectations for the ability to raise capital? Are things kind of feeling better? Are you seeing mandates accelerate? Just -- has the tone changed at all on the fundraising side? And I guess just looking at your backlog of commitments, have there been, I guess, a pickup? And is there anything lumpy in there that may be coming over the next couple of quarters?

Peter Anthony Cohen

Sure. We've had a robust asset raising here. We've raised nearly $2 billion in assets now, $1.2 billion, so that's pretty staggering considering our size. And when I talked to my peers out in the market and I share the percentage raise and what we've done, the response is, "Wow, you guys are way ahead of most people we speak to." So that feels good. In terms of what it looks like going forward, there's plenty of assets that will be raised in the system right now for next year, where we will be completing a raise in one of our bigger PE products through next summer. That will be substantial and we are well on our way to completing that. And we have several other products that will be open to new capacities, so we'll be in good shape next year. We'll also be bringing on new products. I can't predict what'll happen next year. But based on what I see in the system, I think we should have another good year.

Devin P. Ryan - JMP Securities LLC, Research Division

Okay, great. And a question for Steve on just the noncontrolling interest. I know there's a couple different funds that can impact that. It was a bit higher in the contribution this quarter. I guess that, that portion was backed out. Can you remind us which fund do you know was kind of big driver this quarter? And how that flows through in your income statement?

Stephen A. Lasota

Yes. As you know, for GAAP purposes, when you have arrangements with partners, that comes through as noncontrolling interest. So it's our healthcare royalty partners. It's Orchard Square [ph], which are -- they're consolidated for GAAP purposes. And then the partnership fees and the PMs comes through as noncontrolling interest.

Devin P. Ryan - JMP Securities LLC, Research Division

Right. So -- but with respect to like revenues being elevated, was it within the management fee or investment income? Just which revenue items were maybe a little more elevated, than were backed out within the...

Stephen A. Lasota

It's both because they share both the management fee and the performance fee.

Devin P. Ryan - JMP Securities LLC, Research Division

Okay. Understood. And then with respect to the DTA, you gave a little bit of additional color this quarter. Any conversations around or any opportunity to maybe think about bringing some of that back on the balance sheet? Or kind of expectations for the timing to be able to do that?

Stephen A. Lasota

We're working at different alternatives to do that, but you need cumulative earnings to show to the accounting firms that -- to allow us to take down new valuation allowance. But there are a number of things that we're looking at to try and do something in that area.

Peter Anthony Cohen

Devin, I just want kind of to post the script comments on the incentive fees. We have one very large segment healthcare royalties business where in the mile, the private equity mile, we don't get to accrue our incentive fees until we've returned all the capital. So there are incentive fees that have been -- to be earned that are not reflected in any way. They'll come when the capital is open to return to our investors. I mean, we've disclosed that in the past.


There are no further questions at this time. [Operator Instructions] Okay, there are no further questions at this time.

Peter Anthony Cohen

Well then, thank you all for dialing in. Operator, thank you. I'll just sort of close by saying that we are very pleased with where we are. Our thesis 4 years ago probably delayed, but more true than ever is that this industry is going to continue to consolidate, we're going to be a beneficiary of that. Since they happen sporadically and don't get a lot of coverage, people only focus on the fact that a lot of the capacity is going out of this business. And we are the big beneficiary of that, either because of a Dahlman Rose acquisition or because we get to hire very good people, either from some of those disappearing players or because people from some of the big institutions find that they want a cultural change and they can get that here. So we'd love a better environment. We'd love to see volumes start to grow again. But notwithstanding, we think we'll continue to plod along with the plan we've got and look for some strategic opportunities on both sides of the business to accelerate the growth of the firm. The clean up work is over and now it's all building for the future. With that, I thank you all. Have a good day.


Thank you, ladies and gentlemen. That concludes your conference. You may now disconnect. Thank you for joining us. Do enjoy the your rest of the day today.

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