Sharon Yeshaya: Sure. So we did see the percentage of client cash. So we’ve given you I think 22% in the advisory channel is now down to, say, 21%, 20% levels depending on what channels that you’re looking at. But that, I would say, is not a function of the actual cash levels coming down, but rather that the equity markets have risen, so just to be clear in terms of the actual mix. The reason I bring up those percentages is they are still high relative to the pre-COVID historical levels of, say, 17%, 18% that we’ve given on previous calls. So there is still room to see the deployment of cash over time into the markets.
Dan Fannon: Understood. And as a follow-up, in the release you mentioned about half of the flows came from your family office offering. Not sure we’ve heard that stat before or so I was hoping you could bring in, some provide some context in terms of the size of that business for you? And then also just the mix of flows more broadly in terms of the channels, if you could provide a few more specifics in terms of the percentage breakdown?
Sharon Yeshaya: Absolutely. I’m so glad you asked, as it relates to the family office offering because we have been talking about it for some time. We launched and we really formally enhanced our family office offering in 2021. We discussed it on some of our earnings calls as a place where you could begin to see the integrated firm, and by that I mean a way to offer our wealth management clients different solutions from institutional securities. So our fund management products, where you’re actually able to look at your portfolio from a more integrated basis the way that you would as an institutional client. As we begin to offer new solutions to our clients, these are more ways to get touch points with different and deepen different client relationships and bring them on board.
So this is an example of that. The reason we pointed out is also to highlight to you that there are lumpy flows that come through these channels. And so when we say these flows can be lumpy, there are different sales channels across the offering and those different channels have different sales cycles and so therefore you will see ins and outs of various pieces of NNA over time, but in this particular quarter and over the long-term history we have seen a very diversified set of channels. We have the workplace, we obviously have the advice-based relationship, different pieces of stock plan, et cetera that come in through the channel and there is diversification there.
Ted Pick: Yes. What I’d add to that is, to Sharon’s point on integrated firm, we have this Sharon made reference to this gem of a business that we have in the institutional equities division called Fund Services, which caters to alternative asset managers and effectively does their documentation work and effectively all of the release to their LPs. The question that has been asked over the last number of years is, when some of these folks go on to open their family office and manage their own wealth? What about having a product that has the feel of an institutional product from when they were running their asset manager for their family office or for related business. So the folks in Fund Services got together with the folks in wealth management who run our outsourced CIO product and they effectively came up with a mousetrap that gives the look of an institutional product for folks who are very much in the ultra-high net worth category.
And this helps work towards a piece of the wealth bracket that we’ve all been focused on over the last number of years, which is the very high net worth space, which is very competitive. But in bringing together some of the capability and kit from the equities business over to the wealth business and have them work together with the founder in her next life managing a family office. It’s actually a nice seamless way to keep the funds in house and to deliver institutional style capability to clients. So this is something we are putting our foot on the accelerator on and is a great example of our equities division and the wealth management folks are working hand in glove to deliver something for clients.
Operator: We’ll move to our next question from Devin Ryan with Citizens JMP.
Devin Ryan: A question just on trading. Obviously, results have just been incredibly resilient at a high level. And I know you all have spoken about both market share opportunities for Morgan Stanley, but then there’s still this kind of expansion of the overall industry wallet. So love to maybe just hit on that second point. And when you think about that wallet opportunity, the expansion of the wallet, what are some of the biggest opportunities in kind of the growth out rooms? I think a lot of us are sitting here saying results have been phenomenal. How can they continue to improve from here?
Sharon Yeshaya: Sure. I’ll take that. When you think about the expansion of the wallet and consider where we came from and where we are now, as more and more of the corporations and coverage of the corporations is becoming more integrated, there are many solutions that a bank such as ourselves can offer, be that from a global perspective, if you think about where rates are as just a tangible example, interest rate hedging that you can offer corporations as they think about transactions. There are different types of foreign exchange transactions that you could think about when you’re looking at M&A or you’re looking at other corporate deals that you have to do in house for a global franchise. So there are corporate solutions that you see, we expect to see growth in from a wallet perspective, and there’s also financing where you have different types of markets and channels that are growing, private credit being an example.
We’re financing different assets by different types of sponsors are places where we could see opportunities for a wallet share growth more broadly.
Ted Pick: And what I would add to that is, we’re in the middle of the PE ecosystem. With respect to M&A financing risk, if you ask a number of the asset managers, both real money and alternative asset managers, they would say we are a partner of choice. So opportunity exists within credit, where there’s a big focus on the financing side. It’s obviously stable revenue and we’re getting after some of the opportunities that lie across fixed income and inside of our new issue business to originate structure, finance credit, of course, a focus on private credit and then in equities to continue to expand our prime brokerage capability and to build out derivatives. So this ecosystem around the financial sponsors who know our firm very well with all of the integrated firm capability, this is a space and a client base that we are focused on along with, of course, our leading strategic clients on the corporate side.
Devin Ryan: And then a follow-up just on the debt capital markets outlook, obviously very strong quarter. We have heard a little bit about maybe some pull forward, just on the year in terms of people front loading. And so, just want to get a sense of whether you feel like that may play down as well for Morgan Stanley. And then when you think about the pipeline for debt underwriting, I appreciate that deals come together quickly, so there’s maybe not as much of a formal pipeline. But is the tone there similarly strong is what you’re seeing for M&A and equity underwriting? And also appreciate there’s probably some interconnectivity there as well.
Sharon Yeshaya: Yes. I would point you to as you said there is interconnectivity. Remember that I think many of the peers have also mentioned there could have been some pull forward that you saw. It’s also been a market that’s been open over the course of the last 2 years. So I wouldn’t draw these same parallel that you might have seen in M&A or in equity where you had a real dearth of activity the last 2 years, but rather that market especially in IG has been relatively open. When you think about high yield and other non-IG kinds of concepts and of course there is the event related transactions, but from an IG market, that market has been well open over the last 2 years.
Operator: We’ll move to our next question from Gerard Cassidy with RBC.
Gerard Cassidy: Ted, you had some very encouraging comments on the outlook for the capital markets, which is great. Question for you, you mentioned about the high yield and leveraged loan market. You’re starting to see event financing, which is good. How is the competition from the private credit side because they have made inroads obviously in the last couple of years? Are you guys seeing that the traditional investment banks are gaining some of that market share back?
Ted Pick: The competition is real. And we all need to adapt to stay relevant in the ecosystem. I think there’s going to be room for folks in the private space to participate in deals. But I certainly do not believe as some seem to suggest that the global investment banks will not have a large role to play as underwriters of securities and all the benefits that that brings to the issuer versus someone issuing private credit and potentially being the owner over time if things don’t go well. So I think we’re in a world where the ecosystem will at times have many of the players acting as partners. Sometimes we’ll act as counterparties and at times even competitors. But I think the ecosystem has more than enough room on a global basis for both the emerging private credit space, but also the incumbents to continue to be able to do their thing.
Gerard Cassidy: Very good. And just as a quick follow-up to that, once again your outlook is very encouraging. 10 years up again today, there’s talk of it moving even higher. You know, the front end of the curve is talking about higher for longer. If we get into a really higher for longer rate environment, does that kind of weigh on some of the optimism of the outlook that you presented today or no, it doesn’t really have a material impact on it?
Ted Pick: Well, it’s a great question. It depends on whether rates are higher because they are sustaining continued growth in the U.S. or if they are higher for a period of time and are followed by a tough landing, in which case we’re in recession and clearly then things will slow down. I think our view is that the U.S. economy continues to progress quite nicely, that balance sheets amongst our client base are quite strong, both on the institutional side and on the wealth side, and that there is plenty to do and that the higher rates that we see are in part, if not more than in part dictated by a view that we continue to have some inflation and that the economy is in healthy shape and maybe asynchronously relative to other places in the world.
But that again speaks to U.S. strength and as you know, first and foremost, we have our activity based in the U.S. But over time, there will be strength in places again like Japan and Europe, and then eventually in the China complex where we will be busy too. So my bullishness is not a mark-to-market on any given week or month. It’s a view that corporate boardrooms have been quiet for 3, 4 years and that is not sustainable. They need to move. They’re ready to move before the pandemic, then the pandemic came and then there were higher rates. Those higher rates seem to be well absorbed. Yes, now we need to have models that factor in appropriate cost of capital, as we saw in prior regimes where cost of capital matter. And now we’re in a period that comes after financial repression, where we’ll have some inflation and some real rates and companies and financial sponsors will adapt and the strong companies will prosper.
So we are setting up for that and we believe will be a multiyear cycle. And I would say finally that what we’re most excited about of course is the model that we are working with both the institutional community, but also our wealth management clients to adapt and to optimize as we move into the next cycle.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today’s conference call. Thank you, everyone, for participating. You may now disconnect, and have a great day.
