Stephen Lasota - Chief Financial Officer and Principal Accounting Ofifcer
Peter Cohen - Chairman, Chief Executive Officer and President
Jeffrey Solomon - Co-Founder, Chief Operating Officer, Chief Strategy Officer, Head of Investment Banking and Chairman of Investment Committee
Ted Holzman - Sandler O'Neill
Joel Jeffrey - Keefe, Bruyette, & Woods, Inc.
Cowen Group (COWN) Q1 2011 Earnings Call May 6, 2011 9:00 AM ET
Good morning, ladies and gentlemen, and thank you for joining the Cowen Group, Inc. conference call to discuss the financial results for the 2011 first quarter. By now, you should have received a copy of the company's earnings release, which can be accessed in the Cowen's company incorporated website at www.cowen.com. If you do not have Internet access and would like a copy of the press release, please call Cowen's Incorporated Investor Relations at (646) 562-1880.
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 risks and uncertainties described in the company’s earning release and other filings with the SEC. Cowen Group, Inc., have no obligations 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 filing 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 believe will provide useful information for investors. Reconciliation of those measures to GAAP is consists of the company’s reconciliation as presented in today’s earning release.
Now I would like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.
Thank you, operator. Good morning, everyone, and welcome to Cowen Group's 2011 First Quarter Earnings Call. I'm joined here today by Jeff Solomon, our COO in Investment Banking; along with Stephen Lasota, our Chief Financial Officer; and Pete Poillon, Head of Investor Relations and Corporate Communications.
Later on the call, Jeff will take you through our individual operating businesses in detail, followed by Steve, who'll discuss our first quarter results.
I'm pleased to report we recorded our second consecutive quarter of positive economic income as we generated $7.2 million of earnings during the quarter, which compares to an economic loss of $11.1 million in the prior year period.
Later in the call, Steve will provide greater detail around the drivers of the improvement and economic income, and as many of you have probably already seen, we've issued our press release with more details on the earnings.
As we've discussed in detail during the past calls, 2010 was the year of a positive change for the company. And we're building on the momentum we gained at the end of 2010 to drive results into this year and beyond.
Last year we identified a number of important initiatives across the firm, and we're beginning to demonstrate our ability to successfully execute on those initiatives.
The firm has been able to generate positive momentum over the last 6 months, as the transition of old Cowen to new Cowen has accelerated. And Ramius we’re pleased to report that assets under management increased for the fifth consecutive quarter, and we'll supply some of those details later on also.
We're positioning alternatives platform that continue to gain traction with areas of growing investment demand. We've launched new funds and products focused on replication and commodity trading. And for our established products, we're beginning to see their true performance as they move beyond the high watermarks.
The Cowen and Company are product capabilities on the capital markets will form and deepen client relationships and will increase coordinated offerings between banking, capital market, sales and trading, and we have a much broader footprint, as Jeff will talk about -- then old Cowen did 1.5 year ago.
Alignment and cooperation between these units are helping us to win business in the partnership culture that we have worked hard to put in place, is really starting to take hold.
Looking forward to the remainder of 2011, we still have some changes to make to optimize our platforms and see to work to reduce fixed costs. But I'm confident that we have a very strong team in place to deliver the best-in-class services and products to our focused client base.
I'd also like to briefly discuss the proposed merger with LaBranche, which we announced in February. Since our last call, we have filed our proxy materials and in fact, the joint filing went effective on Wednesday. The shareholder meeting dates to vote on the merger have been established for June 15, and we're in the process of mailing our proxy to both sets of shareholders in the mail as we speak.
For a number of reasons, we believe this is a compelling transaction and stands to improve both organizations. First, we believe the combination will strengthen our already well-established sector-focused Sales and Trading businesses. LaBranche has made substantial progress in their development of proprietary IT and electronic trading systems and technology. And we believe that we can leverage with Cowen's existing customer-driven equity and derivative sales and trading capabilities, that technology to producing it -- more business.
By increasing our electronic trading footprint, we'll also be able to accelerate our efforts to serve client areas like listed options and global ETF executions.
The combination also pairs LaBranche's technology with Cowen's fundamental research product and distribution network, in a way that is expected to make both platforms more profitable.
Transaction allows us to more quickly expand Cowen's capital markets activities in Asia by leveraging LaBranche's licenses and Hong Kong exchange membership. We have been increasingly active in providing financing to Chinese in the vicinity, and the Hong Kong exchange license will provide additional options to our Chinese clients for their shares in either U.S. exchanges or the Hong Kong exchange or both.
Beyond the synergy just described, we believe the transaction has significant financial benefits. Many of our shareholders already know Cowen has a long track record of investing the firm's capital profitably, and a significant portion of LaBranche's excess capital would be available to be invested by Ramius professionals, similar to Cowen's capital base, and we expect to earn very good risk-adjusted returns, well in excess of LaBranche's current returns.
In summary, we believe the combination will create a strong platform for growth. The combination creates diversified business with complementary product offerings that are able to service needs of the corporate and institutional client framework that we service.
Additionally, the organization will be well-capitalized with the ability to respond to industry development, addressing evolving client needs and pursue strategical acquisition.
One last thing I would like to mention, before I turn the call over to Jeff, and this is for clarification purposes more than anything else. In the fourth quarter call -- or on the fourth quarter call, we announced that we would spin off our Value and Opportunity business, and that was completed on April 1. There seems to have been some confusion on the reason behind the spinoff, so let me take another shot at describing the circumstances as simply as possible.
This strategy was one of our strongest performing strategies, but only had about $250 million of assets under management at the time we made the decision to spin it off. It had been a larger strategy in the past as it was fed from our multi-strategy portfolios. But since we're exiting the multi-strategy business, those portfolios necessitated bringing down those -- that portfolio. And that's why it was the size it was.
In marketing the fund, which we're doing for the first time, directly marketing fund, we were receiving assistance from large institutional fund managers and state pension funds and the like, because of the perceived conflict of an activist investor being owned by a broker-dealer.
On the flip side, our investment bankers were hearing concerns from clients and potential clients about our affiliation with an activist fund. So we made the decision to reduce our ownership to a minority position.
The economics resulting from taking this action -- the economic diminution is insignificant, far less than you might expect, but I won't and I can't get into the specifics. However, the opportunity to raise assets under management under this arrangement is far greater.
Again, let me just emphasize, we had large number of very large institutional mandates, standing at our doorstep, that are concerned about the conflict, and we said, "We'll fix the conflict." We've done that. We've already had success. We closed on $125 million from the state pension fund yesterday. We expect to see additional, similarly larger, even larger mandates in the future.
So it simply came down to analysis comparing, owning a somewhat larger percentage of a smaller pie versus owning a slightly smaller percentage maybe in a much larger pie. And the economics to shareholders we believe far favor the latter, and that's what we did.
And I know I've gotten some comment about why did we sell, why did we spin it off. And I've tried to make that clear, but for some reason, I haven't done a very good job. So I hope everyone now understands what we did here. We did not substantially change the economics, but we removed the perception of a conflict. And our ability to grow the asset base is substantially enhanced, and this will be a much bigger fund this way than it was ever going to be the way it was.
With that, I'll turn the call over to Jeff Solomon, who will discuss our business in greater detail.
Thank you, Peter. First, as Peter mentioned, our operating businesses are beginning to gain momentum. I'd be remiss if I didn't start off by thanking the folks who are making it happen every day in both businesses. We've taken the time to hire and retain the right people and it is showing up in results, and that's very exciting to all of us.
I'll begin by discussing some of the recent developments at Ramius, our Alternative Investment Management group. As compared to the start of the year, we recorded an increase in assets of approximately 8% or almost $700 million. This increase was largely driven by net cash inflows into our cash management and alternative solutions platforms.
It is an impressive quarterly increase, but it should be noted that both of these platforms generate lower fee revenues than our more traditional hedge fund strategy. As a result, our average annualized management fee decreased to 61 basis points during the quarter as compared to our average management fee of 65 basis points in the prior year period.
While it's not yet reflected in our numbers, we believe we are making considerable progress in attracting new assets to some of our higher-fee paying funds, as Peter mentioned earlier. Once these mandates are funded, we expect that our average fees will begin to increase over the course of the year.
Aside from cash management and alternative solutions, the global credit and deep value strategies also grew assets, but at a more modest pace.
We also reported positive incentive fees for the third quarter. During the first quarter, we earned incentive fees of $5.2 million as compared to $2 million from the prior year period. The increase in incentive income was a result of our strong performance, combined with the fact that all of our ongoing hedge fund performance fee products are now incentive-fee eligible, with the exception of the $48 million in assets belonging to investors who transferred their high watermarks over from our multi-strategy funds.
We had good performance across most of our funds during the quarter. With notably strong performance in our deep value fund, which increased 7.5% during the period and our global credit fund, which increased 4.4%.
To give you a benchmark, the HFRI fund-weighted composite index was up 1.6%, and the Merrill Lynch High Yield Master II Index was up 3.9%.
We continue to focus on marketing our existing investment strategies and have built a solid pipeline. To remind you, we have 2 primary marketing channels through which we distribute products. The first is our institutional and family office network, and the second is our financial intermediary platform, which focuses on high-network individuals.
From our institutional clients, we currently have over $550 million in mandates that have been awarded or were not included in April 1 assets under management numbers, including $400 million mandate from an Australian asset management firm that we noted on the last call, as well as $125 million mandate from a state pension fund that Peter referred to earlier. As Peter mentioned, the $125 million has now been closed and is being funded as we speak.
Our efforts to grow our presence in the high-network distribution platforms have also begun to bear fruit. Our deep value fund was recently selected to be a part of the Morgan Stanley Smith Barney alternative investments platform, and we expect to start receiving related cash flows in the near future, possibly this quarter. This is a very important step on our ongoing efforts to expand Ramius' presence in the platform distribution space.
And current efforts covering other global high-network platforms are at various stages of progress, with a focus on distribution of deep value, our replication product, Ramius trading strategies versus our key products and our credit products.
Remember, we only began the process of positioning these funds for distribution about 15 months ago, so the efforts made by our marketing team to reach this point has been quite impressive. And we hope that we will be discussing our success with you in the quarters to come, as our efforts begin to show progress through AUM growth.
A key area for Ramius will be our ability to continue to offer products determined to meet client needs and offer attractive risk adjustment returns. We were successful in this regard last year, and I believe we can continue to be successful and show similar progress in 2011. As such, we have been working on to develop other products based on our already existing set of strategies and we will be bringing you up to speed on those in the quarters to come.
Turning to our real estate area, our managed real estate funds have shown quarter-over-quarter increases in portfolio valuations as the overall real estate market has continued to steadily improve. We feel this modest recovery in commercial real estate has led to the potential opportunity -- and to capture those ability to raising additional funds in both our existing fund investments as well as new fund offerings, and we'll be talking about that later on in the year as well.
And we've also seen an increase in assets under management at Cowen Healthcare Royalty Partners during the first quarter.
I'd now like to turn to Cowen and Company, our investment bank. Following a strong fourth quarter, our Investment Banking department recorded a similar first quarter. This is a very positive accomplishment, given the strong flow transactions that came through the pipeline before the yearend 2010, and reflects considerable efforts made by our team in repositioning of our capital markets capabilities, as well as a favorable financing environment.
During the period we closed a total of 16 transactions across all products, generating approximately $15 million in revenues as compared to revenues of $6 million from a total of 9 transactions in the comparable prior year period.
The increased activity was driven primarily by our global capital markets areas, which completed 14 transactions, as compared with 5 transactions in the primary year period. We acted as lead manager on 3 transactions during the quarter, which nearly matches the amount of lead managed business we completed in all of 2010.
We also continue to maintain a strong pipeline of mandated transactions and a strong pipeline of what I like to call our shadow transactions.
In the past quarters, we developed a number of transactions in our current mandated pipeline, and while the mandated pipeline may be a decent projector for future M&A and IPO activity, it is not necessarily as reliable for many of our other products, including follow-on offerings, PIPEs, registered directs, wall-cross offerings, convertible debt transactions and credit transactions. These types of transactions frequently occur with minimal forewarning and get completed within a short time span.
We do pay close attention to our shadow backlog, which tracks transactions we believe we have a decent probability of winning. We find this internal metric to be a more comprehensive gauge for future capital market activity levels. And in fact, in the first quarter, approximately 50% of our financing revenues were not in our mandated backlog when we last reported, but rather came from the shadow backlog. As stated, both mandated and shadow pipeline look strong at this time.
I'm happy to report that we're making headway in our recently established Credit Fixed Income Group. It closed its first transaction in the first quarter, and has several more transactions in the pipeline.
Also, we completed one registered direct transaction in the first quarter, and again, there've been several other transactions in the pipeline. And while it's gratifying to achieve deal first in the fixed income capital markets and the registered direct, most importantly, we're able to pitch our clients far more holistically than we have been in the past.
In 2009 and most of 2010, Cowen had limited capital markets capabilities and was only able to offer investment banking clients equity financing based products. Today we offer more comprehensive array of financing and advisory capabilities, very similar to the bulge-bracket firms, but for a far more focused targeted clientele that will benefit significantly from the attention we can give from our entire organization.
As I've said before, in 2011 we're going to be focused on taking market share in our sectors and ensure the momentum created by our recent initiatives to improve the profitability of our banking business continues. We will be opportunistic in hiring skilled professionals and enter and strengthen our presence in verticals, where we believe we can add value to our clients for the firm.
Turning to our Sales and Trading business. Cash equity volumes remained low in the first quarter, with aggregate New York Stock Exchange and NASDAQ volume down 9% from the first quarter of 2010. We fared somewhat better than the general market, having experienced the 7% year-over-year decline in brokerage revenues.
We think that as cash equity businesses will continue to face challenging times the commissions-based industry will continue to come under pressure. Our strategy for improving our results is focused on establishing our presence in businesses that can leverage our world-class research product and our non-comp fixed cost structure while exhibiting a variable cost structure that will ramp with revenues.
Recall that in 2010, we strategically entered new businesses to decrease our dependence on the cash equities market, but gives us additional ways to get paid for our well-regarded research product.
We increased our presence in the options, convertible and equity derivatives market and hired a team focused on fixed income distribution. These efforts are getting underway as we are opening accounts and introducing capabilities.
In the meantime, the presence of fixed income and convertible sales and trading have already paid dividends, as we were able to complete one exchange offer in the first quarter and have been mandated on several other fixed-income transactions. This is a great example of how our entire organization from sales and trading, capital market and investment banking can work together to help produce results.
Throughout 2011, we will continue to direct resources to businesses, diversify our platform, such as high-frequency option trading, ETFs and electronic market-making. This is one of the important synergies that the LaBranche merger brings to the organization. We expect that our expanded footprint will help to offset the weakness in the cash equities market, and we look forward to updating you on our progress in these areas as they begin to shape -- take shape later in the year.
As we've stated on previous calls, we remain focused on aligning our resources throughout the firm to ensure we can deliver the entire firm to our clientele. To that end, we've been recruiting to add capabilities to our research team. This year, we added 4 senior research analysts; 2 in life sciences to focus on our merging company and research platform in that vertical; 1 covering Health Care IT and 1 covering Health Care in China.
In banking, we're also pleased to announce the addition of 2 senior bankers in life sciences, who along with our existing team we believe will make significant impact in our Advisory business and Health Care.
Our focus in Health Care, which is a particularly strong franchise for us already, reflects our desire to serve clients for whom we can matter a great deal. You will continue to hear more about our alignment in other verticals in the weeks and months to come.
Finally, I'd like to turn to our balance sheet, and this is an area where we believe we can differentiate ourselves, not only call from our peer midsized investment banks, but from the street in general.
We utilize a significant portion of our capital base as a merchant bank to facilitate growth of our operating businesses. In doing so, we've invested the firm's capital to generate attractive average annualized returns on our investment capital historically.
This was evident again during the first quarter of 2011 as we earned $16.7 million in investment income from our trading and investment banking strategies, representing a compounded annualized return of approximately 20% on average invested capital during the first quarter.
The increase to investment income was driven by improved performance across certain investment strategies within our Investment portfolio, particularly the concentrated public equity portfolio, our credit portfolios, our deep value funds and the global macro strategies.
Cowen's capital investment strategies range from trading strategies such as macro, credit trading, event driven, convertible arbitrage, which as of March 31 represented about 55% of the portfolio in the aggregate to merge with banking-like strategies such as PIPEs, private investments, healthcare royalties, which represent about 35% of the portfolio in aggregate. As you all know, we also invested in real estate debt and equity strategies, and that represents about 10% of the portfolio as of March 31.
We believe our balance sheet is conservatively invested and well diversified across asset classes and strategies. On a blended basis, our trading strategy investments were only levered about 2x at the end of the quarter. And as we've stated from previous calls, our merchant banking strategy investments remain on unlevered.
I will now turn the call over to Steve, who will provide an overview of the results for the first quarter.
Thank you, Jeff. During the first quarter of 2011, we reported GAAP net income of $82,000 or less than $0.01 per share, compared to a GAAP loss of $13 million or $0.18 per share in the first quarter of 2010.
In addition to our GAAP results, management utilizes economic income to analyze our performance. We believe economic income provides a more complete view of the business by excluding such items as the impact of consolidating our funds and expenses associated with onetime equity awards made in connection with the November 2009 Ramius-Cowen transaction.
Economic income in 2011 also excludes $2.8 million in acquisition-related expenses, such as legal, consulting and banking fees, associated with the proposed acquisition of LaBranche and other reorganization charges within the Alternative Investment Management business.
For the 3 months ended March 31, 2011, the company reported economic income of $7 million or $0.09 per share, compared to an economic loss of $11.1 million or $0.15 per share in the prior year period.
If we adjust economic income to exclude certain non-cash items, including depreciation and amortization, share-based and other non-cash deferred compensation expense and our real estate incentive fee gain or loss, economic income for the first quarter of 2011 was $12.3 million, compared to an economic loss of $6.5 million in the first quarter of 2010.
Our aggregate first quarter economic income revenues increased by 29% to $79.7 million from the prior year period, primarily due to increased investment banking fees, investment income and incentive income.
I'll spend a little time discussing each of the economic income revenue line items. Investment banking revenues were $14.7 million during the quarter, more than double first quarter 2010 banking revenues of $6 million.
The increase in fees was principally driven by our equity underwriting product, which generated $11.3 million for the quarter, its highest level since the second quarter of 2007.
We completed 12 equity underwriting transactions, including 3 lead managed transactions. In the prior year period, we completed 4 equity underwriting transactions, generating $1.4 million in fees.
In our other global capital market areas, we generated an additional $2.4 million from one private placement transaction and our first debt capital markets transaction. Comparatively, during the first quarter of 2010, we completed one private placement transaction, generating $600,000 in fees.
Finally we reported M&A revenue of $900,000 from 2 strategic advisory transactions. In the prior year period, we completed 4 M&A transactions generating $4 million in fees.
Moving to our Sales and Trading business. Revenue decreased $2.3 million or 7% to $27.6 million compared to $29.6 million in the first quarter of 2010. The decrease was purely volume-driven, as Jeff discussed earlier.
On the Alternative Investment Management side of our business, we recorded management fees of $14 million in the first quarter of 2011, an increase of $1.4 million or 11%,as compared to $12.6 million in the first quarter of 2010.
The growth in management fees was primarily due to an increase in our average assets under management, which grew by approximately $1.5 billion or 19% year-over-year.
On a blended basis over the quarter, our annualized average management fee was 61 basis points. This compares to a blended annualized average management fee of 65 basis points in the prior year period and 61 basis points for 2010 full year.
The year-over-year decline in our annualized average management fees was primarily related to a change in the mix of assets under management over the 2 periods, as we have significantly increased AUM in our alternative solutions area, including advisory services and our cash management area.
The decline also reflects fee reductions on UniCredit assets based on the July modification agreement.
We reported incentive fees of $5.2 million in the first quarter, a more than twofold increase from compared to fees of $2 million in the first quarter of 2010. The increase was due to our strong performance in the first quarter, and for us our incentive-fee eligible products including the global credit funds, our real estate funds and the deep value funds.
Additionally, strong performance over the past year has also lifted many investors above high watermark thresholds. And as such, a greater percentage of our funds are now incentive-fee illegible.
We recorded investment income of $17.2 million during the quarter, compared to investment income of $11.4 million in the first quarter of 2010. The increase in investment income during the current quarter was principally driven by our Trading Strategy portfolio, including our concentrated public equity, credit, deep value and global macro investments.
In aggregate, our Trading Strategy portfolio contributed to approximately 90% of the investment income in the quarter.
Additionally, many of you will recall that we reported investment income of over $36 million in our fourth quarter 2010. Those results were heavily impacted by the closing of 2 Luxembourg reinsurance programs that generated significant income in that area. We caution investors that our investment income line can vary from period to period, depending on the number and size of such deals closed in a period, if any.
While we do believe that we will close similar deals from time to time in the future, the timing and financial impact of such deals is not predictable.
We did not close any such deals in the first quarter 2011 or 2010.
Turning to our expenses. We reported an aggregate compensation-to-revenue ratio of 54% for the quarter, compared to 67% in the first quarter of 2010 and 68% in the full year 2010. The decline in the comp-to-revenue ratio was obviously driven by the increase to the denominator of the equation as our revenues are up 29% as mentioned earlier.
Additionally, our corporate-wide average headcount for the first quarter 2011 is down about 4% from first quarter 2010. I expect that our headcount will increase throughout 2011, as we continue to selectively and strategically hire in an effort to drive revenues into the future.
The comp-to-leverage ratio, as well as economic income, excludes onetime equity award expense from grants made in connection with the Cowen-Ramius transaction of $3.9 million and $2.1 million in the first quarters of 2011 and 2010, respectively.
Total non-compensation expenses in the first quarter declined by 8% to $30.5 million compared to $33.3 million in the first quarter of 2010. Our non-compensation expenses in the first quarter exclude $2.8 million in acquisition-related expenses, such as legal, consulting and banking fees associated with the proposed acquisition of LaBranche and other reorganization charges within the Alternative Investment Management business.
Our fixed non-comp expenses has amounted to $21.6 million in the current quarter, down 12% from $24.5 million in the first quarter last year. Reducing fixed non-comp expenses is an important initiative for Cowen, and we made significant strides firm-wide.
Company-wide, fixed expense reductions were achieved in IT, data providing services and trade-related expenses, as well as the consolidation of most of our New York office space.
Although economic income is a pretax measure, I also want to briefly discuss our tax position. Cowen has a full valuation allowance against its next deferred tax assets at the end of the 2011 first quarter, part of which was made up of net operating losses of approximately $110 million. As a result of the NOLs, we did not pay any taxes in the United States in the first quarter, but our foreign operations incurred taxes of about $200,000.
Finally, turning to our balance sheet. Our stockholders equity amounted to $456.6 million at March 31, and our book value per share was $6.04 per share, up from $5.95 per share at December 31, 2010.
Tangible book value per share, which is a non-GAAP measure, was $5.52 per share, up from $5.42 per share as of December 31, 2010. I will now turn the call back over to Peter for closing remarks.
Thanks, Steve. Well, I think everyone probably gets the picture that a lot of what we talked about last year, the programs we implemented, the reduction and recasting of our overhead into more productive areas is beginning to pay off. We're all in this industry, somewhat environment-bound, but the environment definitely has gotten better, and let's hope it stays that way. But let's turn this over to questions now, and see if any of you have things I can enlighten you about or enhance, sort of what we just said.
[Operator Instructions] Your first question comes from the line of Ted Holzman from Sandler O'Neill.
Ted Holzman - Sandler O'Neill
You did a good job with the comp ratio in the quarter, is this a function of the revenue mix? Or how sustainable is the lower rate going forward?
It's a combination of the revenue mix and the growth in denominator. And that we did a pretty effective job at reducing headcount last year, so that people here on a per capita basis are more productive. So it's no one thing, it's a combination of things. And look it will fluctuate based on the mix of revenue.
And Ted, we do expect that we may hire some people that -- the revenue generation may take a little bit. So the comp-to-rev ratio may increase but not much.
Let me just reiterate. Last year, we had about $18 million of comp expenses that went through the P&L, relating to the salaries of people who are no longer here, severance payments and stock-based comp write-offs of people who left. At the same time, we had about $7 million of expenses last year in the comp line relating to people we brought in, over really kind of the second half of the year. So we didn't really see the productivity of those people in the revenue numbers. So there’s $25 million of expense last year that relates to retooling this place.
Ted Holzman - Sandler O'Neill
Okay, great. And then on the investment management side, you noted that your pipeline is strong, but can you quantify that in any way? And then, when you think about that backlog, how much is the market conditions versus what will probably get done regardless?
So I don't think we actually quantify numbers in our backlog. So I can't really give you specifics. What I can say is that the amount of equity underwritings in PIPEs has increased, and in the mandated backlog -- and what I would say is the activity around some of the areas that we focus on has increased significantly. We've done a couple of transactions. I would certainly -- I'd point you to the ones that have been announced in April to give you a sense of the kind of activity. I think on the last call we talked about the lead managed deal we did for our company called Selectus [ph] in March, there's been a spillover effect on that. It was a great execution on behalf of our team, and what we're seeing is reverse inquiry and a lot of referrals that are coming off the back of that success. And you can see it showed through by just the amount of inbound calling. So it's been healthy, is all I can say. It's definitely market-dependent. I think if we go through a protracted period here of a down-trending market or we have anything that increases volatility significantly, that could be impacted. But what I would say is the companies that we're focused on primarily, they need to do financing. And so these are things that will invariably happen. If they happen next quarter or the quarter after next, we're focused on companies that need to get stuff done, irrespective of market conditions.
Ted Holzman - Sandler O'Neill
Okay. And then it sounds like the asset gatherings for the value and opportunity fund is going well. But when you said the economic impact is modest, is that assuming that you gather more assets, or is that on the current assets that you have now?
It's fairly modest on the current assets we have now. And if we grow the funds to where we think we can, the economics, while not as big as they would have been -- but again we wouldn't have grown to the size we expect to get to because of this perceived conflict, dwarf our current economics, in terms of absolute numbers.
Ted Holzman - Sandler O'Neill
Okay. And then my final question. It looks like the RTS Global 3X Fund was down a bit in the quarter, is there anything that you can attribute to that
Volatility in the commodity market.
Your next question comes from the line of Joel Jeffrey from KBW.
Joel Jeffrey - Keefe, Bruyette, & Woods, Inc.
I think, Peter you said in some of your opening comments, that you still think there's room for future cost savings on the non-comp side. Can you give us some sense from where you think those costs could come from and a sense for how big they could be?
Well, it's hard for me to sort of guess how big they can be, because as we grow the business, and as Steve pointed out, we're going to be selectively continuing to hire people. And then those people will require support. But as an example, we think that integrating the LaBranche technology is going to help us lower execution costs. We still log some expenses in marketing related to the wind down of our multi-strategy fund in client service. So we're not nearly as efficient there as we could be. So at this point, this small amount spread all over the place. So I wouldn't expect really significant decline. I can't even say we have any excess space at this point, because having consolidated everybody from 1221 6th Avenue on the production side of Cowen over to 591 Lex [Lexington Avenue], we're actually -- we're packed like sardines now. We're actually kind of running out of space. So while we still have some legacy space over at 1221 6th Avenue, which goes to 2013, whatever we save there, we're going to be spending as we take -- we're going to have to take space to accommodate the growth that's going on.
And that we are in the process of doing a data center conversion. A lot of those expense reductions will come through in future quarters.
Right now, it's just really more about revenue driving and deployment of capital. I would say than it is about the major gains from expense reductions.
Joel Jeffrey - Keefe, Bruyette, & Woods, Inc.
Okay, great. And then actually that's a nice segue into my next question. I mean clearly, equity volumes are weaker this year than they have been last year. And it sounds like you guys are expecting them to continue to be relatively subdued going forward. Are you guiding anything specifically to your clients as to why they're either staying out of the market or are they switching to different products? Any commentary there?
I think, sure, we hear things from our clients. I think one of the things they're saying is they value our research. But they're also saying that their wallets are smaller than they used to be. I think that's a function of the fact that there's just not as much trading going on. I think you can follow fund flows and have a sense as to what's happening. It's still -- actually we think a fairly significant amount of cash, believe it or not, that is on the sidelines and missed this rally over the last 15 months in equity in particular. But one of the things we're absolutely seeing is the share of all this going to electronic trading. And there are a number of our clients who just don't do as much in cash equities as they used to, because it's far more efficient for them to trade electronically. These are direct market access algorithms and things like that. And what you're seeing us do is develop capability there to really go after that share of the wallet, that currently we don't address much of. And so that's our answer to that. The other one is, if we think that the growth in listed derivatives is still evident, there are a number of accounts that are beginning to use or growing in EPS in listed options as the way either to hedge their portfolios if they're hedge funds or as a way to gain market share if they're larger institutional accounts. And so what you're seeing us do is build up our capabilities in those areas to address the bigger share of the wallet.
Joel Jeffrey - Keefe, Bruyette, & Woods, Inc.
Okay, great. And then just lastly, can you just remind us again how much excess capital you expect to get from after the LaBranche deal closes?
Well, I don't think we have ever said that we expect to quantify a number of excess capital. LaBranche's network there is a certain amount is going to be needed to support the ongoing businesses. It's not terribly significant relative to the overall capital base of LaBranche. And we expect the balance of the capital to over time gets deployed and levered across our asset management strategies. And then basically perceive new asset management strategies and to take advantage of the opportunities that we come across as we're managing fiduciary money, which is what we have done our entire history. But we'd never actually try to quantify what the excess capital would be.
If I could just say, as Peter mentioned, the amount of capital required to support the existing business is there. We have a pretty good handle on that. The vast preponderance of it will be available for us to invest.
[Operator Instructions] Your next question comes from the line of Logan Sugarman from Midsummer Capital.
Economic results look a lot better than the headline numbers. I was just wondering if you guys could go through the major differences between the economic revenues and returns versus the sort of headline GAAP numbers? Just to kind of clarify for the stream. I know you just went through them, but I think maybe the down the line results getting missed potentially.
Right. Steve, why don't you -- it's just a handful of...
Yes. The best place to look in the press release is when we do our reconciliation from GAAP to economic income. But just quickly, we talked about the transaction-related expenses. So they're expense to GAAP, we don't include those on our economic income. We have equity awarded, the onetime transaction as a result of the Cowen-Ramius 2009 transaction is $3.9 million. So it's mostly that those 2 numbers, $2.8 million for our reward expenses and the $3.9 million for the onetime transaction cost.
One of the things that we don't highlight it, I don't think enough, but it's a metric I look at is when you take economic income and non-cash charges, what our cash generation in the quarter was, which is about $12 million, it's actually higher -- it's way higher than $12 million. It's probably in the low-20s millions of dollars, because we obviously have bonus accruals going through our income statement that won't get paid out until next February. So we have the potential now to really generate a significant amount of cash and a number well in excess of what we might have to pay out, cash portion of bonuses next year. So the way I look at it, I'm very pleased with our numbers.
Your next question comes from the line of Christina Findler [ph], private investor.
You mentioned briefly the withdrawals of UniCredit. Is this withdrawal is now complete to date or do they still hold management within one of the funds?
I didn't understand it, could you repeat the question?
Sorry, you mentioned the withdrawals of UniCredit, are these withdrawals now completed or do -- or does UniCredit still have assets under management?
Yes, they still have -- we still have some assets with us that we will be returning to them over the next year or so. It's roughly on the hedge fund side. It's roughly $150 million, and on the fund-to-fund side or alternative solutions side, it's about $40 million.
The amount of assets left in the distributive back from legacy business is relatively small at this point.
Our operating flows will far outweigh those withdrawals as we continue to liquefy and send out money.
At this time I'm showing no further questions. I'll now like to turn the call back over to management for closing remarks.
Well, thank you all very much for participating. What I can tell you is we are very upbeat, as we look at how we are positioned today and compare ourselves to our peers in the industry. And that's kind of a broad range of different types of companies.
We see ourselves in an incredibly strong position. We think we have more tangible hard book value than anybody else in the industry per employee. Per employee is an important metric. We're the least leveraged firm in this industry or at least on a par with 1 or 2 other firms who have de minimis leverage.
There are opportunity to deploy capital, post-LaBranche even as we are today, but certainly post-LaBranche and grow certain parts of the business is significant. Obviously challenging in this environment. But we made a lot of progress, and we are just -- we're feeling pretty good about where we're going. So with that, I thank you all. I wish everyone a happy weekend, a great weekend. Happy Mother's Day, and we'll be speaking to you in 3 months.
Ladies and gentlemen, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.
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