Kenneth Moelis: So to be clear, I think at this point, you don’t need a rate cut to trigger M&A. I actually think it’s almost held back the resurgence in M&A. This idea that if you have a quality asset and by the way, like in all markets, I believe it’s the availability of the quality asset to buy. There are buyers out there. We believe that there’s capital and there are people who would buy quality companies. What happens in a market is you don’t put your quality companies up for sale in January when somebody says, hey, the probability is there’s six rate cuts coming, you kind of wait. And, by the way, you have quality asset. There’s nothing going wrong with it. It’s probably growing. If it’s quality assets, it’s doing fine.
So, you’re fine waiting to hit the market with your best quality asset. I believe at this point, it’s like I said, if somebody guaranteed, there will be zero rate cuts for two years, I guarantee you that. I believe the market would explode with transactions because people would say, well, that’s now I know that if I wait to May, there’ll be no difference. There is capital out there. There is actually acquisition capital, single B, even Triple C paper right now has come in dramatically to finance these types of transactions. And, I think we just have to take away the opportunity that if I wait, if I kick off my sale in June, it’ll be a different rate environment. If that happens, by the way, great. I do think that would be a good thing.
It wouldn’t be a bad thing. But, I don’t think the market is waiting for a rate I don’t think this market needs a rate cut to accelerate pretty dramatically from here in the private side. And, the public side is already executing, and they’re pretty aggressive. I believe the public market is executing and the only thing holding that back might be FTC issues for large transactions that are that don’t want to go into this regulatory environment.
Ken Worthington: Okay. Great. Thank you very much.
Operator: Your next question comes from James Yaro with Goldman Sachs. Please go ahead.
James Yaro: Good afternoon and thanks for taking my questions. I just want to start on restructuring quickly. Maybe you could just update us on your outlook for this business. You did talk about how there was a pretty strong activity this quarter there. So, maybe the outlook for both liability management and Chapter 11, as we look ahead? And, then if you could perhaps give us the contributions to revenue from restructuring and capital markets as you have done historically?
Kenneth Moelis: Well, I’m not sure I’ve done that historically, but I’ll try to give you some sense of where it is. Yes, we had a good strong, look, what’s going to happen here is, like I said, I’m not sure you need a rate cut for the quality part of the market to hit and enter M&A transactions. But, if you do have a company that isn’t performing, higher rates are going to continue to plague that market and force some part of that market into restructuring mode. The interesting part is risk capital has become very available. This kind of rescue capital that’s willing to insert itself and take out some of the maturities for a high interest rate is available. And, so you’re not seeing a lot of the credit market, which in the last downturn, which might have been 15 years ago in the crisis, but a lot of those credits traded down to $0.20, $0.30, $0.40.
You don’t have a huge market of $0.20, $0.30 paper. It might be that in this cycle, there was a lot more equity put in under the deals. The transactions went at higher EBITDA to multiples, and so there was possibly more equity put in under the same level of six times or seven times leverage, which leaves a bigger slice of value for somebody to come in and finance. And believe me, every single person, every single owner of a company would rather finance than go bankrupt. No matter what the rate, they will try to extend the runway to that. So, we’re seeing a lot of that, rescue financing, extension of by structure, moving maturities out through some of these exchange offer techniques. Of course, there will continue to be some Chapter 11s, but it’s not as big a Chapter 11 market as it was in the last downturn by a long way, and I think it’s because of the quality of the ownership through good sponsors who are getting in there early and getting to solutions quicker.
So, that part of the market is going as I think will continue by the way, because I do think higher rates will put more pressure on that bottom 10% of the economic performance. By the way, our non-M&A this quarter, and we called it out, our M&A was the weakest, it was one of the weakest parts of our business. So, our non-M&A, and that includes capital markets, PFA and restructuring, was about 50%.
James Yaro: Okay. That’s incredibly helpful. Thank you, Ken. Just taking a step back on the fundraising businesses, I think primary fundraising activity has remained slow over the past few years, past year and change, whereas industry secondaries and continuation funds have grown at a fairly robust pace. Maybe you could just speak to the outlook for each of these businesses. And, then sort of separately, PE is using more continuation funds and some of these other structures versus regular way M&A to generate LP liquidity. Are these structural changes to PE in your view? And, how much of the growth in these vehicles has been driven by the lack of ability to transact using M&A?
Kenneth Moelis: That’s a good, look, you’re right. The primary fundraise had gotten commoditized over time, and it’s a business, but I don’t think it’s not the same business it was 10 years ago. And, I think there’s also going to be a consolidation. A lot of the money in those in the primary was made by first time funds who really needed to be introduced and we’re willing to pay three points on fundraise to get introduced. I think there’ll be a consolidation. There won’t be as many lack of capital. There’s just not as many new funds being started and the large funds are going back to their existing LPs. And, so there’s going to be a smaller and smaller primary market to go into. You’re right about continuation funds becoming a bigger part of the concept.
