Cowen Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Cowen Group (COWN)

Q1 2012 Earnings Call

May 04, 2012 9:00 am ET

Executives

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

Thomas W. Strauss - Member of The Board of Directors, Member of Executive Committee, Member of Operating Committee, Chief Executive Officer of Ramius Alternative Solutions and President of Ramius Alternative Solutions

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

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

Unknown Executive -

Analysts

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

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

Donald Destino

Unknown Analyst

Presentation

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 first 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 the risks and the 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 those and other risks and uncertainties and assumptions, which 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 those measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release.

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

Peter Anthony Cohen

Thank you, operator, good morning, everyone. Welcome to Cowen's first quarter 2012 earnings call. With me here today are Jeff Solomon, CEO of Cowen and Company, our investment bank broker-dealer arm; Steve Lasota, our CFO; and Tom Strauss, Chairman of our Asset Management business.

In the first quarter, we generated approximately $4 million in GAAP income, or $0.03 per share. While on an economic income basis, we recorded $6 million of income and an economic income cash gain of well in excess of $12 million. While we still have plenty of work to do to further increase profitability, our first quarter results reflect the improvements we are making across the firm. As you know, we've been working pretty hard towards creating a sustainable platform, sustainable for this environment, for all of our businesses, lowering costs, figuring out new ways to add revenue, and we are seeing some of these efforts starting to take shape.

Taking a look at the performance of our operating businesses, we made some progress during the period. At Ramius, which I will discuss in greater detail or Tom will shortly, even though our total assets under management slightly decreased, we had solid inflows in certain hedge fund products as well as growth in several existing custom solution mandates during the quarter. We also generated over $20 million in investment incomes for the management of our proprietary capital, but as Tom will talk about, some of our legacy assets, which we are committed to return, were returned during the quarter.

At Cowen and Company, we grew the total segment revenue by 19% from the fourth quarter including an uptick in the brokerage arms activity. We recorded a strong underwriting quarter, thanks, in part to the favorable equity environment and the ongoing success in rebuilding our healthcare banking franchise. In fact, in the first quarter, we completed our most public underwriting transactions since the middle of 2007.

Jeff will discuss other developments within the broker-dealer later in the call. In terms of cost, we reduced our quarterly run rate expenses by 30% rate in the first quarter or approximately $12 million in the fourth quarter of last year. Our compensation expense also tracked lower from late last year following reductions in headcount and the elimination of non-core businesses. And expect to realize additional expense savings over the year and are currently on track to achieve our $40 million run rate expense savings target in 2012.

Let me turn it over to Tom Strauss now to talk about the Asset Management business, and then I'll come back and then we'll go to Jeff.

Thomas W. Strauss

Thank you, Peter. In the first quarter, our total asset base remained relatively flat. Total AUM decreased by 1% from the start of the year, approximately $100 million to $10.2 billion. The decrease was primarily driven by redemptions in our lower fee paying products, including cash management, which has more fluid movement on AUM, and a custom hedging mandate within our solution businesses, where we had a redemption for approximately $540 million and also a very low fee paying assignment. These decreases were partially offset by an increase in assets of approximately $230 million within our single strategy hedge fund products and increases in other parts of our solutions business. We generated $14 million in management fees, flat compared to the prior year and down 27% from the recent fourth quarter. The decline relative to the fourth quarter was primarily due to the result of fees that we received in the fourth quarter from our health care royalty investment platform and based on a very successful closing of their second fund vehicle.

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