Paul Taubman: Yeah. So we have been consistent that the years 2020 and 2021 were difficult recruiting years but for very different reasons. In 2020, it is hard to recruit when everyone is locked down and it’s a virtual world and there are bigger issues as you have got a global health crisis and the like, trying to find the next platform to be an investment banker is not necessarily highest on the list. And I have said consistently that the best way for us to continue to recruit at a very aggressive clip is to return to a more normal cadence of face-to-face engagement and the like, we are there. And that’s been incredibly helpful and you have seen that our hiring has ramped from there. The second issue was in 2021 with everyone so busy and with such activity in strategic world, it was hard for individuals to lead their clients at large and to make a shift, and as a result, we also said that we needed the world to calm down a little bit.
I think in 2022 and 2023, where we are in a lower velocity environment, where a number of larger banks are creating a less attractive opportunities for their best talent and where we can engage face-to-face. That’s the perfect recipe for us to attract talent and we are seeing that in the number of incomings and we are seeing it in the quality of candidates that are appearing before us and our conversion rates are higher. So I think this is a much better recruiting environment for us and we are going to take advantage of all of that. Now as far as how that flows through the comp ratio and the like, it’s very hard to see until you get further into the year, understand what’s the actual pace of onboarding, as well as what’s the revenue profile for the firm in 2023.
James Yaro: Okay. Thank you for the
Paul Taubman: The headline is — thank you. The headline is, I love this environment. This is like a perfect recruiting environment for us.
James Yaro: Okay. Great. Thank you so much.
Paul Taubman: Thank you.
Operator: We will take our next question from Steven Chubak with Wolfe Research. Please go ahead.
Brendan O’Brien: Good morning. This is Brendan O’Brien filling in for Steven. I just want to follow up
Paul Taubman: Good morning.
Brendan O’Brien: Good morning. Just I wanted to follow up on the comp ratio. Based on your comments on the current environment, your expectations for revenues to grow in 2023 is encouraging. However, given we have already seen some pressures on the comp ratio this year despite revenue growth and your headcount is up 9%. I was hoping you could speak to your confidence in your ability to hold the line on comp next year?
Paul Taubman: Look, we have always thought that as we get further and further into the build-out that we will be able to demonstrate meaningful compensation leverage, but that we are not going to resist making investments, which are the right thing for the long-term, if there’s a little bit of short-term turbulence. So if you give me a wider birth of two year to three years, I kind of know the direction of travel. If you ask me in any given year, does it stay flat? Does it come down? Does it bump up a little bit? There’s just so much information we need to have and I do not want to be deterred from that. We have always said that we don’t add just to hit a recruiting target, and therefore, in some years, if we don’t see the talent, we are going to be light on additions.
And in other years, we have an abundance of opportunity, we will lean in a little bit more. I think it’s too early in this year to know exactly where that’s all going to land. And as I said, I think we have a differentiated platform that enables us to navigate these turbulent times better than most, and therefore, that should be an advantage for us, and we will just sort of play it out. But one thing I think everyone appreciates we have incredible regard for creating shareholder value, we are big owners in this firm and we are always going to do the thing that creates the most value over the longer term. even if it creates a bit of noise back and forth. But sitting here today, I have no reason to believe 2023 is going to be aberrational one way or the other, and hopefully, we will be able to continue to show progress on all dimensions.
Brendan O’Brien: That’s great color. Thanks for that. And then I guess for my follow-up, in your remarks, you noted that our Restructuring prospects have continued to improve and it seems like you have had greater success than some of your peers in winning these mandates so far. Just wanted to get a sense as to what you feel is driving that relative shrink versus peers so far or in this past year and do you feel like you are better positioned for an environment where mandates are more coming on the debtor side due to the higher level of covenant loans outstanding?
Paul Taubman: That’s a great question. Look, it’s a highly competitive environment and we compete against very formidable firms, and there’s always a cadence of mandates that you win and mandates that go elsewhere. So everything is not always a straight line up into the right. Having said that, we have had impediments in competing against others that each year those constraints melt away and it really boils down to two. If we have a smaller advisory footprint and if we are competitive in fewer industry verticals, it means that the heads up or the front-end sales force is less able to present opportunities to our Restructuring colleagues than if it was further built out. So every year that we build out and we are in more geographies, have more presence, have more industry domain expertise, have more corporate relationships, that gets us better aligned with the competitive set, and therefore, we are able to leverage that.
And then the second is as we continue to build out our sponsor capabilities, we are picking up more and more liability management opportunities for sponsors as well. So it’s just all part and parcel of the of the methodical build-out of the firm. And as the Strategic Advisory business gets bigger, more formidable, more present, it becomes a greater additive to the Restructuring franchise. And I think that’s the macro trend you are seeing, but as far as any given quarter, what mandates travel to us or elsewhere, I try not to get too caught up in that, because there’s always noise in the very short-term. You have got to look over the longer term, but there’s no doubt we have been pleased with our performance on both a relative and an absolute basis.
Brendan O’Brien: That’s great color. Thanks for taking my questions.
Paul Taubman: Absolutely. Thank you.
Operator: We will take our next question from Jim Mitchell with Seaport Global. Please go ahead.
Jim Mitchell: Paul, a number of your peers have talked about engagement levels still remaining high in the advisory — Strategic Advisory side, just not being able to pull the trigger, given the financing markets. One thing you haven’t really talked about is sort of that aspect of Strategic Advisory, you have talked in the past about backlog, engagements and sort of pre-announcement type thoughts. Can you kind of give us a sense of what you are seeing on the Strategic Advisory side and are you seeing that same level of engagement just not seeing triggers get pulled up?
Paul Taubman: Yeah. It’s a great question. It’s complicated just because the way this world has unfolded. So I would say the following. If you started last year, strategic engagement and interest was red hot and as the market cooled engagement levels did not waver. And in some respects, it was — the crisis of confidence was on the investor side, not in corporate boardrooms and we saw our engagement levels at record levels for most of the year. I think it’s got to the end of the year, some of these transactions just were not viewed to be actionable in the near-term. And I think clients, they suspended sort of working on some of these things, because while they still had every interest in pursuing them, they were deemed to not be actionable.
So the mandate count, if you will, that were active sort of receded it a bit. What’s happened is in the first five weeks of the year, I think, there’s a clear recognition that things that were maybe put on the hold pile are now coming back. So we are seeing a lot of that, just because it’s been so fluid and so volatile and the sentiment moved sharply negative from Thanksgiving to the end of the year and it started to inflect to the positive. I haven’t talked about it as much, because I don’t really want to make too much of either the downturn in the last six weeks of 2022 or the pickup in the first five weeks of 2023. I think it’s still muddied. But the reality is, if you step way back, the corporate needs for transition and transformation are as great today as they have ever been and when you think about what really drives M&A activity, you can run all the correlations, you can do all the analysis, the single biggest correlation is equity valuations.
And given the start to the year that is a very healthy sign and I suspect that if we can maintain some of these levels for a bit, you are going to start to see a lot more of the hold pile come back into the active or red hot pile.
