Get started here. So up next, we have John Weinberg, who is the Chairman and CEO of Evercore. Previously, he was co-Chairman and co-CEO, which are positions he held since July of 2020. This is John's second time at the conference, and he'll be joining us for a fireside chat. Prior to joining Evercore back in 2016, John served as Vice Chairman of Goldman Sachs. Thank you so much for joining us, John.
Pleasure to be here. Thank you.
Okay, great. So, John, you know, this is your second time at this conference, but I think a lot has changed, frankly, since last year, and both in terms of just the macro, but also, frankly, your business, right? You've had a, you know, a strong hiring year. So, maybe you could just talk about some of the key strategic priorities that you see for Evercore, and perhaps how those have evolved over such an eventful year.
Sure. So if you think about the year, it's been a year that has had a great deal of variation, and there's been a lot of pressure from the geopolitical side, as well as some of the things that are going on with interest rates and the economy. One of the things that we've done over the years is invest in certain of our businesses: Activist Defense, Private Capital Advisory, Restructuring. Each of those have done quite well through this period. But what we've really wanted to do is to invest long-term in places where we think we can really generate and drive value. One of those is really our investment in our client footprint, expanding and enhancing that client footprint, and we've stayed with that. And for the most part, that t he strategies that we had in place before this year continue.
We've basically tried to build the strategy so that that we would be enduring, that they would endure, and that actually what they would hopefully do is position us for whatever might come, and especially as the turnaround develops, that we're ready for that. And so expanding and enhancing our client footprint with things like investing in Private Capital Advisory businesses, all the white space we have out there. As you've seen, we've had a very fruitful hiring year, and we've invested in a lot of those white spaces. Places like Financial Sponsors, we've really invested heavily there, and that's going actually quite well.
In addition, we're building out our products so that we can do more for the clients that we cover, and that's actually been a place where we've really made sure that we continue to grow and to get better and get more depth and being able to really serve under any basis, and that's happened also. And then the third thing is we've invested heavily into the places that we think are the fastest-growing parts of the economy, and where that is healthcare and technology, in all shapes and sizes, clean tech, fintech, biotech, and we've continued to invest heavily in each of those spaces so that we can grow with the economy. And finally, we're spending a lot of time on thinking through and beginning to invest in geographic expansion. That's gonna come slower.
We're gonna do that, you know, in a very step-by-step basis, but we're thinking about that. So in aggregate, our strategy remains intact. We feel actually really good about the strategy as we look at a turnaround, which is gonna be coming. I'm not exactly sure exactly when we're gonna see it really kick in, but we feel well positioned for it, and that's really what our intention is, is to really make sure that we are investing for the turnaround in the market and for whatever the economy brings us.
Okay, that makes a lot of sense. Maybe just one more digging in on the hiring. You've obviously had just a fantastic hiring year. I think you've added 11 senior MBAs, you know, through the third quarter. Maybe you can just talk about where you focused on hiring this year, and then what's the ability to replicate that in future years? Was this sort of a once in a decade opportunity?
Well, we have a philosophy that when we have A+ players available, that we should be looking carefully at them. From our perspective, it was an extraordinary year. It was 11 very high quality people, nine of them have started, two are about to start. In terms of our focus for next year, we're continuing to look at the market. There are places where we still have quite a bit of white space, and we are in... as you might expect, we are in discussions right now with a strong number of people to fill those possibilities, and I feel quite good about it. Do I think that this year was a one-time situation? Not really. We're gonna continue to be in the market, talking to high-quality people.
I'm hoping that we continue to be a place that people aspire to come to, and that's really part of my job, which is to create a culture and a place that people want to come to and feel comfortable being part of, and proud of what they're able to achieve here. And so that's really one of the most important things that I can do. And I feel like the conversations I'm having are constructive. You know, not that everybody we're talking to would wanna come, but people are very interested in talking, and we have a lot of very interesting conversations going on. So I don't think it's a one-time thing, either from the standpoint of the availability from the market or our desire to actually execute on high-quality people who are willing to come.
Okay, that's very positive. So, maybe just turn to some of the bigger picture questions. You know, I know you still spend a lot of time with clients, you're in the boardroom, across a wide range of industries and client types. Maybe you could just, at a high level, talk about what is sort of top of mind in those boardrooms and client discussions.
Well, there's never a conversation that's had without some kind of understanding as to what's going on around the world, whether it's in terms of geopolitical impact on business, interest rates, the impact on the financial markets. Those things are always part of every board discussion. People are always thinking about that. What really I think is happening in a lot of the boardrooms that I'm in, is that boards are thinking differently than they did four or five months ago. Four or five months ago, people were pretty much frozen, and they really were thinking about activity, but they weren't aggressively thinking about it. They were thinking about what is possible.
Now, what boards are doing is they're saying, "We want to really understand actionability." And so real ideas are being brought forward, real concepts of strategy are being discussed. We're being asked to look at different alternatives, and then giving judgments about whether actionability is viable, would it happen? And also how the market would respond to things. Antitrust continues to be out there, but I think it's more muted than it was. So I think that in the boardrooms, you're seeing board members and management teams really much more aggressive. And in many respects, what you're seeing is management teams loading the gun. I mean, they're basically saying: Okay, let's get ready, so when the market turns and it looks like the market can accept, we'd like to get going on strategy.
Or inorganic growth is still a very big part of a lot of companies' overall growth posture. So I think we're gonna see people really move as fast as they can, and that's what a lot of management teams and boards are really thinking about right now, which is, you know, how do we get ready so that we've done the homework, we've done the thinking, we've really discussed as a board where we are, and it's gonna be a lot more of an abbreviated process.
Okay. So just maybe another macro-related topic, which is, you know, I think financing conditions, and those have obviously been challenged for quite a long time now. There's obviously private credit out there, discussions around that. So I guess generally, how are you thinking about, in light of the macro backdrop, the financing conditions today?
Well, the financing markets are open. They're, y ou know, the IPO market's slower, but, but for that market, most of the markets are open. Now, obviously, the fixed income markets are more expensive, but they're available. And I think that what people are looking at now is just saying, "Okay, we accept that the things are gonna cost more." The question is, do they still make sense? And that's really the discussions. I think, you know, sponsors is a really interesting situation in the context of that question, because as we know, the cost of debt is important to how returns are run with respect to sponsors. Having said that, I think there is a capitulation to some of the sponsors, with respect to ones that have assets to sell.
And so you're gonna see more assets coming out of sponsors, because I think sponsors really need to actually raise some money and distribute it back out to their LPs. And so I think that market, and then on the strategic side, I think that, because the financing is available, it's only a question of running the numbers and making sure that it still works with respect to the return criteria and what the hurdle rate is. And, you know, I think that the markets are generally positive enough that people are seeing now. One of the most important parts of the market is not necessarily exactly what the rates are and exactly whether it's possible; it's really a question of stability. If there is stability in the markets, people feel a lot more comfortable thinking aggressively about strategy.
So I think that I think you're gonna see deals are not gonna be stopped by the fact that the markets have actually been, you know, in a little bit slower. I think we're seeing markets get a little bit looser. We're seeing people feel more comfortable. I think you're seeing more confidence. CEO confidence levels seem to be going up. All of those things are factors that I think could lead to really moving on the financing markets.
Okay, great. So just one more bigger picture, one which is, and I feel obliged to ask this, you know, you've, you've clearly been through many of these, but next year's a U.S. election year, and someone pointed out to me it's an election year in many other places, too. So I guess, what's the impact that that could have on, on the capital markets into next year, if at all?
Well, in the past, it's not had that much of an impact that we can see. This year may be different. Everything about this year seems to be different. Personally, I still feel like that the strength of the financial system and the economy will carry the day. So I think no matter what happens in the presidential election, I believe that the markets will be stable enough to actually support an increasing improvement in the markets themselves.
Okay, that makes sense. So yeah, maybe just thinking about that cadence of recovery, you know, I think completions continue to lag in announcements. Announcements are up, you know, substantially. So there's a couple of interesting dynamics there at play. What do you think sort of breaks the logjam and actually causes these deals that have such elongated timelines to start to really close?
Well, there's no question that activity levels are very high right now inside, I'm sure other firms, certainly in our firm. We have dialogues that are very high quality, that are, I'd say, very actionable inside, which we're working on hard with management teams and boards. What really has to happen is a confidence level that the market will accept these deals. No board wants to announce a deal and have their stock get crushed, and so you're seeing people watching carefully. I think that to many, to a large extent, it's number one, stability of the market, and we're seeing some of the market begin to stabilize. And then a confidence level that equity holders will feel like it's the right thing, and they're ready to pay a little bit for growth.
That's really the thing that I think is gonna track things. Now, it still will take longer. Antitrust is gonna take longer because there's a whole system that's gonna drive antitrust. I think management teams and boards will take longer to evaluate, and that will elongate the process. So from activity level inside, which we're seeing right now, and we have a very healthy activity level inside, translating to announcements, which then translate to recognizing revenue, it's gonna take longer than it has in the past. So I think the thing that's gonna track it is confidence level, stability, and then a few big deals starting to move. And when those big... In, as with, with all recoveries that I've seen in my career, a couple of deals will actually drive a lot of the mental state of other deal makers.
Okay. So maybe the other side of that coin, which is normalized M&A. I know this is inherently an extremely difficult question to answer b ut I guess, you know, the last cycle was much faster. I think that was probably fiscal and monetary policy driven. Other cycles have typically taken years to see a full normalization of activity. How are you thinking about what normalized might look like, and I guess, your best guess on the timeline for which that over which that could occur?
Well, it is a, it's a hard question, because we just don't know. We a s I said, we see inside our firm that there's strong activity levels. We see a lot of things, and our backlogs are strong, and we feel good about what we have, in terms of our advisory assignments and also our other activities as a firm, whether we're at private client, private, private client advisory, as well as others. I think that it will be, some time before you really see it kick in all the way. It's gonna have to happen gradually. It's gonna happen really a quarter at a time. The first quarter, we're hoping that we'll see some real activity beginning to happen.
But it's, it, under any circumstance, I would say it's gonna take several quarters before really it's been a full-fledged ramp up into a strong market. It doesn't just happen overnight. It does take time. Management teams need to see other situations that are successful and are received well, and then they go through their process. So I think it's gonna take a few quarters.
Okay, so there's one more on the M&A side. From a geographic perspective, Europe is definitely underperformed the US. I think Europe's down something like nearly 10%. The US is down something like 10% year to date, and Europe's down over 30% on our math. Maybe you could just talk about the differences in activity levels across both geographies and perhaps the differences in what's weighing on deal making or not in those two regions.
Well, Europe had a very strong quarter from our standpoint. It was a good quarter for us, and I think that what you're seeing is an activity level, which is, I would say, flat-ish right now, having had a really good quarter. I think you will see continuing activity building, whether that translates or not in Europe. But I think that there is absolutely an appetite for deals to get done and people to really fulfill strategies. In the US, as I said, it may take a couple quarters to really get going, but in the US, you know, I think the activity levels are quite good and I... You know, in terms of what's being evaluated.
And I think that if you really looked at the some kind of an examination of our backlog, I think you would see that there are really interesting, actionable situations that make sense from a business logic standpoint. And so there's every reason to believe that the U.S. market, things are gonna happen. So much of it has to do with receptivity of equity holders and owners of these companies. A few of these deals get announced, and the receptivity is good by the market, you're gonna see that a lot of them begin to happen immediately.
So it's, in some respects, I feel badly because I'm not giving you an absolute definitive answer, but I think it's a hard answer to give other than to say that I believe the market is ready, I believe the companies are ready, and the real question is: When does the real starting gun go off?
Makes sense. Okay, maybe let's just turn to some of the other businesses within advisory. Private Capital Advisory and the fundraising businesses have both been quite resilient this year-
Mm-hmm.
-as you've described it. So maybe you just talk about, within those businesses, how diversified are you outside of private equity? How would you characterize the broader fundraising environment today? And then, I guess, what the expectations are for activity for those two heading into next year.
Well, we actually are increasingly diverse in that well over a third of our revenue is non-M&A. Private Capital Advisory has been a very strong business, and with respect to continuation funds and advising LPs, which is what's called our PCA business. That business is actually having a very strong quarter and actually doing quite well. And that is it's a very very sustainable business. It's really building. It's a service that people really are valuing a great deal. And so that is, that's a business that is really doing very, very well. The fundraising business, we have a very different philosophy in our fundraising businesses.
We're very, very selective, and so our fundraising business has been impacted less negatively than most because we've really been very focused on the very highest quality sponsors and not gone down. Now, one might say: "Well, why don't you go down in the order a little bit and do bigger business?" Well, we've been very disciplined. So as a result, our business has been impacted less and is actually doing quite well. Having said that, I think it is absolutely clear that that is a hard business right now, because not enough of the LP capital has been returned so that that can be put back out. And so the fundraising business is a little bit slower and a little bit harder.
But as I said, our business is, I think, less impacted than many because we've actually been at the very top echelon, and people want to stay involved in those businesses. So one day, when they go out and we're doing. A nd we're representing them, those have, those have gone okay.
Okay, that's great to hear. All right, well, let's turn to restructuring, which I think, again, has been fairly resilient for you. I think it's frankly been better than, than i n a better tone than many of your peers. So, so maybe you could just talk about some of the dynamics at play in restructuring, whether we're really seeing that Chapter Seven, Chapter 11 traditional restructuring start to pick up, or is it more on the liability management side still?
It's been a lot of liability management. There have been some chapters, but not as much. Default rates are going up some. There is a maturity wall coming down the pike. Rates are higher, which with highly levered businesses, are making it more distressed. So there's no question that there is activity out there, and our activity level is very good. You know, I'd say we are pretty full up right now in terms of our activity and what we're doing. But I definitely think that it's a different type of business than it was in the global financial crisis and than it was during COVID. It's really a more sustainable, sustaining business. It's the liability management side is very important.
We're trying really hard to bring together the liability management side with other corporate advisory stuff that we do, and that's working pretty well. But I think it's a very... I'd say it's a much more elongated part of the cycle. It's a much more elongated recovery. I also would say that unlike many cycles, where mergers and restructuring kind of go in opposite ways, I think that you can have a strong restructuring business and also a strong merger business. I don't think they are mutually exclusive at this point. I think they've really decoupled in a way. There's just a lot of activity and a lot of need for those services, and I'm sure other firms are feeling the same thing.
Okay. Maybe just another topic that I think is very top of mind as investors, which is equity capital markets. You know, there's obviously been a few IPOs this year, but really activity has been on the secondary side. And you know, there obviously wasn't just a lot of follow-through on those IPOs. So maybe you could just talk about the equity capital markets opportunity this year. I think there's less visibility into backlogs there, frankly, from the public side that you might have, versus with M&A. So just, you know, I guess, has the bid-offer spread between issuers and investors narrowed, where you can start to see things really pick up in January, and just expectations for the full year?
Well, the follow-on offering business has been okay.
Yeah.
And I think it continues to be okay. It's, you know, I, I don't think anybody's going to write home about it, but it is, it's just fine. The IPO business, as you articulated, is not nearly as healthy, and I think there's a lot of very strong IPO business waiting to come out. I don't think anybody dares right now, because what happened is, as you said, there were a few IPOs done. They didn't do as well. Somehow, they just traded off, and everybody said: "Okay, we got to really wait and watch." I don't see any reason why the IPO market won't recover in the new year, going forward. It's gonna, it's gonna take, once again, stability. It's gonna take some kind of optimism.
It's gonna basically require that investors really like the prospect of putting money to work at this point in the cycle for these businesses. That clearly would fuel the whole market if the IPO market started to cook again. I think secondaries are gonna continue to, you know, trend in a positive way and continue. I think there's enough reason to believe that quality companies are gonna be able to do follow-ons.
Okay, great. So maybe we could just turn to the other side of the P&L and some of the, you know, expenses and investments that you're making. So maybe we could just start with the bigger picture one, which is, you know, this has obviously been a challenging year, but how are you sort of thinking about the balance between investing for longer term growth versus protecting near-term operating margins?
Well, what we believe is that we have to be responsible about our expenses, which is, you know, to really make sure that we understand what we're spending and make sure that we are believing in the money that we're spending is appropriate. We think we have real opportunity. We think we have an extraordinary opportunity to basically grow our business. Our clients seem to want more of the service that we provide. I think that there are some very high-quality people that we can actually bring in and continue to drive the franchise. I have felt that our franchise is gaining momentum. I hope that I continue to feel that way.
Clearly, what that does is that when we put quality people in a franchise that has a momentum that is building, it is actually a very good way to create value. So I think that investing smartly, investing with high-quality people in businesses that I think are gonna be really serving clients and allow us to do more, is gonna be actually quite accretive to our shareholders. Frankly, I think about all of the additions that we make to our business right now, and I think about it with respect to what's gonna really create value. Maybe not this quarter, but in a couple of quarters and certainly over a year or two. And so I'm really trying to get a horizon that really does invest.
We're being very careful about how we invest, and really also as we add people, we're also being really disciplined about our headcount. I think that's one of the things that I have to do responsibly as steward. You know, do we, if there are expenses that we can take out, if there are places where we should save money or if we, if there are kind of upgrades that we need to do as a firm, that we should do those.
And so I'm trying really hard, and, you know, we, we don't get into the absolute specifics of that, but I, I would say that if you saw really how we're thinking about it and what we've actually done in terms of, really working on the expenses, I think our shareholders would be happy with how we're doing it. I believe that our partner base is the strongest it's ever been. Feel really good about what we have and what we're really going to market with, and really how we're going to battle and how we're fighting for business. I think we've got really high-quality people, and, and I think that's... To me, that's the best bet I can make for our shareholders.
Okay. So maybe just what that means in terms of operating margins. You know, I guess it would be helpful if you could maybe talk differentiate between some of the comp and non-comp ratios. You know, again, I'm not trying to ask for the next quarter, but just generally how you're thinking about the trajectory of those for next year. And then I think as we reach that normalized state, what do those look like? Is there any reason why they shouldn't be able to get back to those historic type ratios?
Well, in terms of our comp ratio, so much of that has to do with revenue. You will see our comp ratio come down, when we start to drive revenue. I mean, as you've seen, it's been a depressed revenue state, and we have invested through it. There's no question that we've made some decisions at this moment in the cycle, that we feel like we have a very good business base. We have a real opportunity set, and so we've decided to invest through it. I understand the import and the seriousness of investing into a down cycle for, you know, with respect to how investors will feel. That does drive up the comp ratio by doing it that way. But I really believe, and I couldn't do this unless I really believed it.
I really believe that by doing this, what we're gonna do is, as the market turns, we are gonna be very well positioned to drive revenue hard. And if revenue does really go up, you're gonna see our comp ratios come down materially. So I think you're gonna see us go down. Can I say it's gonna get down to, you know, where it was two or three years ago? I can't say exactly where it will go to, but it's gonna come down materially. And I think that we will be, I think, well, hopefully perceived to have been responsible about the money we've spent and how and where we've put it to work, and what the investment that has been made, and that's, that's gonna be what I'm gonna be judged on.
Do you know, have we been able to actually put money to work in a way that, that actually is favorable to shareholders and the value of the franchise? At the end of the day, what this is all about is, can we build the franchise and create value so that shares are going up because we've made the right bets, and that's, I think, what it is. In terms of non-comp expenses, I hope they go up because that means we're traveling more, we're pushing harder. You know, we've taken some you know, we've actually taken some space because we're growing some. But I hope it goes up because I really believe that I want people out there traveling. I want more activity.
I want people to be thinking about things and being out with clients, and they are now, and it's going. Frankly, I don't think the market will be unhappy with our non-comp expenses and non-comp ratio. Over time, I think that that'll be fine. I think that it'll move, though, with activity level.
Okay, so maybe just the other side of that equation, which is, you know, in a downside scenario, as you think about what that could mean, are there levers that you would... So let's say revenue stays at this level. We don't see that pick up next year. Are there levers that you would contemplate pulling to manage the expense base differently? Obviously, you know, I think across the industry, there's been so much hiring. There hasn't really been necessarily that other lever being pulled.
Right. There's no question. I mean, the biggest lever you'd pull is you'd actually look at headcount and really push hard on that. We've chosen not to do a RIF. We've been responsible about managing our headcount numbers, so you know, you will see that we've actually as we've added, we've subtracted, so we've really pushed that. But we've chosen not to do a quote-unquote, you know, RIF, and I think if you really had to do something, that would be the place where you started. Because basically, that's the biggest expense we have as a firm. I mean, we don't have the big balance sheet. We're not carrying a lot of debt. It's really it would be that. And so that's, you know, that would be the biggest thing.
You wouldn't pair off businesses. You'd really just look at going into your ranks, and you'd say, "What are the bottom performers?" And you move harder on that.
Okay. All right, so I, I have one more here, which is just on capital returns. You know, obviously, those are down, as you'd expect, given the weaker environment, substantially versus last year and, and obviously versus the peak in 2021. Maybe you could just give us your updated thoughts on, on capital return priorities, divi, dividends versus buybacks, and I guess the, the possibility that you would ever do any sort of inorganic action.
Right now, I don't see us doing the inorganic action, and the reason is because I really like our investment opportunities with what we have. And frankly, I think that investors look at us and say, "We want you doing what you think you do well and what we think you do well." So I'm staying very focused on that, and I really do believe the opportunity set is good. I really think we can grow from where we are, quite substantially, and so I believe that we're gonna be i f things go the way I think they will, I think we're gonna be creating some very good returns for investors. The way I think about capital return is we are carrying quite a bit of cash.
There's no question that as the market strengthens and returns, we're gonna return cash to shareholders. What we've always said, and I really believe it strongly, which is every dollar of free cash that we have that is not used to invest in the business, we're gonna return to shareholders. So we'll do repurchases. We will keep the dividend, and we will continue to drive it forward. We're not gonna lead by being the most aggressive with respect to dividends, but we're gonna protect it, and we're gonna do everything we possibly can to make it a good part of the, you know, the asset return scenario. So it'll be a piece of it, where you'll see us really do the variation as in terms of share repurchase.
Okay. Well, with that, thank you so much, John. This was fantastic.
Thank you all.