I’m not really that good. But, so I thought the first rate cut would be, everybody would tear off. The interesting part is because it led everybody to believe six were coming. The interesting part at this point, it does not look like six are coming, but I think the same outcome is going to derive from that, which is, okay, this is the environment. I think at the moment in time when I was waiting for it to move was people were saying, well, this isn’t the environment. The environment could be a 3.5% federal funds rate. Imagine going to your investment committee and say, let’s go to market and some senior guy at the firm looks at you and says, what kind of idiot are you? The Fed’s going to cut rates by 200 points in the next six months.
Why wouldn’t we go then? And you go squirming back to your seat and never talk to the guy again. But, I think as of today, it’s becoming more clear that if there is a Fed drop, it could be late in the year, and it this, what I’m saying is I think that decision makers are going to come to the conclusion and are coming to the conclusion that this is the environment, we have to liquefy some assets, we’re going to go. And we’re not going to look like idiots because we’re not going to miss some gigantic six rate cut move. I don’t know how to tie that back to my Formula 1 analogy. I think the cars are just going to take off and get, I think the cars are going to start on the track on their own. I think they’re just going to go, because now this is the environment and PE firms are in the business of transacting and creating liquidity and buying new assets.
So, I think they’re going to go. On the comp ratio, I think that was the last one. I just want to say what we put out there today is based on what we know, not what I think might happen, not what I hope might happen, and not what I even expect to happen. But, based on today’s market environment, that’s our best guess, and we’ll update it as things change. I’m not trying to predict the future though, although we’ll have time over the year to adjust, but that’s based on our best estimate of what the current market conditions is, which is what Joe and I think we’re supposed to do with comp ratio.
Connell Schmitz: All right. That’s helpful. Thanks, Ken.
Operator: Your next question comes from Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Good afternoon. Thanks for taking my questions. So, given the magnitude of recruiting and relatively quiet environment, was the structure of comp awards at this just past year-end different than what you saw in a typical year?
Kenneth Moelis: It’s pretty consistent. You can look, I look, every time about deferrals and I compare to the market, and I feel like our comp was right it was pretty much where it was every other year in terms of component of comp.
Brennan Hawken: Got it. I guess the reason I ask is that the average stock outstanding, the diluted stock outstanding picked up a bit more than is typical, the typical cadence. So, I wasn’t sure whether, did that, was that a function of the recruiting and the magnitude of recruiting that came on and the stock-based comp that was tied to that? Or was there something else involved in that?
Kenneth Moelis: We might have to include that, Joe.
Joseph W. Simon: Yes. No, it’s yes, that’s exactly right. Each one of these new hires ultimately comes with typically visibility on their comp for at least one, two years. And, so in the first year, we’re basically, there’s no revenue, but there’s comp that’s basically been guaranteed, and it’s a combination of cash and equity.
Brennan Hawken: Great. Okay. Thanks, Joe. Appreciate that. Ken, I have a question. You sort of a related question, the recruiting has been remarkably active. You have been really excited about the quality of the bankers that have come on to the platform. When we think about looking at your productivity per MD, historically, X the remarkably strong ‘21 and ‘22, the previous sort of high watermark was about the mid-7s. Do you think that the extent and magnitude of the recruiting you were able to do was to such a degree that you’ll be able to move that high watermark up further? And, what kind of order of magnitude do you think would be reasonable to expect for a new high watermark?
Kenneth Moelis: I don’t know the answer to that. But I look, first of all, I do think the market has gotten a lot larger expansion of valuations and GDP and quality of banker. But, it’s also unfair for you to take in what is a cyclical business. I mean, 2018 was kind of a the Fed, you don’t talk about 2018, the Fed hurt us 2023, the Fed hurt us, and the one time when there’s some average to a cycle, too, I mean, Brennan, and you can’t just say take out your best two scores. I mean, I guess that’s the way you do it in golf. But, you can’t just say take out like two of the best five years you’ve had and then tell me what you do in only the crappy years. There is some cycle to this business, and I do look at it through the cycle.
And, I think we should do better than what you’re — my underwriting is to better than what you’re saying. Do I have an exact underwriting? You tell me the market, I’ll kind of tell you what I think the underwriting is. But ‘21 and ‘22 were very different than that, and I think the right way to look at it is kind of through the cycle. You’re right. I don’t plan for ‘21s every year, but I don’t plan for ‘23 every year, 2023s either. And, but I think the amount of competitors are getting less, the amount of quality out there is getting less, and I think we’re going to be more and more percentage of the market. And, so —
