Cowen Group's (COWN) CEO Peter Cohen on Q2 2016 Results - Earnings Call Transcript

| About: Cowen Group, (COWN)

Cowen Group, Inc. (NASDAQ:COWN)

Q2 2016 Results Earnings Conference Call

July 28, 2016, 04:30 PM ET

Executives

Peter Cohen - Chairman and Chief Executive Officer

Jeffrey Solomon - President

Steve Lasota - Chief Financial Officer

Analysts

Brian McKenna - JMP Securities

Mike Adams - Sandler O’Neill

Sharon Leung - Nomura

Operator

Good afternoon, ladies and gentlemen, and thank you for joining Cowen Group Incorporated’s conference call to discuss the financial results for the 2016 second quarter. By now, you should have received a copy of the company’s earnings release, which can be accessed at the Cowen Group Incorporated’s Web site at www.cowen.com.

Before we begin, the company has asked me to remind you that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risk and uncertainties described in the company’s earnings release and other filings with the SEC. Cowen Group Incorporated has no obligation to update the information presented on the call. And a complete description of these and other risk and uncertainties and assumptions is included in the company’s filings with the SEC, which are available on the company’s Web site and on SEC's Web site at www.sec.gov.

Also, on today’s call, our speakers will reference certain non-GAAP financial measures which the company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the company’s reconciliation as presented in today’s earnings release. Now, I’d like turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer.

Peter Cohen

Thank you, operator. Good afternoon, everyone. And welcome to Cowen’s second quarter 2016 earnings call. With me, as always, Jeff Solomon, President of Cowen, and Steve Lasota, our CFO.

For the second quarter of 2016, Cowen reported an economic income loss of $22 million or a loss of $0.20 per diluted share. This compares to economic income of $10 million or $0.09 per diluted share in the prior period last year.

The loss was primarily attributable to a $22.2 million investment loss on invested capital, which included $23.7 million loss on the merger arbitrage portfolio, resulting from the termination of the Pfizer-Allergan merger transaction, offset by gains elsewhere in the merger arbitrage portfolio and other investment strategies. We’ll talk a little bit more about that in more detail in a moment.

Excluding this investment loss, our revenues would have been $104 million and our estimated economic loss in the second quarter would've been approximately $4 million to $5 million or a loss of $0.04 to $0.05 per diluted share.

Despite the loss, our operating businesses showed remarkable resiliency, given challenging revenue and the investment environment. This is largely due to a number of strategic initiatives we began a few years ago to build a stronger foundation from which to operate both our businesses when the inevitable market slowdown occurred. During times like this, we have positioned ourselves to take advantage of dislocations at the larger financial institutions as well as the consolidation that is occurring at the smaller firms. That's why we remain incredibly upbeat about our performance despite the bottom line.

As we've discussed on previous calls, in an investment world increasingly occupied by passive investing, our clients, who are those seeking to outperform their peer group, are demonstrating a growing reliance on our services. At Cowen and Company, we have invested in intellectual capital and are capitalizing on a consolidation trend within the brokerage and banking industry. We continue to benefit from the availability of talented individuals who are migrating away from large banks.

And given the current regulatory environment, we are exploring opportunities to take market share from larger players in many of our businesses as they are facing increasingly stiff regulatory headwinds as well as increased capital constraints.

Over the last six years, we’ve completed seven acquisitions that have not only given us scale, but have enabled us to enter businesses that have been deemphasized by the larger banks. And most recently, we established a broader credit presence with the acquisition of certain businesses from CRT, which stands for Credit Research and Trading. And last fall, we established a prime services business with the acquisition of Concept Capital and Conifer Securities.

At Ramius, there is also significant investment talent available to broaden our range of strategies at our investment management business. We have been beneficiary of talented portfolio teams looking for an institutional quality asset management platform with whom to affiliate.

Over the last two years, we have launched four new strategies and are beginning to see good traction in assets under management. More so than ever, critical mass matters in our business. People and firms are looking to affiliate with well capitalized firms such as ourselves that will be long-term gainers of market share. We are very fortunate to have taken the steps we have taken over the past few years to prepare ourselves for this kind of environment.

Now for our operating results. For the second quarter of 2016, our operating businesses excluding investment income generated $101.2 million of revenue compared to $112.2 million revenue in the prior-year period.

At Cowen and Company, we successfully raised capital for 22 clients and completed a book run IPO just one week after Brexit. In addition, we had a productive quarter in M&A advisory and have continued to add to our advisory backlog.

We continued to grow our equity business. In the first couple of months, with the newly acquired Cowen Credit Research and Trading businesses, we were positive. At Ramius, we onboarded a new manager to the alternative investment platform, bringing our total number of capabilities to ten.

This quarter’s loss attributes to a $22.2 million investment loss on invested capital which included the $23.7 million I mentioned before in merger arb, resulting from the termination of Pfizer-Allegan, offset by gains elsewhere in the merger portfolio and other investment strategies.

And the Pfizer-Allergan position was severely and adversely affected when the US Treasury announced proposed regulation that would have retroactively applied certain financial test to Allergan in order to preclude Pfizer from completing a tax inversion.

In this unprecedented action, they were, in effect, proposing to retroactively change the rules which resulted in the two companies calling off the merger. The position size was consistent with the size and risk parameters we’ve been employing in the strategy for over five years. But the magnitude of the loss was in excess of what we expected.

Let me put this in context. In the last five years, our merger arb has invested in 650 deals and has never had a deal-break of this magnitude or had a deal-break that exceeded downside expectations of the group to this extent.

The proposed action by the Treasury was a stark reminder that we live in an era of uncertainty where rules set forth by the government can be changed beyond what we and the market could anticipate despite the team’s extensive research and ongoing analysis.

In recognition of these risks, we've taken steps to prevent a recurrence of such a loss by reducing position sizes, leverage and invoking tighter stop loss limits in the strategy than we have utilized up until now.

While we own the responsibility for the investment loss, the merger arb strategy has had strong historical performance and we expect it to continue to contribute positively for the remainder of the year as spreads remain at an all-time wide. Since the event, we've had net inflows into merger arbitrage.

Now, let me talk for a few moments about our operating performance at Ramius. In the second quarter of 2016, Ramius assets under management as of July 1 was $13 billion, a $660 million decline in AUM from April 1. The decline included $679 million in redemption, $161 million in new subscriptions and $142 million in negative performance.

The redemption, the $679 million, is primarily related to a single client within alternative solutions [indiscernible] our alternative solutions business, which occurred when the client had a change in management at the CIO level. Loss of this account will have minimal impact on the profitability of the asset management business as the fees were very low.

Management fees for the alternative investment management segment averaged $5.2 million per month in the second quarter compared with $5.4 million per month in the first quarter of this year. The monthly average decline is due to an agreement to sell a portion of our ownership interest in the activist business back to the principals of Starboard at the end of the fourth quarter of 2015 as well as lower management fees from the alternative solutions business.

The average management fees in the quarter was 47 basis points compared to 51 basis points in the prior period last year. As we have noted in the past, because fee structures vary by product and channel, we do not manage this metric.

On May 1, we launched a consumer-focused, long/short equity fund which has gotten off to a good start performance-wise and has grown enough assets to be at least breakeven already.

During the quarter, we executed a partnership agreement with a lady named Samantha Greenberg who will manage an equity long/short strategy initially focused on communications, technology, media and consumer sectors. Samantha was recently named to the 2016 Class of Hedge Fund Rising Stars by Institutional Investor magazine.

Once this one launches, Ramius will have two distinct long/short equity capabilities which it never had before. An important milestone as long/short equity is the largest hedge fund category and will give our balance sheet more protection through more long volatility exposure.

Subsequent to quarter-end, we launched our first UCITS fund in Europe for merger arbitrage, sponsored by Bank of America Merrill Lynch, which has gotten a very good reception in Europe in the first few weeks.

In the second quarter, we bought back $2.4 million worth of stock under the company’s existing share repurchase plan, which leaves approximately $23 million available for repurchase under the program.

Finally, I want to acknowledge our colleagues. Our success is based on team work, collaboration, delivering for each other, our clients and our customers. Thank you all for your focus and continued commitment to the organization.

I will now turn it over to Jeff who will discuss the quarter at Cowen and Company.

Jeffrey Solomon

Thanks, Peter. After a relatively slow start to the first of the quarter, the US capital markets activity saw decent pickup in June. Equity issuance was up in the first quarter of this year as well. However, year-over-year, second quarter total proceeds rate in IPOs in the entire market and follow-on declined 26% to $45 billion and the number of IPOs and follow-ons were down 56% and 16% respectively.

Healthcare was once again the most active sector in terms of the number of transactions, with the number of IPOs and follow-ons five years up 29% compared to the first quarter of 2016, but down 31% year-over-year.

For Cowen, our business followed a similar trend. Equity capital markets revenues were up 13% versus the first quarter this year, but down 57% for the prior-year quarter. We closed 21 transactions during the quarter compared to 39 in the prior-year quarter. We were a book runner on two-thirds of the transaction compared to 62% in the quarter a year. But, more importantly, we were included in every public equity deal in our core sectors where we sought to participate.

Our average underwriting fee was $1.2 million compared to $1.5 million in the prior year period. Market conditions have improved for financings, but the environment remains challenging. Our job is to advise clients on how they can address their capital needs, given the environment.

As corporate clients adjust to the new market realities, some are showing a greater willingness to tap the market for equity capital through traditional follow-on or IPO or convertible financings and we have also had more clients utilize continuous shelf offering as an opportunistic form of raising capital. Cowen is a leader in this form of financing.

As we have said previous calls, many of our banking clients have significant and long-term capital needs and we are benefiting from their ongoing capital raising activities even in a slower financing market. We continue to have a good backlog of equity capital markets transactions to execute upon even if the window remains only slightly open.

Our M&A advisory business had a healthy quarter, primarily driven by a sizeable fees from our technology clients and we continue to recruit M&A advisory teams, individual and expect to add a group of new banker to our platform in the very near term.

Turning to our institutional brokerage business, which includes equities, prime services and the new Cowen Credit Research and Trading, our core equities revenue, which includes cash equities, electronic trading, options and convertibles, rose 7% year-over-year. We pared back some of our single stock research in areas where we believe we're less relevant to clients and we've refocused our research product in sectors and wallets where we can take more market share.

In the next few weeks, we will be entering a new area of macro-policy research as we see a clear revenue opportunity to penetrate portfolio managers’ commission wallet, which is a place we clearly have an opportunity to increase our revenue wallet as we don't currently do anything really in the portfolio managers wallet today.

In prime services, since the acquisition of Concept and Conifer last fall, we’ve added 40 new accounts and culled the smaller accounts. Assets in custody have increased over $1.5 billion. And in outsourced trading, the pace of new client wins is accelerating.

We also have made some good early progress in building the international prime brokerage unit which we announced during the quarter.

As we mentioned on last earnings calls, we would give a little more insight on the Cowen Credit Research and Trading business once the transaction is closed. While we are not yet breaking out operating revenues, we are encouraged by the early momentum at Cowen Credit Research and Trading in the first few months.

The business, which focuses primarily on the stressed credit trading, emerging markets, special situations equities and trade claims appears to be more episodic in nature on a daily basis than our traditional equities business, but it is performing in line with our revenue expectations even as we're continuing to bring many accounts online. The integration of these businesses is proceeding according to plan. And the new credit research team is fully integrated into the research department and are already beginning to make cold marketing calls with clients in their equity research partners.

The trade ideas from research team have resulted in a unique and timely insights that have cross-pollinated into our long-only equity accounts as well as our hedge equity accounts and this is an example of a type of collaboration that we’re able to facilitate on our expanding platform. We see many more opportunities to leverage the relationships and expertise of our existing new businesses to elevate the Cowen Credit Research Trading as well as other parts of our firm from our core equities business to convert to debt capital markets as well as balance sheet advisory. Honestly, we’ve barely scratched the surface here and we’re looking forward to doing more.

I will now turn the call over to Steve Lasota who will review our financials.

Steve Lasota

Thank you, Jeff. In the second quarter of 2016, we reported a GAAP net loss attributable to common shareholders of $12.2 million or a loss of $0.11 per diluted common share compared to GAAP net income of attributable to common shareholders of $6 million or $0.05 per diluted common share in the prior year period.

The second quarter of 2016’s GAAP net income attributable to common shareholders is net of preferred stock dividends of $1.7 million which is associated with preferred stock issued in May of 2015.

In addition to our GAAP results, management utilizes non-GAAP financial measures, which we refer to as economic income. Management uses economic income to measure our performance and to make certain operating decisions. In general, economic income is a pre-income tax measure that excludes the impact of accounting rules that require us to consolidate certain of our funds, certain other acquisition-related adjustments and reorganization expenses, goodwill and intangible impairment, and preferred stock dividend. The remainder of my comments will be based on these non-GAAP financial measures.

In the second quarter of 2016, the company reported an economic income loss of $22 million or a loss of $0.20 per diluted share. This compares to economic income of $10.2 million or $0.09 per diluted share in the prior year period.

Second quarter 2016 economic income revenue was $80.4 million compared to $124.4 million in the prior year period. Investment banking revenue was $35.3 million compared to $68.5 million in the second quarter of 2015. Brokerage revenue rose 40% year-over-year to $49 million.

Management fees were $16.5 million, unchanged from the prior year period. Incentive income was $429,000 compared to a give-back of $7.8 million in the prior year period. Investment income was a loss of $22.2 million compared to income of $12.2 million in the prior year period. And other revenue was $1.3 million compared to $57,000 in the prior-year.

Compensation and benefits expense for the quarter was 68% of economic income revenue compared to 60% in the prior-year. Variable non-comp expenses in the second quarter were $14.8 million compared to $12 million in the prior year period. The increase is primarily related to higher floor brokerage and trade execution costs due to higher brokerage revenue and increased marketing and business development expenses, some of which is related to acquisitions during late 2015 and during 2016.

Fixed non-comp expenses totaled $27.4 million in the second quarter compared to $24.8 million in the second quarter of 2015. This increase was primarily due to higher communications, increased occupancy costs, and increased depreciation and amortization, all of which are primarily related to acquisitions during late 2015 and the beginning of 2016.

Stockholders’ equity decreased by $15 million to $770 million at June 30, 2016 from June 30 of 2015. Common equity, which is shareholders’ equity less the preferred stock, was $668.8 million compared to $684.3 million at June 30 of last year.

Book value per share, which is common equity divided by shares outstanding, was $6.24 per share compared to $6.22 at June 30 of 2015. Tangible book per share, which is common equity less goodwill and intangible assets, was $5.40 per share compared to $5.84 at June 30 of 2015. Invested capital stood at $662 million as of June 30, 2016 versus $735 million a year ago.

In the second quarter, we repurchased approximately 725,000 shares in the open market and acquired 1.4 million shares as a result of next year settlement related to the vesting of equity awards at an average price of $3.31 per share and a total cost of $7 million. As of June 30, $22.6 million remained available under our share repurchase program.

I will now turn the call back over to Jeff for closing remarks.

Jeffrey Solomon

Thanks, Steve. With the markets in which we operate are volatile and deeply affected in the new world order, helping clients outperform has become an even more critical in these times. From Cowen’s trading desk and research insights, we’re helping accounts to make sense of it all. In corporate finance and investment banking, we’re helping clients to achieve their financing goals. On the investment management business, our differentiated investment capabilities continue to offer clients strong alternatives to passive investing with some upcoming high-profile strategy lunches.

A few years ago, in the challenging revenue environment such as the one that we’re in, Cowen would have incurred significant operating losses due to a lack of scale. That’s why set out to elevate the revenue capability of the entire platform. The success of that strategy is quite apparent so far in 2016. We’ve positioned the organization to take advantage of the continuing industry consolidation and, this being a people business, to attract the best and brightest professionals.

With $1 billion in total capitalization, we are well positioned take advantage of the opportunities that will help us to drive long-term shareholder value, facilitating growth in core competencies and creating platforms that will perform over the market cycles.

Before the open the call to questions, I’d just like to echo Peter’s sentiment and thank our colleagues for their contributions and everything they’re doing to help advance the organization. Without you, we don’t get to do this good stuff.

Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Devin Ryan of JMP Securities. Your line is now open.

Brian McKenna

Hey, guys. This is Brian McKenna for Devin. First, the fourth quarter can seasonally be a strong period for underwriting in life sciences as companies look to improve balance sheets into year-end. On the other hand, the election is clearly driving some uncertainty for the group. Based on conversations, are companies hopeful they will have access to capital over the next several quarters or do you think, given a number of different dynamics this year, activity that might have been a 2016 event will spill into next year?

Jeffrey Solomon

I think what we’re continuing to see, companies raising selectively between now and the election, even after the election. I think the slowdown in new issues, I think, primarily has been a function of the fact there’s been outflows in the sector. And I think what we’ve been waiting for is for outflows to stop in the long-only folks. It's always hard for them to be buying new issue when they’re busy paring things that are already in their portfolio. So I have some early indications that outflows from the sector have abated. And we’ve seen from a few of the new issues we did towards the second half of the quarter, there is at least capital available to do new issue. Will it be at the same pace as last year? Probably not. But I think the fact that we’ve seen outflows from the sector stem, pretty good sign for new companies raising capital.

Brian McKenna

****Okay, great. Thanks. And then within Ramius, you have a number of differentiated strategies. But there has also been increasing scrutiny around the hedge fund industry and the fees charged. Are you seeing any pushback on these as you are out raising for a number of new products or to even consider lowering trees if that meant accelerating fundraising?

Peter Cohen

I think we’re a little bit ahead of this. Our fee structure general had been moving towards lower fees, anyway recognizing that sweat was going. And we’re not seeing anything like increased pressure right now on lowering trees. I think people are much more interested in unit product that will bring to them at reasonable fees, reasonable performance. And while I don’t think that that would be continued pressure on fees in the years to come is not something that sort of terribly relevant today to us.

Brian McKenna

Okay, got it. And then last one from me, any changes to thoughts around the balance sheet strategy in the wake of what had been very difficult markets? Thanks.

Peter Cohen

Well, I mentioned that we now have two long/short equity managers -- he will have that as of August 1. And part of our desire to have those was because we didn’t want basically portfolio managers who really knew how short, be short, could be net short so that we had basically long volatility strategies on the balance sheet because, don’t forget, we give all the PMs some capital to get them started going to go out and raise money. So I guess the answer is yes, in that we will have more long exposure in the balance sheet going forward and at the same time, recognizing what happened with Allegan and Pfizer which was such an unprecedented move by the government -- or proposed move because they didn’t actually do it that we pared back the way we have been writing merger arbitrage forever, so that we can’t have a recurrence of something like what happened in Allegan/Pfizer if all of a sudden they decide to retroactively reset the rules.

Brian McKenna

Okay. Thanks, guys.

Jeffrey Solomon

Thank you.

Operator

Thank you. [Operator Instructions] our next question comes from the line of Mike Adams of Sandler O’Neill. Your line is now open.

Mike Adams

Good afternoon, gentlemen. I’d like to follow up on that last question in terms of the balance sheet strategy because, Peter, in some of your prepared remarks you talked about some of the steps you’ve taken following the loss in the merger arb portfolio and you outlined reduced position size and deleveraging. I’m just kind of curious if we should expect any change in the absolute level of invested capital in the future or do you think it’s fairly steady?

Peter Cohen

No, I don’t think the level of investment will change. They’ll be spread over more strategies as, again, I just mentioned, we introduced Caerus, the first long/short equity strategy and Samantha Greenberg who goes active on August 1. So we may spread the capital over more strategies, give us a little bit more exposure against the long volatility. We have reduced and will reduce a little bit more the amount of capital devoted to the balance sheet as we invest in – like Conifer and Concept and CRT. Those require writing checks and it’s got to come from somewhere. So we have already taken our balance sheet exposure down. When you look at our balance sheet is down about $100 million quarter-over-quarter. So I guess my answer is, it’s a little bit of both.

Mike Adams

Got it. And maybe I missed it, but what was the invested capital balance at June 30?

Peter Cohen

Invested capital at June 30…

Steve Lasota

$662 million.

Peter Cohen

$662 million.

Mike Adams

Okay, great. Thank you. And then, Jeff, a question on the advisory business. It had a pretty nice quarter and I think you mentioned that there were a couple large tech deals that closed. So curious what the pipeline looks like today.

And then, secondarily, you also mentioned adding a few new bankers. Just kind of curious what they’re focus is, either if it’s sector specific or if there’s specific products. A little bit additional detail will be appreciated.

Jeffrey Solomon

Happy to talk about it. We’ve been constantly looking at whether we hire organically and build one at a time or we buy like an advisory firm. Today, we haven’t been able to get there on the advisory firm either, because we haven’t been able to get the right culture, the right consideration or the right compensation structure. So what we’ve been doing is – there’s a lot of really talented individuals who want to join the platform where they can do more than just provide advisory services. And so, we’ve added in healthcare, we've added in technology already. And what you’re seeing in the second quarter is a function of the fact we've added and embedded M&A professionals into the various sectors. And that’s the strategy. We don't intend to have a separate M&A group. I think that’s a very bold approach to world. I believe that M&A advice is strategic advice. It needs to be embedded in the sectors. And while I do recognize it is a different product, it really is strategy specific or, what I would call, sector specific. Particularly in technology, you need to have reach into China. If you don’t have a pretty good view on what's happening in China and what the buyers over there are looking for the US, kind of hard to do. We actually have pretty good reach into China in our technology practice, which has been really helpful for us as we’ve identified a number of opportunities to help cross-border transactions.

The new talent that we expect will be coming on will be coming on in the sectors we already cover, so we won’t be expanding our sector coverage. But you’ll see us do some things, adding in technology, you’ll see us adding in consumer and industrials. That’s the other place where we've also added some capabilities. I think we see a great opportunity to scale. It’s already been a fantastic aerospace, defense and industrials business. So we can add individuals that we think will add to the calling effort. It will be great.

And then last, we have an individual starting in our financial sponsors area. We’ve gone – a pretty decent chunk of this year, we’ve not had financial sponsors coverage. We talked to a ton of people. Really excited to have him start. But he’s an M&A professional. We feel like that’s really critical to have somebody in the sponsor position who actually is somebody who brings content and talent to the table as it relates to M&A. And so, he starts some point next week. So that's what we’re doing. We’re building organically. And again, we’ve done in the past. Takes a few years to get it going, but when it does, you can see quarters like the one we just had.

Peter Cohen

I just want to – on top of what Jeff said – take one second here. In addition to what he just talked about, I think this CRT acquisition is going to turn out to be one of the best things we've ever done. The enthusiasm that is exhibited by the guys who joined us and they’re sort of feeling they’re on a platform where they can do a lot more business and they are starting to do that is really infectious. It’s really exciting to see. And so, I think that’s going to add a whole other dimension to the investment bank that I think is going to be very meaningful over time.

Jeffrey Solomon

Yeah, one of the other trends that we’re seeing is the lack of tech IPOs has really translated into some of the former unicorns really reassessing what their value is and what their exit strategy is. And so, we’ve got a couple of transactions in our backlog that are former unicorns that are really going through a sale process. And we also just recently closed one in this quarter, third quarter, which was a biotech company that really had a couple of disappointments. It needed to create an exit with their technology and their IP and they retained us to do that.

So, again, these are things that we’re really super good at in terms of our content knowledge. And as a result, we see chances to extend really in places where there’s likely to be [indiscernible].

Mike Adams

Great. And you mentioned CRT, so maybe if we touch on the brokerage business, the growth has been pretty tremendous. I think your revenues are up like 40% or something like that year-on-year. But could you help me think about the organic growth? When you kind of strip out CRT and the prime build out, what’s the underlying growth trend look like in that business?

Jeffrey Solomon

So in the first quarter, when I look at our McLagan results, the McLagan lags for about a quarter. In the first quarter, our year-over-year market penetration was up 25%. So we saw 25% growth in terms of our market share in McLagan. Now, while that doesn’t translate into dollars, dollar for dollar, it does show that what we are doing in terms of investing, in terms of mind share is pretty significant. And as a result, we were incredibly integrated into the process for the biggest commission payers on the Street. So I just feel like that gives us great comfort. As some of the bigger players we talk to are shrinking broker list and forcing their portfolio managers and traders to trade with fewer counterparties, we are in a portion to gain more wallet over time. We’ve seen a number of firms close their doors in the equities division. Obviously, the folks at Sterne, Agee closed their doors. Today, BB&T announced it is getting out of the equities business. These are people that just weren’t relevant to the biggest commission payers. And so, our division several years ago to embed ourselves as strategic partners for the Fidelities and the Wellingtons of the world has paid dividends because we are integral to their alpha generating process. And as a result, it shows where we can – we made the biggest move outside of the bulge banks of any firm in terms of market share during the first quarter year-over-year.

So we’re probably going to be a little bit more tied to, what I would say, the growth in the equity markets. So as we move from $90 million to $160 million, we’re clearly taking share that was outsized relative to the growth of – or the slowdown in the industry. So I would say it will continue to climb, but it will be probably more in line with what the wallet is that’s available. But that’s why we continue to bolt on things like prime services and other businesses that are adjacencies where there you can really leverage your fixed cost structure associated with delivering the product. And so, when you look at the growth, plus the acquisitions, it makes a pretty big difference in terms of our market penetration.

Peter Cohen

There was organic growth ex those acquisitions.

Jeffrey Solomon

So we were up 7% quarter over quarter – year-over-year. In the same quarter, we were down a little bit between second quarter and first quarter. But the market was down much more significantly between second quarter and first quarter than we were. And we’re still showing 7% growth year-over-year which the market is not doing.

Mike Adams

So that 7% is core?

Jeffrey Solomon

Right. I would also say this. So I mentioned in the call that we don’t currently penetrate the portfolio manager wallet at the long-only accounts, and I think this is not something that I really fully appreciated when I was in my old portfolio manager seat. But when you talk about the voting process at the largest long-only institutions, it’s really divided pretty clearly into who portfolio managers vote for, who research analysts vote for and who trading votes for. And so, the portfolio managers are largely focused on macroeconomic research and there are some really high quality firms that own a big share of that wallet. We don’t really play in that. We don’t have a macroeconomic product. We have largely bottom-up stock selection. We cover 750 companies in the US. So we feel like we have a chance with the new team that’s joining us to really take a significant share. It’s a reasonably high profile group. I can’t talk about until they officially show up here. But we are really excited about the possibility of being able to plug those guys into our existing client base. And we already know that the clients we have are well familiar with the product and it’s widely regarded. So I think there is a huge opportunity for us to take share from others in an existing client base. To me, that’s margin business. So we’ll see how it goes in the first six months. It’s a new platform, so I don’t expect it to be an immediate bump. But in a year from now, I would expect to both see organic growth precisely because we’re going to access the wallet that today we don’t access.

Mike Adams

Great. And one last one from me, probably for Steve. In terms of the expense outlook, I brought this up last call and I think you guys did – took some actions to really rein in compensation a bit. I’m just kind of curious, given the backdrop today, should we expect some incremental improvement on either comps or non-comps in the back half of the year?

Steve Lasota

Sure. Based on our projections, we still feel we can come in around the 60% or hopefully slightly below for the year on a comp-to-rev ratio basis. And then the non-comps, we were just talking about this the other day, we’ve taken out a significant amount of non-comps. It’s just the new acquisitions have obviously increased both the fixed and variable a bit. But as you can see, quarter-over-quarter, they are pretty flat. And CRT closed in early May. So, third quarter, I would expect them to be fairly flat for the first two quarters. We’ll pick some up at CRT. But most of our conferences – our major conferences are in the first half of the year. So I would expect it to be in that range.

Jeffrey Solomon

Just from a core – year-over-year, as you back out acquisitions, our fixed – our non-compensation expenses – actually, fixed non-comps are down. And I think what’s important is the variable non-comps are up, obviously, because revenue is up and a lot of that is tied to trading revenues. But if you look at our fixed non-comps, which we look at daily, we are laserly focused on that. You back out the acquisitions, our fixed non-comps are actually down year-over-year and we will continue to make sure that we are working every possible angle to get the synergies we think we should be getting from the acquisitions.

Mike Adams

Okay. Thanks again, gentlemen. Have a good night.

Jeffrey Solomon

Thanks.

Operator

Thank you. And our next question comes from the line of Steven Chubak of Nomura. Your line is now open.

Sharon Leung

Hey, it’s actually Sharon Leung in for Steven. Just in terms of – in the prime brokerage space, we have seen a lot of European banks pulling back from that area. Do you see any opportunities to invest where some of the competitors have retrenched?

Jeffrey Solomon

Absolutely. In fact, we announced that we are launching a European prime brokerage operation this quarter. We hired somebody who has actually built one, build the leading independent prime brokerage business in London to come and build it for us. No question. The European institutions are looking to – are paring back their services to small funds. They are similar to here in the United States. And that’s a no-brainer for us. A lot of these European hedge funds are trading US equities. The US equity capital market is still the largest capital market in the world. And we are ready to be catering to them with our research product, so our ability to do soup-to-nuts fund services for those guys, prime services for those guys makes a lot of sense. So we think, again, leveraging our fixed cost structure is not going to cost us a lot to start processing, clearing and settling for those accounts, and so we’re specifically looking to take advantage of that. I think those banks will be in a position – and we’ve already seen this in the US where they are referring clients to us. I think – it’s not like we’re competing against the large banks for accounts. In many instances, like we saw after we closed both the Concept and Conifer acquisitions, some of the prime brokerage relationships that we have at Ramius, we prime brokerage with other forms, are calling us and saying, ‘hey, will you take a look at our smaller accounts and open them on your platform.’ They can then know us as a counterparty at Cowen. So this is part of – we have an organization here that engages with the Street in a number of different ways. So we are working collectively with some of the larger banks to take on some of the accounts that they don’t want and they work really well on our platform. So I think that’s a great strategic fit that we have between our asset management business and our investment bank.

Sharon Leung

Okay, that’s really helpful. Thanks. And just one last one, have you guys seen any impact from Brexit? I know some of the smaller firms out there have noted that they actually haven’t seen much impact so far. This whole scale of the impact might take a couple of quarters to roll through and I was wondering if you were seeing some of the same.

Jeffrey Solomon

We’ve seen no impact from Brexit.

Sharon Leung

Okay, great. Thanks. That’s all from me.

Jeffrey Solomon

Okay.

Operator

Thank you. And I’m showing no further questions at this time. I would now like to turn the call over to management for closing remarks.

Peter Cohen

Well, ladies and gentlemen, thank you for dialing in, listening to us, understanding the loss we took on the Pfizer-Allergan and the effect it has on the quarter. Our business is very healthy. We’re extraordinarily excited about our opportunities. Out of the questions that you asked point to what those opportunities are, whether it’s leveraging up the clearing business or CRT, some of the new people we have brought into banking and sort of the continued shrinkage of competition in the industry which allows us to continue to gain market share. So it’s a tough environment. We all know that. But we are really pumped up. We are very excited about our opportunities.

So thank you. Everyone, enjoy the rest of the summer and we will speak to you in October.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day.

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