COWN (2019 - Q2)

Good morning, ladies and gentlemen, and thank you for joining Cowen's conference call to discuss the financial results for second quarter 2019. By now, you should've received a copy of the company's earnings release, which can be accessed at Cowen's Web site at www.cowen.com.Before we begin, the company has asked me to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release, and other filings with the SEC. Cowen has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the company's filings with the SEC, which are available on the company's Web site and on the SEC Web site at www.sec.gov.Also on today's call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. Reconciliation of those measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release.Now, I would like to turn the call over to Mr. Jeffrey M. Solomon, Chairman and Chief Executive Officer. Jeffrey

Thank you, Operator. Good morning and welcome to Cowen's second quarter 2019 earnings call. This is Jeff Solomon. And joining me today on the call is our CFO, Steve Lasota. As a reminder, we made quarterly financial supplement available in the Investor Relations section of our Web site. We encourage you to review it in conjunction with our earnings release. This quarter, the supplement provides details on our segment reporting change which represents our business in two segments, our Operating Company or OpCo, and our non-core Asset Company or AssetCo. This format aims to provide investors with greater insight into the profitability of our core business and the value of the legacy investments on our balance sheet.Presenting our financials this way reflects the way we manage our business, and also highlights the progress we are making towards achieving our long-term objective of mid-teens average ROCE on a sustainable basis. As you will notice, our operating company segment generates a much higher return on common equity or ROCE than the assets company segment. Steve will provide more details on this segment change shortly.Turning now to our results, the second quarter of 2019 was strong overall. It was the best quarter on record for overall revenues since the formation of Cowen Inc. with our highest ever investment banking revenues and second best quarter of market revenues. It also marked our sixth consecutive quarter of consistent profitability on both a GAAP and economic income basis. While it was a record quarter on the top line, it was not a record quarter of profitability as we continue to make investments by identifying additional talent, attracting new businesses, and enhancing our capabilities. These investments impact our expenses in the near-term as they are crucial steps towards increasing our revenue diversity and promoting future growth.Taking a look at the performance of our operating businesses during the second quarter of 2019 in banking and capital markets, investment banking revenue in the second quarter set a new record, up 30% year-over-year. Issuance demand was strong in the wake of the SEC shutdown in the early part of the first quarter. As a result, equity capital markets comprised 87% of our banking revenues, which is up from 81% in the second quarter of 2018. We booked 46 capital markets transactions during the quarter, and we served as a book runner on 32 of them. Healthcare continues to be our strongest sector, as we did 15 healthcare equity transactions in the month of June alone.However, our industry diversification continues. We were lead left on more than 40% of the transactions in sectors outside of healthcare, and non-healthcare investment banking revenues represented 38% of total investment banking revenue in that quarter, up 32% from the second quarter of 2018. We continue to build out our banking capacity. During the quarter, we hired a new co-head of TMT Banking as well as three other senior software bankers. We also hired two managing directors in our consumer group to further expand our cannabis practice. While M&A revenues were down 18% year-over-year, there is a sold pipeline building for the back-half of the year.The integration of Quarton has been progressing well, and revenues were up sequentially as the pipeline grew during the quarter. As a reminder, the middle market transactions, in which this team specializes, tend to be heavily weighted towards the back-half of the calendar year. And as we look ahead we will opportunistically bring additional advisory talent on to the team as we continue to evaluate the potential for additional bolt-on acquisition opportunities and organic hires. We believe these investments will pay off and increase higher multiple advisory revenues and improve margins down the road.Now turning to our Markets division, we had a strong quarter across the board with our second best revenue quarter on record. Markets revenue which includes brokerage, securities, financing, and other revenues was up 2% from the second quarter of 2018. Brokerage revenues alone were up 7% year-over-year in contrast to the 2% decline in United States market wide trading volumes and outpacing the number of competitors who reported significant declines in equity trading volumes. Highlights during the quarter include strong revenue increases in special situations, Cross-Asset trading, and derivative. Revenue for our institutional services business which includes prime services, clearing, soft dollar, and commission recapture increased 11% in the second quarter of 2019 in part in strength to global clearing.We continue to make progress in the global expansion of electronic trading, prime capabilities, our outsource trading platform, and securities finance operations including the launch of a swap trading capability. In sum, our Markets division is outperforming the competition. And we believe we are well positioned to gain additional share even as others stumble. Our research effort has also continued momentum.During the second quarter, we were ranked number three -- the number three research provider in the U.S. in the StarMine Awards which recognizes analysts for their returns and their recommendations and the accuracy of their earnings estimates. Moving to investment management, as a reminder we are continuing to concentrate on private equity style investment offerings and targeting our investments in core areas of expertise at the firm or what we call Cowen DNA. This is an important part of our simpler, fewer, deeper philosophy.Looking at our existing strategies, the second Cowen Healthcare fund is approximately two-thirds investment in 12 portfolio companies. And we expect to raise additional capital in that strategy in the second half of the year. HealthCare Royalty Partners committed over $300 million in the first half of the year and is now 97% committed in HCR III. HCR currently has over billion of capital available to purchase royalties and make debt-like investments in commercial or near commercial stage healthcare assets. Merger arbitrage is positive for the quarter, outperforming the benchmark HFRX merger index and our active fund had a strong first half and was slightly positive for the second quarter.Turning to our balance sheet, we have been talking about how we ensuring that we will be seen and not heard, and our new segment reporting is designed to help advance this process by providing increased transparency into our non-core asset. As we are able to monetize these investments, we intend to redeploy the capital in a combination of accretive investments in our core business as well as additional share repurchases.However, we are not waiting on monetization to return some of the capital to shareholders. In the second quarter, we repurchased 461,000 shares of our stock for a total of $7.4 million. We will continue to buy back stock opportunistically out of cash flow. Our remaining repurchase authorization is $17.6 million. As a reminder, we are pursuing a balanced capital allocation approach by buying back shares while still maintaining the capital to support the growth of our business whether that’s bringing in new talent or investing more in incoming generating investments such as securities financing or funding future Cowen DNA strategies.Before we answer your questions, I would turn the call over to Steve Lasota for a brief review of our financials. Steve?

Thanks, Jeff. As Jeff noted, we achieved record revenues and solid profitability in the second quarter even with a significant decrease in our incentive income and investment income. This demonstrates the strength of our core operating business. For the second quarter of 2019, we reported GAAP net income attributable to common shareholders of $4.1 million, an increase of $4000 from the prior-year period.GAAP revenue is up 25% year-over-year to $292.2 million from $234.50 million in the prior year period. In the second quarter of 2019, comp and benefit expenses were $136 million. Non-comp expenses for the second quarter of 2019 were $102.1 million and D&A was $5 million. We also recognized a goodwill impairment of $4.1 million in the second quarter of 2019 related to the change in segments and restructuring of our reporting units.Our income from gains on investments was $9.7 million, income tax expense was $5.1 million, and non-controlling interest expense was $4.3 million. As I have noted in prior reporting period, we continually monitor and review our segment reporting structure in accordance with the authoritative guidance to determine whether any changes have occurred that would impact a reportable segment.Because of the change in the Chief Operating decision maker, Jeff, at the end of 2017, the company experiences a strategic shift to refocus our businesses on a set of differentiated products which are aligned to the content and insight within the company's domain of expertise or Cowen D&A. As a result of this shift, effective this quarter the company now has the following business segments.The Operating Company segment or OpCo consists of four divisions, Cowen Investment Management, Investment Banking, Markets and Research. The Asset Company segment or AssetCo consists of certain of our private investments, private real estate business and other legacy multi-strategy funds. While the AssetCo segment is not a reportable segment, we will provide segment level information for AssetCo.Now turning to our non-GAAP financial measures which we refer to as economic income, as a reminder, we use economic income to measure our performance and to make certain operating decisions. In general, economic income is a pre-tax measure that eliminates the impact of consolidation for consolidated funds and excludes goodwill and intangible impairment, certain other transaction related adjustments or reorganization expenses and certain costs associated with debt.Please note that economic income is now after the preferred dividends. Economic income revenues also include incentive income during the period when incentive fees are not yet crystallized with GAAP reporting as well as investment banking retainer fees collectibles during the period that would otherwise be deferred for GAAP reporting.The remainder of my remarks will be based on these non-GAAP financial measures. We reported economic income of $15.5 million for the second quarter of 2019 compared to $20 million in the prior year period. Second quarter economic operating income which is economic income before depreciation and amortization expenses was $20.4 million compared to $23 million in the second quarter of 2018.Economic income revenue increased 4% year-over-year to a record $244.4 million. For the quarter, Investment Banking revenue was up 30% to $104.2 million from $80 million in the second quarter of 2018.Q2 brokerage revenue was up 7% year-over-year to $120.7 million. Management fees for the quarter were $10.5 million compared to $12.5 million from the prior year period. Incentive income was $4.2 million in the first quarter down from $9.4 million in Q2 2018 due in part to reduced performances from the activist fund.Investment income for the quarter was $0.5 million down from $20 million in the prior year period due to lower returns from the investment strategies across the board. And finally other revenue was $4.3 million in the first quarter compared to a loss of $10.7 million in the prior year period. This increase is related to our reinsurance business. Turning now to our expenses, comp and benefit expense for the quarter was $135.5 million compared to $131.3 million in the prior year period, our comp to revenue ratio decreased year-over-year from 56% to 55.4% of economic income revenue.Fixed non-comp expenses totaled $38.4 million in the second quarter up from $34.5 million in the prior year period. Variable non-comp expenses in the second quarter of 2019 were $39.9 million compared to $37.2 million in the second quarter of 2018 and depreciation and amortization expenses were $5 million compared to $3 million in the second quarter of 2018.As a reminder, our 2Q 2019 expenses reflect the impact of the Quarton acquisition which closed at the start of this year as well as increased variable expenses tied to our higher revenues. In addition as Jeff noted we are making investments in our capabilities to meet our growth and diversification objectives.As of June, OpCo -- as of June 30, 2019, the company had invested capital in OpCo totaling $529 million. OpCo had total revenues of $238.7 million and economic income of $14.8 million in the second quarter. AssetCo, as of June 30, 2019 the company had invested capital in AssetCo totaling $149 million. AssetCo had total revenues of $5.7 million and economic income of $0.7 million in the second quarter.Turning to our equity, common equity which is shareholders equity less preferred equity was $716.1 million compared to $713.5 million as of March 31, 2019. Book value per share which is common equity divided by total shares outstanding decreased slightly to $24.29 as of June 30, compared to $24.37 as of December 31. Invested capital was $678 million as of June 30th, compared to $634.8 million as of March 31st, 2019. Return on carbon equity was an annualized 11.4% in the second quarter of 2019, down from 13.6% for second quarter of '18.In this quarter's financial supplement we also provide a segment breakout of return on common equity for the second quarter of 2019. Op Co had ROCE of 12.1%; in contrast Asset Co has ROCE of just 4.8%. This demonstrates in our Operating Company segment we are on our way to achieving a consistent mid-teens ROCE.With that, I'll turn the call back over to Jeff.

Thanks, Steve. So to sum it up, the second quarter was yet another milestone for us here at Cowen as we continue our strong momentum over the past 18 months. We've built a top-tier execution and research platform, strong capital market franchise with growth depth and breadth of capabilities, and an investment management business which leverages the strength of our domain expertise, all with the idea that we can help our clients to outperform. We're scaling revenues from our operating businesses even as we make investments to boost revenue diversity and promote future growth. We made a lot of progress, and I'm excited about our prospects for the future.And with that, I will open it up for questions. Operator?

[Operator Instructions] Our first question comes from the line of Devin Ryan of JMP Securities. Your line is now open.

Great. Good morning, guys.

Hi, Devin.

Hey, Dev.

So, I want to start on the brokerage business where you guys obviously had another great result there. I think there's some perception that it's a steadier business than investment banking but there's less growth. But Jeff, hearing you just talk about all the newer capabilities, securities and finance, clearing, prime brokerage, I just want to kind of dig in little bit to the opportunity for growth there. So, your market share has obviously been expanding in cash and electronic and some of the areas that you've been in, but it's definitionally [ph] small in some of these newer areas. So if possible just to kind of think about how you would quantify the overall addressable market for brokerage today, how that's evolved. And then just where you see the potential for some of these newer initiatives and the ability to drive growth for the overall platform?

So, let me talk conceptually for a second because -- and I think we all recognize that, and in particular in the markets business, so it's not just equity brokerage anymore, but we do cross asset, and we do financing, and we do institutional services. The idea behind it is simply that we have this core competency around research sales, but we recognized that the aggregate marketplace isn't growing at all. So when you look at total addressable market for equity commissions it's not growing at all, and it's actually been relatively steady to maybe slightly down, but it isn't falling off a cliff. And I think there's this misperception that the equities brokerage business is sort of on a big secular decline.And the reality is it's just been flat, and I would say people -- our clients are being much more deliberate with how they're spending their commission dollars, and how they're spending their expense dollars because they're managing their own expenses. So our job is to identity the core clients which we can service, and then provide them with as many services as we possible can to maximize the amount of walls that we have. And what it turns out is that you have to be excellent in the things you do or simply people will pick best of breed. And what you're seeing in terms of the growth of our business is the fact that we've been able to built best-in-breed product, away from just the cash equities business.So when you look at the penetration we have made with clients in our algorithmic trading capability, when you look at our ability to really do things in nontraditional business -- nontraditional equity businesses like our options business, we have significant market share that we can take from other competitors who don’t do it as well as we do. And what you see in this business from us is we are a net share gainer, particularly in a post-MiFID II world. We are taking advantage of the fact that a number of the larger players frankly are out of position. And our clients are beginning to make decisions about how they're going to spend their precious dollars, and they're really going to focus only on excellent product and capabilities. So that's where we position ourselves, and that's why you see the gains -- the share gains we've made.

Got it. Thanks, Jeff. And appreciate the new disclosures, breaking out the operating activities from the asset business. If possible, can we maybe just revisit where some of the biggest investments are that are, call it, in the asset segment. And any progress on freeing up that capital. And then just maybe a hypothetical, if you had all that capital returned today where would it go? Is it the stock price is at a level where the majority would go towards repurchases or how would you think about the, the thought process of where that capital would go?

So the assents themselves are doing well. I mean I think what we want to do here is say like these are legacy assets. Obviously we think there's an opportunity to look at our core operating business separate from the asset business. And as Steve mentioned, that's the primary reason why we're beginning to do this. We also manage the business this way. So if you look at our operating business, it's fully integrated, including the investment management business. And we have a separate process really geared towards managing the asset company. And -- but the assets themselves are doing okay. We're continuing to make progress on it.As we've mentioned, as it relates to Linkem, things have gone well in terms of the auction last year, so the validation, the value of that asset I think in the auction gives us a lot of comfort. We've actually extended our licensure there for another 10 years at the end of the year. And there's just a continued opportunity for that company to do better. We have about half of the fixed wireless market in Italy, and so that puts us in a really interesting position where a lot of players in that country really want to have access to our bandwidth and to our capability. And so that's what makes it unique. I think we've also said that we would be in a position to monetize that asset sooner rather than later, again assuming that we can get attractive prices for it.And so the management team continues to do the things to enhance our value. And you can see we have a markup in this quarter. We also said that we are not in control of that disposition, and that we have a larger partner there that ultimately can decide when and if we pursue liquidity paths. At the beginning of the year next year we have the ability to make decisions on our own with our position. And we'll assess that at the time to see how the company continues to do and whether or not we think it's an appropriate time for us to pull the trigger on that. So, in short, that's the largest of the assets. It continues to do well. And we're going to be looking for opportunities to create liquidity as we maximize the IRR for our investors, and that's really what we're doing there.And I'm not going to really go into how we would redeploy that. I think we said on the call -- earlier in the call that we are into capital optimization. And so for us we know that we can be more aggressive at stock buybacks if we had liquidity from these assets. And part of this is simply we know there's going to be a moment in time where the markets readjust, and we want to be in a position where we can play offense, and have the liquidity to play offence. And so we'll be careful about making sure that we don’t put the company in harms way by becoming a thinly capitalized company. But we recognize that probably the biggest impediment to continuing to buy back our stock is the fact that we have these assets in liquid positions, and we don’t want to ever be a forced seller to generate liquidity.And so we're just -- we're managing it as you would think to be cautious around that, particularly if the market goes sideways and we have a couple of quarters of softness, which we're not anticipating, but I think we want to be in a position where we haven’t put ourselves in a thinly capitalized position. So I hope that's helpful in terms of thinking about it, but you know.

It is, and I understand it can be difficult to -- that the hypotheticals is tough, but just to make sure we're clear on the thought process, is the bar of committing capital or redeploying capital to generate some return that's incremental to the current or the operating business return or equity, or is it something that is at the mid-teens return on equity or higher, or just what is the various thresholds so we can think about from the outside, and what those options might be or how you guys are looking at it?

So, I think the reason why we put out the mid-teens target on ROC is because we recognize that we can manage both the numerator and the denominator in that equation. If there's not adequate things for us to be doing or with the -- that will generate an adequate return then we can shrink the denominator and achieve that goal. We don’t want to be doing financial engineering, but at the same time we recognize that if we just don’t think there's a way for us to drive top line because it's not available to us or the prices of potential acquisitions or investments become too great we can just bide our time and do other things to achieve that mid-teens return.By the same token, we know that if you take a look at some of our competitors who have higher trading multiples they're almost all tilted much more towards advisory businesses where we can add margin off the back of this content creation engine we have. And if we have the opportunity to do that at attractive prices, just like we did in the Quarton transaction, and obviously it fits culturally and we could get that all to work. There are other opportunities for us to do that. I think we're just going to be highly selective and make sure that as we pursue those that we have a high probability being able to achieve greater than a mid-teens rate of return. I think the bar is really that high.

Got it, very helpful. Just last one for me, I'll hop back in the queue. Just on the equity underwriting business, and so clearly you guys are taking market share and moving up the league table, so it's not just market size opportunity, but if you could just talk a little bit about and in more depth, if you can, the pipeline today heading into the back-half of the year just given how well you've been doing, so any context around that.And then just in the healthcare space specifically, is there any concern as we move closer to the election just around maybe rhetoric picking up, so people would want to do something before that potentially happens, or is there any thoughts in healthcare specifically just given that there's -- moving parts here?

So to answer your first question, obviously -- we don’t manage the league tables. Our view, just to be really clear, is that league tables are an output of doing high-quality transactions. And I want to just make that distinction because I think a lot of firms on The Street do things that are questionable from an economic standpoint just to gain share in league tables. And our view is league tables are a great way to look at the score and the scoreboard, but only if you consistently deliver a high-quality outcome product, and that's really what we've done. And so I think what you're seeing in this quarter in particular, we had a good quarter in healthcare.But healthcare has actually been, year-over-year for the six months, is actually down almost -- our healthcare revenues particularly is down about 20%. Again, not surprising because of the year that healthcare had last year. And yet our banking revenues are significantly higher, and that's a function of the fact that we've been able to take and parlay that expertise to do 40% of the deals that we did outside of healthcare were book-run deals there's absolutely a recognition that the skill set that we have here is transcendent in terms of our ability to do equity raises for companies, both publicly, and frankly, privately too where we're seeing some exceptions -- exceptional work.So I think as we head into the election I think there will almost always be some rhetoric that goes around, and whether it's around healthcare or around who is going to be sitting in the Whitehouse in 18 months. And I think that the market could easily take a breather. But again, as we sit here now and we look at the backlog, it doesn’t seem like that's changing at all. And in fact we look at our backlog numbers, particularly for M&A and particularly outside of ECM, those numbers continue to grow. And I think I've -- I've said this on previous calls, and I'll just close with this, healthcare ECM actually, particularly the follow-on offerings rarely gets into backlog. And so we have our own shadow that we look at, and it continues to be strong.But the reason it doesn’t really get in to backlog is because when those companies raise money they usually do so really quickly when they make a decision, and then we execute really quickly, so. And I look at our backlog numbers, it's usually not inclusive of what we think the follow-on business will be healthcare, and so I'm always pleased to see that quarter-over-quarter that top line backlog grows, even outside of healthcare ECM.

Great. Thanks very much, Jeff.

Okay.

Our next question comes from the line of Sumeet Mody with Sandler O'Neill. Your line is now open.

Hey, good morning, guys. Just a couple of quick follow-ups to Devin's question, starting with monetization efforts, can you talk about Formation 8 and any updates there at all?

Hi, Sumeet. I don't have any updates on that. I mean the biggest investment there, I think we've mentioned on previous calls is Wish.com, you know, the company -- I only know what I read; the company continues to do well and continued to take in capital at higher valuations. I don't have any insight on when they decide to do whatever things they're going to do. I have no view.

Okay. And then secondly on banking, I just wanted to get a little bit more color on the non-healthcare banking revenue mix in the quarter where you're seeing the most momentum and not just the cannabis hires as you mentioned in your remarks. I just wanted to get your thoughts on that sector over the next couple of years, are those hires kind of in anticipation of your beliefs of a federal legalization or what are your thoughts around the potential for kind of material contribution to revenues there going forward?

I would say the fastest growing sector that we've had outside of healthcare are the one that you pick up the slack definitely consumer and a chunk of that is cannabis, just for everybody on the call, we don't thank U.S. cannabis companies because that would be in contravention of federal law. So the vast majority of our revenues is outside the United States are focused on people that don't touch the plant. And so there's a lot to be done there. And from our standpoint we started this process many years ago, it started around having a dominant research theme that enabled us to identify who we think are going to be the best, the best companies in the state and then pursuing those companies.And so, I still think we're in the early innings here certainly see a number of our competitors trying to play catch up. I think that's generally good for the market because it will open up capital and capital access. I see people raising money. Our clients are raising money, they're putting pockets of money and allocating capital in their larger portfolios. Some of the deals we've done this quarter are from some significant long only investors that you would recognize. And that suggests to me that it's becoming much more mainstream in terms of people's investment portfolios. So that's part of the reason why we've hired more people. Frankly, we've had so much inflow, inflow of opportunities, it’s been hard to talk to all, we want to make sure that we're executing at the top of our game. So some of the increased expenses that you've seen this quarter for headhunting fees and some of the investors were making an individuals are a direct result of this clear line of sight we have towards increased revenue pie in that space.

Okay great. Thanks. And then I wanted to get an update on the balance sheet simplification after getting a long short equity regarding the remaining strategies, are you largely comfortable with what you have, it's just a matter of kind of leaning into your strengths for growth or are there any potential changes you're still thinking about maybe with Starboard or anything else?

We’re good with what we have, I think it's been a long time to get that business coming again, if you see the AUM growth this year and the potential for AUM growth which was intimated, it's been in a number of years and it's really clear. So the fact that we're skidding down the number of strategies and we're focused in on doing what we do best for the strategies we have.I think is very comforting and we spent a lot of time over the last 18 months exiting things that we did and getting rid of trap costs and management time and focus on things we just didn't think, we'd get to scale. And so today I look at our AUM growth, some of that is from market appreciation and some of that is in increased inflows. The fact that our healthcare investment fund is now two-thirds investor, which gives us the opportunity to go and raise another one of those; the fact that we're likely to have a few more closings on our HealthCare Royalty partners product all that suggests that there's forward momentum in that business honestly for the first time in a long time. And Starboard continues to chug along and we're thankful for that.

Great, that's helpful, thanks. And then just one kind of clean up question on the revenues for the model maybe for Steve, but could you give a little color around that $4.3 million number, was that the driver there was that just the reinsurance business. And how should we think about that line going forward?

Primarily insurance business, it performed well in Q2 that is the majority of it.

Got it, okay. All right, that's it from me. Thanks.

Our next question comes from the line of Chris Walsh with Buckingham Research. Your line is now open.

Hey, Jeff. Hey, Steve.

Hey Chris, how are you?

Doing well, solid quarter; I just had a couple of questions. A lot of things were already asked, but on brokerage in recent years Cowen has been pretty clear market share taker. And so, just wondering do you have any sense of whether Deutsche Bank exiting its U.S. equity, sales and trading businesses could accelerate your share gains across both institutional brokerage, or institutional services?

Well, I would say anytime somebody that size decides to leave a business, it becomes a net win for everybody else who isn’t leaving. So I can’t be more specific than that, but certainly that’s a big decision. And Deutsche Bank I think was a top 10 provider of U.S. Equity execution for a lot years. I think in the last few quarters it slipped. And so, again the short answer to your question is yes. I can’t be more specific than that, but there is no question that the clients who did a lot of business in Deutsche Bank are doing business are doing elsewhere.

Got it. And then just taking -- excuse me, piggy backing on both Devin and Sumeet’s question on capital, although Linkem and Formation 8 could be more intermediate term opportunities for monetization, I just kind of wanted to take a set back and think about the longer term monetization potential that Cowen has. So, according to your new breakout, you have roughly $150 million of capital tied up in the AssetCo and also your stake in Starboard is arguably where -- around $100 million, but that’s around half of your multi-cap that’s both strategic and non-core investments that could be monetized over time, am I thinking about it correctly?

Well, I am not going to speak to the value of the Starboard position, but obviously we know how well Starboard does. And for us that’s been an amazing investment and it continues to be. I am not going to speak strategic about what we might or might not do with that. I would just say that value is there. It’s not recognized on our balance sheet anywhere, but Starboard and Starboard's performance is not inside OppCo, not inside AssetCo.

Yes, yes.

So I -- just to give you a sense as to how we think about it, their performance is certainly integral to our ability to achieve our targeted rates of returns for sure.

Okay, thanks for the comments.

In terms for the longer term - in terms of the AssetCo in the longer term there, but then it could in the medium term and longer term are that’s a wide open timeframe. I think what we have said is both of these -- if you look at the Linkem investment in particular and a number of investments we have like the Formation 8 investments, these are appreciation of much smaller investments. I am not sure the people that are new to the story really fully appreciate that. It’s not that these are trapped assets or troubled assets. These are assets that appreciated in value over time. And we would like to be in a position where we help to harvest that because we think there are other things to do with the capital either by returning it to shareholders or investing in businesses where that drive our operating business. But I want to be really clear for those who are new to this story. I know Chris is relatively new to story. These are great assets. They have been great performers for us over the years.And as a result, we just want to highlight that so that people can do the work around them, understand they don’t change that much quarter over quarter. And then they can focus on the things that we can focus on everyday which is how do we drive the value in the operating business. And to us, that’s where we stand 95% of our time, plus it’s driving the value of operating company. And I think it gives people an opportunity to really see the progress that we have made when you strip out these non-core assets because almost by definition, they are going to be much more volatile in terms of their step function on -- in terms of how we -- the revenue that gets attached and it won’t be quarter-over-quarter. And you can still see that the decisions we are making how that drives ROCE in the operating company. That’s actually what we are doing with almost all of our time. And it’s important for people to be able to value that separate from the drag you may have in any one quarter or two quarters or any year associated with these assets.

Definitely. It seems like seems like Cowen is becoming more and more of an earning story, and given the consecutive -- sixth consecutive quarter of profitability and strong results this quarter, I think definitely keep moving in the right direction there.

Right. Thanks, Chris.

Thanks, guys.

And I am showing no further questions in queue at this time. I would like to turn the call back to Mr. Solomon for closing remarks.

Thank you, Operator. Before we sign off, I just want to remind our investors that our progress is really the direct result of the hard work of our team here. And I say this every quarter, but it merits repeating. We come in everyday with one idea in mind and that is how we help our clients outperform. And how do we stay true our core values of vision empathy, sustainability and tenacious teamwork.I get a lot of questions about our focus on empathy and it’s something that we have been doing here at Cowen for a long time. And we are dedicated to the idea of promoting empathy as the cornerstone of our culture because it is central to our ability to make those kinds of contributions for our clients, for our teammates, for our families, for our communities. And in a world that sometimes feels like it is a little short empathy, it’s really central to our ability to drive success internally. And we believe that our shared success over the long term is actually what enables us to do more good. So the better we do, the more good we get to do. And I want to thank our shareholders, new ones specially our long-term shareholders for being a part of our continued success because without you, we won’t do what we do. And so I just want to make sure that we express our gratitude. Thank you all for joining us. And we look forward to speaking with you on our next call. Have a nice day.

Ladies and gentlemen, thank you for your participating in today’s conference. This concludes the program and you may now disconnect. Everyone, have a great day.