Okay. Let's get started here. We are pleased to welcome Navid Mahmoodzadegan, CEO and Co-founder of Moelis & Company. Navid took over the CEO role only about two months ago and was a co-founder of the company, which was founded in 2007. He previously served as co-president. Prior to Moelis, Navid held leadership roles at UBS and DLJ with over 33 years of investment banking experience and as a founder. I think he has a unique perspective both in the industry and the company. T hank you so much for joining us.
Thanks, James. Great to be here.
Okay. N ow I think this is your second conference since taking over the CEO role. Have there been any surprises and what excites you most about the future?
Thanks sir. T hanks for inviting me. It's great to be here. No real surprises. As you pointed out, I've had the privilege of being a founder of the company and have been part of the senior team helping to lead the company, you know, since day one. I knew what our firm's about. I think that's one of the real benefits of me taking over this role is, you know, I'm well-known to our population and I think there's just a ton of excitement within the firm about, you know, doing a seamless transition from within. A lot of what we do as a firm is about talent development. We talk about that a lot.
It's been one of the foundational pillars of the company, taking bankers out of schools, developing them on our platform, having them well-established within our culture and seeing them succeed as managing directors is something we're really good at. Being able to do succession that way too, I think really reinforces that. It's been great so far. The mood around the firm is incredible. The excitement in the future is incredible. Our business outlook is really strong and so I'm excited to be in this role.
Okay. Great. Y ou talked about on the last earnings call how, your focus on clients, growth, and culture. I think those are the three. So maybe you could just expand a little bit on those, but then maybe also just on the key strategic focus areas as you look ahead.
Sure. Let me start with culture. As I mentioned, the culture of the firm is very dear to us. We pride ourselves on having a culture of collaboration and teamwork, people working together. The firm has very much has a one-firm feel, even though we have people who focus on sectors and geographies and products. What we like to do and what we're really good at is kind of bringing all the best of all of that, of those capabilities, to our clients' situations, and I think we're exceptionally good at doing that, which is, I think, part of the secret to our success. A s we've grown from a founding group of a few people to 1,400 people now globally, I'm really proud that the culture is very much intact and thriving and evolving in a really positive way. Growth.
We, over the last number of years, you know, growth has been central to our firm, but, you know, I think really since COVID, we've had four big growth initiatives that have been very, very successful: build out of our Capital Markets team, build out of our Technology team, build out of our Oil & Gas team, our Energy team, and more recently, the build out of our PCA business, and each of those, and I'm happy to talk about each of those, has been enormously successful. The early returns on PCA are very, very promising, even though that team has only been with us here for a few months. Very, very promising and very much on track with our going-in thesis.
Continuing to grow the firm intelligently with difference makers in lots of sectors that we're not currently covering is what I'm really excited about and something I'm gonna be spending a lot of time on.
Great. I wanna touch on a couple of those products or the growth initiatives, but maybe, just one more big picture one here. Y ou've been here since the beginning, but I'd say the past five years have been a pretty big step up in growth in terms of talent. So maybe you could just talk about the talent you've added in recent years and maybe how the talent has evolved over the history.
Yeah. Sure. Y ou know, again, what we're trying to do is really look at what are the big market opportunities, what are the big TAMs where we think we have license to win and where we think there's big opportunities for client impact, and you know, it became obvious to us, and let me go through each of those. You know, Capital Markets was an area we were in since the beginning, but when you look at the evolution of the Capital Markets, growth of private credit, all the different capital providers that were out there providing all different slices of capital structure, so many of those providers out there and companies trying to navigate all of those different providers, it lent itself to a much more advanced advisory opportunity there, helping companies and sponsors navigate private credit.
Second, you had an explosion of new technologynologies, and opportunities to finance growth companies. And so making sure we had an A-plus Capital Markets team integrated across debt and equity to attack all of those opportunities has proven to be a spectacular success. Our Capital Markets group will have its best year ever this year. We're continuing to invest behind that and grow behind that. Similarly, technologynology, you know, we, we've been in the technologynology business since the early days of the firm, but we were subscale in technologynology. W hen we looked at that marketplace, we saw the biggest sector by fees. We saw a very vibrant and active sector, and we saw one where financial sponsors, a space where we historically played a lot in doing more and more technology deals, but we had a subscale Technology team.
So being able to go in there and hire a group of people that we spent years developing a relationship with, bringing them onto the platform has been, you know, a really big success. And done the same thing in Oil & Gas and PCA is a product that's very strategic for us. B eing able to provide financial sponsors with a GP-led secondary continuation vehicle product is in and of itself a big revenue opportunity for us, but it's also protective of our M&A franchise because lots of times sponsors are looking at portfolio companies and saying, "I could CV this company. I could sell this company. I'm not really sure what I wanna do." And they really want one advisor to come in and be a thought partner with them to help navigate that.
If you didn't have an A-plus effort in CVs, it was a lost revenue opportunity, but it actually also threatened part of your M&A business too.
Interesting. Okay. Y ou started on private capital advisory just there. M aybe you could touch a little bit on where you are in the process of building the private capital advisory business out. And then maybe just, you know, how should we think about the growth ambitions there over the medium term?
Sure. Sure. So as I said, within PCA, the first business we're really focused on is GP-led continuation vehicles, GP-led secondaries, and that's the most strategic business within PCA for us. Right now, with our leadership team and with the people we've hired, including some people who are gonna be starting with us next year after they sit out notice periods, we have about seven MDs focused just on that space, inside of our PCA business, and that's a good critical mass of people to get the business up and running and to have a credible platform to present to clients, which we've already been doing very successfully. Y ou will grow that over time as the business opportunity expands, and so that's GP-led secondaries. From there, there's numerous other ways to grow the PCA business.
One is in, you know, LP secondaries, which is less strategic but potentially a, an opportunity for us if we can hire the right team. There's primary fundraising, which is more strategic, a nd then there's GP stake sales. I think eventually over time, we will look to add all of those capabilities.
Okay. Y ou talked about the four areas of hiring. It sounds like three of them are, you know, you feel like you've completed a lot of the growth there. One we just talked about. H ow do you think about hiring talent from here? You know, how much hiring do you think you can get done in this sort of backdrop?
Look, when we look at industries and the sectors, we're in every major sector group with great teams. But within those big sectors, there's many subverticals where we just don't have coverage. The big opportunity for us is to fill in those white spaces within these sectors, especially the ones with the biggest fee opportunities. When I look at, just to pick out a few, healthcare and industrials. Within healthcare and industrials, we have spectacular teams in parts of those ecosystems, but there's many other parts of those ecosystems where we're subscale or we're completely absent. Hiring difference makers to bring into those businesses to establish and develop and grow those franchises, I think is a major opportunity for us as we look to scale the company.
As we do that, we'll continue to add product capabilities, M&A, Capital Markets, you know, and, and as when we talked about PCA. But the big white space opportunity right now is to grow out verticals within our big teams.
Okay. Last big picture one here. Y ou know, I think you're coming into the role at an interesting time in terms of AI disruption. What does that mean for your business and headcount and maybe margins? and, and how are you shifting investment in response to that?
Sure. W e have a couple different working groups within our company with some of our brightest people who are really passionate about AI and technologynology and subject matter experts, you know, focused on precisely, you know, this set of questions. I think right now we're focused on what's practical in terms of analyzing, identifying, testing, and ultimately deploying all the tools that are being created for our industry. S o there's a number of those tools we've already deployed to our bankers. A lot of our bankers are using those tools, finding them very, very helpful in terms of, you know, making them better and more efficient. I think the number of those tools we push out to our bankers will increase over time.
Second, you know, we have a project going on trying to figure out how to integrate a lot of this data that we've collected over the last 18 years and making sure that our data is usable, and can plug into these AI tools. I think that is sort of the next iteration that we're thinking about. I think your question about what is it gonna do to our pyramid is subject to a pretty big debate within our company. I think some people within our company look at all of the productivity tools that have come before: spreadsheets, the internet, mobile, etc., and said, "Well, that's made everybody better and more efficient, but we haven't shrunk our headcount at all.
Why is this any different?" And other people think this is such a transformational technologynology that it's really gonna take over a lot of the tasks that, you know, some of our people are doing right now. I personally don't believe, and right now we are not changing at all our plans for headcount. So when we go and we recruit at schools, our analyst programs are as big as they've ever been. Our planning is still for full analyst programs. If I had to guess, I think that's gonna continue into the indefinite future. R emember, those programs are important not just to help support our teams, they're also the next generation of senior bankers.
It's very important, especially in an apprenticeship culture, an apprenticeship business that we're all in, to make sure we're hiring the best people out of the schools, we're developing them, and we're creating that next generation of Managing Director.
You brought up data. I think that's really interesting. You know, one of your competitors has talked about how their view is that data allows you to show up when someone's about to do something, like selling a family business, for example, and it helps with that. L ook, you've had a lot of transactions.
Yeah.
In the past, what is it, 18 years now. So maybe you talk a little bit about the data.
Yeah. Look, I do think we have a lot of information sitting within the experience base of our bankers within the four walls of our company. You know, how do we use that data to win business, to give better advice, and to make transactions happen is really the key question. You know, I do think, you know, that's something, you know, we're focused on. I do think AI and the promise of AI and integrating our data will help with that. I think there's clearly an opportunity in the future for the banking industry, our industry, our firm to be able to be much more productive at all levels of the organization. That doesn't necessarily mean less people or a change in pyramid. It just means a much more productive business.
I think if we can harness data and harness AI the right way, that will be an important part of that.
Doing more for your clients. That makes sense. Okay, so maybe let's turn to the business trends. As we look ahead to next year, 2026, what's your mark-to-market on the health of the macro and what does that mean for your businesses?
As I look out to 2026 in dialogues with our clients, I think there's general optimism and confidence in the macro economy, state of the economy, direction of travel on interest rates, inflation being relatively contained. I think for the most part there's general confidence and optimism. That doesn't mean there aren't parts of the economy that are less peppy, or that are showing some cracks. But I think for the most part, you know, people feel good about the macro. I do think there are secular forces, technologynology forces that are forcing a lot of companies to use M&A as a tool to make sure they're best positioned to be on the winning side of technologynology change as opposed to the losing side of technologynology change.
So I think the need for scale, the need to make sure they have good exposure to growth opportunities and, and growth vectors within their companies, making sure the companies are focused. You know, the market wants focused companies. They don't want disparate companies with, or disparate businesses with inside of a, a big conglomerate. So they want focused businesses. I think M&A is an important tool to, to help facilitate those goals. My outlook for overall M&A activity is quite, quite good going into next year. This has been generally a very good year this year, primarily led by larger transactions, primarily led by strategic transactions. I think you're gonna see that continue given, you know, the regulatory environment and some of the things I just mentioned.
But I think what's been missing in the market so far this year has been kind of that middle market, primarily sponsor-led businesses. I think if you look at business of transaction sizes of $1 billion or so, you know, the deal counts are actually down this year versus last year. I think that's gonna change. When we kind of look at our deal activity, our pitch activity, our mandates, and the conversations we're having with our sponsor clients, especially, I think that's gonna turn next year. I think the aperture on deal activity in that middle market is gonna be much more positive.
On the mid-market and the sponsors, what's the catalyst there? I mean, rates are slowly creeping lower. Is that enough? Are there other factors that we should be thinking about that give you that confidence?
I think, I think this is another year or two of a lot of these companies seasoning into valuations that are gonna be acceptable for sponsors to trade. I think it's another more seasoning in terms of sponsors hearing from their LPs of a desire for liquidity and monetization and DPI. I think the fact that strategics are leaning more into corporate transactions helps because sometimes sponsors sell to other sponsors, but a lot of times they're selling to strategics. When you have a regulatory environment that's more welcoming of strategic transactions, I think that bodes well for some of those assets trading as well.
I think I don't think there's a step function in any of those things happening, but I think the cumulative effect of all of those things for becoming a forcing function for the inevitable churn of a lot of those businesses that need to trade.
You talked about regulatory posture a little bit already. You talked about it in the last earnings call. Are there still bottlenecks here? And maybe, you know, when you're in the boardroom, are there deals that these companies are looking at that they couldn't do a year ago?
For sure. Yeah. Look, I think it's generally acknowledged that, you know, this administration is much more accommodative of larger transactions, strategic transactions, especially in, you know, some spaces where it was almost taboo to think about deals in the previous administration. I think this administration doesn't view sizes, as in and of itself as a, you know, out-of-the-box problem for companies to do transactions to get bigger. S o there's definitely more of a green light flashing for people to think about and actually execute deals that you couldn't do in the last administration. You know, we'll see as some of these transactions go through the regulatory process, you know, how the Justice Department, the FTC actually treats these transactions. But there's generally a view that, you know, you can do things that you couldn't do in the last administration.
Okay. M aybe just quickly on some of the sector-wise trends. Maybe firstly, the outlook for technology. I think that's the biggest sector, so very important what's going on there. T hen, I think you've talked about strength in healthcare, industrials, other parts of TMT. W hat areas do you think are two to three areas, let's say, are most durable in your view, or likely to improve next year?
transactional activity?
Yeah.
Look, when I look at our firm and I look at our pipelines and I look at deal activity, it's hard to actually find a sector within our firm that I don't think is gonna be up next year. I think it's really across the board. And so, yeah, you could talk about technology and healthcare and industrials and some of these spaces that I think are gonna be active. But it's almost easier to talk about where you don't think it's gonna be active 'cause it's, there's not many of those. So I think the outlook and optimism is pretty broad-based. I don't think it's necessarily gonna be concentrated in a few sectors. I think it's gonna be pretty broad-based.
Interesting. Okay. So you've added some European talent recently. Maybe you could just give us your thoughts on Europe and is there a, you know, a structural growth driver there or is it really just that you're moving into the market in a bigger way?
Europe is definitely lagging in terms of the health of the M&A market and the vibrancy of the M&A market. There's some structural reasons for that that we could talk about. But if you sort of look at the trajectory of the U.S. M&A market versus the European M&A market, it's on a different slope. You know, having said that, it's a really important market. It's a really important market for us. It's important for us to be global and to have, you know, a great team and an active team there. I t's especially important for us to match our sector capabilities in Europe with great teams in the United States. W e do best in Europe where our bankers are part of a global coverage team with our industry bankers in the United States. So that's what we're really focused on.
We're really focused on in some of our sectors where we have real strength in the United States to make sure we have equally great strength in Europe, and having those teams work together. Y ou know, as I said, the European market's more difficult, but we're continuing to invest there, but we're doing it prudently.
Okay. Maybe just the last one, near term. I hear a lot of positivity here for the longer term, but maybe near term, you know, we had the government shutdown. The trends I see suggest there was a little bit of a blip in completed volumes in October and November. I n hindsight, have there been impacts? Anything structural or was it more of just a blip?
Nothing structural, more of a blip. I think, look, it's possible that a deal or two that would've closed, you know, in the fourth quarter may slip into next year, but it, but not clear that that's gonna be the case either. So I would say any impact from the shutdown is very, very modest and, and short-lived.
Okay. Well, let's see if there's any questions in the room. If there's a microphone. Is there a microphone? Nope. Okay. Well, I guess if anyone wants to speak up, I can repeat the question. So maybe I'll just repeat the question. So just expand the definition of technology, including media and commentary on Paramount transactions.
I'm not gonna comment. We are involved. I'm not gonna comment on that particular transaction. So, and the first question on.
And please be careful on sovereign government. If a sovereign is involved in [Inaudible]
I'm not gonna comment on that whole situation.
Look, I think you're maybe taking a step back. I think you're definitely seeing more of a convergence of companies that have historically been thought of as technologynology companies and companies that you would've thought of as content companies. You know, you're seeing that, you know, across numerous companies in the ecosystem. I think that trend of convergence is gonna continue. At the end of the day, what really matters is, you know, what's best for consumers, and consumers consume content, and they do it increasingly through advanced technologynology platforms, and so inevitably, you know, those worlds are gonna converge, and I think you're seeing that play out in the transactional environment, in the operating environment, and I think you're gonna continue to see that.
Okay. Great. So maybe just one more here before we turn away from M&A, which is just mid-caps. You know, you talked about sponsors being a key driver of mid-cap picking up. But is there something else that's driving why that stat you quoted, you know, deal counts being down is happening? Is there something else that we're missing in mid-cap that we don't have in large cap or we do have in large cap?
I think most of it is, again, a big chunk, not all. W hen you look at a mid-cap company, the ownership of that really can come in three ways. It could be a privately owned company, family-owned company, could be a sponsor company, or could be a public company. I think over time, you've seen a shrinkage of the number of mid-cap public companies, right, for a lot of different reasons, structural reasons, and I think the calculus for a lot of the private owners is similar to the sponsors, which is, can I get the price I want? I think for the last few years, that's been challenging. It's been challenging 'cause of rates. It's been challenging 'cause of inflation. It's been challenging 'cause of macro volatility and a general sense that there was malaise in the M&A environment.
So as those constraints are lifted, I think you'll see more private companies, family-owned companies come to market. And I think you'll see more sponsor-owned companies come to market.
Excellent.
Obviously, families are also the timing is dictated by other considerations, right? Death, etc., estate planning, those kinds of things. But I think you'll see, as the M&A market comes back, in that part of the world, I think you'll see more of those transactions come to market as well.
Perfect. Okay. So let's turn to restructuring. I, you know, I think you've got into a somewhat weaker 2025 in restructuring. Maybe just help us think through some of the drivers this year, and then maybe just the longer-term outlook for the business.
Yeah.
I think within that answer, if you're willing to break down a little bit between the traditional bankruptcy versus l iability management as well.
Look, we have one of the leading, you know, restructuring franchises on Wall Street. You know, we call that business CSA because it's really much more than just traditional bankruptcies. It's liability management, out-of-court restructuring, so on and so forth, balance sheet management. It's a, you know, great team that's been, you know, very important to the success of the firm for a long period of time as both a, you know, deep pool of revenues for the firm, but also it feeds into M&A opportunities, etc., for the firm. We've grown that business over time. Last year, we hired and really focused on the creditor side of the business, which historically we had just focused on the company side.
We made, you know, two senior hires over the last couple of years on the creditor side of the business to enhance those capabilities. T hat's gone well. In terms of the actual revenues this year, down a little bit from last year, last year was a particularly good year for that franchise. I think they probably punched above their weight, you know, due to some, you know, unique, you know, fee opportunity situations that last year. I think when you look at the overall health of the economy, lower rates, all of those things that are giving us optimism on the M&A side, they're also creating less new opportunities on the restructuring and liability management side. W e've definitely seen over the last bunch of years, a trend away from, you know, traditional restructurings, in-court restructurings.
Part of that is because of the heavy costs associated with restructurings. As much as possible, companies, creditors, etc., are trying to keep companies outside of bankruptcy as opposed to in bankruptcy given the tremendous, you know, transactional costs and friction costs there.
One of the things that I found very interesting in restructuring is that there seems to be a somewhat finite pool of bankers. So even though the quantum of debt has expanded, you know, many-fold over the past decade, you haven't seen this tremendous growth in restructuring MDs. There are certainly not as much as you've seen growth in M&A MDs. Why is that? And why can't we see that catch up?
It is a very niche area, and it does require a particular expertise to work your way through and understand traditional restructurings, liability management, etc. You're 100% right. There's a finite universe of people who do that business at the highest levels, and having a team of people, a critical mass of a team of people who do that, is really important. It's a big barrier to entry, you know, to be able to prosecute that business.
One of the things that's unique about our business and one of the reasons we've been super successful at it is, because of the collaborative nature of the firm and the collaborative culture of the firm, our restructuring team works very closely with our industry bankers, with our sponsor coverage bankers, to bring, you know, all of those relationships and all of those strengths to bear to, you know, chase client opportunities. I don't believe many of the other franchises on Wall Street are as collaborative within their organizations to go do that. A lot of them are much more siloed, and so one of the, again, one of the hallmarks of the way we approach that market as we do other parts of our firm is, you know, working together to do that, and I think that's been part of our success.
Maybe let's just turn to margins. Maybe you could just update us with your outlook on the comp ratio. I'm not talking about the next quarter unless you wanna give us a quarter. But maybe just the longer-term outlook and what does normalized comp ratio look like for you?
Look, we are very appreciative that our shareholders have been understanding around, you know, the investments we've made over the last couple of years in a market that was more challenging on the top line. That caused our ratios to go to levels that, you know, were, you know, not normalized. W e're very cognizant and have been working really hard to kind of bring those numbers down as you've seen this year. W e're gonna continue to bring that comp ratio down. I think especially given the payoff from these past investments and what we're seeing, the overall macro environment and health of the M&A market, I think we can both continue to make investments in growth and bring that ratio down as we roll forward here over the next many quarters and years. W e're committed to doing that.
You know, where that settles in, you know, I could tell you where I'd like it to settle in. I think I'd like it to settle in probably in the low 60s, but whether that happens will depend a little on the competitive environment. Again, we're in the market for talent, and we gotta protect our own talent. Y ou know, some of that's within our control and some of that's not within our control. I'd like to see it get to that place. I think that's a fair balance between investing in growth, investing in our people, and, you know, our relationship to our shareholders to make sure that that's balanced, but whether we can ultimately achieve that will depend a little bit upon, you know, the macro environment and the hiring environment.
Makes sense. Maybe just, you know, on capital return, you built a strong cash position, no debt. I think that you're more focused on buybacks as a way of returning capital than special dividends, which, you know, was something that you used in maybe 10 years ago much more prevalently. Maybe just walk us through your capital return philosophy.
Sure, so look, first and foremost, we wanna make sure we have a pristine balance sheet that can weather any storm that was to hit in the marketplace and any reasonable shock to the system, and that's really important to us to make sure we have a fortress balance sheet. We wanna make sure we can continue to make, you know, smart investments in growing the firm, and we wanna make sure that, you know, we can protect our dividend. Our dividends at a relatively healthy level, especially relative to our peers, and so making sure that that continues, you know, uninterrupted is gonna be really important. Having said all that, I think we can do all of that and still have a bunch of excess cash.
As we think about what to do with that excess cash, if the choice is dividends, I'm sorry, share repurchases or special dividends, you know, I think we're gonna lean more into repurchases than special dividends.
Okay. So maybe one last one for you as we look ahead to 2026, your first full year as CEO. Any last words, anything we should be thinking about for next year?
Firm's in great shape. Lots of excitement about the momentum of the firm, our hiring, the quality of the culture of the firm. Lots of great conversations to continue to grow the firm, you know, smartly. And a macro and deal outlook that looks really positive. So I'm excited about the technology in 2026.
Great summary.
Thank you.
I appreciate it. Do it again next year.
Sounds great.
Thank you.