Brennan Hawken

Brennan Hawken sought clarification on the Spring Evergreen Fund's performance attribution, specifically why only 3 percentage points came from secondary discounts, given the fund's strong performance. He followed up by asking for a volume breakdown between continuation vehicles and LP-led transactions for Spring over the past year.

Answer

Scott Hart (Partner and CEO) clarified that Spring's performance is largely driven by direct secondaries opportunities in venture, rather than pure LP secondaries at significant discounts. He explained that 34% of Spring's portfolio consists of primary directs (akin to co-investments), and 64% comes through secondaries, with the vast majority being direct secondaries, not necessarily continuation vehicles.

Brennan Hawken of BMO sought clarification on whether the direct secondaries mentioned for Spring's performance primarily refer to continuation vehicles, and asked for the volume breakdown between continuation vehicles and LP-led transactions for Spring over the past year.

Answer

Scott Hart, Partner and CEO, clarified that direct secondaries encompass more than just GP-led transactions, including acquiring interests in individual portfolio companies. Jason Ment, Partner, President, and Co-COO, added that 34% of Spring's portfolio consists of primary directs (co-investments), with 64% from secondaries, predominantly direct secondaries rather than continuation vehicles.

Brennan Hawken inquired about the quarter-over-quarter decrease in TPG's fee rate (adjusted for catch-up fees) and the outlook for the fee rate going forward, including any funds coming off fee holidays.

Answer

CFO Jack Weingart explained that the primary factor impacting the firm-wide average fee rate is the changing mix of investments, with growth in lower-fee credit businesses (like investment-grade ABF) compared to traditional private equity. He also noted a step-down in fee-earning AUM for TPG 9 in Q4, while Fund 10 was activated in Q3, which temporarily elevated the average fee rate in the capital business in Q3.

Brennan Hawken asked about the quarter-over-quarter tick down in TPG's fee rate, adjusted for catch-up fees, seeking clarification on the drivers and the outlook for the fee rate going forward, including any funds coming off fee holidays.

Answer

Jack Weingart, CFO at TPG, attributed the blended fee rate change primarily to the mix of investments, with actively growing businesses like credit and new areas such as investment-grade ABF generally having lower fee rates than traditional private equity. He also noted a step down in TPG IX's fee-earning AUM in Q4, which impacted the average fee rate in the capital business.

Brennan Hawken sought to confirm the seasonal strength of fee-related performance revenues (FRPR) in Q4 and asked about the sensitivity of this revenue line to potential interest rate declines next year.

Answer

CFO Jack Weingart confirmed that Q4 is a seasonally strong quarter for FRPR. Both he and Executive Chairman Jim Coulter indicated they would not model significant rate sensitivity into that figure based on current base rate levels and the structure of the underlying Twin Brook loans. They expect a net increase to FRE from this line in Q4.

Brennan Hawken asked a two-part question regarding catch-up fees in secondaries, specifically if the full-year amount was less than year-to-date due to negative Q4 or revisions, and the geographic breakdown of wealth management AUM, particularly the portion from Asian investors.

Answer

Jarrod Phillips, CFO of Ares Management Corporation, clarified that the catch-up fee difference was due to a third infrastructure secondaries fund closing in Q3, which included catch-up for prior quarters, making the full-year figure reflect the complete run rate. Michael Arougheti, CEO, added that over 30% of wealth capital gathered in the last two years was outside the U.S., primarily non-APAC, with APAC flows mainly from Australia/New Zealand and some early success in Japan, estimating single-digit exposure to the APAC region.

Brennan Hawken asked about the discrepancy in catch-up fees for secondaries (full year versus year-to-date) and sought details on the geographic breakdown of wealth management AUM, specifically the portion from Asian investors.

Answer

CFO Jarrod Phillips clarified that the catch-up fee discrepancy was due to the third infrastructure secondaries fund having a close in Q3, which included catch-up amounts for the first three quarters, thus affecting the full-year calculation. CEO Michael Arougheti estimated single-digit exposure to the APAC region in wealth AUM, noting that over 30% of capital gathered in wealth over the last two years came from outside the U.S., predominantly non-APAC, with early successes in Australia, New Zealand, and Japan.

Brennan Hawken asked about the significant acceleration in wealth fundraising, particularly offshore, and whether specific factors in Q3 contributed to this pickup or if it represents a sustained strengthening pace.

Answer

Mike Arougheti, Co-Founder, CEO, and Director, expressed excitement about wealth progress, noting eight growing semi-liquid products and expanding distribution. He highlighted Q3 as a very strong quarter, with Q4 shaping up to be the second highest. He attributed the Q3 elevation partly to the meaningful launch of efforts in the Japanese market and front-loaded demand for new funds like ACI or SME as they begin their distribution lifecycle.

Brennan Hawken asked about the acceleration in wealth fundraising, particularly offshore, and inquired if there were specific factors in Q3 that made the pickup noteworthy or if it represents a building pace.

Answer

Mike Arougheti, Co-Founder, CEO, and Director of Ares Management Corporation, expressed excitement about wealth progress, noting eight growing semi-liquid products and expanding distribution. He highlighted Q3 as a very strong quarter, likely to be followed by the second-highest quarter on record in Q4. He attributed the Q3 elevation slightly to the meaningful launch of efforts in the Japanese market and front-loaded demand from new funds like ACI or SME, which are early in their distribution life cycle.

Brennan Hawken asked for clarification on the potential magnitude of FRE margin improvement in 2025 and its primary drivers.

Answer

CFO Jarrod Phillips reiterated the Investor Day target of 0-150 basis points of FRE margin expansion. He identified the pace of deployment as the primary driver, with faster deployment leading to quicker margin expansion. Other factors include positive REIT fundraising and the full-year revenue impact from prior wealth channel growth.

Brennan Hawken questioned if rising wealth management distribution costs are uniform or could spread to more platforms, creating a continued headwind. He also asked for clarification on the Q4 net realized performance income guidance of $90-$95 million, and how it compares to prior expectations.

Answer

CEO Michael Arougheti clarified that distribution costs are uniform across the industry and represent a long-term tailwind, as the upfront costs for permanent capital are quickly absorbed by management fees. CFO Jarrod Phillips explained the Q4 guidance of $90-$95 million is based on a consistent European waterfall outlook, supplemented by the addition of American-style waterfall realizations and other incentive fees not classified as FRPR.

Brennan Hawken asked about the geographic distribution of Blue Owl's wealth management AUM, particularly the portion that is U.S. versus Asia or Europe, excluding the OTIC product which has a known concentration in Asia.

Answer

Co-CEO Marc Lipschultz clarified that the bulk of Blue Owl's wealth product assets are U.S.-based, with OTIC being an exception due to its launch history and concentration in Asia. He stated that other products have very little meaningful exposure in Asia or Europe. CFO Alan Kirshenbaum later specified that approximately 6-7% of non-U.S. dollars are in their other wealth products.

Brennan Hawken inquired about the geographic distribution of Blue Owl's wealth management AUM, specifically the portion that is U.S.-based versus Asia or Europe, given the concentration of the OTIC product in Asia.

Answer

Co-CEO Marc Lipschultz clarified that the majority of Blue Owl's wealth product assets are U.S.-based, with OTIC being an exception due to its specific launch timing and distribution leading to concentration in Asia. He noted that other products have very little meaningful exposure in Asia. CFO Alan Kirshenbaum added that non-U.S. dollars in their other wealth products constitute a very small percentage, around 6%-7%.

Brennan Hawken of UBS Group AG asked about the Real Assets fee rate post-Prima and the fee-paying AUM impact from the IPI acquisition. He also sought to confirm previous guidance for 2025 FRE growth.

Answer

Chief Financial Officer Alan Kirshenbaum confirmed the Q4 fee rate was reflective of Prima and that IPI had nearly $11 billion in fee-paying AUM at closing, running at about 115 bps. He also reaffirmed prior guidance for 2025, expecting FRE revenue growth in the upper 20s, FRE growth in the mid-to-upper 20s, and FRE per share growth of about 20%.

Brennan Hawken sought clarification on the dividend, asking for confirmation of the sensitivity of Part 1 fees to interest rates and whether the firm's payout ratio policy was changing.

Answer

Chief Financial Officer Alan Kirshenbaum confirmed that a 100 basis point move in SOFR would impact Part 1 fees by '$50-plus million' in 2025 due to the platform's growth. He reiterated that the payout ratio will flex with interest rates and affirmed the company's commitment to paying out the 'bulk' of its earnings in dividends, a policy that has not changed.

Brennan Hawken asked for more detail on the drivers behind the reiterated $350 million operating earnings expectation for Strategic Holdings in 2026, given investor perception of it as a 'black box,' and sought color on the TMT bucket within it.

Answer

Co-CEO Scott Nuttall confirmed KKR's focus on exceeding $350 million in operating earnings for Strategic Holdings in 2026, with a long-term target of over $1.1 billion by 2030, expressing increased confidence. He explained that the growth is driven by approximately 20 businesses within Strategic Holdings, many originated years ago, which are now deleveraging and generating more free cash flow for dividends. He also mentioned that greater disclosure for Strategic Holdings is likely as it becomes a larger part of the business, but did not specifically address the TMT bucket.

Brennan Hawken asked about the drivers behind the expected ramp in Strategic Holdings' operating earnings to $350 million in 2026, following a doubling in 2025, and inquired about potential increased disclosure and color on the TMT bucket.

Answer

Co-CEO Scott Nuttall explained that Strategic Holdings, while still relatively small, is focused on exceeding $350 million in 2026 and over $1.1 billion by 2030, with increased confidence. The growth is driven by approximately 20 businesses, many originated 5-8 years ago, which are deleveraging and generating more free cash flow for dividends. He indicated that greater disclosure is likely as the business scales.

Brennan Hawken asked about balancing the pace of recruiting with comp leverage, given the active market and elevated competition for talent. He also questioned the size and importance of software and IT services sectors for Moelis's business.

Answer

CEO Navid Mahmoodzadegan explained that Moelis selectively hires uniquely talented individuals who fit the culture, acknowledging that timing is often out of their control, but reiterated that comp ratio and leverage are top concerns. He confirmed that technology, particularly software, is one of Moelis's most productive sectors, benefiting from the firm's versatile product offerings across M&A, capital markets, and liability management.

Brennan Hawken asked about Moelis's strategy for balancing recruiting pace with comp leverage, questioning why the firm wouldn't ease up on hiring given the active market and elevated competition for talent. He also inquired about the size and importance of the software and IT services sectors for Moelis's banking business, especially considering potential shifts from M&A to liability management.

Answer

CEO Navid Mahmoodzadegan explained that hiring uniquely talented individuals who fit the firm's collaborative culture is opportunistic, and timing is often dictated by when such individuals become available. He affirmed commitment to prudent comp ratio management while pursuing growth. For software and IT services, Mr. Mahmoodzadegan stated that technology is a top productive sector, with software being a significant piece. He highlighted Moelis's versatility across M&A, capital markets, and liability management to serve these clients as the market evolves.

Brennan Hawken asked about capital allocation strategy, questioning the preference for dividend increases over share buybacks to neutralize dilution. He also inquired about managing director productivity and whether the 2021 peak level is achievable given recent talent acquisitions.

Answer

CFO Joe Simon first clarified that the perceived share count growth was an accounting distortion. CEO Ken Moelis then stated the dividend increase reflects confidence in excess cash generation and that all excess capital will be returned to shareholders via the most effective means, including potential buybacks. On productivity, Moelis expressed optimism, noting that major investments in tech, industrials, and energy are still ramping up, making past peaks potentially attainable.

Brennan Hawken asked whether typical fourth-quarter seasonality is expected to materialize this year and sought clarification on the full-year compensation ratio, questioning if the 75% accrued rate for the first nine months could decrease if Q4 revenues are strong.

Answer

CEO Ken Moelis indicated that the business feels like it is gradually improving each quarter, which, combined with some year-end deal closures, suggests positive momentum, though he refrained from giving specific guidance. He confirmed that the 75% comp ratio is a conservative run-rate assumption and that if the market and revenues improve in Q4, the compensation ratio would also improve accordingly.

Brennan Hawken asked for clarification on Evercore's investment in technology within non-compensation expenses, how it's calibrated to revenue growth, and if specific businesses like Private Capital Advisory (PCA) are particularly tech-heavy.

Answer

CFO Tim LaLonde explained that non-comp expense growth, including technology investments, is expected to be similar to 2024 and 2025 levels (around 16-17%) to support business growth and diversification. He noted that while PCA is data-driven, technology investments are comprehensive across M&A, restructuring, equities, and corporate functions, also covering geographic expansion and occupancy costs.

Brennan Hawken asked CFO Tim LaLonde about the firm's investment in technology, specifically how non-compensation expenses for tech are calibrated to revenue, the guardrails for managing these costs, and which businesses are particularly tech-heavy.

Answer

CFO Tim LaLonde explained that investments in infrastructure, including technology, are necessary to support the firm's growth and diversification. He noted that non-comp expense increases (16% in 2024, 17% in 2025) have been less than revenue growth (23%, 29%), leading to an improved non-comp ratio. LaLonde indicated that Private Capital Advisory (PCA) is tech-heavy, but technology investments are comprehensive across M&A, restructuring, Equities, and corporate functions to drive efficiencies and support geographic expansion.

Brennan Hawken of UBS Group AG asked about recruiting expectations for the upcoming year and the impact of retention efforts on the compensation expense, following up on commentary from the previous quarter.

Answer

CEO John Weinberg and CFO Timothy LaLonde addressed this. LaLonde affirmed that the commitment to recruiting remains 'very robust.' Weinberg added that while hiring impacts the comp line, the focus is on long-term value creation. He noted that Evercore has added approximately 60 new senior bankers (through external hires and internal promotions) over the last three years and expects to continue performing at a similar level.

Brennan Hawken followed up on target date business M&A and plan losses, asking about specific factors causing misses, adjustments to competitive offerings, and the pipeline outlook for the target date business.

Answer

CEO Rob Sharps explained that Q4 losses were due to acquirers consolidating plans, sometimes without a competitive opportunity. He reiterated seeing less interest in fully active target date funds and a significant increase in opportunities for blend and hybrid offerings, reflecting market shifts towards market cap-weighted benchmarks. He noted the overall pipeline activity is robust, with more interest in blend and hybrid.

Brennan Hawken asked about the specific factors causing target date plan misses, how T. Rowe Price is adjusting its offering to enhance competitive positioning, and the outlook for the target date pipeline.

Answer

CEO Robert Sharps explained that Q4 target date losses were primarily due to M&A activity where client plans were consolidated, sometimes without an opportunity to compete. He noted a market shift away from fully active target date funds towards blend and hybrid strategies, which T. Rowe Price is actively addressing by enhancing its offerings in these growing categories. Mr. Sharps confirmed that the overall pipeline for target date funds remains robust, with increasing interest and opportunities in blend and hybrid solutions.

Brennan Hawken asked for details on the 2025 expense outlook, including the underlying market assumptions and the specific magnitude of the impact from the new headquarters' real estate costs.

Answer

CFO Jen Dardis clarified that the expense guidance assumes average market conditions from Q4 2024 and standard return assumptions for 2025. She quantified the impact of the new Baltimore headquarters at $20 million to $30 million in 2025, which includes some onetime double rent costs and a step-up for the new space, but noted the firm will seek offsetting savings from its broader real estate portfolio over time.

Brennan Hawken pointed to the meaningful hit to investment performance during the quarter, particularly on a one-year basis, and asked for color on the drivers and any potential actions being taken.

Answer

CEO Rob Sharps acknowledged the quarter's results were soft but cautioned against over-interpreting a single quarter. He attributed some underperformance to positioning during a 'risk-on' rally. While acknowledging aggregate stats are not where they want them, he expressed confidence in the research platform and noted continued improvement in key franchises like U.S. large-cap growth. He believes no drastic measures are needed and expects aggregate metrics to improve as the poor performance period of late 2021 and 2022 begins to roll off the 3- and 5-year records.

Brennan Hawken inquired about the sentiment in the wealth channel, specifically if there was a 'sitting on hands' effect due to recent private credit headlines, and asked about any early signs or Hamilton Lane's thoughts on a potential shift towards model portfolios.

Answer

Erik Hirsch, Co-Chief Executive Officer, stated that Hamilton Lane is not observing the 'sitting on hands' trend, attributing it to the differentiated positioning of their products. Regarding model portfolios, he acknowledged it as a topic of conversation with early moves but not a 'massive sea change,' anticipating a future where both model portfolios (for ease of use) and tailored, individualized selections (for control) will coexist.

Brennan Hawken asked about the sentiment in the wealth channel regarding recent private credit headlines and the potential shift towards model portfolios, seeking Hamilton Lane's strategy for such a change.

Answer

Erik Hirsch, Co-Chief Executive Officer, stated that Hamilton Lane is not observing a 'sitting on hands' effect in the wealth channel, attributing this to their differentiated manager-of-managers product. He acknowledged early discussions and moves towards model portfolios but emphasized that no massive 'sea change' is evident, expecting both model and tailored investment approaches to coexist.

Brennan Hawken asked for clarification on the Restructuring business, noting a low Dealogic multiple in Q4 despite reported growth, and inquired about specific sectors driving activity. He also asked about revenue trends in PJT Park Hill, particularly how challenges in primary fundraising compare to the strength in GP-led secondaries.

Answer

Paul Taubman, Chairman and CEO of PJT Partners, clarified that PJT's Restructuring business achieved record Q4 and full-year results, dismissing Dealogic data. He identified busy sectors as parts of healthcare, software (due to AI), media, and retail, emphasizing broad-based activity. For PJT Park Hill, Mr. Taubman confirmed a record Q4, leading to a new full-year record for 2025, surpassing 2024. He expects Private Capital Solutions and structured products to increasingly drive revenue growth, offsetting any flatness in primary fundraising.

Brennan Hawken asked for reconciliation between PJT Partners' reported record Q4 restructuring revenues and external Dealogic data suggesting a lighter quarter, and inquired about specific sectors driving restructuring activity. He also asked about PJT Park Hill's revenue trends, particularly the balance between challenging fundraising and strong GP-led secondaries.

Answer

Paul Taubman, Chairman and CEO, emphasized that PJT Partners achieved record Q4 and full-year results in Restructuring, dismissing external data, and noted broad-based activity across challenged industries like healthcare, software, media, and retail. For PJT Park Hill, Mr. Taubman confirmed record Q4 and full-year results, attributing future growth to Private Capital Solutions and structured products offsetting primary fundraising challenges.

Brennan Hawken asked about the firm's operating leverage and the trajectory of its pre-tax margin, considering strong revenue growth and maturing Strategic Advisory investments. He also sought clarification on whether the operating margin improvement seen in 2025 indicates a sustainable path forward.

Answer

Paul Taubman, Chairman and Chief Executive Officer, emphasized that pre-tax margin is key to shareholder value, expecting current year margins to be among the highest in PJT's 10-year history, excluding the 'aberrational' years of 2020-2021. He affirmed belief in operating leverage and disciplined cost management, anticipating further margin improvement by growing the top line faster than expenses. Mr. Taubman reiterated that 2025's strong operating margin serves as a proof point for the business's inherent operating leverage.

Speaking on behalf of Brennan Hawken, an analyst from UBS asked for clarification on the magnitude of the restructuring business's growth in 2024 and whether further revenue growth in 2025 is feasible. They also inquired about sponsor reactions to IPO market volatility and its implications for monetization strategies.

Answer

Chairman and CEO Paul Taubman stated that restructuring growth in 2025 is 'absolutely feasible,' citing a multiyear wave of liability management activity fueled by a large debt stack and persistent economic uncertainty. He noted 2024 was 'comfortably another record' for the business. Regarding IPOs, Mr. Taubman explained that market volatility makes fund continuation vehicles and outright M&A sales more attractive monetization paths for sponsors, especially for large, leveraged portfolio companies.

Brennan Hawken questioned the lack of significant compensation leverage in 2024 despite strong revenue growth and asked about the future dynamics of the Park Hill business, specifically a potential handoff from secondary to primary fundraising.

Answer

Chairman and CEO Paul Taubman clarified that comp leverage is driven by the relationship between Strategic Advisory revenue growth and its specific headcount growth, which are roughly in line for 2024. He expects these to diverge positively in 2025. For Park Hill, Taubman disagreed with the 'handoff' premise, stating that fund continuation vehicles are 'here to stay' and will grow, while the primary market is bifurcating, creating a 'flight to quality' that benefits PJT's differentiated platform.

Brennan Hawken asked for expectations regarding Earnings from Fundraisings (EFR) for the coming quarter and the balance of the year, particularly with the Lexington flagship fund expected to start.

Answer

Matthew Nicholls, Co-President and CFO, expects EFR to be stable in the next quarter, with potential upside in the subsequent two quarters based on fundraising around alternative assets.

Brennan Hawken asked for expectations regarding Earnings from Fund Raising (EFR) for the upcoming quarter and the balance of the year.

Answer

Matthew Nicholls, Co-President and CFO, expects EFR to remain stable in the next quarter. He anticipates potential upside in the subsequent two quarters, driven by fundraising efforts in alternative assets, including the Lexington flagship fund.

Brennan Hawken sought more detail on the $200-$250 million expense savings plan, asking about its timing and whether the initiatives were focused solely on Western Asset or were firm-wide. He also requested specific quarterly guidance figures.

Answer

CFO Matthew Nicholls clarified the savings would be realized for the full fiscal year 2026 and that the efficiency efforts are firm-wide. He then provided detailed guidance for the upcoming quarter, including an effective fee rate in the mid-to-high 37 basis point range, compensation and benefits of $815-$820 million, and G&A around $190 million, driven by advertising and legal costs.

Brennan Hawken asked about the expected timeline for LPL Financial's net new assets to revert to historical growth rates, and requested an update on net new asset progression for the start of the year and current cash balances.

Answer

President and CFO Matt Audette reported January's organic growth at around 2.5% annualized, with an expectation for February and March to build, and noted cash balances were down approximately $3.5 billion to $57.5 billion, but still $3 billion above November levels, indicating stickiness. CEO Rich Steinmeier explained that the timeline for net new asset recovery depends on the mix of advisors in the pipeline and their varying lead times for conversion, expecting improvement over the year.

Brennan Hawken asked how long it would take for regular net new assets to revert to LPL's strong growth track record, requested a mark-to-market update on net new assets for the start of the year, and an update on cash balances.

Answer

President and CFO Matt Audette reported January's organic growth rate at around 2.5%, with an expectation for it to build in February and March. He noted cash balances were down approximately $3.5 billion in January, putting overall cash sweep at roughly $57.5 billion, but highlighted stickiness compared to prior years. CEO Rich Steinmeier explained that recruiting lead times vary (3-6 months for independent advisors, 6 months to a year for larger teams/supported models), and while pipelines are building, it will take time for them to progress and convert, expecting a pickup over the course of the year.

Brennan Hawken of UBS asked about the significant growth in Depreciation & Amortization (D&A), its drivers, and whether the guided sequential growth of a 'few million' per quarter is the correct expectation for 2025.

Answer

Executive Matthew Audette confirmed the Q4 D&A increase was an anomaly driven by the large-scale Prudential technology build and the launch of two new data centers. He affirmed that investors should expect a return to a more normalized growth trajectory of a few million dollars sequentially per quarter going forward.

Brennan Hawken inquired about the geographic breakdown of AUM in Blackstone's perpetual wealth management strategies, specifically exposure to Asian investors, and a breakdown by asset class.

Answer

Jon Gray, President and COO, stated that the vast majority of capital comes from the U.S., with Japan being the next biggest market globally, followed by recent success in Canada. He also mentioned an investment base in Hong Kong and Singapore, indicating a spreading out around the globe, but confirmed it remains a U.S.-dominated business with Japan as a strong number two.

Brennan Hawken inquired about the geographic breakdown of Blackstone's AUM base within perpetual wealth management strategies, with a particular interest in exposure to Asian investors and a further breakdown by asset class.

Answer

President and COO Jon Gray stated that the vast majority of capital comes from the U.S., with Japan being the next biggest market globally, known for its long-term stickiness. He also noted recent success in Canada and an investment base in Hong Kong and Singapore, indicating a global spread while remaining U.S.-dominated with Japan as a strong number two.

Brennan Hawken inquired about feedback from the wealth management channel regarding BCRED's dividend cut and public market reactions to credit issues, and BCRED flow trends since October.

Answer

President and COO Jon Gray stated that strong flows are expected for BCRED in November. He explained that the wealth channel understands that floating rate products are impacted by declining rates, and the dividend adjustment reflects responsible management. He noted that investors differentiate between rate impacts and isolated credit issues.

Brennan Hawken asked about the feedback from the wealth management channel regarding BCRED's recent dividend cut and any apprehension around credit, given public market reactions to unrelated bank loan issues.

Answer

Jon Gray, President and Chief Operating Officer, indicated that strong flows are expected for BCRED in November. He explained that the wealth channel understands that floating rate products' yields are impacted by declining rates, and they appreciate responsible dividend management. He reiterated that the key is the enduring relative premium over liquid credit, not a conflation with unrelated credit issues.

Brennan Hawken asked about the impact of spread tightening on credit-related FRPR in Q4 and the forward-looking effect of base rates and spreads on future FRPR generation.

Answer

Jonathan Gray, President & COO, acknowledged that overall yields are declining but stressed that the relative return premium of private credit over liquid fixed income remains durable, driving investor interest. Michael Chae, CFO, provided specific guidance, noting that a 50 basis point decline in base rates has an approximate 4% impact on the BCRED platform's run-rate FRPR, a manageable effect that has been offset by NAV growth and inflows.

Brennan Hawken inquired about the impact of declining rates and tighter spreads on the credit business, specifically on the rate sensitivity of fee-related performance revenue (FRPR).

Answer

President & COO Jonathan Gray acknowledged that absolute returns would moderate but emphasized that the premium over liquid markets will remain durable and attractive. CFO Michael Chae added that the direct impact on FRPR is minimal, quantifying that a 50 basis point decline in yield would only reduce run-rate FRPR by about 3-4%, with offsets from lower liability costs.

Brennan Hawken inquired about Lazard's advisory trends, specifically the revenue mix and outlook for non-M&A businesses, and later asked for clarification on the CFO transition timeline.

Answer

CEO and Chairman Peter Orszag detailed the current 60/40 M&A to non-M&A revenue mix, projecting an increase in non-M&A to 50% over time, driven by fundraising, secondaries, and restructuring. He also addressed the CFO transition, stating it was normal course and not abrupt, with CFO Mary Ann Betsch serving as a senior advisor. Mary Ann Betsch concurred.

Brennan Hawken asked about Lazard's advisory trends, specifically the revenue mix and outlook for non-M&A businesses, and also inquired about the CFO transition timeline and rationale.

Answer

CEO and Chairman Peter Orszag detailed the current revenue mix (just under 60% M&A, over 40% non-M&A) and projected an increase in the non-M&A component to 50% over time, driven by strong performance in fundraising and restructuring/liability management. He also clarified that the CFO transition (Mary Ann Betsch to Tracy Farr) was a normal course, not abrupt, facilitated by Tracy's internal knowledge and Mary Ann's ongoing advisory role. CFO Mary Ann Betsch briefly concurred.

Brennan Hawken inquired about the changing mix within Financial Advisory, specifically the major buckets like M&A, Private Capital Advisory (PCA), and restructuring, and how recent trends compare to historical levels.

Answer

Peter Orszag, Lazard's CEO and Chairman, noted a shift from a historical 60/40 M&A/non-M&A mix to closer to 50/50 in the current quarter, driven by growth in other advisory services. He also highlighted a trend towards a more balanced mix between public company and private capital advisory, expecting significant growth in fundraising, restructuring, and liability management.

Brennan Hawken inquired about the current mix within Lazard's Financial Advisory business, specifically the breakdown between M&A, private capital advisory (PCA), and restructuring, and how this compares to historical levels.

Answer

Peter Orszag, Lazard's CEO and Chairman, noted that the M&A vs. non-M&A mix was closer to 50/50 in the current quarter, a shift from a historical 60/40 split, indicating growth in other advisory services. He also highlighted a trend towards a more balanced mix between public company and private capital advisory, expecting significant growth in fundraising, restructuring, and liability management to potentially approach half of the business.

Brennan Hawken questioned the path to achieving the 60% compensation ratio target in 2025, asking for details on the underlying assumptions and whether changes to the compensation structure are planned. He also asked about the rising share count and plans for buybacks.

Answer

CEO Peter Orszag explained that the comp ratio is complex and influenced by the shift towards more productive MDs, which provides operating leverage. He confirmed no plans to increase deferrals and noted the rate was actually brought down. Orszag stated that the pace of buybacks is expected to change over time, with a medium-term objective of offsetting all dilution from stock-based compensation. CFO Mary Ann Betsch added that the 2024 share count increase was due to elevated amortization, a higher share price, and lower buybacks, and she expects buybacks to be higher in the coming year.

Brennan Hawken asked for details on the firm's plan to achieve its 60% compensation ratio target in 2025, questioning the underlying advisory revenue assumptions and whether any changes to compensation structure, such as increased deferrals, are anticipated.

Answer

CEO Peter Orszag explained that achieving the 60% comp ratio target is complex and depends heavily on improving MD productivity, which reduces the 'cross-subsidy' of less productive bankers. He affirmed the target is achievable under current expectations for advisory growth but noted aggressive hiring could temporarily raise the ratio. Mr. Orszag explicitly stated that the firm does not anticipate increasing deferrals and, in fact, was able to reduce the deferral rate in 2024.

Brennan Hawken from UBS inquired about potential expense-side actions, such as changes to deferred compensation, that could provide flexibility in achieving the sub-60% comp ratio target. He also asked about the revenue assumptions for Asset Management and the fee rate impact of a recent large outflow.

Answer

CEO Peter Orszag pointed to operating leverage from higher MD productivity as a primary driver. CFO Mary Ann Betsch added that reducing the deferred comp rate is planned but depends on full-year revenue, and that new hires are ramping up faster than historically. Regarding Asset Management, Orszag noted the revenue assumption is for the next year to mirror the last. Evan Russo, CEO of Asset Management, clarified the large outflow was a lower-fee mandate, which mechanically boosts the average fee rate, but he still anticipates some compression as U.S. markets outperform.

Brennan Hawken delved into Ameriprise's bank channel strategy, specifically addressing the risks and opportunities presented by regional bank consolidation and the ongoing engagement with Comerica amidst its acquisition by Fifth Third. He also followed up on the expense outlook, seeking clarification on the proportion of expense growth attributable to investments, the expected duration of these investments, and the specific enhancements Ameriprise aims to achieve.

Answer

CFO Walter Berman noted good opportunities in the financial institutions business, while Chairman and CEO Jim Cracchiolo highlighted a strong relationship with Comerica, acknowledging that Fifth Third's acquisition would influence future arrangements. Walter Berman added that contractual protections are in place. Regarding expenses, Walter Berman and Jim Cracchiolo explained that investments in technology, AI, and capabilities are continuous, not a one-time event. They emphasized ongoing transformation and re-engineering efforts that offset investment-driven expense increases, with volume increases being the largest driver of overall expense growth. They also highlighted Ameriprise's integrated technology platform and ability to leverage resources across businesses.

Brennan Hawken questioned Ameriprise's strategy for growing its bank channel amidst regional bank consolidation, specifically how it manages associated risks and the status of its engagement with Comerica given its impending deal with Fifth Third. Brennan Hawken followed up on Ameriprise's expense outlook, asking what portion of G&A growth is driven by investments, the expected duration of these investments, and the specific enhancements Ameriprise is pursuing in its platform.

Answer

Chairman and CEO Jim Cracchiolo highlighted good opportunities in the financial institutions business and strong relationships with Comerica, acknowledging the upcoming Fifth Third acquisition. He emphasized Ameriprise's platform value and client satisfaction, noting contractual protections for such contingencies. Cracchiolo stated that investments in technology, AI, and analytics are continuous, not a one-time tranche. He explained that Ameriprise offsets investment-driven expense increases through ongoing business transformation and re-engineering, with volume increases being the largest driver of expense growth. CFO Walter Berman added that Ameriprise leverages its broad platform for efficient capability provision across businesses.

Brennan Hawken of UBS requested more detail on the bank's Net Interest Income (NII) outlook, specifically regarding crediting rates, and inquired about future drivers of loan growth, questioning if residential mortgages would continue to lead.

Answer

Executive Walter Berman reiterated confidence in the bank's NII position, noting the portfolio is now 87% fixed and that crediting rates are evaluated competitively. Executive Jim Cracchiolo detailed plans to drive loan growth by launching fixed pledge loans, HELOCs, and checking accounts in 2025, while confirming residential mortgages will remain a key component.

Brennan Hawken asked if the firm has seen an acceleration in pledge loan demand since the recent Fed rate cut and if strong mortgage growth would continue. He also challenged the long-term care (LTC) decision from an investor perspective, asking if management weighed the benefit of removing a 'hurdle' for investors against the financial loss of a deal.

Answer

CEO Jim Cracchiolo confirmed a 'nice pickup' in pledge loans and outlined plans for new lending products to drive further growth. On LTC, both he and CFO Walter Berman stated they explicitly considered the 'shareholder reaction' factor but concluded that the financial value destruction of a deal was too significant, citing the block's profitability, the unacceptable counterparty risk, and the value transfer required in the current market.

Brennan Hawken inquired about the robust capital markets pipeline, asking if solid revenue growth is expected in the coming year or if market translation might take longer, and how operating leverage would apply to potential revenue growth.

Answer

CEO Paul Shoukry referenced a strong prior quarter with over $500 million in capital markets revenues and a 17.5% pre-tax margin, indicating significant operating leverage. He expressed optimism for the pipeline and would be disappointed if capital markets revenue doesn't meaningfully improve above $380 million for the rest of the year. In a follow-up, Hawken asked if Raymond James capitalized on market disruptions causing elevated advisor movement. Shoukry stated that the firm sees broad-based strength in recruiting from various firms (wires, regionals, independents) due to its value proposition, cultural fit, platform, and multiple affiliation options, rather than specific M&A events.

Brennan Hawken inquired about the robust Capital Markets pipeline, asking if it signals solid revenue growth for the coming year or if revenue translation will take longer. He also sought insight into the operating leverage on revenue growth. Additionally, he asked if recent market deals and disruptions have created opportunities for Raymond James in net new asset growth and how long such opportunities might persist.

Answer

Paul Shoukry, CEO of Raymond James Financial, recalled a strong previous quarter for Capital Markets revenues (over $500 million) and affirmed significant operating leverage with higher revenues, expressing optimism for meaningful improvement above the current $380 million level for the rest of the year. Regarding NNA, Mr. Shoukry highlighted broad-based strength from various firms (wires, regionals, independents) due to Raymond James' value proposition, cultural fit, platform, and multiple affiliation options, rather than specific M&A disruptions.

Brennan Hawken asked for insights into the expected growth of the non-compensation expense line for fiscal 2026, considering ongoing growth investments. He also inquired about the sustainability and potential acceleration of securities-based loan (SBL) growth, particularly with anticipated lower interest rates and a high-risk appetite backdrop.

Answer

CEO Paul Shoukry stated that specific non-compensation expense guidance for 2026 would be provided on the next earnings call, but reiterated the firm's commitment to generating over 20% adjusted pre-tax margins. Regarding SBLs, Shoukry confirmed that lower short-term rates make these floating-rate loans more attractive, contributing to the 22% year-over-year growth. He expressed confidence in the continued momentum and growth of SBL balances, citing current tailwinds and the potential for acceleration with lower rates.

Brennan Hawken asked about the 22 basis point decline in the average yield on third-party bank deposits (RJBDP), seeking to confirm the deposit beta offset and the specific beta on the Enhanced Savings Program (ESP) during recent Fed cuts. He also inquired about the outlook for C&I loan growth in fiscal 2025.

Answer

President Paul Shoukry confirmed the assumption about deposit betas was reasonable. He stated the beta on sweep balances has averaged around 35%, while the beta on higher-yielding products like ESP is closer to 100%, consistent with expectations. Regarding C&I loans, Shoukry noted that new origination flow has been muted and spreads have been extremely tight. While hopeful for a pickup in 2025, the firm will not chase growth at spreads that don't meet its risk-adjusted return thresholds, preferring to focus on the strong growth in securities-based loans.

Brennan Hawken inquired about the outlook for Houlihan Lokey's restructuring business, seeking clarification on the expected seasonality reversal and how the improving capital markets and private credit concerns might influence future activity levels. He also asked about the Corporate Finance segment's revenue trajectory, expectations for the fiscal year-end, and the potential magnitude of growth for fiscal year 2027.

Answer

Scott Adelson, CEO, explained that structurally, improving M&A markets, plentiful capital, and declining interest rates suggest declining restructuring activity, despite potential pockets of opportunity from geopolitical events. Lindsey Alley, Managing Director, added that Corporate Finance has seen solid year-to-date growth, which is a good proxy for Q4, and increasing activity levels provide comfort for fiscal 2027 estimates.

Brennan Hawken asked about the outlook for restructuring, specifically bridging the gap between increasing concerns in private credit markets and the firm's expectation of declining restructuring activity. He also inquired about Corporate Finance revenue expectations for the fiscal year-end and the improving outlook for the next fiscal year, seeking a comparable period for potential growth magnitude.

Answer

CEO Scott Adelson explained that structurally, an improving M&A market, plentiful capital, and declining interest rates lead to declining restructuring activity, despite pockets of opportunity from geopolitical events or specific sectors. Managing Director Lindsey Alley added that Corporate Finance has seen solid year-to-date growth, which is a good proxy for Q4, and activity levels support comfort in fiscal 2027 estimates.

Brennan Hawken from UBS Group AG asked for historical context to frame the potential revenue growth in Corporate Finance and inquired about the typical seasonality for the upcoming March quarter.

Answer

CEO Scott Adelson stated that the market is following their anticipated steady improvement. CFO J. Alley added that consolidated revenue growth has been consistently around 24% year-over-year for the past three quarters, indicating a continuation of improvement rather than an acceleration. Regarding seasonality, Scott Adelson noted that the historical 46% first-half and 54% second-half revenue split is a reasonable proxy for the current fiscal year.

Brennan Hawken followed up on the Prytania acquisition, asking if its revenue would be primarily recurring within the Financial and Valuation Advisory (FVA) segment. He also questioned the Restructuring outlook, specifically whether some mandates might convert to Capital Markets revenue and if the underlying business remains on a growth trajectory.

Answer

CEO Scott Adelson confirmed that Prytania's revenue is recurring and will sit within the FVA's portfolio valuation business, though its initial impact won't be material. Regarding Restructuring, Adelson clarified that the potential for activity to turn into refinancing is a possibility later in the cycle, not a current trend, and affirmed the business remains at elevated levels. CFO J. Alley added that strong new business activity in Restructuring bodes well for future performance.

Brennan Hawken with BMO Capital Markets Equity Research inquired about the nature of the Q4 CNI loan growth, specifically whether it stemmed from new originations or portfolio remixing, and sought clarity on future spread expectations for that book. He also asked about any observed trends or concerns within Stifel's CLO book amidst broader private credit market anxieties.

Answer

CFO, James M. Marischen, clarified that the perceived asset beta in CNI loan growth was influenced by a significant decline in fee income recognized in Q4 2025 compared to previous quarters, which can distort yield calculations. He also noted a $200 million reclassification of loans from held-for-sale to the retained portfolio. Regarding the CLO book, Chairman and CEO, Ronald J. Kruszewski, expressed strong comfort with its subordination and structure, reporting no issues. Mr. Marischen added that the CLO book has seen refinance and redemption activity, with structures performing as intended and no material changes in key metrics or concerns.

Brennan Hawken inquired about the C&I loan growth observed in the quarter, specifically regarding the asset beta and spreads, asking how much was new loans versus portfolio remixing and how spreads should be viewed going forward. He also expressed concern about private credit markets and asked what Stifel is seeing within its CLO book, particularly regarding trends and subordination.

Answer

Ronald J. Kruszewski (Chairman and CEO, Stifel Financial) clarified that fee income distortions can affect yield calculations and mentioned a reclassification of $200 million in loans from held for sale. Regarding the CLO book, Kruszewski stated there were 'minuscule, none' issues and expressed comfort with the subordination. James M. Marischen (CFO, Stifel Financial) added that refinance and redemption activity has been observed, and the CLO structures are working as intended, with no material changes in key metrics or concerns.

Brennan Hawken asked for an explanation of the Q4 compensation ratio dynamics, the drivers behind the strong advisory revenue, and the potential market impact from recent IPOs that have traded poorly.

Answer

CFO Jim Marischen explained that the Q4 firm-wide compensation ratio was impacted by the seasonal, back-end loaded funding of the administrative bonus pool. CEO Ron Kruszewski noted that Stifel's advisory strength often comes from middle-market and private deals not fully captured by public data. Regarding 'broken IPOs,' Kruszewski acknowledged it's not a positive trend but stated he is not overly concerned given the significant pent-up demand for both M&A and capital raising.

On behalf of Brennan Hawken, an analyst from UBS asked about the impact of recent rate cuts on client cash flows and the outlook for cash growth. He also inquired about the recovery seen in sponsor-led M&A activity.

Answer

CFO James Marischen reported that deposit inflows have continued into both Sweep and Smart Rate products despite rate cuts, with the trend continuing into Q4. He believes a normalizing yield curve is a more significant factor than minor rate changes. CEO Ron Kruszewski confirmed that the M&A environment for sponsors is improving, with market conditions becoming more conducive, though some uncertainty remains around the election.

Brennan Hawken inquired about Northern Trust's conviction in achieving its newly raised medium-term financial targets, specifically asking about the timing for these changes to reflect in financial results. He also asked about the sustainability of lower interest-bearing deposit costs and the impact of seasonal and government-related factors on non-interest-bearing deposits.

Answer

Chairman and CEO Michael O'Grady expressed high conviction in the company-wide change, noting that the financial results are in their 'early days' but provide confidence for the raised targets over a three-to-five-year timeframe. CFO David Fox explained that Q4's non-interest-bearing deposit growth was influenced by seasonality and government shutdown-related cash stockpiling, expecting normalization in Q1. He also highlighted ongoing liquidity solutions efforts and the roll-off of expensive wholesale funding as drivers for lower deposit costs, anticipating stable net interest margin (NIM) in the 170s for 2026.

Brennan Hawken inquired about Northern Trust's conviction in driving organizational change, the expected timing for financial results traction, and the sustainability of recent positive deposit cost trends, particularly regarding interest-bearing deposit costs and non-interest-bearing composition normalization.

Answer

Michael O'Grady (Chairman and CEO) expressed high conviction in company-wide change, noting early financial results and confidence in achieving medium-term targets (3-5 year timeframe). David Fox (CFO) explained that Q4 non-interest-bearing deposit growth was seasonal and potentially inflated by the government shutdown, expecting normalization in Q1. He highlighted ongoing efforts to lower deposit pricing through liquidity solutions and the benefit of expensive wholesale funding rolling off, projecting NIM stability in the 170s for 2026.

Brennan Hawken posed a fiduciary obligation question, asking why Northern Trust is categorically opposed to exploring a sale given past stock underperformance. He also asked why the ROE target wasn't raised more aggressively if the firm is committed to its independent path.

Answer

Chairman and CEO Michael O'Grady stated that the board takes its fiduciary duties seriously and believes the 'One Northern Trust' strategy is the best path for long-term value creation after a period of necessary investment. He explained that the new ROE target is a step, and they will re-evaluate after consistently performing within that range, emphasizing that the strategy balances both growth and returns, not just maximizing ROE.

Brennan Hawken pressed on expense control, asking if the commitment to sub-5% expense growth in 2025 holds and how the company will achieve a more steady cadence of operating leverage. He also asked about the decline in the loan portfolio.

Answer

CEO Mike O'Grady affirmed the commitment, explaining that organizational changes like centralizing operations and targeted technology investments are designed to drive long-term efficiency. Then-CFO Jason Tyler clarified that the quarterly loan decline was not strategic but reflected normal volatility, with future growth expected to track the overall client franchise.

Brennan Hawken sought color on Schwab's recent growth acceleration, specifically asking about trend differences between Advisor Services and Investor Services, and the impact of high net worth offerings on Investor Services.

Answer

President and CEO Rick Wurster highlighted a 42% year-over-year increase in net new assets, with retail growing around 33% and advisor business growing even more. He emphasized winning across all demographics in retail, including young investors and high net worth clients. Wurster expects Investor Services NNA to accelerate in coming years due to crypto launch, workplace expansion, and increased financial consultant relationships, while Advisor Services continues strong organic growth due to its scale and capabilities.

Brennan Hawken sought color on Schwab's recent growth, specifically asking about the differences in trends between Advisor Services and Investor Services in recent quarters and the expected impact of investments in the high net worth offering on the Investor Services side.

Answer

President and CEO Rick Wurster highlighted accelerated net new asset growth across the board in 2025, with retail growing around 33% and advisor business growing over 42%. He noted success in attracting diverse retail demographics, including Gen Z, and anticipates future acceleration in Investor Services from crypto launch, Workplace business expansion, and increased retail relationships. For Advisor Services, he attributed strong organic growth to Schwab's scale, breadth of capabilities, and custody offering.

Brennan Hawken questioned the decline in software and processing fees beyond on-premise renewals, the expected timeline for the SaaS transition to positively impact growth, and the outlook for loan growth.

Answer

CFO John Woods stated that the decline was primarily driven by on-premise renewals, with SaaS revenue up 7% and annual recurring revenue up 11%. He indicated that the transition from on-premise to SaaS would take 1-2 years for contracts to turn over and for P&L growth to converge with recurring revenue growth. CEO Ronald O'Hanley added that the firm is at a 'tipping point' with fewer significant on-premise renewals. John Woods also noted that loan growth is expected to continue in 2026, albeit at a slightly slower pace than 2025, focusing on deep relationship lending in areas like subscription finance, fund finance, and CLOs.

Brennan Hawken asked about the decline in software and processing fees, specifically why lines other than SaaS were down year-over-year. He also inquired about the expected duration of the transition from on-premise to SaaS to see a positive shift in growth dynamics. He followed up on the NII guide, seasonal loan growth, mix shifts, and expectations for overall loan growth in 2026.

Answer

CFO John Woods stated that the biggest driver of the decline was on-premise software, offset by 7% SaaS growth, with minor variability in other lines. He expects the transition to take 1-2 years for contracts to turn over and revenues to converge with recurring revenue growth (11%). CEO Ronald O'Hanley added that State Street is at a 'tipping point' with fewer big on-premise renewals, actively encouraging clients to move to SaaS for mutual benefit. For NII, John confirmed continued loan growth, albeit slowing slightly overall. He expects solid growth in subscription finance, fund finance, and CLOs, while running off thinner commercial loan relationships to optimize capital and liquidity for deep customer relationships.

Brennan Hawken with Bank of Montreal asked about Charles River's competitive positioning, particularly against Aladdin, and what adjustments State Street is making to regain momentum. He also asked John Woods to elaborate on reinvestment rates versus roll-off rates, the basis point pickup, and how deposit beta contributes to U.S. rate neutrality.

Answer

CEO Ron O’Hanley expressed satisfaction with Charles River's momentum, emphasizing its role as a standalone front office provider and as part of the integrated Alpha offering, which is open architecture. He noted competition from third-party players and insourced options, and highlighted Charles River's growing role in wealth management. CFO John Woods stated that State Street's U.S. asset sensitivity is near neutral, encompassing all factors. He provided a rule of thumb for reinvestment, noting approximately $5 billion in cash flows reinvested quarterly at a 75-100 basis point pickup, and mentioned the new tailwind from terminated hedges in Q4 and 2026.

Brennan Hawken from UBS Group AG requested more detail on the drivers and risk management behind the strong 14% loan growth outlook, and also asked why recent deposit betas for the euro and sterling appeared lower than expected.

Answer

CFO Eric Aboaf clarified that over two-thirds of the loan growth is directed at private markets clients, primarily through capital call financing and BDC lending, which is integral to expanding the high-margin servicing business. Regarding deposit betas, Aboaf explained that while the U.S. dollar beta of 60-65% is representative, the smaller euro and sterling deposit pools can exhibit more volatility due to client mix and volume shifts in any given quarter, which can affect the calculated beta.

Brennan Hawken asked for clarity on the run rate of Platform Solutions after the Apple Card deal closes, potential operating expense reductions, and the plans for Apple Savings deposits. He also questioned the year-over-year efficiency ratio impact, adjusting for the Apple Card revenue reduction.

Answer

CFO Denis Coleman explained that Platform Solutions will primarily comprise the Apple Card and savings program, expecting a small pre-tax loss for the year, but not material to Goldman Sachs. Chairman and CEO David Solomon clarified that there is no agreement to transition the Apple Savings program, and Goldman Sachs will continue to service existing customers. Solomon and Coleman noted that the efficiency ratio was negatively impacted by the Apple Card accounting, emphasizing that full-year performance shows significant operating leverage, with Q4 year-over-year comparisons distorted by comp accruals.

Brennan Hawken asked for clarity on the run rate of Platform Solutions after the Apple Card deal closes, including potential operating expense reductions and the plans for Apple deposits. He also questioned the Q4 year-over-year efficiency ratio, which appeared to show a negative impact after adjusting for the Apple Card announcement, asking about factors preventing greater operating leverage.

Answer

CFO Denis Coleman stated that Platform Solutions will primarily comprise the Apple Card business and savings program, with loans marked to market. He expects a small, non-material pre-tax loss for the segment for the year. Chairman and CEO David Solomon clarified that there is no agreement to transition the Apple Savings program, and Goldman Sachs will continue to service existing customers, noting that these deposits are a small fraction of total deposits. Mr. Coleman confirmed that the Apple Card transition's accounting (revenue reduction) negatively impacted the Q4 efficiency ratio, emphasizing that the full-year performance showed significant operating leverage (revenues +9%, pre-tax +19%, EPS +27%).

Brennan Hawken asked about the growth drivers in Asset & Wealth Management, specifically lending penetration in wealth, and also about the balance between expense efficiencies and investments in 2025.

Answer

CFO Denis Coleman noted that Goldman Sachs is underpenetrated in wealth lending and is investing to grow it, having added $5 billion in balances during the year. On expenses, he explained they are simultaneously driving operating leverage while funding new investments through a disciplined efficiency program. This program, with management committee accountability, creates capacity to invest in scaling the firm and improving client experience.

Brennan Hawken of UBS asked for an update on the ECM and IPO backlog, particularly regarding sponsor activity, and inquired about Goldman Sachs's strategic approach to the growing private credit market.

Answer

CEO David Solomon acknowledged that equity activity has picked up but remains below 10-year averages, though he expects sponsor monetization to accelerate. On private credit, Solomon described the firm's platform as broad and integrated, leveraging its leading origination capabilities in both investment banking and asset management to differentiate itself in the market.

Brennan Hawken sought further clarification on Morgan Stanley's target-setting philosophy, asking if it represents a central tendency through the cycle or if the firm is establishing potential 'floors' for performance even in more challenging market conditions.

Answer

Ted Pick, Chairman and CEO of Morgan Stanley, clarified that while there isn't a philosophical shift, the firm now has the confidence to discuss achieving higher lows (e.g., 17.5% ROTCE with earnings below $8) in challenging environments. He reiterated the focus on compounding earnings and securing market share across businesses, aiming for a premium multiple through consistent execution rather than chasing new targets prematurely.

Brennan Hawken followed up on the firm's targets, asking if there was a shift in how Morgan Stanley thinks about them, such as focusing on a central tendency through the cycle or achieving higher lows in challenging markets.

Answer

Chairman and CEO Ted Pick reiterated that there is no philosophical frame shift, but rather increased confidence in the firm's ability to generate 17.5% returns on tangible even in more challenging environments. He emphasized the goal of compounding earnings through the cycle and consistently hitting targets to demonstrate durability and earn a premium earnings multiple.

Brennan Hawken asked for details on loan growth trends, which were stronger than expected, and the firm's competitive capabilities. He also inquired about the timing for cash to recycle from lower-margin cash equivalents into higher-margin market-oriented products during an easing cycle.

Answer

Executive Sharon Yeshaya noted a decline in the pace of securities-based lending (SBL) paydowns and an increased use of credit lines, which is typical in rising markets. She affirmed the firm has the necessary capabilities for growth. On cash trends, Yeshaya expressed encouragement, observing that clients are using sweep cash more transactionally to invest in the market, as evidenced by strong transactional revenues. She added that as the rate differential on cash products narrows, clients are letting cash sit before deploying it into the market.

Brennan Hawken asked for more detail on NII, noting encouraging deposit cost trends and questioning if NII could grow next year. He also inquired about the IPO pipeline and outlook, given rising financial sponsor engagement.

Answer

CFO Sharon Yeshaya confirmed positive trends in lending and deposits but reiterated that the overall NII path depends heavily on future Fed actions. Co-President Ted Pick expressed a bullish outlook on the IPO market, expecting larger, more mature private companies, often sponsor-backed, to go public globally. He stated these companies will require the full suite of Morgan Stanley's investment banking services, playing to the firm's strengths.

Brennan Hawken asked about Athene's alternative portfolio returns, specifically why they have remained below the 11% target despite recent restructuring, and what gives management confidence in achieving that target for the upcoming year.

Answer

CEO Marc Rowan explained that while AAA (the largest component) has performed well at 10.9% LTM, the portfolio experienced some cash drag. He noted that other insurance assets like Venerable exceeded the 11% bogey, while Athora lagged due to excess capital. He expressed optimism that deployment of Athora's capital into PIC (pending regulatory approval) and reduced cash drag in AAA would bring both categories in line with or above target returns.

Brennan Hawken inquired about the strong fundraising momentum in wealth management, asking if products like ADS and AAA would continue to be the primary drivers and what the outlook is for the channel in 2025.

Answer

President Jim Zelter described the wealth business as a long-term journey built on product, distribution, technology, and performance, with 11 products now available. He stated that ambitions for 2025 remain high, with a focus on global expansion into Europe and Asia. He also highlighted future product innovation around insurance-wrapped products and DC solutions, noting that ADS had a record month in January.

Brennan Hawken asked about the new origination metric, specifically the source of its equity component, and requested an update on any plans to rationalize the firm's 16 origination platforms.

Answer

Co-President James Zelter clarified that the $62 billion in quarterly originations is predominantly debt and that the firm is very satisfied with its 16 diverse platforms, focusing on centralized oversight rather than rationalization. CEO Marc Rowan added that measuring equity origination is a key part of their strategy to grow the hybrid equity business and that the platforms are self-sustaining entities with strong ROEs.

Brennan Hawken inquired whether the expenses for the proxy solicitation firm assisting with the QQQ vote are considered marketing expenses of the fund, and if there's a threshold where these costs might shift to Invesco's operating expenses. He also asked about the similar progression of the three proposals.

Answer

CFO Allison Dukes confirmed that proxy solicitation firm expenses are accrued as marketing expenses of the fund and are not expected to bleed into Invesco's operating expenses. She also stated that all three proposals are progressing similarly.

Brennan Hawken inquired if the proxy voting firm's expenses are considered a marketing expense of the fund and if there's a threshold where these expenses would shift to Invesco's operating expenses. He also asked if all three proposals in the proxy vote are progressing similarly.

Answer

CFO Allison Dukes confirmed that the proxy solicitation firm's expenses are a marketing expense of the fund and are not expected to bleed into Invesco's operating expenses. She also noted that all three proposals are progressing similarly.

Brennan Hawken sought clarification on the expense guidance, confirming the 1% increase is against the 2024 adjusted base and asking about the duration of Alpha construction costs. He then shifted to the strategic benefits of the Alpha platform, inquiring about the early experiences and expected enhancements to operational effectiveness.

Answer

Chief Financial Officer Allison Dukes confirmed the 1% expense growth is relative to the full-year 2024 base and that Alpha implementation costs will continue as long as assets are being migrated. President and CEO Andrew Schlossberg added that while it's too early to detail results from the small first wave of asset migration, the long-term goal is to create a single, scalable platform that enhances efficiency, speeds up execution, and drives operating leverage by decommissioning legacy systems.

Brennan Hawken inquired about the specific positive effects of China's recent stimulus on Invesco's business and whether the company has considered buying back its preferred stock from MassMutual to continue its deleveraging efforts.

Answer

President and CEO Andrew Schlossberg noted that while it's early, China's stimulus is causing a mix shift from fixed income to equities, which could benefit their IGW joint venture. CFO Allison Dukes explained that repurchasing the preferred stock is complex as it's a non-callable instrument, and the firm's current focus is on deleveraging around it while returning capital to common shareholders.

Brennan Hawken asked about the trajectory and expected impact of hard-to-borrow specials returning due to ramping capital markets activity, and whether Interactive Brokers is seeing evidence of AI leading to increased trading velocity and turnover.

Answer

Paul Brody, CFO, explained that securities lending revenue from hard-to-borrow stocks is not cyclical but tends to increase with IPOs and M&A, and Interactive Brokers optimizes its systems to capitalize on these opportunities. Milan Galik, President and CEO, stated that while they have no direct visibility into AI's specific impact on trading volumes, the long-term thesis of AI enabling quicker, more confident trading decisions is plausible. Thomas Peterffy, Founder and Chairman, clarified he did not recall making the specific statement about AI's impact on trading volume.

Brennan Hawken asked about the outlook for margin loan balances given their solid growth and inquired how the changing customer mix, with more financial advisers, might affect margin penetration compared to historical levels.

Answer

CEO Milan Galik attributed rising margin balances to a strong 'risk-on' appetite from clients, which he expects to continue, maintaining or slightly increasing current levels. He clarified that while most financial advisers do not use margin, sophisticated individual traders and hedge funds are expected to continue deploying leverage aggressively, driving the balances.

Brennan Hawken asked about the observed impact of the recent Chinese stimulus on customer activity in the region and requested more color on the legal and regulatory charges that affected G&A expenses during the quarter.

Answer

President and CEO Milan Galik stated that the Chinese stimulus was too recent to have observable data on account inflows, promising a potential update next quarter. Regarding the legal charge, CFO Paul Brody and Galik explained that it was an increase to the firm's legal reserve based on an evaluation of ongoing regulatory matters, which is a normal part of business for a regulated financial company.

Brennan Hawken asked about early trends in securities lending revenue given increased M&A and IPO activity, and also inquired about softness in Pershing DARTs, the size of the TIAA WOVE win, and expected re-acceleration of net new asset growth.

Answer

CFO Dermot McDonogh reported no noticeable step-function change in securities lending. CEO Robin Vince added that its value is in adjacency to broader collateral management. For Pershing, Dermot McDonogh noted the WOVE platform has over 50 clients, including TIAA, and explained that DARTs were affected by prior deconversions and seasonal quietness, expecting net new asset growth to re-accelerate after the deconversion completion.

Brennan Hawken asked about early trends in securities lending driven by increased M&A and IPO activity, and how to model those revenue lines. He also questioned the softness in Pershing's DARTs and the expected impact and size of the recent TIAA Wove advisory platform win.

Answer

CFO Dermot McDonogh noted no significant change in securities lending trends. CEO Robin Vince added that securities lending's primary value lies in its adjacency to BNY's broader collateral management franchise. Regarding Pershing, Dermot stated that over 50 clients have signed onto Wove, including TIAA. He explained that Pershing's underlying performance has been impacted by deconversions and conversions, but expects net new asset growth to re-accelerate now that the deconversion is complete. Q3 DARTs softness was attributed to seasonal quietness after high Q2 activity.

Brennan Hawken from UBS inquired about the drivers of the strong rebound in net new assets at Pershing, asking about client types, and sought details on the 2025 NII outlook, including deposit mix assumptions.

Answer

CFO Dermot McDonogh stated that Pershing has strong momentum across RIAs and broker-dealers and reiterated the goal of mid-single-digit net new asset growth. Regarding NII, he reflected on 2024's outperformance and explained the 2025 guide reflects proactive balance sheet repositioning. CEO Robin Vince added that BNY addresses the wealth market through both its ultra-high net worth business and Pershing's focus on large RIA firms.

Brennan Hawken inquired about the recent ETF servicing wins, asking if the revenue was fully reflected in the quarter and its impact on fee rates. He also asked about the deposit beta experienced during the first rate cut and the outlook for deposit growth.

Answer

CFO Dermot McDonogh explained that while he couldn't comment on specific clients, BNY is a key player in the secular growth of ETFs. He confirmed that revenue from recent large onboarding is being phased in, so there is more revenue to come. Regarding deposits, he stated the first rate cut was 100% passed on to clients and that it's too early to predict a significant change in deposit balance trends, expecting some moderation.

Brennan Hawken inquired about Janus Henderson's ETF strategy, specifically the plans for launching equity products in 2025 and the potential scale of the offering. He also asked for a rule of thumb on the firm's operating leverage sensitivity to market upside.

Answer

CEO Ali Dibadj explained that the firm's ETF success, making it the 8th largest active provider, is built on strong underlying investment products, not just the wrapper. He confirmed more equity ETFs are planned for 2025 and highlighted the Tabula acquisition as key for European expansion. CFO Roger Thompson confirmed that positive markets create operating leverage, which would lower the comp ratio and increase margins, but declined to provide a specific sensitivity rule, noting the complexity of the factors involved.

Brennan Hawken of UBS Group AG asked about WisdomTree's areas of interest for M&A and partnerships and also inquired about the most significant early actions from the new administration regarding the crypto market.

Answer

CEO Jonathan Steinberg addressed both topics. On M&A, he mentioned potential targets could include ETF sponsors, product lines, or technology firms, stating WisdomTree is on its "front foot." Regarding crypto regulation, Steinberg noted the key change is the banking industry's increased willingness to engage with the asset class, which is crucial for enabling on/off ramps for WisdomTree's digital platforms. He compared the current moment to the year 2000 for ETFs, suggesting a major inflection point for growth.

Brennan Hawken from UBS inquired about the annual investment spend on the WisdomTree Prime digital wallet and requested statistics on its consumer adoption and return on investment.

Answer

CFO Bryan Edmiston disclosed that the annual spend on Prime is forecasted in the low to mid-$20 million range for the year, an increase from the high-teens in prior years. CEO Jonathan Steinberg added that detailed user statistics will be provided in the Q4 update, noting the rollout is now available in approximately 85% of the U.S. but has been slower than anticipated due to the regulatory environment.

Brennan Hawken followed up on commentary that the Amundi business was outperforming expectations, asking if this implies higher deal accretion. He also asked which market segments Victory Capital finds particularly compelling for future consolidation.

Answer

Michael Policarpo, President and CFO, stated that despite positive tailwinds, the company is sticking with its original guidance of low double-digit accretion for the Amundi deal until closer to the Q1 close. David Brown, Chairman and CEO, addressed M&A strategy by explaining they don't target specific asset classes but rather seek acquisitions that make the company better, with a key focus on increasing size and scale to remain competitive long-term.

Brennan Hawken questioned the ~$40 billion fundraising target, noting the year-to-date pace was behind. He asked if using the term "about 40" was intended to soften the target and what drivers would contribute to a strong fourth quarter.

Answer

CFO John Redett affirmed they have good visibility for a strong Q4 and will land "in and around 40," explaining that fundraising timelines can shift between quarters. He noted the $26 billion raised year-to-date is the second-best in firm history. CEO Harvey Schwartz added that the wording was not a signal of weakness but a reflection that they prioritize client needs over hitting a precise number in a specific quarter, and that overall momentum is great.

Brennan Hawken asked if the recent struggles at a large competitor in the bond space had led to a noticeable change in Federated Hermes' fixed income flows or RFP activity since late August, and if there were any notable trends in retail versus institutional engagement.

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CEO John Donahue acknowledged that clients were attentive to the competitor's situation but stated it was impossible to directly attribute FHI's inflows to that specific event versus their ongoing business development efforts. He emphasized that the firm is always engaged with clients and prepared for opportunities, making it difficult to isolate the source of any particular flow.

Brennan Hawken inquired about any changes in RFP activity in fixed income, possibly linked to recent regulatory issues at a large competitor.

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CEO Laurence Fink avoided commenting on competitors but confirmed that 'money is in motion' and that large institutional mandate shifts are a regular occurrence. He pointed to BlackRock's recent $30 billion pension fund win as an example and noted that Outsourced Chief Investment Officer (OCIO) mandates are happening with increasing regularity and creating significant opportunities.

Brennan Hawken of UBS Investment Bank asked how the CEO transition impacts strategic decisions like M&A and questioned the decision-making process and Board involvement during this period of industry change.

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President & CEO Tim Hockey asserted that the move to zero commissions has actually made attracting a new CEO easier by removing a major uncertainty. He emphasized that the senior leadership team and the Board are in very tight alignment, noting the Board convened within hours of the price cut news and gave 100% support for the company's response, ensuring continuity and decisive action.

Brennan Hawken from UBS Investment Bank inquired about the surprising CEO transition, asking for more clarity on whether a disagreement over strategy or a potential acquisition was a factor.

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President, CEO & Director Timothy Hockey explained that the decision was the result of ongoing, open conversations with the Board about the best path forward and was not due to a single event. He emphasized that it was a mutual agreement on the right time for a transition.