Brennan Hawken

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

Answer

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.

Answer

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.

Answer

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.

Answer

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.