Moelis & Company (MC) CEO Kenneth Moelis on Q2 2014 Results - Earnings Call Transcript

Jul.30.14 | About: Moelis & (MC)

Moelis & Company (NYSE:MC)

Q2 2014 Results Earnings Conference Call

July 30, 2014; 04:30 p.m. ET

Executives

Ken Moelis - Chairman & Chief Executive Officer

Joe Simon - Chief Financial Officer

Kate Pilcher - Head of Investor Relations

Analysts

Devin Ryan - JMP Securities

Ken Worthington - J.P. Morgan

Alex Blostein - Goldman Sachs

Brennan Hawken - UBS

Douglas Sipkin - Susquehanna

Operator

Good afternoon and welcome to the Moelis & Company Second Quarter 2014 Earnings Conference Call.

All participants will be in listen-only mode (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Kate Pilcher, Head of Investor Relations. Please go ahead.

Kate Pilcher

Thank you and good afternoon. With me today are Ken Moelis, Chairman and Chief Executive Officer and Joe Simon, Chief Financial Officer.

Earlier today we issued a press release announcing our firm’s second quarter results, which can be found on our Investor Relations website at investors.moelis.com. This conference call is being webcast live on the Investor Relations section of our website and an archive recording will be available approximately one hour after the conclusion of this call.

Before we begin, I would like to note that the remarks made on this call may contain certain forward-looking statements, which are subject to various risks and uncertainties, including those identified from time to time in the Risk Factors section of Moelis & Company’s filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated.

Our comments today include references to certain adjusted pro forma or non-GAAP financial measures. We believe these measures when presented together with comparable GAAP measures are useful to investors to compare our results across several periods and better understand our operating results.

The reconciliation of these adjusted pro forma financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the firm’s earnings release, which as I mentioned is posted on our Investor Relations website at investors.moelis.com.

I will now turn the call over to Ken.

Ken Moelis

Thank you Kate and welcome everyone to our second quarter 2014 earnings call. On today’s call I’ll walk you through key highlights from the second quarter, including our financial performance, our thoughts on the market and our continued expansion in recent hires. I’ll then pass the call over to Joe Simon to provide more details on our financial results, and following our prepared remarks we’ll open up the call for questions.

So we’re very pleased with our second quarter results. We advised our clients on a wide range of assignments this quarter, leading to record second quarter and first half revenues. We demonstrated the earnings power of our franchise with strong earnings per share in our first quarter as a public company.

And we also demonstrated our commitment to return capital to shareholders, with the declaration of our first quarterly dividend in excess of what we communicated at the time of our IPO in April.

As we discuss our results you’ll see that the four investment themes that we believe drive value at Moelis & Company were key to our strong performance this quarter and as a reminder, those four themes are: First, we are well known globally for our singular and intense focus on clients and relationships. Second, strong market trends continue to create enormous opportunities for us. Third, because we have the benefits of identifying those trends as we built the firm, we think we have a differentiated One Firm model, which can address the opportunity as it unfold in front of us. And fourth, we operate the firm as owners with extraordinary financial discipline.

So let‘s review the quarter. We had $131.7 million of revenue in the second quarter. That was up 34% from the second quarter of 2013 and first half revenues of $246.2 million, which is up 55% year-over-year. This represents record second quarter revenues and record first half revenues for our firm. Additionally on a trailing 12 month basis we earned $499.2 million of revenue, which represents the strongest 12 month period in our seven year history.

Our strong revenue growth is particularly notable when you look at the broader M&A market. Although we are experiencing increased activity, the market is still not seeing meaningful growth in transaction completions. The number of completed M&A deals are over $100 million in value, which we think is probably the addressable market for most advisors, is up only 2% versus the first half of 2013 and the dollar volume of deals up over $100 million is down about 7%.

Additionally, our revenues are growing at a faster pace than the advisory revenues of many of our independent and (inaudible) peers, which demonstrates that we continue to capture market share. In addition to the continued maturation of our MD population, where we are seeing the investment we have made in talent pay-off, we think there are few other factors that drove our strong performance.

But first, the M&A market is steadily improving and we are participating. This is benefitting the quantity and velocity of deals, as well as the fee levels and that contributed to an increase in the number and size of advisory assignments we completed this year. The number of clients that paid us fees of $1 million or more increased from 42 clients in the first half of 2013 to 57 clients in the first half of this year.

So in a rising M&A market, deals tend to move more quickly and we had a couple of transaction closings accelerate into the second quarter. We are also seeing growth in transaction fees from incentive fee structures like ratchet pricing, which yields a higher fee if a company is sold above specified value in the rising market and the increased M&A market is pushing those values up.

And second, it’s not just M&A that’s active right now. We’re seeing boards and management evaluate a wide range of strategic alternatives and we are well positioned to assist them with our integrated model. As a result, a broad base of sectors, geographies and advisory services contribute to our revenue this quarter.

In addition to meaningful revenue growth, we generated strong earnings with adjusted pro forma net income per share of $0.42 for the quarter and $0.79 for the first half. Our pre-tax margin of 30% excludes the one-time equity vesting acceleration and Joe will touch on that later.

Due to our strong performance, our board declared a quarterly dividend of $0.20 per share, which is an increase from the $0.17 per share we initially planned at the time of our IPO. We are committed to returning capital to our shareholders and we are pleased to come out of the gate with a stronger than expected dividend.

In summary, we feel very good about the first half of the year and our momentum moving forward into the second half. Given our strong second half last year, it would be very tough to continue growing at 55% for the rest of the year. So as we move into the second half, we would expect to see growth, but more modest growth over what was a very successful second half last year. We continue to see steady improvement in the M&A market and in our strategic dialogues with clients.

Looking forward, we are well positioned to drive long term growth for our shareholders and as our investment and talent matures and we remain focused on providing the highest quality advice to our clients.

So now let me just give you a few thoughts on the M&A market. Although M&A transaction completions are relatively flat versus this time last year, transaction announcements are building nicely with a number of announced M&A deals over $100 million in value, up almost 20% versus the first half of last year.

I think there are a number of things that are coming together to drive this improving M&A market. Particularly in the U.S., stock markets are at all time highs, interest rates at all time lows and acquirer stocks have reacted very positively to acquisitions. It is if the market is telling companies to go ahead with their proposed deals.

I think part of it is the fact that CEOs and Boards have been sitting on the sidelines for a long time. They were using 2008 through 2013 to get the balance sheets back in order. Some of them where concerned about the availability of capital and markets in general. So I think there is a backlog of desire to do things, and we are seeing that now.

It’s not just M&A. I think you are seeing companies evaluate a long list of strategic alternatives and trying to figure out what they should be doing to improve shareholder value. This creates a tremendous opportunity for Moelis & Company.

We believe our differentiated one-firm culture and economic bond will put us in a great position to take advantage as the market returns and will allow us to attract top talent as we grow our business around the needs of our clients.

A recent example of executing on our growth strategy was the establishment of our Private Funds Advisory Business last night. This is a business we have been interested in for some times, given our strong financial sponsors business.

We looked at the numbers and we would advice on over 300 billion of sponsor related transactions over the past five years, so sponsors are a core competency of our firm. And as I said to a number of you, we think sponsors are coming back in terms of activity level. Investors are allocating capital back into private equity, which is driving fund raising activity and ultimately M&A.

We are pleased to have four very talented professionals joining us to lead our Private Funds Advisory business; Zaid Abdul-Aleem, Dave Brown, Patrick Dunleavy, Chris Kirsten bring tremendous fund raising experience and knowledge to our firm, and we think clients really value expertise in this space and we look forward to it being a very good growth of business for Moelis & Company.

Given the up-tick in sponsor activity, we also recently hired Robert Sorrell, the Managing Director in Europe to strengthen our coverage of this space, and in other sector hires we announced the appointment of Maarten de Jong, as Managing Director who will broaden our Healthcare coverage globally and as well as John Colella as the Managing Director who will join to cover the power and utility industry and just this Monday, Philip Smith joint us as the Managing Director in London to advice industrial client in Europe with a focus on capital goods and automobiles.

So we’ve had a very active recruiting season this year and have certainly had some unique opportunities to come our way like the private funds advisory professional, which I think are almost incremental to our typical MD hiring plans that we set forth at the beginning of the year. I think in a typical year you can expect us to add between four to six Managing Directors on a net basis, through a combination of internal promotions and hires in areas that we think will be active and incremental to our business.

So this year we have exceeded want we considered to be the typical recruiting year. But we believe, we are making some excellent investments to drive long term value for our clients and our shareholders.

With that now, let me turn the call over to Joe Simon, to discuss the second quarter and first half results in more details.

Joe Simon

Thanks Ken and hello everyone. I trust that everyone has seen the press release that we issued this afternoon, so I’ll just take a few minutes to highlight some key points.

We present our results on a GAAP and adjusted pro forma basis. The adjusted pro forma financials reflect two types of adjustments. The first type of adjustment removes the impact of one-time charges associated with the firms IPO, primarily related to the acceleration of investing of equity held by our Managing Directors and by the employees of our Australian JV, as well as removes the expense impact of the equity grants made in connection with the IPO.

The second type of adjustment is more timing in nature and reflects the allocation of our earning between non-controlling interests and the public shareholders, as if the firm had been operating in its new corporate structure since the beginning of the year, instead of from April 22, the date of our IPO closing. You can find a detailed account of these adjustments and a reconciliation to our GAAP financial results in our press release.

Accordingly, on an adjusted basis compensation and benefits expenses were $69.3 million for the second quarter of 2014, resulting in a compensation expense ratio of 53% consistent with the first quarter’s ratio. As a remainder, when we accelerated the vesting of equity held by our Managing Directors, we subjected our MDs to a minimum four to six year lockup on their pre-IPO equity.

Excluding the one-time acceleration charge which occurred in April, we will report a lower total comp run rate expense. This is due to the lower level of ongoing equity amortization expense. As annual equity compensation is granted in the future, we expect that equity amortization expense will increase and our compensation expense ratio will also steady increased towards our target long term compensation ratio of between 57% and 58% of revenues.

Second quarter adjusted pro forma non-comp expenses were $23.1 million, above second quarter 2013 GAAP non-comp expenses up $17.4 million. The increase in non-comp expenses primarily reflects a more active business environment, specifically increases in travel and entertainment and recruiting fees, as well as expenses incurred in connection with operating as a public company.

As a percentage of revenue, our non-comp expense ratio of 18% remains in line with our long term targeted non-comp ratio of between 15% and 18%. As a result of completing our IPO in April, we have a new corporate structure with 28% of our operating partnership being owned by the public corporation, and subject to U.S. Federal Corporate Income Tax.

Assuming we had operated in our new corporate structure since the beginning of the year with our current effective tax rate of approximately 40%, our second quarter and first half 2014 provision for taxes would have been $5 million and $9.2 million respectively.

The adjusted pro forma net income per share of that result was $0.42 for the second quarter and $0.79 for the first half of 2014. We ended the quarter with a strong financial position, with $162 million of cash and short term investments and no debt.

Finally we’re committed to returning capital and our Board declared its first quarterly dividend of $0.20 per share to be paid on September 8, 2014 to stockholders of record on August 25, 2014.

We now will be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question will come from Devin Ryan of JMP Securities.

Devin Ryan - JMP Securities

Hey, good afternoon. Thanks for taking my questions and congratulations on a strong quarter out of the gate.

Ken Moelis

Thanks Devin

Devin Ryan - JMP Securities

Just a two part question here. So I appreciate the color on what a more normal recruiting environment would look like and you guys have done just a phenomenal job adding talent this year. So I just want to get some context; I mean if the positive conditions that have existed this year continue. If there’s opportunities there next year, is there any reason why you wouldn’t look to exceed kind of what that normal target maybe.

And then just the second part of that is, can you just maybe remind us how you think about balancing that near-term margin dilution from bringing somebody in versus the opportunity to grow long term earnings and probably grow long term value for shareholders. I mean are there any margin minimums or just how do you guys think about that balance?

Ken Moelis

Look, I think we’re an opportunistic company. I don’t think we would be where we are in the last seven years if we didn’t take advantage of opportunities in difficult times to expand over the last – starting in 2008, 2009 and 2010 and continue today.

The opportunities I think of the past six month are positive ones. Meaning I think, going public and having liquid currency, I think was attractive to some people, so I think that helped us. So the short answer to your question is, if we see great opportunities next year, we would exceed it. We think 4to 6 reflects seeing some great opportunities, because remember, we think there is some attrition built into that Devin, so there’s probably more gross higher. There is more gross thank 4 to 6 on our plan and I hope we get to see those opportunities.

Look, I think if you structure these right, you have long duration on successful hires. We don’t want to dilute our targeted earnings. We are committed to our comp ratio, we are committed to our margin, but if we saw really great opportunities and we – as I said, the largest shareholders in the company are the partners are still internal. If we saw great long term value creation, I think we’d find the way to move on it.

Devin Ryan - JMP Securities

Okay, that’s really helpful to color. And then with respect to international mix; I’m not sure if you guys gave what the mix of revenues were from an international perspective this quarter. If you didn’t, any color there will be helpful, and then just more broadly, how do you feel like the firm is positioned right now from an international cover.

The U.S. has been very strong, but we’re starting to see maybe Europe stabilize and then start to improve. Are you comfortable with where the position is now or do you feel like you’d still like to add more resources to some geographies outside the U.S. as we look out over the next 12 months or so?

Ken Moelis

Look, we’re very careful of having the firm be One Firm. I just want to reiterate that; we think that this business we’re winning and right here in New York City because, because we have the best Mumbai office of anybody and somebody wants to access it. So we don’t keep track of it that way and we really don’t want to even encourage it that way, because we think it’s a One Firm effort to win over the subject, the client.

Now, I will say this, the clients, where there are located, we do see and we’ve seen a pretty good improvement in non-U.S. revenues. So if you measure by where the client is located, which I don’t want to say that’s how we service the account, but we think the rest of the world is, well I shouldn’t say everywhere, but we think that the Europe in essence has picked up, the European client base and we’re going to track that. We think we could be stronger or deeper, but we want to make sure we do that in line with the recovery of some of these economies. So I feel like we’re in a pretty good shape.

Devin Ryan - JMP Securities

Okay, great. And then just lastly, a clean-up item may be for Joe. Just with respect to other expenses, the up-tick, it sounded like some of that was just tied to the IPO expenses. Are all of those recurring or non-recurring. Just trying to get a sense of the go-forward rate for the non-comp expense base, particularly other expenses?

Ken Moelis

Yes, the year-over-year increase of other was basically $2 million. I’d say that a component of that was certainly the public company and probably $1 million was related to FX, which from my perspective is more accounting than economic.

Basically our U.K. sub is designated to have a sterling as its functional currency, which requires us to translate non-sterling cash balances back to sterling, with unrelated gains or losses going through the P&L. We typically covert cash balances that are not needed to fund current sterling needs into dollars, since dollars are expected to be used for one of two things; fund the bonus pool or return to share holders. So the sterling’s been quite strong over the past year versus the dollar and thus we’ve reported a FX loss.

Devin Ryan - JMP Securities

Okay, I understood. Okay, thanks guys. I appreciate the time and congrats again on the nice quarter.

Ken Moelis

Thank you.

Operator

And our next question will come from Ken Worthington of J.P. Morgan.

Ken Worthington - J.P. Morgan

Hi, good afternoon. Maybe the first question is on the Private Fund Advisory business? So, maybe first, can you just tell us how or better, tell us how it fits in with the sponsors banking business, which sort of opens the door for the other and how did the two operating together under the same roof add more value than having the two businesses kind of operate separately in different places?

Ken Moelis

Okay, that’s a good question, because that’s one of our main focuses on bringing in. So, we cover private equity, I don’t have the number front. As I said, we did $300 billion worth of transactions. So we’re in constant contact with decision makers at these shops, which means if they are giving us assignments, they have a trust relationship with us. They depend on us on M&A; they have a flavor that Moelis & Company is somewhere where they can depend, that their needs are going to be satisfied.

So when they go to raise new money, and by the way, I do think there is a cycle that’s starting right now. I’ve always liked this business, but from ‘08 to ’12 or so, I’m not sure there was a lot of allocation of capital. People were really working off their alternatives and there are liquids.

Ken, what’s happened is it’s a numerator and a denominator problem. People have a target of a percentage of their investment pool in private equity let’s say, so two things have happened in the last two, three years. The denominator of equity exposure has expanded, because the public stock market has gone up dramatically and since there’s been a lot of lower allocation into your liquid private equity, the numerator has gone down.

So, I think people are “under allocated” to the asset class, which will drive a lot of desired to put money into the space and they are going to want placement agents to tell them where to put that money, especially as a lot of its now going into more niche product like energy or very niche oriented product and everybody knows the top 10 private equity firms. But as you get into more specialized, you need somebody to introduce it.

So, what we think the synergy and we’ve seen it all the time is, if you’re going to hand one of your most important things – I mean to extent you’re a private equity firm, raising your capital is as important a decision as you make to the future of your firm.

We think having a deep relationship with a company like ours, rather than hiring a new firm, who is just come to pitch you on their capabilities, we think we make that decision a lot easier and we think in fact people are going to say, well, that’s great. I have a lot of trust in Moelis and Company and they have a good team. I know I can call so-and-so, whoever their relationship and make sure that they are paying attention. I just think it’s actually, it’s almost like M&A. It’s just an assignment that they are going to want to give to somebody they have a great relationship with.

Ken Worthington - J.P. Morgan

Okay, thanks for that. A couple more and still on the same topic. How much more can it be built out. So you start with four MD’s, does it kind of end around here or is this going to be 20 MD’s, ex-number of years from now?

Ken Moelis

Look, we want it to be successful. We think there’s an opening. We think some of the - we think there’s an opening to build a pretty quality space. We don’t have a plan to go to 20, but we’d like to go beyond four and build a really good distribution network. I can’t tell you exactly what the final number is, but I hope we add – I expect to add distribution to that network, because I do think there’s going to be billions of dollars raised in the alternative space. We want to be a leader in this space.

Ken Worthington - J.P. Morgan

Okay, and then the last one is, does it lead to another logical entry into related businesses. In other words, are there things that you can kind of attach to it, that are more related to this business than M&A, which kind of makes sense, and if you can name them great, if you can just say that they exist, I’d probably take that to?

Ken Moelis

Nothing, I don’t see this leading, except if you call different niches like our Specialty Fund Raisings, but I think it’s a very distinct business, it can grow a lot. I don’t see it having a natural. There are people who keep saying there is a business like this for the hedge fund world. I don’t know that that model’s been perfected as Cap Insur does it right now, but there’s a lot of talk about that. But for now, this will be in this business, to raise alternative money for private equity.

Ken Worthington - J.P. Morgan

Okay, great. Thank you very much.

Operator

And the next question will come from Alex Blostein of Goldman Sachs.

Alex Blostein - Goldman Sachs

Thanks. Hey, good afternoon guys. A question around the advisor revenue for the quarter. So obviously I think going into this, we knew that the public domain historically did not do a great job capturing the deal flow and the type of revenues you guys generate in some of the deals. But this quarter it seems particularly out sized relative to I guess what was available in the public domain.

So maybe, say you could spend a minute just talking about the breadth of deals that you were getting, that maybe I guess perhaps a little bit more unusual than the traditional M&A. And I think Ken, you mention a little bit of a pull-forward from third quarter into the second quarter. I just kind of want to know what that means in terms of numbers.

Ken Moelis

Okay, so two things, let me address the pull-forward. Look, I think we said in the first quarter, we felt we had a pull forward from the second quarter. So I’m trying to be fairly conservative on timing, but what happens in a good M&A market is things just accelerate and so I think deals just close quicker than they do in tough markets. And so as I said, I think it might have been a couple of deals. As you said, nobody sets out a marker and then pulls it forward, it just sort of happens and I think deals and the cycle of deals is just accelerating as to how quickly they go from idea generation to closing.

And what you said about – I realize that we knew that our revenue was a little different than what the public was, the normal way. Look, our business and I think we have a broad business of doing lots of things for our clients in the advisory column.

Like M&A, we have a FIG group that does a lot of advisory in FIG, but there’s no big bank mergers going on, but believe me, there’s a lot of assets of significant size being moving around as a result of regulatory needs, and so we have a group that might not be wasting time trying to merge banks that cannot merge, but is doing other work and I just think, I saw it.

One of the reasons why the numbers were I think larger than the public announcements, would let you to believe is that, I believe we were strong in almost all of our businesses across the board. So you didn’t have one business up, then reduced by a number of the other business.

Our M&A business was strong, our restructuring business for a market that doesn’t have restructuring really was I say very good. It’s hard to say its strong, it’s just not a restructuring market, but it was good for what it was a tough market, and both our other businesses are providing risk advisory and capital markets, all did well. So I think we didn’t have an offsetting downturn in a business that would have resolve it. It was just kind of strong and diverse across the board.

Alex Blostein - Goldman Sachs

Great, thanks for that. And just a follow up to Ken’s question, when you guys think about the productivity potential for the fund rising group, do you think of that as similar to kind of your traditional M&A bankers and again, with the caveat that I understand that culture related is One Firm and you kind of think about revenue collectively, but when it comes just specifically for the fund placing business. I just want to get a sense of the magnitude of the revenue opportunity there.

Ken Moelis

Yes, the short answer is yes. We think that they can be every bit as productive and if you are very good at it, you might be able to exceed, because you might be able to put a work force that looks differently on a junior, senior ratio.

We don’t know that yet. I think we’re going to see. I think there’s going to be a new fund rising market. How many go to middle market funds, what’s the new fee structures; how much allocation is to the big guys. I don’t want to over predictive it, but I’m pretty sure that my target is for it to be every bit as productive as the M&A.

Alex Blostein - Goldman Sachs

Got it, helpful, thanks. And then just a quick numbers question; Joe on the share account, I guess when we think about the fully diluted share account, I guess it was $54.7 million for the quarter. I think slightly higher than it was last quarter and I just wonder if that’s the function of the highest you’ve made or something else is flowing through there and should we think about the $54.7 million as kind of the consistent number from the next few quarters?

Ken Moelis

Yes. I think. So the only thing that really has impact on the share account are the new grants that we made at the time of the IPO. So it’s the RSUs in connection with the 2013 comp. It’s the RSUs that we issued in connection with the IPO as well as the options.

I mean the treasury map that ultimately looks at the average share price and because it went up, combined with those shares that are subject to vesting, it ultimately gave rise to something on the order of a little over 400,000 shares. I think that’s kind of range bound though. I think overall the shares that we issued that are subject to vesting, because it was principally RSUs options, I don’t think that had much of any impact, our $2 million to $2.3 million shares. So those will vest over a five year period and no more than $2.3 million will ever emerge in diluted as it relates to that grant.

Alex Blostein - Goldman Sachs

Got it, makes sense. Great, thank you so much.

Ken Moelis

Sure.

Operator

Our next question comes from Brennan Hawken of UBS.

Brennan Hawken – UBS

Good afternoon and thanks for taking the questions. First, just a quick one following up on one of Alex’s points on revenues versus the public data. Is it possible to quantify in the current quarter what kind of a tailwind you’ve got some rachet fees. You had made reference in the comments at the beginning of the call.

Joe Simon

No, I don’t know. I was thinking about the comment. Look, it’s not a large percentage, but we see it on each fee. Each one you get it on if the market moves, but I don’t have a number. I don’t think it’s – I wouldn’t say its double digits on the revenue. My gut, it’s a single digit type of aggregate.

Ken Moelis

Just not something we measure

Joe Simon

Yes, just giving you my gut feelings, so don’t try stopping me. I don’t think that’s covered under GAAP.

Brennan Hawken – UBS

Fair enough. And then guys had previously laid out a need to hire in healthcare, but really when you look at the deal volumes, it’s been a pretty good source of strength and you just brought Maarten on here this quarter. Does that plug that gap, how you’re feeling about your coverage of that sector now and then, when you think about some of the other sectors that you had laid out, needs for and some of the recent hiring you made, where is your next focus as far as the sector goes?

Ken Moelis

We are very excited about Maarten, but healthcare is gigantic and I do think because of a lot of things going on there’s going to be a lot of motion in this space, so…

We are still a small firm. There’s a lot of deals that I read about that we’re not in. Amazing, but that’s true. And I think we could do more. We are not racing there. I don’t see is as – it’s not a problem, you’re right, we’re doing well. I think it’s an opportunity not a problem.

Like on some of the big cap (inaudible), we weren’t as prominent as I would have liked to have been. So yes, it’s an opportunity. We have a great team there, so you’re right. We’re doing great with the team we have and I just like to do more.

I will tell you that I don’t see – there’s a lot of spaces; generally, industrials, energy. I think there’s a lot of places where we’d have opportunities and we’re just going to have to see where the opportunity on the people. You have to be just as disciplined on your people; you can’t force a solution if the people aren’t the right people. So we are going to have to match the opportunities with the people, with the opportunities in the market.

Brennan Hawken – UBS

That’s fair. And then one more follow-up question. I think you had mentioned that the 4 to 6 number is a net number. Is there an assumption or a way we should think about maybe churn or turnover for lack of a better term, just to think about our gross figure as well.

Ken Moelis

It’s hard. I hope our voluntary leavers are low, and they have been by the way. I don’t think we lost anybody in the last year to a competitor, so that’s good news. But look, we are going to try to be disciplined and I think when we went on the IPO we were talking about a reduction that we had done a year before our IPO, and it was one the better things we had done for the firm. So we think we have a great team of the field, but that’s dynamic, things change and we’d like to just make sure that we’re disciplined on the team that we put on the field, but I hope that a 100% of them are excellent players.

Brennan Hawken – UBS

Yes, I know it’s a tough question. I just figured I’d give it a short there.

Ken Moelis

We are not going to have that 5% must, must rule or anything like that. I think we’ve got a good team, we did a good job. I think making those adjustments, going into the IPO, but I know the world changes and we’ll see. I don’t have a good answer for that.

Brennan Hawken – UBS

Fair enough. And then last one from me, and I apologize if you mentioned this before, but is it possible to get a banker and MD headcount at quarter end?

Ken Moelis

Yes, I’ll give you the MD headcount. So at June 30 we had 88 MD’s. You will see a couple joined since then, so we’re at 92 as of today, but 88 as of June 30.

Brennan Hawken – UBS

Thanks a lot.

Operator

And next we have a question from Douglas Sipkin of Susquehanna.

Douglas Sipkin – Susquehanna

Yes, thank you and good afternoon everybody. Two questions, first on the funds placement business. I know it’s early, but do you guys have sort of any like targets for the group. I mean the potential of the group, the potential as a percentage of revenues of the firm. I mean the opportunities set, etcetera or is it too early to make that determination? Because I would imagine, you guys have probably some decent view of the market place and the potential of the team you got.

Ken Moelis

Look, we think it’s a big opportunity. I think there’s a big reallocation and as I said, I think there’ll be a lot of money being put in the space. Now two of our teams, two of our professionals are still on garden leave, so I’m not even allowed to really go into detailed planning with them, so I think it’s too early.

We have an idea that there’s a big space opened out there. I think the leadership in the space is open, that there is competitive positions opened and I love the fact that it’s one of the most, I think one of the places we want to be; its why M&A is such a good business.

You want to be at the most critical position, you want to be involved in clients’ most critical movements and as I said, raising the fund is critical, because there is no investment without the fund. That’s usually a place where people are less fee sensitive and more expertise sensitive and that’s what we think we provide. So I think it’s a big opportunity, it’s been very successful businesses in prior firms I’ve been at, but I can’t give you a – I don’t have a good target size right now.

Douglas Sipkin – Susquehanna

Okay, perfect. No, that’s no problem. And then just curious for your perspective on inversions; do we have a lot of runway here or are companies going to be rushing to do then or you guys maybe internally reluctant to participate, given maybe a stigma or – I’m just curious for your perspective on it, given that it seems like it’s getting a little more redirect in Washington.

Ken Moelis

I’m all for paying. Anybody who can figure out a legal way of paying less taxes, I’m a big fan. I was lucky enough to have dinner with Governor Perry of Texas the other night. He made me feel like a fool for being in New York and California actually, on the taxes.

I think people who are looking to save money on the taxes are doing you know – in a sense they are doing what they supposed to do. I don’t have any version to do an inversion. I do think you’re starting to see lots of members of congress come up with different ideas for stopping this and some of them are blatant, just stop it or we will do something to you.

I ultimately think the only solution is going to be to bring the tax rate down and make the United States an attractive place to be the home of corporations. I hope that happens soon, because the capital has a way of finding the highest, the place where we can make the highest return and so people are thinking about it.

Douglas Sipkin – Susquehanna

All right, great. Thanks for the perspective and congrats, really good quarter.

Ken Moelis

Thank you very much. I appreciate it.

Operator

And this concludes our questions-and-answer session. I would like to turn the conference back over to Ken Moelis for any closing remarks.

Ken Moelis

I want to thank you for your time this afternoon. By the way, we won’t be calling as a Texas based company by the next conference call. After that line, I didn’t want to – but we look forward to speaking to you all soon and thank you for all your support.

Joe Simon

Thanks.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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