Welcome to the Evercore fourth quarter and full year 2015 financial results conference call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. If you have a question, please press the star followed by the one on your touchtone telephone. Please press star zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your handset before making your selection. This conference call is being recorded today, Wednesday, February 3rd, 2016. I would now like to turn the conference call over to your host, Evercore's Chief Financial Officer, Robert Walsh. Please go ahead, sir.
Thank you. Good morning, and thank you for joining us today for Evercore's fourth quarter and full year 2015 financial results conference call. I'm Robert Walsh, Evercore's Chief Financial Officer. Joining me on the call today is Ralph Schlosstein, our President and Chief Executive Officer. Roger Altman, our Chairman, is unable to attend today's call due to a scheduling conflict. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's fourth quarter and full year 2015 financial results. The company's presentation today is complementary to that press release, which is available on our website at evercore.com. This conference call is being webcast live on the investor relations section of the website, and an archive of it will be available approximately one hour after the conclusion of this call for 30 days.
I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements. Our presentation today, unless otherwise indicated, will be discussing adjusted pro forma or non-GAAP financial measures, which we believe are meaningful when evaluating the company's performance.
For detailed disclosures on these measures and their GAAP reconciliations, you should refer to the financial data contained within our press release, which, as previously mentioned, is on our website. We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges, and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.
Thank you, Bob, good morning, everyone. 2015 was yet another record year for Evercore and our seventh consecutive year of significant growth in revenues, net income, and earnings per share. With revenues exceeding $1 billion, in fact, $1.2 billion, for the first time in our history. We concluded a very active year with a strong fourth quarter, with the pace of activity remaining quite high throughout the quarter and into 2016. We saw strength in the U.S. and in Europe across multiple sectors such as technology, media and telecom, financial services, healthcare, and energy. We also began to see an increase in restructuring activity in the second half of the year, which has continued into 2016. 2015 was a strong recruiting year at Evercore, with the addition of 10 advisory Senior Managing Directors and two Senior Advisors.
In 2016, two new SMDs, Bill Anderson and Jim Renwick, have already joined the firm. Productivity of our Senior Managing Directors reached a multi-year high of $12.7 million per SMD, up 16% over last year. Equity capital markets revenue grew over 40% this year to $40 billion globally. We saw our pipeline of book-run mandates grow as we entered 2016. Our equities business performed well in 2015, its first full year as a combined business. Secondary revenues were essentially equal to the revenues of the ISI and Evercore businesses in 2014, when we operated separately for the first 10 months of the year and together for the last two months of the year. Non-compensation costs in this business trended downward throughout the course of the year. In investment management, we continue to focus on our wealth management and trust business and our money management business in Mexico.
In the quarter, we restructured our investment in Atalanta Sosnoff. We recently bought out the minority interest in our Mexican business. These steps are meant to simplify the business and improve profitability. Assets under management from the consolidated businesses are $8.2 billion after effecting this restructuring. Bob and I will touch on this later. Importantly, in 2015, we returned $334 million to our shareholders, increasing our dividend for the eighth consecutive year. We repurchased sufficient shares to offset the dilutive effect of shares granted for bonuses for new hires and some of the shares issued in the acquisition of ISI. Let me briefly go over the numbers now. We had net revenues in 2015 of $1.216 billion, with net income of $171.3 million. Up 33%, 38% respectively. This is the seventh successive year of uninterrupted revenue and net income growth.
Earnings per share for 2015 increased 25% to $3.23, another record. Operating margins were 24% versus 23.1% in 2014, with a full-year compensation ratio of 57.8% compared to 59% last year. These numbers are particularly encouraging given the strong recruiting year that we had in 2015. Our non-compensation ratio increased nominally to 18.2% of revenue, caused by the higher non-compensation ratio inherent in our equities business, which was at present last year for a full year. For the quarter, net revenues were $404.1 million, a quarterly record, up 26% versus the same period last year. Net income in the quarter was $64.7 million, with earnings per share of $1.22, in each case, the best quarter in the firm's history. These results are up 41%, 36% respectively from the fourth quarter last year. Operating margins were 27.2% for the quarter compared to 25.2% a year ago.
The fourth quarter compensation ratio was 58.6%, up from 58.3% in the same period last year. Non-compensation costs increased to $57.3 million. Let me briefly address one aspect of our compensation costs. As you know, deferred compensation is a critical element of our compensation strategy, increasing the alignment of interest between our employees and our shareholders by paying a portion of year-end bonuses in restricted stock units. As we completed our compensation program for the year, and recognizing the strong results we achieved, we concluded that we could achieve our objectives with slightly lower deferred compensation this year. As a result, our reported compensation ratio is slightly higher than we had projected during the course of the year.
If we had kept deferrals at the same share of compensation as last year, our compensation ratio for the fourth quarter would've been similar to our accrual in the first nine months of the year, and our EPS would've been $0.06 a share higher. Let's now turn to our investment banking results. Our investment banking business had a record year for both revenues and operating income. Net revenues were $1.115 billion, a 38% increase over 2014. Operating income was $268.7 million, a 40% increase over the same period last year. For the quarter, advisory fees were $308.3 million. Advisory revenue in the quarter included 68 fees equal to or greater than $1 million, in comparison with 63 such fees in the fourth quarter of 2014.
For the full year, advisory revenues included 180 fees equal to or greater than $1 million in comparison to 173 such fees last year. The number of fee-paying transactions in the fourth quarter was 222, up from 201 in the fourth quarter of 2014. For the full year, the number of fee-paying client transactions was 484, up 16% from 418 last year. We remain active globally, earning 35% of our advisory fees in 2015 from clients located outside of the U.S., and continuing to build our pipeline of global transactions. Global equity underwriting revenues in 2015 were $40.1 million, with volatile markets weighing on the pace of activity, particularly in the second half of the year. We participated in 51 underwriting transactions in 2015, and 19 of those were book run transactions.
As I mentioned, volatility in the second half of the year, particularly in the third quarter, did affect underwriting activity, and this volatility, of course, has continued into the first quarter of 2016. Nonetheless, we were very pleased to participate in literally the first IPO in the Americas in 2016 for Javer, a home building company in Mexico. We saw increased restructuring activity in 2015, particularly in the second half of the year, as macroeconomic volatility created further opportunities, particularly in the energy and commodity-reliant sectors. We expect stress in these and other economically vulnerable sectors to continue, paving the way for increased restructuring activity in 2016. As I mentioned earlier, in January, we welcomed Bill Anderson and Jim Renwick as Senior Managing Directors.
Bill joins us from Goldman Sachs to expand our capabilities as the global head of our strategic shareholder advisory practice and brings his expertise in activism, shareholder defense, and other shareholder-related issues. Jim joins us from Barclays and will lead a new dedicated ECM advisory capability in London, an important development for our growing European investment banking business. We ended the quarter with 79 advisory senior managing directors following our strongest year ever, both in terms of external recruiting and internal promotions. We continue to advise on many of the leading transactions in the marketplace, including advising DuPont on its successful defense in the largest proxy contest ever. Advising on two of the five largest M&A transactions in the U.S., DuPont on its $68 billion merger of equals with Dow Chemical, and EMC on its $67 billion sale to Dell and its owners.
Advising Shire on its $34.9 billion acquisition of Baxalta, as well as its $6.2 billion acquisition of Dyax Corp. Advising the board of directors of Targa Resources on its acquisition of Targa Resources Partners LP. Advising Cable & Wireless Communications Plc on its sale to Liberty Global PLC. Advising Chesapeake Energy Corporation on its $3.9 billion senior notes exchange offer. Our private funds and private advisory teams completed a successful year and finished the year with a particularly strong fourth quarter. In 2015, we advised on 63 capital-raising transactions associated with primary and secondary transactions for alternative investment funds. Our private funds group raised $2.5 billion of new capital this year for a wide range of clients. Let me talk briefly about our equities business. Our equities business contributed revenue of $67.8 million in the quarter, including $4.2 million attributable to underwriting activities.
Commission and CSA revenue, or known as secondary revenues, was up 10% versus the third quarter of 2015. Full-year revenues of $245.3 million were up versus the revenues of the combined business in 2014, with commission and CSA revenues of $226.4 million, essentially equal to last year. While secondary revenues were essentially flat for the year, which we think is a quite good accomplishment in the first year of the merger, we are very encouraged that these revenues were up 6% in the second half of the year versus last year, compared to down 7% in the first half of last year. This trend continued into January of 2016. Overall, the business produced operating margins of 22.4% in the quarter and 19% for the year.
As importantly, our ECM strategy is beginning to deliver, institutional investors continue to recognize the high quality of our research product and sales and trading support. Our cost control initiatives in the equity business also help to drive the improvement in margins during the course of the year. Let me now turn briefly to the investment management business. For the fourth quarter, investment management reported net revenues and operating income of $26.2 million and $7.0 million, respectively, producing an operating margin of 26.7%. For the year, investment management reported net revenues and operating income of $100.9 million and $23.8 million, respectively. For fiscal year 2015, operating margins were 23.6%, compared to 17.3% in 2014. Our wealth management business continues to perform well, managing $6.2 billion for clients at the end of 2015, 10% growth compared to the year-end 2014.
Evercore Trust Company had a record year, increasing both its revenues and earnings substantially. In Mexico, institutional assets under management were MXN 28.7 billion at the end of 2015, down 7% year-over-year. We also completed several steps to streamline and restructure our investments in this business. Bob will provide further comments on these efforts as well as our non-compensation costs and several other financial matters. Bob?
Thank you, Ralph. Starting off with the investment management restructuring. On December 31, 2015, we restructured our investment in Atalanta Sosnoff, such that its results will be reflected on the equity method of accounting in 2016. This will lower revenues for the segment, but not have a material impact on the bottom line. In conjunction with the restructuring, we incurred $4.6 million of non-cash charges after consideration of the impact of non-controlling interests that are associated with the reorganization, as well as a true-up to the final amount of the impairment charge initially recorded in the third quarter. These costs are excluded from our adjusted pro forma results. As Ralph mentioned, in January, we acquired the 28% of ECB, the investment management business in Mexico that we did not fully own for approximately MXN 120 million. This converted ECB to a wholly owned subsidiary.
Cost reduction initiatives are underway as the business is committed to delivering improved margins in 2016. Turning to our adjusted results. Consistent with our reporting in prior periods, our adjusted results for the fourth quarter exclude certain costs that are directly related to the equities business and other acquisitions. Most significantly, we have adjusted for costs associated with the vesting of equity granted in conjunction with the ISI acquisition. For the year, we have expensed $83.7 million of costs related to these awards in our GAAP results. In the fourth quarter, we expensed $17.6 million. We also recognized a provision in our US GAAP results in the quarter relating to certain regulatory matters that arose at ISI prior to the acquisition. As a reminder, our adjusted pro forma presentation includes all of the shares we expect to issue for the equities business in the EPS denominator.
Our forecasts that drive the number of shares expected to be issued did not change in the quarter. Turning to non-compensation costs. As you know, our primary gauge of non-comp costs is cost per employee. We continue to make progress on this metric with firm-wide operating costs per employee of approximately $38,000 for the quarter, down 2% from Q3 and 11% lower than Q4 of last year. With that said, non-comp costs of $57.3 million for the quarter increased by approximately 1% versus the third quarter and 9% in comparison with the fourth quarter of last year, reflecting growth in headcount and increased travel costs. Travel was elevated based on a high level of activity and a higher level of transaction-specific costs.
For the equities business, the adjusted operating margins, which govern the ultimate payout of the G and H units for the equities business, were 15.9% for the fourth quarter and 15.2% for the full year. As a consequence, the first tranche of the G units will become vested and exchangeable in the first quarter. Our adjusted pro forma tax rate for the fourth quarter was 37.5%, a slight increase from the first nine months of the year, increasing the full-year rate to 37.34%, slightly higher than the 37.28% for the nine months. This compares to an effective tax rate of 37.84% in 2014. As we have discussed previously, the effective tax rate changes principally due to the level of earnings in businesses with minority owners and earnings generated outside of the U.S. Briefly updating on our share count.
For adjusted pro forma earnings per share, we had 53 million shares, a decrease of approximately 100,000 shares from the third quarter, which was principally driven by share repurchase transactions. Our average share price for the quarter was $54 in comparison with $54.78 in Q3. Thankfully, this will be less relevant going forward. As a reminder, Mizuho exercised their warrant during the fourth quarter, acquiring 5.45 million shares, 3.1 million of which were sold immediately to the public, and the remainder acquired as treasury shares. Excluding the Mizuho shares repurchased, we repurchased 3.1 million shares in units in 2015, fully offsetting the dilution of bonus and new hire shares awarded in the year, and also offsetting approximately 10% of the shares expected to be issued for the ISI acquisition.
Finally, with regard to our financial position, our cash position remains strong as we've hold $493 million of cash and marketable securities at year-end, with current assets exceeding current liabilities by approximately $341 million. I'll now turn the call back to Ralph for closing comments.
Let me close with some observations on the M&A market in 2015 and on the outlook as we enter 2016. 2015 was, of course, a record year in terms of the dollar amount of transactions both globally and in the U.S. Global announced M&A volume was $4.7 trillion in 2015, surpassing the previous high set in 2007 by more than 15%. Announced activity in the U.S. was up even more. Global announced M&A volume in 2015 was up 43% year-over-year. U.S. activity, of course, was up 65%. In 2015, the U.S. continued to be the engine of global M&A activity, accounting for nearly 50% of global volumes. Virtually all of the growth from 2014 to 2015, both in the U.S. and globally, was in large transactions, the dollar volume of transactions greater than $5 billion.
Completed M&A volume ended the year up 26% globally and up 30% in the U.S. versus the prior year. In terms of the number of announced transactions, which we have often pointed out does drive revenues in this business, the number of announced M&A deals globally in 2015 was flat year-over-year, and it was actually down 2% in the U.S. With respect to 2016, let me make a few points. First, clearly the capital markets are off to a choppy start in the beginning of this year. Notwithstanding this fact, backlogs remain very strong, both in our M&A and our restructuring practices, and our people are as busy as they have ever been.
Second, it is worth noting that there was quite a wide gap between the dollar amount of announced transactions and the dollar amount of closed transactions last year, suggesting that there is a sizable backlog of announced deals, but not yet closed. Our backlogs certainly are consistent with this global phenomenon. Third, while we generally only have visibility into the next three to six months in our business, it appears that this period into which we do have decent visibility, the first six months of 2016, will be one of those unusual periods in which both M&A and restructuring activity will be strong. Finally, while we would expect to see some falloff in CEO confidence if the volatility in capital markets continues for an an extended period of time and potentially even begins to affect the real economy, we have not seen any such effect up to this point.
Let me now open the floor for questions.
Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one key on your touch-tone phone. If you would like to withdraw your question, press the pound key. If you're using speaker equipment, you may need to lift the handset before making your selection. Our first question is from the line of Richard Ramsden with Goldman Sachs. You may begin.
Hey, good morning, guys. Maybe starting off big picture, we've seen a bit of a disconnect between the high yield and investment-grade financing markets in terms of cost and availability. Just trying to get a sense for how much the high-yield market matters for your M&A business, broadly speaking. Has the uptick in financing costs been an impediment to either closing deals or announcing new ones, or is investment grade the more important market to watch?
They're both important. In the investment-grade world, which is driven primarily by strategic transactions, the characteristics of the M&A activity are pretty much unchanged. As you said, spreads haven't widened that much. There's lots of cash on corporate balance sheets. A slow growth environment, which we have been in for some time and we expect will continue to be prevalent, is precisely the kind of environment that encourages strategic activity between investment-grade companies. Clearly, the widening in spreads, which has stabilized at this point in the high-yield market, does have some impact on particularly private equity activity and activity by non-investment-grade companies. Particularly in the PE world, that's offset somewhat by the weakening in equity prices, which makes companies more attractive to private equity investors. As we all know, there's a vast amount of capital, so-called dry powder, in the PE industry.
Got it. That's helpful. Thanks. You talked a little bit about the restructuring environment picking up. I wanted to get a sense of, is that largely concentrated in the energy space? Has your restructuring business historically been tilted towards the energy sector as your M&A business has?
Our restructuring business has historically not been tilted toward the energy sector. Restructuring activity today has picked up a lot in the energy and other commodity-oriented industries. It's spilled over a little bit into other activities, into other sectors as well on a somewhat more episodic basis. Keep in mind, a slow nominal growth environment can have a corrosive effect on highly levered companies, and we're starting to see a little bit of that beyond the energy and commodity-driven sectors as well.
Got it. Okay. Maybe just the last one from me. How are you thinking about and how are you balancing recruiting? You've obviously done a really good job the past few years, but how do you balance that against what's the choppier market backdrop to start the year?
Well, I think we've been pretty consistent through good markets and bad markets, recruiting four to seven Senior Managing Directors externally. I've always said that if we got the opportunity in any given year to recruit a larger number of very high-quality Senior Managing Directors, we would seize upon that, even if it meant that it might set us back a teeny bit in our progress that we have persistently made and consistently made in our operating margins. Last year happened to be one of those years. Fortunately, we had a good enough year that we were able to hire 10 Senior Managing Directors and still make progress. It's a little early in the year to say where we'll wind up this year, but I suspect we'll probably be more in our traditional range of four to seven new SMDs.
That's very helpful. Thanks for taking my questions.
Sure. Thank you.
Our next question is from the line of Devin Ryan with JMP Securities.
Hey, thanks. Good morning, guys. Just want to come back to this theme of M&A and restructuring, both moving in the same direction. I guess, just love your sense of whether that's a sustainable trajectory, and being maybe a function of just an uneven economy or slower growth. Obviously that would seem to be actually a pretty good backdrop for Evercore. Just would love some perspective of whether or not you think that could actually be a sustainable trend that could last for some time.
Well, our visibility to that is exactly as long as our visibility to any part of our business. It appears, as I said in my remarks, that for the next three months, which we have pretty clear visibility to, and six months, which we have a little less visibility to, that will be the case. Beyond that, Devin, I think it's really hard to comment. I would say, logically, it's unlikely that that kind of an environment will sustain itself for a long period of time, because these businesses, over a very long period of time, have been somewhat countercyclical. I think you just have, right now, a phenomenon where you have a lot of financial distress in a couple of very important sectors where we happen to have very good banking practices. At the same time, M&A activity still continues at a pretty healthy pace.
Okay. Great. That's helpful. Then just outside the U.S., thinking about Europe, can you maybe just go into a little more detail around the dynamics between the U.K. and maybe Europe more broadly? It seems the U.K. is ahead of broader Europe. I'm just curious if you're seeing kind of a continued recovery in both markets or if the similar dynamic that's occurring here just with some economic malaise start to filter through and maybe a softening outlook there.
Well, I think you have to recognize that a lot of the activity in the so-called U.K. is European activity, because a lot of the U.K.-based companies are certainly pan-European, and in fact, many of them are very large global companies. If you look at the activity in the U.K., which has been fairly good, and you look at the economy in the U.K., which has been relatively strong versus the rest of Europe, it's probably more a coincidence than a causal effect, because the bigger U.K. companies are quite global in their orientation.
Okay. All right, great. Then just last, clearly, I think the outlook is, you pointed out, over the next couple of quarters looks pretty good based on the backlog. To the extent there's some change in trajectory or things do deteriorate, how much can you flex expenses? Meaning, if we think about the expense base today, how much is fixed versus how much is actually variable that could pull back with revenues, if in fact, we do go that route?
Well, our largest expense by far obviously is compensation. There clearly has always been in our industry a linkage between compensation and revenue, and compensation and success of the firm. That linkage is direct at most senior levels. Our Senior Managing Directors get compensated a relatively stable proportion of the revenues of the firm as a whole. If revenues went down, their compensation would clearly go down. We would expect to see some effect on the non-SMD professionals as well. Although there, it obviously will be tempered by what happens in the industry as a whole because we have generally paid quite competitively with both our large and independent competitors, which has accounted for the very high stability of our workforce. I think we would certainly seek to continue to do that.
Devin, it's Bob. You know because all of you tear apart our 10-Ks, that we've been very balanced in our use of deferred compensation on an annual basis. As Ralph noted in his remarks, we actually stepped back just a small bit on the relative level of deferred compensation this year, providing even a little bit more flexibility as we look at our fixed cost base going forward.
Got it. Very helpful. Thanks for taking my questions and congratulations again on the great year and great quarter.
Thank you.
Thank you very much.
Our next question is from the line of Jim Mitchell with Buckingham Research.
Hey, good morning. Just maybe talking a little bit about the buyback and cash was up, I think, over 25%, cash and securities year-over-year. You're growing the cash pile pretty significantly. Given the stock price down, is there any appetite to accelerate a buyback to push the net share count down more aggressively, or is it sort of still steady offset dilution for the most part?
Yeah, Jim, I think I'd start with there's really been no change in terms of our capital deployment plan, which is we return all of our cash to our shareholders. I think we have a decent track record of being opportunistic about that.
Okay. Fair enough. Just on equity underwriting, obviously the near-term volatility is weighing on that business, but as you kind of move further along with the ISI acquisition and hiring bankers on the equity capital market side, what's the sense just of the bankers and the opportunity set there? Is it better, worse, ex the current environment?
I would say ex the current environment, we kind of feel we're on track. I think I said when we did this transaction that we would hope over a three-year period of time, give or take, that we would have that underwriting revenues in the $75 million-$100 million range. If you look at other non-bulge bracket firms, it seems like that's a quite achievable range of equity underwriting activity. We're making steady progress toward that level. I hope when we get to that level, we can actually sit here and say we can see going beyond that. Obviously the pace at which we get there is certainly affected by the markets as well.
I think the only forward-looking statement I've ever made in almost 7 years on this job is I said at the beginning of last year that we hope to do $40 million-$50 million of underwriting activity for the year. We squeaked over the $40 million level, primarily due to the falloff in activity in the second half of the year. If you look at the metrics that are important to us to continue to make positive progress are, number 1, are we participating in more transactions in more sectors? The backlog clearly does reflect that. Number 2, is our position in those offerings improving? In other words, are more and more of those book run transactions. That is also very true.
The way we get from where we are to where we want to be is be in more deals and make more money on each of those transactions. Both of those things are happening.
Okay. That's very helpful. Just one last question, maybe a follow-up on the comp ratio. As we think to next year, should we assume that a similar outcome of a little less deferred and the comp ratio could be incrementally higher for the full year, or is that not the way we should think about it?
Well, if you can tell me what revenues will be, then I'm glad to answer that question. Look, I think I've said, I think almost every year, that our goal was to make steady progress in our comp ratio each year down to mid to high 50s. We're now in that range. We had a pretty good year this year. It feels like if the world stays in a good position, we ought to be able to make a little bit more progress this year. Of course, if we had a very high hiring year, which we can't rule out, that could be affected by that. I think we're kind of not far from what is the sort of the appropriate steady state level of compensation expense for this business. If we didn't no hiring, it would come down.
That would not be a good thing for our shareholders.
Yeah, well, we didn't do that. We already have two.
Yes.
Right. Okay, thanks for taking my questions.
All right. Thank you.
Our next question is from the line of Brennan Hawken with UBS.
Good morning, guys.
Morning, Brennan.
Hey, a couple quick follow-ups, Ralph, on some of your comments on the environment, which were really, really helpful. Number one. Can you frame for us maybe historical revenues that you guys have been able to generate in restructuring? Because kind of never really thought about you guys having a very big restructuring practice. Is that wrong? Or is it that historical references to restructuring may not be reflective of your current franchise and your current capabilities?
First of all, restructuring in terms of the share of total revenues was highly relevant in 2008 and 2009 and 2010, and through 2015 really, or 2014 and 2015, was considerably less relevant to the overall revenues of the business. We don't report, we don't break down every jot and tittle of where our advisory revenues came from, but some of our competitors do. If you looked at the ratio of their restructuring revenues to total advisory revenues, we're not dissimilar in how that has changed year to year. In anticipation of what's happening right now, we have increased a little bit our senior headcount in the restructuring business. As many of you saw in September of last year, Daniel Aronson joined us as a partner in that business. A year and a half or two years ago, we hired another partner in that business.
What I would actually expect is the dollar amount of our restructuring activity relative to if we ever got into a really super vibrant restructuring world, I would guess that the dollar amount of our activity would be higher than in previous restructuring cycles. It would be smaller as a percentage of our advisory activity than it was back then. I'm not sure restructuring revenues will ever be as large as a percentage of advisory revenues as they were in the '08, '09, 2010 period.
Great. Thanks, Ralph. That's helpful.
Yeah.
On the point on private equity, kind of curious, you'd said that maybe the reduced financing capability or availability would be offset by equity price weakness. I'm not sure if you saw, but there was an alternative executive who was quoted in the news Friday saying that effectively levered lending market is shut down, and that their private equity pipeline has completely dried up. Are you seeing something different than that? Are you saying that if we see continued weakness, that maybe that we can get folks that are willing to write just 100% equity checks? Can you maybe give a little bit more color around your comments?
Sure. Look, the levered lending market and the high yield market have gone through many periods of either less robust activity or quote unquote "being shut down." The periods of being shut down tend to be relatively short as the market adjusts to the new expected level of economic activity and the new level of acceptable leverage in companies. We happen to be going through one of these periods when volatility is high, so uncertainty is high. There are a handful of hung lending situations which always make lenders extraordinarily cautious. They want those resolved appropriately before they open the door for business again. Then, you have a period of where there's been capital withdrawal among the investor community in these higher yielding sectors as well.
Maybe I'm just an old goat, we've seen this movie a fair number of times before, and periods of, quote unquote, "the market being shut" just don't last that long. Once the clouds clear a little bit on the economic outlook, once the balance sheets get cleaned up a little bit, the financial institutions are in the business of putting loans on their books, and they'll do that again, just as they did in After the financial crisis, in 2010 and 2011 and 2012.
Okay. Thanks for that. Then last question from me, just a follow-up on the comments that Bob made about the fully diluted shares. Does that mean that the changes in fully diluted share count that we saw this year were not impacted at all based upon the ISI deal, and instead were all tied to the Mizuho warrant and the comp and buyback and everything like that? Or were there some changes in the fully diluted count reflected from the ISI deal?
The share count went up in the first quarter, Brennan, and it's just the mechanics of averaging. We had two months of ISI in the fourth quarter's results. The share count stepped up a bit in the first quarter to get the full approximately 7 million shares in. After that, it's been up a little bit or down a little bit based on the quarters where we had a heavier level of repurchase activity, or until the Mizuho warrants were gone, where we had some share price volatility.
To answer your question precisely, Bob, correct me if I'm wrong, we haven't changed at all our estimated share count from the ISI transaction once it was fully in the numbers.
Correct.
Terrific. Thanks.
Our next question comes from the line of Steven Chubak with Nomura.
Hi, good morning.
Morning.
I have a follow-up relating to Jim's earlier question about the comp ratio. Just wanted to get a better sense as to how we should be thinking about the potential comp ratio for the upcoming year if we continue to see or operate in an environment where revenue productivity for SMD is sustained at the current level, and the pace of recruitment actually normalizes or reverts back to that five to seven net new SMD hires per year.
No, I think we'll address that question when we have to report our first quarter earnings.
Okay. Understood. Well, I'll ask a softball here then, Bob, regarding the revenue seasonality. I know that historically, your results, at least relative to the peer group, have tended to be much stronger in the fourth quarter, typically a bit softer in Q1. I know some of that is a function of seasonal factors in the private funds business that drives that dynamic. Just given the somewhat unique backdrop we're in, where both restructuring and advisory backlogs look quite strong, is that a trend that we should expect to persist, at least in the coming year?
That sounds like a question which would require a forward-looking answer, which we generally don't provide.
Okay, zero for two. I'm going to go for one more then.
Really toss it slowly this time.
I was looking at the equities business, clearly the commission result was quite strong in Q4. It's nice to see the growth, at least in the back half of this year. I just wanted to get a better sense as to how much of that you believe is a function of just a catch up or true up in terms of payment on the client side. You did note the strong start to the year, but is it $64 million per quarter revenue or commission generation? Is that a reasonable run rate expectation going forward?
Well, first of all, the equities business, like your comments on the advisory business, our advisory business, does have a seasonal element to it. The fourth quarter is always, at least based on looking back over several years at ISI, which is the more relevant business, has always been the strongest of their four quarters. I think I very often, when we have a good quarter or one that's a little weaker than expected, I always say, "Don't ever annualize our quarterly results." That's true of both. While the equities business has less volatility than the advisory business, you still shouldn't annualize any one quarter's performance. I will say that there are things that we do monitor.
In our advisory business, we sit here and we look at what we call our risk backlog, which attempts to put a probability on each piece of business that we have in-house that we're working on. Our unrisked backlog, which is the sum total of all of those activities without probabilities associated with them. There are other indicators that we track. The number of new engagement letters signed, the number of conflict committee clearance requests. In the advisory business, those are all strong. The forward-looking potential indicators in the equities business are things like. We get a report card from most of the major institutional investors every quarter or every six months that ranks us versus other providers of intellectual capital and execution capability, compared to others who provide these services, the bulge bracket firms and other independent firms.
Our standing among the largest institutional investors has consistently improved, typically by two or three spots. If we were number eight in 2014, we were number six or number five in 2015. That is generally, certainly could be viewed as a leading indicator of some pickup in activity. Although obviously we have to convert that increased esteem into money, which is not always an easy thing to do. I think the thing, as I said in my remarks, that is encouraging is that if you're comparing the firm together in 2015 compared to how the firm operated separately in 2014, the first half of the year we were down in terms of secondary activity by around 7%. The second half of the year, we were up in secondary activity, that's commissions and CSA checks, by about 6%.
The positive momentum that we had in the second half of the year has continued into 2016. Even there, you have to parse it a little bit because revenues in the equities business will, and you can see this across the street in all of our competitors, when the markets are volatile, volumes tend to pick up a little bit. We presumably get our share of that. What proportion of that are comparable on a year-to-year basis is a function of markets and what proportion is a function of the increased esteem with which we're held by institutional investors. I think we're going to take a little bit of time before we know the answer to that. The pure numbers have a little bit of encouragement in them. It's a long answer, I apologize.
No, Ralph, it's quite all right. I appreciate all the detail. I'll consider that going one for three.
Well, 333 is a pretty damn good batting average.
Yeah, in MLB I do quite well.
Yeah, I think you would've won the batting crown in the National League, at least.
Yeah. No Ted Williams, but getting there. Well, congrats on the strong year, and yeah, thank you for taking my questions.
Thank you.
Our next question is from the line of Vincent Hung with Autonomous. You may begin.
Hi. What
Morning.
proportion of comp was deferred in 2015 versus 2014, and did the deferred element change for everyone?
In terms of the mix, Vincent, I'll let you wait till the 10-K comes out, and you guys can parse all that. That's the way we've handled it in the past. As Ralph said, actually the overriding philosophy was to handle deferrals similar to last year. The net effect is slightly lower.
Yeah. To answer the second part of your question, we generally have not changed deferrals for our senior managing directors, so the slightly lower level of deferral is all focused on the non-partner professionals in the business.
Okay. Last one from me, I may have missed this, did you have no SMD promotes this year?
We haven't announced that yet.
Okay, thanks.
Our next question is from the line of Jeff Harte with Sandler O'Neill.
Good morning, guys. Just a couple from me. Minimally, I guess, the interest expense outlook with the Mizuho note refi, should we expect that to stay down, or you've swapped that to floating? How should we think of that?
The current arrangement, the current loan we have with Mizuho is a floating rate note. As we indicated when we did that, at some point, we would look to go into the private placement market and exchange it for term debt with a fixed rate.
Which would happen.
I would expect that to be lower than the rate that we had on the old note, and of course, a little bit higher than the current run rate.
Okay. I appreciate all the commentary on the outlook, especially on some of the more leading indicators like new engagement letters. Can you give us any color on kind of the nature and quantity of pre-pipeline conversations and maybe how that has or has not changed with some of the volatility here? The biggest questions I keep getting aren't so much how first half's going to be with a really strong rearview mirror kind of backlog. Are things going to really slow down after that? It's tough to get a gauge for that outside.
I agree with you. It really is. Look, I think the answer to that is, we went through a period like the period that we're going through now in the third quarter of 2015. When we were going through that period, I said, if that period of volatility became extended, that if past is a predictor of the future, you would expect at some point that that would have an effect on CEO confidence and might have some effect on what you describe as the pre-pipeline level of discussion. One month is not enough to affect that, in my view. To a certain extent, the question you're asking is how much volatility do we expect to have in the markets, both the debt markets and the equity markets over the first four to six months of 2016? I don't know the answer to that, obviously.
If you ask me my opinion, I happen to think that when we look back in June or December, we're going to look at this period in much the same way we've looked at the period of July, August of last year. It was a period of very high volatility and a correction in the market, but that it didn't interrupt the fundamental dynamics of the economy, which have been a slow, steady growth, and ultimately won't affect the fundamental dynamics of the markets either. That's an opinion. I have no idea whether that opinion is right or not. Obviously, if I were really good at that, I'd be running a very large hedge fund rather than coming in here every day and hanging up my coat and working for a living.
Yeah. Your level of experience makes that opinion helpful to us. Thank you.
Okay, thanks.
Our next question comes from the line of Joel Jeffrey with KBW.
Good morning, guys.
Hey, Joel, good morning.
Just to go back to the ISI business, you guys are now back to that pro forma level you talked about when you announced the deal in terms of revenues. Just curious, how big do you think this revenue stream could get at current levels, and are you anticipating further hires to expand it?
Well, look, as a general matter, we like to profitably grow businesses. I think when we entered this business, we said that we would expect it to grow as well. I guess I would draw an analogy. Our advisory business, looking in the rearview mirror, has grown at a very healthy clip for the last seven years. Yet, when I sometimes get asked, how big can it be? There's a company out there, Lazard, that has exactly our business model that just finished their year, and we did roughly 65%, 67% of the advisory fees that they did. I'm pretty confident there's a lot of growth in our advisory business with exactly the business model that we have today, because there's a firm out there with exactly that business model that has a considerably bigger business. Seven years ago, we were 15% of them.
we're two-thirds of them. In the equities business, we're not the largest independent firm with a pure agency business model. Sanford Bernstein has more revenues than we do. I think just empirically, you can look at our equities business and say that it has some growth opportunities in it relative to where we sit today. Those growth opportunities are not dissimilar from the way you grow the advisory business. You add extraordinarily high-quality analysts who expand the esteem with which you're held by the institutional investors, and they pay you more. We're certainly going to continue to look at doing that. 2015 was clearly a year of transition and consolidation in that business. We had to execute the bringing together of these two businesses.
I think if you look back at mergers in these types of businesses, and some of you on the phone were making estimates of the amount of breakage that there would be in the consolidated If you added up A and B, Evercore and ISI, and how much revenues in 2015 would be below what they were in the two businesses separately. I think to have basically been flat stands out pretty strongly versus the experience of others. Notwithstanding that, we did hire a very high-quality analyst, Steve Richardson, from Deutsche Bank in the E&P space in energy. We're certainly open-minded about selectively hiring A-plus talent in the research business and in the equities business, just as we are in the advisory business.
Okay. Just a couple of housekeeping questions for me. Bob, I thought you mentioned a regulatory charge at ISI during, I guess, that was prior to the deal you guys did. Can you just remind me how much that was again, and specifically what it was tied to?
If you look at the press release, you'll get some sense of the numbers, and it's an evolving matter. To get into details at this point wouldn't be appropriate, and my general counsel would be upset with me.
He's shaking his head yes.
Okay.
It's not something that would rise to a level of concern for you guys.
Just lastly for me. In terms of the vesting of the first group of the G shares, can you tell me exactly what the timing of that is and how many shares will be available to be traded?
I'll look to one of my colleagues to help me with the number of shares. It's mid-February that those shares would be targeted to vest and become exchangeable. Someone recall the number of shares?
What's the 55 divided by 20? It's probably about 375,000.
Yeah. Remember, this is the very small part of the consideration, Joel.
Yep. Great. I appreciate you taking my questions.
Great.
There appear to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.
Just thank you all for going beyond the hour. We apologize for that. I guess when Roger's not here, we talk more or something. We look forward to talking to you on the first quarter. Take care.
This concludes today's Evercore fourth quarter and full year 2015 financial results conference call. You may now disconnect.