James Yaro: Sorry, I thought it was I thought you were doing year-over-year. Sorry. Quarter-over-quarter. Sorry. Yeah, that does make sense.
Ken Moelis: So look, we spent a year and we did it quietly, but we aggressively hired and we aggressively managed. I think a lot of people, we’re talking about managing their headcount. We were doing it. I didn’t see any reason to be extremely chest pounding about it. We just did it. So we did. There was a substantial change. You were talking about the hires for the New Year in 2024. Two of those are upstream oil and gas, which I think will continue to be a significant market. Lots of activity. We’re very happy about that team, which is a place we have not played much. And then this credit fund person again, this goes to the rise of private credit, both as a supplier to deals, a generator of deals and possibly restructuring in the future.
So we thought a dedicated coverage of that environment, given its growth. I think this is the first time we’ll actually have a dedicated banking coverage of private credit for the rest of twenty four. We’ll be opportunistic. Look, there’s always places that we are going to hire. We might have levers, so we might have to respond to that. But there and there are also places where we would like to expand if the right situation happened. But I do think given what we did in 2023, this is the year we should deliver this expertise and focus on the client and get out there and show you what we’ve done. I think we’ve done a great job of expanding the expertise we have. I think we’ve addressed some markets that we had a difficult time, like technology, finding the right moment and the right method to build our expertise.
And I think this is the year that we’re going to focus on that, delivering these services to the client.
James Yaro: OK, that’s very clear. Thank you. So you did build another roughly fifty million of cash and short term investments this quarter, this quarter. So I’m going to ask a question that’s quite different than what you were getting just one or two quarters ago. But what is the level of earnings or perhaps what you need to see in the macro backdrop that would prompt you to consider increasing capital return, especially in terms of the buyback?
Ken Moelis: Thank you for that. That’s the first time I’ve been asked that question in 24 months. That’s an exciting question to be asked. So, look, we again, we haven’t spent much time on that given the market we’re in. But I think given our history, you’ve seen as soon as we get above a certain level of cash and a market that we’re comfortable with, we will return the capital. We’ve done it aggressively in the past. I don’t have an exact. I suspect, again, three to five months post the first rate cut in my mind is when I think we’ll be at a run rate of twenty five percent pre-tax. I think, again, this calendar year is very difficult because you have a tale of two markets. You have the market that I was talking about, the deals that were trying to be created into that environment of people saying that there’s a seven percent Fed funds possible.
But as of now, we don’t have that. And then when it kicks in, and I think it’s a good question. We haven’t spent a lot of time worried about how high is up and what we’ll do with the capital. But I can guarantee you we’ll return it to the shareholders as soon as we’re comfortable that it’s excess.
Operator: Our next question is from the line of Stephen Chubak with Wolf Research. Your line is live.
Stephen Chubak: Thanks so much. I guess echoing Brennan’s comments on the comp leverage sensitivity, Joe, that disclosure is really helpful. One of the pieces I was hoping to unpack is whether we should be contemplating that four hundred basis point improvement. If we can underwrite that in a linear fashion, which would suggest the path to low 60s might require revenue generation across the franchise somewhere in the range of about $1.3 billion to $1.4 billion?
Ken Moelis: I think that might be. Yes, that that sounds maybe a little high, but reasonable.
Stephen Chubak: You can get there with a lower revenue level.
Ken Moelis: Yeah, I think we can. I think we can get there.
Stephen Chubak: Yes, I don’t know. I don’t think that’s probably reasonable.
Ken Moelis: I think remember, some of our some of our compensation does not fluctuate as linearly. So I think you’re in the ballpark, but I thought you were a little high myself, too.
Stephen Chubak: OK, fair enough. The other piece is just on M.D. productivity normalization. And Ken, in the past, you’ve talked about various normalized productivity ranges. But just given a different composition of M.D.’s, the significant hiring you’ve done this past year, what level of productivity do you believe is sustainable in a more normal operating backdrop?
Ken Moelis: Well, I agree with you. I think we have a better let’s just say I think we’ve improved our our M.D. and the pools in which they face. I mean, we had we were not facing technology in a size that was that matched every other place that we were facing off against the fee pools. And with the Silicon Valley Bank deal, we changed that pretty dramatically. Same with oil and gas right now. Industrial’s I think we’ve addressed some of the largest fee pools in the market. So I think we’ll be more productive per M.D. And then again, we haven’t had a note what you would call a normal year in a long time in M.D. And so, again, I just look at the — I kind of look at the last three years and say, if you kind of average and we had an incredible spike in 2021 and then we had I’d say ’22 was less than optimal.
