Richard Hough: All right. Thank you. So, the EBITDA margin when we are in a steady state business that’s really growing nicely is anywhere from 27% to call it 32% at the very highest, which we saw at the end of 2021. To get that high usually requires performance fees. We haven’t had performance fees since the end of 2021. Performance fees almost all go to the bottom line and are great boost to cash flow and therefore EBITDA. When we’re investing in the business and growth is slower, you’re going to see that EBITDA get hit. We saw that happen in 2023, 2022 and of course we’re accruing more for compensation this year as a result. We did see an uptick, as you know, from the first quarter of last year to first quarter of this year.
I think I can’t really give you a good projection what will happen with that EBITDA, because we have pointed out that we are going to hit EBITDA, we’re going to hit earnings to invest in new personnel. I think I provided a lot of guidance on that last year. Here we are, we’re doing it. This is just one example of this team. But the timing of the growth of the assets and revenue that would increase EBITDA is not entirely known. So, to tell you what direction that may go for the rest of the year, I can’t really forecast for you. In the past, when we’ve made these investments at say 28% EBITDA margin, 29% off in 27%, we were growing faster than those investments. So, in effect those investments were hidden. With the narrow market last year, the slower progress, the unsupported market as you know in 2022, what we’re doing with regards to those investments is more apparent in hitting our EBITDA.
I just think it has been very important for me to be very straightforward as I was last year about what we’re doing and that this ultimately in a normalized environment will drive higher EBITDA margins. I do seek to push the company back into the mid to high 20% EBITDA margins, but that’s going to take a bit. We have to see this business come in. We have to see the pipeline I just talked about come to fruition.
Christopher Marinac: Understood and very helpful background that. Thanks very much.
Operator: [Operator Instructions]. The next question comes from Chris Sakai with Singular Research. Please go ahead.
Chris Sakai: How should we be thinking about the growth of nondiscretionary assets under management versus the growth of discretionary assets under management in the coming quarters?
Richard Hough: I would — first of all, I’ve always asked investors to focus on our discretionary assets under management primarily because that has a direct link to revenue. There is a lagging effect with regards to that revenue that I think is important to take into consideration, because we bill quarterly in advance and of course there are four days in the year, which is to say at the end of each quarter that we report revenue on. So, the effect you would see, for example, in the increase in discretionary assets and under management from the first quarter of last year, wouldn’t fully be realized until the second quarter of this year, because we are billing quarterly in advance. That’s just one important point I’d like anyone listening to keep in mind.
Nondiscretionary assets under management are linked to our discretionary assets under management and that they are assets for clients. However, very often they are project flat fees associated with our very strong reporting capabilities, tracking of assets, very often the illiquids for our clients’ portfolio analysis mandates and also OCIO. So, some of the OCIO assets are nondiscretionary. And as that capability grows, you’ll see a growth in the nondiscretionary. And as that capability grows, you’ll see a growth in the nondiscretionary assets, which is a good thing. But there’s been a lot of new reporting assets for some of our very, very largest and most important clients that has been bumping that number up. It’s an extremely valuable capability to them.
We have really excellent leading edge reporting platform in data warehouse that’s being used a lot by our clients. And so, what you’re seeing I think is robustness of the firm’s capabilities and you’re also seeing a rise in alternative investment activity and illiquid holdings on our clients combined with OCIO. It’s a healthy side of the business even if it is not a strong link to revenue in the way I just discussed the discretionary assets.
Chris Sakai: Okay. Thanks for that. How should we be thinking about compensation and benefits expense in the coming quarters?
Richard Hough: Well, as you know, we adjusted it to 58% — or 57%, sorry, in the Q1 after we had the adjustment in the fourth quarter of last year. That is including the new team we just announced. It may include a couple of other initiatives. We have a new business development person who joined us among other initiatives. We think we have a little room for some more hires, but it may not be enough. We’ll see. And we’ll just adjust that going forward as we find our — at the right level given the investments we’re making. In the past, when we have been accruing at 55% that was more than comfortable given the faster growth of the company in good market years that we saw. In 2021, we ended the year boy down at 52% something like that — yes, 53% — 53%.
