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Cowen Group (NASDAQ:COWN)

Q2 2012 Earnings Call

August 03, 2012 9:00 am ET

Executives

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

Jeffrey Marc Solomon - Chief Operating Officer, Head of Investment Banking, Director, Member of Executive Committee, Member of Operating Committee and Chief Executive Officer of Cowen & Company

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

Analysts

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

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Operator

Good morning, ladies and gentlemen, and thank you for joining the Cowen Group, Incorporated Conference Call to discuss the financial results for the 2012 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 website at www.cowen.com.

Before we begin, the company has asked me to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to risks 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. A more complete description of these and other risks and uncertainties and assumptions is included in the company's filings with the SEC, which are available on the company's website and on the SEC website at www.sec.gov.

Also on today's call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. Reconciliation of these measures to GAAP and consistent with the company's reconciliation was presented in today's earnings release.

Now I would now like to turn the call over to Mr. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.

Peter Anthony Cohen

Thank you, operator, good morning, everyone. And welcome to Cowen's Second Quarter Earnings Call. I'm joined here in our office with -- by Jeff Solomon, COO of Cowen and Company; Steve Lasota, CFO of Cowen Group; John Holmes, our CAO. I'll start with a general overview of our performance for the quarter followed by an overview of our alternative investment business. Later on the call, Jeff will provide an update on our investment banking business, and Steve will take you through some of the details for our second quarter financials.

There's no question that the second quarter was a challenging one, based on the market environment we are operating in. I don't have to tell all of you that just the continued uncertainty around what's going on in this country, the election, the Eurozone problems, the fears of slowdown in Asia, all weighed on the quarter and on the markets during the quarter. So it was kind of a volatile quarter in equities and global credit, notwithstanding, I think, that we feel pretty good about how we did in the quarter.

Investment income were down in the first -- in the second quarter from the first quarter, but our core operating revenues remain consistent despite the environment. And here's a snapshot of our numbers. During the quarter, we reported a GAAP net loss of $8 million, or $0.07 a share, as compared to net income of $20 million, or $0.26 per share, in the prior year period. GAAP net income in the second quarter of 2011, however, included a $22 million bargain purchase gain related to the LaBranche acquisition and an $18 million deferred tax benefit associated with the company's acquisition of Luxembourg captive reinsurance company. So when you put those together, there was $40 million that went through GAAP income last year, GAAP revenue that was absent this year. So on an operating -- pure operating basis, our numbers in the second quarter this year are substantially better than last year.

On an economic income basis, we reported a loss of $6 million in the second quarter compared to a gain of $600,000 in the prior year period. Again, our performance in the prior year period included an $18 million benefit associated with the acquisition of the Luxembourg reinsurance company, which is reflected in our investment income revenues. So when you compare economic income, which includes the Lux income but not the gain on LaBranche bargain purchase, the numbers again are better in the second quarter from the core operating businesses. Excluding noncash items recorded an economic income cash gain of $2 million in the quarter compared to a $7 million gain in the prior year period, and again I just referenced the $18 million on the Lux captive that was in last year's numbers, not in these year's numbers, so again a good comparison.

For the first half of the year, we reported economic income loss of approximately $100,000 and cash-based economic gains of nearly $15 million. In the 2011 first half, we recorded economic income of $8 million, a cash-based gain of $19 million. And there again if you back out Lux, we'll see that it was a very positive operating comparison.

In terms of costs, our second quarter non-comp expenses were $8.4 million below run rate levels, which we measure as our -- against fourth quarter of 2011, so we can track our pretax expense reduction cost levels. Compared to 2011, our expenses for the first half of the year have declined by 14%, including a 4% drop in fixed expenses. And while there was a slight increase in expenses from the first quarter, which were partially due to the new expenses related to the ATM acquisition, which we made very early April, we are still on track to achieve the expense savings objectives that we've set in 2012. And in fact, we're continuing to identify opportunities to save expenses without impairing or impacting what we view are revenue opportunities. And we remain very committed to further controlling our expense base. With our shares trading at a discount to tangible book, we saw an opportunity to repurchase shares pursuant to the authorization, which was announced last fall, $20 million. We have acquired 5.4 million shares in the open market for approximately $16 million. We've also purchased an additional 2 million shares as a result of net share settlement relating to vesting of equity awards. As an additional commitment to enhancing shareholder value, yesterday our board approved restoration of $15 million to the buyback program, so that now we're starting off this quarter with $19 million to spend on buying back stock, and we'll assess and go back to our board as required or as necessary if we fulfill that, the use of that $19 million, and we see further opportunities to buy stock below book value.

The plan allows us to purchase shares from time to time through a variety of methods, including the open market and through privately negotiated transactions.

Now more specifics on our operating businesses. In the Cowen and Company, our broker-dealer, we were able to maintain flat revenues with respect to our core operating businesses compared to the first quarter, despite having a quarter where equity trading levels continue to slip across the market and equity issuance activity, which recorded a very robust first quarter, dropped by 30% in the sectors that we cover.

Our solid performance comes as a result of steps we have taken over the past few years to diversify our business at Cowen. During the quarter, we saw improved traction in our options and event businesses, increased investment banking activities in the sectors outside of health care and a significant pick up in our debt capital markets business. I will let Jeff discuss more on the details of Cowen and Company later in the call.

Turning to the investment management business, at Ramius, total assets increased by 13% or approximately $1.3 billion to $11.5 billion. I will caution everybody, the increase is primarily attributable to a single large mandate we received in our cash management product for $1.5 billion. And as I've said, that's a very marginal contributive profitability, so I don't want to read too much into that.

As a reminder -- I already said that, excuse me. Our other products, including hedge fund alternative solutions were relatively flat during the quarter. We generated $14.6 million of management fees during the quarter, up 4% from the 2012 first quarter, but down 6% from the prior year period. The decline in revenues, deep decline in revenues, to last year's second quarter is primarily the result of fees that we received last year and from the closing of our health care royalty fund platform where we collected a look back payment. So our fees actually on a sort of operating going forward basis were closer to flat. And average management fee -- our average management fee for the quarter was 54 basis points compared to 61 basis points in the 2011 second quarter. The decrease in the average fee was primarily due to fees we earned last year in the second quarter, again, from the health care royalty funds.

On average our management fees were flat compared to the first quarter. Excluding cash management, our average management fee was 71 basis points, up slightly from 68 basis points last quarter. And again, we've said it in the past, the fluctuation in our cash management assets, which are very low fee paying, does have this sort of distorting impact on average management fees.

Looking forward, we believe, we are sure there is a very substantial opportunity in the liquid alternatives market. Today, this market represents about 1% to 2% of the overall U.S. mutual fund market. We expect it to grow to 8% to 10% or $1 trillion in assets as investors seek liquid non-correlated growth in their portfolio of traditional assets. And therefore, we're continuing to dedicate resources in expanding awareness of the Ramius liquid alternatives brand in the mass affluent retail market and are in various stages of due diligence with a number of meaningful opportunities. Both the RTS, which is Ramius Trading Strategies, Managed Futures Fund and the Ramius Dynamic Replication Fund are getting traction in the market as the funds have performed very competitively versus their peers.

In mid-July, we filed a prospectus for our third liquid alternatives product, the Ramius Strategic Volatility Fund. This fund will be one of the first funds on the market to focus on portfolio protection and volatility strategies, which we believe provides access to differentiated risk premium within a broad portfolio of alternatives. And we expect the fund to launch early in this year's fourth quarter.

Turning to our balance sheet. We finished the quarter with approximately $315 million in cash and liquid securities and with $431 million in invested capital. At June 30, 84% of our total equity was invested across our investment strategies. In the second quarter, we generated $8.3 million in investment income for return of approximately 2% on our portfolio. And again, I refer back to the comparison with last year when we had the Lux captive income, while we outperformed the S&P, which declined 4%, and most other market indices our returns were impacted by difficult global equity and credit markets. But I think that the performance that our portfolio guys put in on the balance sheet is actually excellent in the quarter.

Last year's second quarter, we generated $22.7 million in investment income, again, you can adjust for the $18 million of the Lux captive. The year-over-year decrease is primarily due -- well, I said that. With that, I will now turn the call over to Jeff, who will provide an update on our activities within our broker-dealer.

Jeffrey Marc Solomon

Thank you, Peter. We continue to make progress at Cowen and Company in the second quarter despite the challenging markets, which is truly a testament to the strength and the drive of our people.

Total revenues for banking and brokerage, combined, were $40.8 million, which is up 5% from the prior year period and up 3% from the first quarter. Investment banking and capital markets, we completed 17 transactions across all of our products, generating $16.3 million in revenue compared to 13 transactions for $14.3 million in the prior year period. Perhaps more notable is the fact that we achieved this level despite a relatively sluggish equity finance markets. This is a validation of the strategy we've been pursuing to broaden our product capability in order to be able to address the financial needs of our clients at various points on their balance sheet. We had demonstrable growth in many of the areas where we've built product capability, like our Debt Capital Markets team, which recorded a strong quarter, generating over $5 million in revenues. And while it has taken some time to establish a foothold in this space, I am very pleased by our recent success which has continued into the third quarter across a number of our industry verticals. In fact, we already announced 2 fixed income transactions in the third quarter, where we were the lead left manager book runner on both. In early July, we completed $125 million high-yield offering for a pre-revenue biotech company and $175 million high-yield offering for industrials company. We've been winning important mandates for high-yield offerings in technology and retail as well. We also saw an increase in our technology banking and capital markets efforts, which is a stated focus for us this year. During the quarter, we generated about $6.5 million across all products in the tech sector, the most for any quarter since the end of 2010.

Our health care banking revenues were down quarter-over-quarter, but we continue to lead the Street in life sciences, as we completed more transactions in our life sciences coverage area than any other investment bank during the first 6 months of the year. Finally, we are also seeing a pickup in mandates awarded in equity financings and M&A assignments. In fact, during the second quarter, we won 40 new mandates across all banking products that increased our backlog by 50%, even though we completed 17 transactions during the period. While these mandates are not completed by any stretch of the imagination, I believe they provide a window in the platform's growth and potential and give us a good indication that the market maintain some stability of our revenue going forward.

These wins are credit, not only to our bankers who are increasingly collaborating with other industry and product specialists across the firm to the entire organization pulling together to strengthen important relationships and provide clients with creative and focused solutions.

Moving to our equity business, we saw our second quarter of increased revenues, as our investments in options and event-driven strategies and our new electronic businesses helped to offset declining U.S. cash commissions. Our core strength has always been and continues to be our research and distribution platforms, and we're constantly looking for ways to improve our ability to monetize our content.

With that in mind, we made a limited number of strategic hires to the leadership team this quarter, including a new Director of Equity Research and a new Head of Sales. These new leaders have been working very closely with our existing leadership in Equity to improve upon our research product management and positioning in the market. Over the last few months, we have also made important strides in remapping our client coverage so we can effectively and efficiently utilize our research content to better serve our institutional clients with more actual ideas. With these changes in place, we have a foundation for our Equity business to grow and gain share. We intend to look for ways to increase our market share in the second half of the year by growing our content base in key sectors and introducing innovative client-oriented solutions, such as a new research series.

As I mentioned on our call, we completed our acquisition of ATM at the beginning of the quarter and are aggressively marketing the product to Cowen's existing institutional client base. Prior to the acquisition, ATM sold its product almost exclusively to sell-side clients like Cowen. We believe that there will be a potential cross sell our cash-only clients. Indeed, we are beginning to see the traction on this strategy, which we expect to start contributing to revenues more meaningfully towards the latter half of the year. Finally, while it may seem out of sense to be upbeat in difficult marketplaces, I'm more convinced than ever that our ability to execute on our business at Cowen has never been better. With the new senior leadership in place, the strength of our brand and the capabilities of our people, the only thing we need are more favorable market conditions.

With that, I'll let Steve Lasota give you an update on our financial performance.

Stephen A. Lasota

Thank you, Jeff. During the second quarter of 2012, we reported a GAAP net loss of $7.9 million, or $0.07 per share, compared to a gain of $20 million, or $0.26 per share, in the prior year period. GAAP income in the prior year period included a $22.2 million bargain purchase gain related to the acquisition of LaBranche, $18.3 million tax benefit associated with the company's acquisition of Luxembourg captive reinsurance company. The first 6 months of 2012 reported a GAAP net loss of $4 million, or $0.03 per share, compared to a gain of $20.1 million, or $0.27 per share, in the first half of 2011. In addition to our GAAP results, management utilizes non-GAAP measures, which we refer to as economic income, to analyze our core operating segment performance. We believe economic income provided a more accurate view with the operating businesses, excluding the impact of expenses associated with one-time equity awards in connection with the November 2009 Ramius/Cowen transaction, gains and losses from discontinued operations and one-time gains and losses, acquisition-related expenses and other reorganization charges and bargain purchase gain. Economic income also excludes the impact of accounting rules that require us to consolidate certain of our [indiscernible].

For the 3 months ended June 30, 2012, the company reported an economic loss of $6 million, or $0.05 per share, compared to an economic gain of $562,000, or $0.01 per share, for the 2011 second quarter. For the first half of the year, we reported an economic loss of $115,000 compared to a gain of $7.5 million for the first half of 2011. Second quarter economic income revenues were $66.2 million, a decrease of $16.2 million compared to $82.4 million in 2011 second quarter. We generated $8.3 million in investment income during the second quarter and ended the period with $431 million in invested capital. In the 2011 second quarter, we earned $22.7 million in investment income, $18 million of which was from the company's acquisition of Lux captive. In addition to last year's GAAP transaction, the decrease in the investment income was also due to a decrease in performance for the equity company as invested in the enterprise [ph] fund, primarily attributable to unrealized losses related to certain European-based private investments.

Alternative investment side of our business recorded management fees of $14.6 million during the second quarter of 2012, that compares to the prior year period. There was a decline in fees attributable to our health care royalty funds due to an increase in committed capital in the prior quarter that resulted in recognizing cumulative retrospective management fees. The increases were partially offset by an increase in management fees relating to our value and opportunity funds and our Ramius Trading Strategies fund. We reported incentive income of $2.6 million in the second quarter as compared to $5.7 million in the prior year period. Decrease in incentive income was primarily related to a decrease in incentive fees earned in our real estate funds and global credit funds. These decreases were partially offset by an increase in incentive fees related to the value and opportunity fund.

For the broker-dealer segment, investment banking revenues were $16.3 million, an increase of 13% compared to $14.3 million in the prior year period. We completed a total of 17 transactions across all products in the most recent quarter compared to 13 transactions in 2011 second quarter. Brokerage revenues were $24.6 million in the second quarter 2012, flat compared to the prior year period. Second quarter reported compensation and benefits expense of $41.6 million, a 2% decrease compared to $42.4 million in the second quarter of 2011. The decrease was primarily attributable to a decrease in variable compensation, partially offset by a $1.8 million increase in the amortization of deferred compensation expense and investments in new professionals, such as ATM. In the quarter, we reported an aggregate compensation to revenue ratio of 63% compared to 51% in the second quarter of 2011. In the current quarter, we incurred $1.4 million in compensation expense, for which the company gets reimbursed severance expense of $739,000. Excluding these 2 items, the compensation to revenue ratio was 60%.

Moving onto our non-compensation expenses. Fixed non-compensation expenses in the current quarter decreased by 7% to $24.5 million as compared to $26.3 million in the comparable prior year quarter. This is due to a decrease in service fees and occupancy and equipment expenses related to our expense reduction efforts made in 2011 to reduce expense -- excess services in this space. This decrease in expenses was partially offset by additional expenses associated with the ATM business. Variable non-compensation expenses were $7.1 million in the second quarter of 2012, down 43% compared to $12.5 million in the second quarter of 2011. The decrease was primarily to professional expenses associated with the Luxembourg captive reinsurance acquisition and syndication expenses associated with certain funds within our Alternative Investment Management business in the prior year period.

With economic income as a pretax measure, I'd like to briefly touch on our tax situation. After the acquisition of LaBranche, Cowen had significant net operating losses or NOLs from the U.S. to carry forward into the future, $311 million. The associated gross deferred tax asset currently amounts to $124 million. There's 100% valuation allowance against that asset, but it has significant value to the firm. IRS rules associated with the acquisitions of Cowen and Company in 2009 and LaBranche in 2011, partially limit the amount of NOL that the company will be able to utilize annually but a significant amount of future earnings will be shielded from taxes by these assets.

Turning to our balance sheet. Our stockholders' equity amounted to $512 million at June 30, the book value per share was $4.48. Annual book value per share, which is a non-GAAP measure, was $4.14 per share compared to $4.23 per share at the end of 2011. In connection with our acquisition of ATM, the company realized an increase in goodwill and intangible assets, which decreased tangible book value in the 2012 second quarter.

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

Peter Anthony Cohen

So that's it ladies and gentlemen, in terms of the formal presentation. And at this point, I'd like to open it up to questions.

Question-and-Answer Session

Operator

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

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

Just given that you guys recently acquired ATM, and I know it's an entirely different business from what goes on at Knight. But I'd love to get your thoughts on how you think regulators, investors might be viewing electronic trading at this point in time?

Peter Anthony Cohen

I will let Jeffrey respond to that.

Jeffrey Marc Solomon

I think there's a -- I sense a fair amount of time, actually, in D.C. There's definitely a lot of concern about the fast markets. I've actually spent some time with [indiscernible] Banking and [indiscernible], and in general, even before this happened, certainly in the wake of Facebook, there is a very significant concern around the idea of fast markets and things happening at blazing speeds that really acts as a deterrent for a lot of individual investors and retail investors to participate in the market. So certainly the Knight situation is not a great situation for the industry, and anybody who says they don't feel compassion for the leadership there just has never been in the seats that we're in. It's really unfortunate, because it's been a great franchise for a while, and it's still a little unclear to us how this happened, and we're obviously anxiously awaiting more information so that we can digest exactly how things like this occur. As it relates to us and ATM, look, we are in the infancy of our electronics business. And our business is not so much around speed as it is around making sure that we provide our clients with tools to get better execution. And if it means that they choose to do so electronically and use algorithms to essentially get themselves better pricing in the marketplace, then that's what we're going to do. The ATM acquisition is not geared towards fast executions. We are obviously taking steps, as anybody would, to ensure that any software update or upgrade or things that occur that could potentially cause us to have problems are adequately tested. And we have put some -- had already had a number of fail-safes in place to ensure that situations like the one that happened in Knight don't happen to us. I will also say that our business is radically different than theirs in terms of flows, and so if this was a result of a program that went awry. Our program business is episodic, and it's really high touch in a sense that everybody on the desk knows when there's a program and there's a lot of eyes watching it. So I'm not totally concerned about something like that happening here, but certainly as we continue to ramp up in our electronic product offering, we're doing everything we can to ensure that, that's the case.

Peter Anthony Cohen

Let me just put a postmark on what Jeff said. I don't think, whatever the outcome here, I don't think it just is an event that passes by without Washington taking a big notice, because this whole issue of electronic trading has been at the forefront of the SEC. They really haven't understood it. They are putting a lot of resources into trying to understand it. And I don't think that this will be a ho-hum. I think when it's all done, the health and safety of our capital markets and consciousness of the investors in this country is going to be of great importance to the regulators and to the people in Congress. And something is going to come out of this. I don't know what it is, but something is, in my opinion. And as Jeff said, it's unfortunate for the guys at Knight, people at Knight, I feel -- we really feel for them in terms of the destruction that this imposed on their organization. [indiscernible] that's where we are.

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

Great. I appreciate the color. And then just trying -- it sounds like you're getting a little bit of traction in your debt capital markets activity. I'm just wondering, is this sort of level of growth a function of just to build out more so than -- or is it more an issue that issuers are more looking towards the debt markets and then when equities return, you might see some slowdown in this or is...

Peter Anthony Cohen

I'm going to let Jeff sort of add to my comments. But this is, for us, total function of the build out and having brought in -- maybe investment in people, going back over 2 years now, to build a debt capital markets capability, which Cowen did not have. And we're seeing the fruits of our labors at this point in time. And a willingness in the market to accept the different kinds of issuers than they have in the past. And frankly, I think our guys have done a phenomenal job when you look at what we did in the second quarter in debt capital markets revenue compared to all of last year. We did 5x in the quarter, what we did for the full year. So this is not just a function of the market, this is a function of the investment we've made.

Jeffrey Marc Solomon

I think you are spot on -- our goal here is to be able to go in and talk to the client about what their financing needs are, period. And give them as much peripheral vision around what they can do in the marketplace that's actually executable as possible. And so when we -- this may be the first series of deals we're seeing where we've been able to adjust the client needs in terms of execution at the debt level. But in all of our discussions over the past couple of years, we've been providing our clients with a window into a marketplace that a lot of other firms our size just can't. And so, when we consider financing alternatives, what we're able to talk from a position of without bias. In other words, most firms our size really talk about only what they're good at doing, we talk about the entirety of the market. And so we've won a number of equity deals as a result of being able to go in and talk up and down the capital structure, and I would say that, that continues to be the case. So I'm very happy that we're able to put up prints in high-yield. It's really a validation of the strategy. It certainly gives us a reaffirmation of the investment we made. It also tells us how long it takes to actually bear some fruit. But we're very pleased with this.

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

Okay. And then just lastly for me. Non-comp expense came in a little bit higher than what we were looking for. I'm just wondering about sort of a run rate going forward. Is $30 million a number that we should be thinking of, or is it going to continue to decline as I know you guys have said you were on track for -- to meet your expense reduction totals?

Peter Anthony Cohen

Yes, we think it's going to decline. Some of the stuff is a little lumpy. Part of what we saw was some of the expenses related to ATM, the additional people and the rent, et cetera that shows up in non-comp. We're not seeing the benefits yet to the extent that we expect to from being more efficient in terms of execution cost because of ATM. Some of our forecasted savings there are just starting to flow through. And then some of our expenses are a little lumpy. I mean, if we have -- particularly active in recruiting and we've got some recruiting expenses, stuff like that or -- we don't -- what we don't do is try and sort of smooth out all of our accruals during the year evenly -- we pay our bills as they come in and record them as they come in. So some stuff is lumpy, but we expect to be back on the right trajectory.

Operator

[Operator Instructions] Your next question comes from the line of Devin Ryan with Sandler O'Neill.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

So just first off on the alternatives business. You guys were upbeat on the opportunity for the liquid alternative business. But can you speak about any new products that you may be launching, and broadly, or just more broadly, about any mandates that you've won or are working on any specific products? Essentially, I'm just looking for an outlook in the near and intermediate term about net new asset growth, and then what products, new or old, that you are most of optimistic about?

Peter Anthony Cohen

Well, Devin, it's as hard an asset raising environment as I think we've ever seen. And it's not just our view, but everybody we talked to. And if you look at some of the comps in our industry, not that you can compare us to some of the other asset management arms of the public companies, because some are kind of just long equity, et cetera, a lot of people have reported pretty substantial declines in assets under management. And from what we have been able to glean from around the Street, there are a lot of people like us that had net withdrawals during this period. We've got a pretty robust pipeline. We have been working hard to sort of build our platform distribution business. We filled the value and opportunity fund, we maxed out there. And we raised a substantial amount of assets, or meaningful amount of assets, let me put it that way, from the Salomon's [ph], the Barney platform. We've got products that we are going to get on the Merrill platform, additional products that we'll get on the Salomon's, the Barney platform. We're working on some stuff at JPMorgan to get on their platform. The guys who run the solutions group, the old fund of funds group, that's a very long lead time, big mandate type business, pretty substantial backlog there. And so I mean, we feel okay, about the backlog. We're taking steps to be more laser-focused on the marketing side with our existing product base. And we're being, I think, very deliberate in terms of what we consider looking at for additional products to put on. Increasingly, we are a platform business and those platforms are fairly tightly defined and narrow and -- but they fit the environment. And there are some things we're looking at, premature to talk about them. But we will add particular strategies that fit the vertical platform as we see the opportunity. I mean, no shortage of people, by the way, coming at us, from all over the place that -- I do this, I do that, here is my record. People looking to tuck in subscale pieces people that need a home, need an infrastructure, which we have. So it's a tough time. But we are feeling pretty good about the opportunities.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Great. And just staying at the asset management business, how much is left in the Enterprise Fund, or how much is left to be returned?

Stephen A. Lasota

It's about $200 million left in Enterprise.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Okay, great. And just moving onto the capital markets business, Jeff, I appreciate the color on the investment banking backlog. And I think you touched on this a bit in Joel's question. But you guys have obviously made a number of investments in the platform, and you mentioned debt capital markets. But it's a little bit tough from the outside, just to get an idea of what the revenue potential in that business currently is, just given that we're obviously not in a really functioning environment for most investment banking businesses. So yes, I do know that or understand that revenues are inherently volatile. But just want to get a sense of what you guys think or how you think about the potential of the business when the capital raising window isn't shut for 2 out of 3 months in the quarter. And is there a range of kind of where you think investment banking revenues should be running in your mind when we are in a kind of what I'd call more functioning environment?

Jeffrey Marc Solomon

That's a great way to try to get me to give you a forward-looking statement, which I'm not going to do. But it's a good question, anyway. Look, I think this is about versatility more than anything else. So if you looked at where our numbers came from, it's all a matter of public record, you can see that there was -- that health care issuance in equities was off the charts in the first quarter, and that was -- we all knew that it wasn't going to be sustainable, that was a tremendous number of companies come in, in a real short amount of time. And it was great for us, because it proves that when the business is there to be done, talent is position, you take advantage of it. And that's clearly why you want to put yourself in a position that when the markets are there, you can print, and we certainly did in health care. That business is slacking in the second quarter as it did for everybody. But we had other things working in other industry sectors and certainly other products, like the debt products, that pick up the slack. And our goal here has always been to build a platform that allows us to manipulate and move in multiple market environment, that's sort of the philosophy that we've always had when we were building Ramius out, let's have things that work in multiple market environments. So I can't sit here and tell you what the future is going to hold. What I will tell you is if there is a lot of activity in the CCC -- B, CCC space for growth companies in our target areas, I think we're in a great position to take advantage of that, and we're getting calls from clients saying, "Hey, we saw you did this, come and talk to us. That's exactly what we've been looking for." And as I look back at where we were 2 years ago, as we start to remake our capabilities in the Cowen investment bank, there was nobody calling. And so, we have a lot of outbound calls to be sure, and we're not losing our tenacity on that front. But it's nice to get a call from clients who see you printing in the marketplace and say, "Hey, if I want to do something like that, is that available?" And that gives me confidence that if there are deals to be done, that we will be doing them. So, sorry, I know that's not exactly on point, but that's kind of the way we feel.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Okay. No, I appreciate the color. And then just lastly, on the brokerage business is somewhat of a similar question. But you guys are getting some traction, and obviously, have gotten into a number of new businesses in recent quarters. So just love to get a sense and you don't have to speak numbers here, but just from a revenue perspective, kind of where you think you guys are. How long is this ramp going to take? Are we -- you've made some progress, but how much further is there to go? And kind of all things equal outside of volumes improving, do you still believe there's a lot more upside to kind of get in that full ramped run rate, and I guess, really just to how long do think that will take to get there?

Jeffrey Marc Solomon

So I would say this. I'm very heartened by the fact that we've been able to hold ground here. This is -- being in the equities business is a little bit like a war of attrition. There are times that you can move forward and gain market share and not have increases in revenues, and our goal here is again to position ourselves and burrow ourselves so deeply into our customer base, that when they do start paying significant equity commissions again, we're going to be in a position to put some significant distance between us and people who just don't have the strength inside those organizations that we do. So adding products around that core, that makes us more valuable over time and helps us to address clients on a more actual basis. Ironically enough, when they pay fewer commissions, they rely on you a lot more to make better calls. So it almost is like the inverse, you matter most when they have fewer commissions to pay, because they want to be so judicious with making sure they're getting what they want. And so I'm very happy with what we've done with some of our hires in the equities division. I think this client mapping exercise that we're doing, it's the first time that Cowen has done that exercise, in almost a half a decade, which is remarkable to me on many levels. But it allows -- it shows me that irrespective of what's happening in the marketplace, there is just so many more things we can be doing to improve our lot, and eventually, the markets are going to come back around, people will pay equity commissions, and we're just going to be able to pull our distance between us and our competitors.

Peter Anthony Cohen

Who are diminishing in number.

Jeffrey Marc Solomon

Yes.

Peter Anthony Cohen

The number of people we are competing with continues to decline.

Jeffrey Marc Solomon

And just looking at -- you've seen it, you've seen what other people's equity businesses have done this last quarter. Our cash equity business is softer, not as soft as some of those other businesses are, but it's softer. But again, some of those investments we made in options and our middle market efforts and in other areas like that, has picked up the slack, and I feel good about that. It's hard to not feel good about that, because it shows that we can create balance and give people the ability to pay us in multiple ways.

Devin Ryan - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then just lastly, on the expenses, I don't know if you guys can give this. But the sequential increase in non-comps, how much of that was related to the -- just the ATM acquisition and just some additional infrastructure there?

Peter Anthony Cohen

$800,000 was related to ATM.

Operator

And at this time, we have no further questions. I would now like to turn the call back over to management for any closing remarks.

Peter Anthony Cohen

Well, thank you all very much for tuning in, and we'll be here in 3 months to report on third quarter. And keep our fingers crossed, we have a -- that it's a better third quarter than last year, which was a dismal third quarter for the industry. It's already started off better, and we've got a lot going on. So notwithstanding that we have this loss or breakeven for the 6 months, we actually feel better than the numbers would reflect we should feel where our business is. So everyone have a great balance of the summer, and speak to you in the fall. Thank you, operator.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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