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Cowen Group Inc (NASDAQ:COWN)
Q2 2019 Earnings Call
Jul 26, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for joining Cowen's conference call to discuss the financial results for second quarter 2019. By now, you should have received a copy of the company's earnings release, which can be accessed at Cowen's website at www.cowen.com.

Before we begin, the company has asked me to remind you that some of the comments made on today's call, and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.

Cowen has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the company's filings with the SEC, which are available on the company's website and on the SEC website at www.sec.gov. Also on today's call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. A reconciliation of those measures to GAAP is consistent with the company's reconciliation as presented in today's earnings release.

Now I would like to turn the call over to Mr. Jeffrey M. Solomon, Chairman and Chief Executive Officer.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

TThank you, operator. Good morning, and welcome to Cowen's Second Quarter 2019 Earnings Call. This is Jeff Solomon and joining me today on the call is our CFO, Steve Lasota. As a reminder, we make quarterly financial supplement available in the Investor Relations Section of our website. We encourage you to review it in conjunction with our earnings release. This quarter, the supplement provides details on our segment reporting change, which represents our business in two segments: our operating company, or Op Co, and our noncore asset company or Asset Co. This format aims to provide investors with greater insight into the profitability of our core business and the value of the legacy investments on our balance sheet. Presenting our financials this way reflects the way we manage the business and also highlights the progress we are making towards achieving our long-term objective of mid-teens average ROCE on a sustainable basis. As you will notice, our operating company segment generates a much higher return on common equity or ROCE than the asset company segment. Steve will provide more details on this segment change shortly.

Turning now to our results. The second quarter of 2019 was strong overall. It was the best quarter on record for overall revenue since the formation of Cowen Inc. with our highest ever investment banking revenues and second best quarter of market revenues. It also marks our sixth consecutive quarter of consistent profitability on both a GAAP and economic income basis. While it was a record quarter on the top line, it was not a record quarter of profitability as we continue to make investments by identifying additional talent, attracting new businesses and enhancing our capabilities. These investments impact our expenses in the near term, but they're crucial steps towards increasing our revenue diversity and promoting future growth.

Taking a look at the performance of our operating businesses during the second quarter of 2019 in banking and capital markets. Investment banking revenue in the second quarter set a new record, up 30% year-over-year. Issuance demand was strong in the wake of the SEC shutdown in the early part of the first quarter and as a result, equity capital markets comprised 87% of our banking revenues, which is up from 81% in the second quarter of 2018. We booked 46 capital markets transactions during the quarter, and we served as a book runner on 32 of them. Health care continues to be our strongest sector as we did 15 health care equity transactions in the month of June alone. However, our industry diversification continues. We were lead less on more than 40% of the transactions in sectors outside of health care and non-health care investment banking revenue represented 38% of total investment banking revenue in that quarter, up 32% from the second quarter of 2018. We continue to build out our banking capacity.

During the quarter, we hired a new co-head of TMT banking as well as three other senior software bankers. We also hired two managing directors in our consumer grip to further expand our cannabis practice. While M&A revenues were down 18% year-over-year, there's a solid pipeline building for the back half of the year. The integration of Quarton has been progressing well, and revenues were up sequentially as the pipeline grew during the quarter. As a reminder, the middle market transactions in which this team specialize tend to be heavily weighted towards the back half of the calendar year. And as we look ahead, we will opportunistically bring additional advisory talent on to the team as we continue to evaluate the potential for additional bolt-on acquisition opportunities and organic hires. We believe these investments will pay off and increase multiple -- a higher multiple advisory revenues and improve margins down the road.

Now turning to our markets division. We had a strong quarter across-the-board with our second best revenue quarter on record. Markets revenue, which includes brokerage, securities and financing and other revenues was up 2% from the second quarter of 2018. Brokerage revenues alone were up 7% year-over-year in contrast to the 2% decline in the United States market-wide trading volumes, and outpacing the number of competitors who reported significant declines in equity trading volumes. Highlights during the quarter, included strong revenue increases in special situations, cross-asset trading and derivatives. Revenue for our institutional services business, which includes prime services, clearing, soft dollar and commission recapture increased 11% in the second quarter of 2019 due in part in strength to global clearing. We continue to make progress in the global expansion of electronic trading, prime capabilities, our outsourced trading platform and securities finance operations including the launch of a swap trading capability.

In sum, our markets division is outperforming the competition, and we believe we are well positioned to gain additional share even as others stumble. Our research effort has also continued momentum. During the second quarter, we were ranked number three number three research provider in the U.S. in the StarMine awards, which recognizes analysts for their returns on their recommendations and the accuracy of their earnings estimates. Moving to investment management. As a reminder, we're continuing to concentrate on private equities style investment offerings and targeting our investments in core areas of expertise at the firm or what we call Cowen DNA. This is an important part of our simpler fewer deeper philosophy.

Looking at our existing strategies. The second Cowen health care funds is approximately two-third invested in 12 portfolio companies, and we expect to raise additional capital in that strategy in the second half of the year. HealthCare Royalty Partners committed over $300 million in the first half of the year and is now 97% committed in HCR 3. HCR currently has over $1 billion of capital available to purchase royalties and make that light investments in commercial or near-commercial stage health care assets. Merger arb was positive for the quarter outperforming the benchmark HFRX merger index, and our activist fund had a strong first half and was slightly positive for the second quarter.

Turning to our balance sheet. We've been talking about how we're ensuring that it will be seen and not heard, and our new segment reporting is designed to help advance this process by providing increased transparency into our noncore assets. We are able -- as we are able to monetize these investments, we intend to redeploy the capital in the combination of accretive investments in our core business as well as additional share repurchases.

However, we are not waiting on monetization to return some of the capital to shareholders. In the second quarter, we repurchased 461,000 shares of our stock for a total of $7.4 million. We will continue to buy back stock opportunistically out of cash flow. Our remaining repurchase authorization is $17.6 million. As a reminder, we are pursuing a balanced capital allocation approach by buying back shares while still maintaining the capital to support the growth of our business whether that's bringing in new talent or investing more in investment generating -- income generating investments such as securities financing or funding future Cowen DNA strategies.

Before we answer your questions, I will turn the call over to Steve Lasota for a brief review of our financials. Steve?

Stephen Lasota -- Managing Director and Chief Financial Officer

Thanks, Jeff. As Jeff noted, we achieved record revenues and solid profitability in the second quarter even with a significant decrease in our incentive income and investment income. This demonstrates the strength of our core operating business. For the second quarter of 2019, we reported GAAP net income attributable to common shareholders of $4.1 million, an increase of $400,000 from the prior year period. GAAP revenue was up 25% year-over-year to $292.2 million from $234.6 million in the prior year period. In the second quarter of 2019, comp and benefit expenses were $136 million. Non-comp expenses for the second quarter of 2019 were $102.1 million, and DNA was $5 million. We also recognize a goodwill impairment of $4.1 million in the second quarter of 2019 related to the change in segment and restructuring of our reporting units.

Our income from gains on investments was $9.7 million, income tax expense was $5.1 million and non-controlling interest expense was $4.3 million. As I have noted in prior reporting periods, we continually monitor and review our segment reporting structure in accordance with the authoritative guidance to determine whether any changes have occurred that would impact our reportable segment. Because of the change in the Chief Operating Decision Maker, Jeff, at the end of 2017, the company experienced this strategic shift to refocus our businesses on a set of differentiated products, which are aligned to the content and insight within the company's domain of expertise, our Cowen DNA.

As a result of this shift, effective this quarter, the company now has the following business segment. The operating company segment, or Op Co, consists of 4 divisions: Cowen Investment Management, Investment Banking, Markets and Research. the asset company segment, or Asset Co, consists of certain of our private investments, private real estate business and other legacy multi-strategy funds. While the Asset Co segment is not a reportable segment, we will provide segment level information for Asset Co.

Now turning to our non-GAAP financial measures, which we refer to as economic income. As a reminder, we use economic income to measure our performance and to make certain operating decisions. In general, economic income is a pretax measure that eliminates the impact of consolidation for consolidated funds and exclude goodwill and intangible impairment, certain other transaction-related adjustments or reorganization expenses and certain costs associated with that. Please note that economic income is now after the preferred dividend. Economic income revenues also include incentive income during the period when incentive fees have not yet crystallized with GAAP reporting as well as investment banking retainer fees collectible during the period that would otherwise be deferred to GAAP reporting.

Remainder of my remarks will be based on these non-GAAP financial measures. We reported economic income of $15.5 million for the second quarter of 2019 compared to $20 million in the prior year period. Second quarter economic operating income, which is economic income before depreciation and amortization expenses, was $20.4 million compared to $23 million in the second quarter of 2018. Economic income revenue increased 4% year-over-year to a record $244.4 million. For the quarter, investment banking revenue was up 30% to $104.2 million from $80 million in the second quarter of 2018. Q2 brokerage revenue was up 7% year-over-year to $120.7 million.

Management fees for the quarter were $10.5 million compared to $12.5 million from the prior year period. Incentive income was $4.2 million in the first quarter, down from $9.4 million in Q2 2018 due in part to reduce performance fees from the activist fund. Investment income for the quarter was $0.5 million, down from $20 million in the prior year period due to lower returns from the investment strategies across-the-board. And finally, other revenue was $4.3 million in the first quarter compared to a loss of $10.7 million in the prior year period. This increase is related to our reinsurance business.

Turning now to our expenses. Comp and benefits expense for the quarter was $135.5 million compared to $131.3 million in the prior year period. Our comp-to-revenue ratio decreased year-over-year from 56% to 55.4% of economic income revenue. Fixed non-comp expenses totaled $38.4 million in the second quarter, up from $34.5 million in the prior year period. Variable non-comp expenses from the second quarter of 2019 were $39.9 million compared to $37.2 million in the second quarter of 2018 and depreciation and amortization expenses were $5 million compared to $3 million in the second quarter of 2018. As a reminder, our 2Q '19 expenses reflect the impact of the Quarton acquisition, which flows at the start of this year as well as increased variable expenses tied to our higher revenues. In addition, as Jeff noted, we are making investments in our capabilities to meet our growth and diversification objectives.

As of June's Op Co, as of June 30, 2019, the company had invested capital in Op Co totaling $529 million. Op Co had total revenues of $238.7 million, an economic income of $14.8 million in the second quarter. Asset Co, as of June 30, 2019, the company had invested capital in Asset Co totaling $149 million. Asset Co had total revenues of $5.7 million, an economic income of $0.7 million in the second quarter.

Turning to our equity. Common equity, which is shareholders' equity less preferred equity was $716.1 million compared to $713.5 million as of March 31, 2019. Book value per share, which is common equity divided by total shares outstanding decreased slightly to $24.29 as of June 30 compared to $24.37 as of December 31. Invested capital was $678 million as of June 30, compared to $634.8 million as of March 31, 2019. Return on common equity was an annualized 11.4% in the second quarter of 2019, down from 13.6% for the second quarter of 2018. In this quarter's financial supplement, we also provide a segment breakout of return on common equity for the second quarter of 2019. Op Co had ROCE of 12.1%. In contrast, Asset Co had ROCE of just 4.8%. This demonstrates in our operating income segment, we are on our way to achieving a consistent mid-teens ROCE.

With that, I'll turn the call back over to Jeff.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Thanks, Steve. So to sum it up, the second quarter was yet another milestone for us here at Cowen as we continue our strong momentum over the past 18 months. We built a top-tier execution in research platform, strong capital markets franchise with growing depth and breadth of capabilities and an investment management business, which leverages the strength of our domain expertise all with the idea that we can help our clients to outperform. We're scaling revenues from our operating businesses even as we make investments to boost revenue diversity and promote future growth. We made a lot of progress, and I'm excited about our prospects for the future.

And with that, I will open it up for questions. Operator?

Questions and Answers:

 

Operator

[Operator Instructions] Our first question comes from the line of Devin Ryan with JMP Securities. Your line is now open.

Devin Ryan -- JMP Securities -- Analyst

Great. Good morning, guys.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Hi, Devin.

Stephen Lasota -- Managing Director and Chief Financial Officer

Hey, Dev.

Devin Ryan -- JMP Securities -- Analyst

So I want to start on the brokerage business where you guys obviously, had another great result there. I think there's some perception that it's a steadier business than investment banking, but there's less growth, but just hearing you just talked about all the newer capabilities, securities to finance, clearing, prime brokerage, I just want to kind of dig in a little bit to the opportunity for growth there. So your market share is obviously been expanding in cash and electronic and some of the areas that you've been in. But it's definitely a small in some of this newer areas. And so if possible just to kind of think about how you would qualify the overall addressable market for brokerage today. How that's evolved? And then just where you see the potential for some of the newer initiatives and the ability to drive growth for the overall platform?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So let me talk conceptually for a second because I think we all recognized that in particular, in the markets business, so it's not just equity brokerage anymore but we do cross asset and we do financing and we do institutional services. The idea behind it is simply that with this core competency around research sales, so we recognize that the aggregate marketplace isn't growing at all. So when you look at total addressable market for equity commissions, it's not growing at all, and it's actually been relatively steady to maybe slightly down. But it isn't falling off a cliff, and I think there's this misperception that the equities brokerage business is sort of on a mid-secular decline.

And the reality is it's just been flat and I would say people -- our clients are being much more deliberate with how they're spending their commission dollars and how they're spending their expense dollars because their managing their own expenses. So our job is to identify their core clients, which we can service and then provide them with as many services as we possibly can to maximize the amount of wallet that we have. And when it turns out is you have to be excellent in the things you do or simply people will pick best-of-breed and what you're seeing in terms of the growth of our business is the fact that we've been able to build best-in-breed product away from just the cash equities business.

So when you look at the penetration we have made with clients in our algorithmic trading capability, when you look at our ability to really do things in nontraditional businesses, nontraditional equity businesses like our options business, we have significant market share that we can take from other competitors who don't do it as well as we do. And what you see in this business from us is we are a net share gainer in a post-MiFID II world. We are taking advantage of the fact that a number of the larger players frankly, are out of position. And our clients are beginning to make decisions about how they're going to spend those precious dollars and really going to focus only on excellent products and capabilities. And so that's where we position ourselves, and that's why you see the gains -- of the share gains we've made.

Devin Ryan -- JMP Securities -- Analyst

Got it. And appreciate that the new disclosures, breaking out the operating activities from the asset business. If possible, can we maybe just revisit where some of the biggest investments are that are, call it, in the asset segment? And any progress on freeing up that capital? And then just maybe hypothetical, if you had all that capital returned today, where would it go? Is it the stock price is at a level well where the majority would go towards the repurchases or how would you think about the thought process of where that capital will go?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So the assets themselves are doing well. I mean, I think what we wanted to do here is, say, like these are our legacy assets obviously, we think there's an opportunity to look at our core operating business separate from the asset business, so Steve mentioned that the primary reason why we're beginning this. We also manage the business this way.

So if you look at our operating basis, it's fully integrated including the investment management business, and we have a separate process really geared towards managing the asset company. And -- but the assets themselves are doing okay. We're continuing to make progress on it. As we've mentioned, as it relates to Linkem, things have done -- have gone well in terms of the option last year.

So the validation, the value of that asset I think in the auction gives us a lot of comfort. We've actually extended our licensure there for another 10 years to the end of the year. And this is a continued opportunity for that company to do better. We have about half of the fixed wireless market in Italy and so the puts us in a real interesting position where a lot of the players in that country really want to have access to our bandwidth and to our capability. And so that's what makes it unique. I think we've also said that we would be in a position to monetize that asset sooner rather than later.

Again assuming that we can get attractive prices for it. And so the management team continues to do the things that enhance our value and you can see we have markup this quarter. We also said that we're not in control of that disposition, and we are a larger partner there that ultimately can decide when and if we pursue liquidity pads.

At the beginning of the year next year, we have the ability to make decisions on our own with our position, and we'll assess that at the time we see how the company continues to do and whether or not we think it's an appropriate time for us to pull the trigger on that.

So in short, that's the large for the asset, it continues to do well, and we're going to be looking for opportunities to create liquidity as we maximize the IRR for our investors, and it's really -- that's really what we're doing there. I'm not going to really go into how we would redeploy that. I think we said on the call -- earlier in the call, that we are into capital optimization. And so for us, we know that we can be more aggressive as stock buybacks if we had liquidity from these assets, and part of this is simply, we know there's going to be a moment in time when the markets readjust, and we want to be in the position where we can play office and have the liquidity to play office.

And so we'll be careful about making sure that we don't put the company in harm's way by becoming a thinly capitalized company but we recognize that probably the biggest impediment to continuing to buy back our stock is the fact that we just -- we have these assets in liquid positions, and we don't want to ever be a forced seller to generate liquidity.

And so we're just -- we're managing it as you would think to be cautious around that particularly if the market goes sideways, and we have a couple of quarters of softness, which we're not anticipating, but I think we want to be in a position where we haven't put ourselves in a thinly capitalized position. So I hope that's helpful in terms of thinking about it but...

Devin Ryan -- JMP Securities -- Analyst

It is and I understand it can be difficult to -- the hypotheticals as top but just to make sure we're clear on the thought process. Is the bar of committing capital or redeploying capital to generate some return that's incremental to kind of the current or the operating business return on equity? Or is it something that is at the mid-teens return on equity or higher? Or just what is the very special threshold so we can think about from the outside what those options might be? Or how you guys are looking at it?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So I think the reason why we put out the mid-teens target on ROCE is because we recognize that we can manage both the numerator and the denominator in that equation. If there's not adequate things for us to be doing or whether that will generate an adequate return then we can shrink the denominator and achieve that goal. We don't want to be doing financial engineering but at the same time we recognize that if we just don't think there's a way for us to drive top line because it's not available to us, or the prices of potential acquisitions are investments to come to grade, we can just divide our time and do other things to achieve that mid-teens return. But at the same, we know that if you take a look at some of our competitors, you have higher trading multiples.

They're almost all tilted much more towards advisory businesses where we can add margin of the back of this content creation as you may have. And if we have the opportunity to do that at attractive prices, just like we did in the Quarton transaction, and obviously, if it's culturally, and we could get that all the work. There are other opportunities for us to do that. We're just going to be highly selective and make sure that as we pursue those, that we have high probability being able to achieve greater than a mid-teens rate of return. I think the bar is really that high.

Devin Ryan -- JMP Securities -- Analyst

Got it. Very helpful. Just last one for me. I'll hop back to queue. Just on the equity underwriting business. So clearly, you guys are taking market share and moving up the leap table so it's not just market size opportunity, but if you could just talk a little bit about in more depth if you can, the pipeline today heading into the back half of the year just given how well you've been doing. So any context around that? And then just with the health care space specifically, is there any concern as we move closer to the election just around maybe rhetoric picking up so people would want to do something before that potentially happens? Or is there any thoughts in health care specifically just given that there's parts and moving parts here?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So to answer your first question, obviously, we actually don't manage the league tables. Our view, just to be really clear, is that league tables are an output of doing high-quality transactions. And I want to just make that to thinking because I think a lot of firms industry do things that are questionable from an economic standpoint just to gain share in league tables. And our view is league tables are a great way to look at the score in the scoreboard but only if you consistently deliver a high-quality outcome product. And that's really what we've done. And so I think what you're seeing this quarter in particular is we had a good quarter in health care, but health care has actually been -- year-over-year for the six months is actually down almost -- our health care revenues particularly simmered down about 20%.

Again, not surprising because of the year that health care had last year. And yet our banking revenues are significantly higher and that's the function of the fact that we've been able to take and partly that expertise to do 40% of the deals we did outside of health care. We're booked around deals. There's absolutely a recognition that the skill set that we have here is transcendent in terms of our ability to do equity raises for the company both publicly and frankly, privately too, where we received some exception -- exceptional work.

So I think as we head into the election, I think there will almost always be some rhetoric, it goes around and whether it's around health care or around who's going to be sitting in the White House in 18 months, and I think the market could easily take a breather. But again, as we sit here now and we look at the backlog, it doesn't seem like that's changing at all and in fact, we look at our backlog numbers particularly for M&A and particularly outside of ECM, those numbers continue to grow. And I think I've said this on previous calls, I'll just close with this, health care ECM actually -- particularly the follow-on offerings rarely gets into backlog.

And so we have our own shadow that we look at and continues to be strong but in terms of -- but the reason it doesn't really get into backlog is because when those companies raise money, they usually do so really quickly. When they make a decision and then we execute really quickly. So when I look at our backlog numbers, it's usually not inclusive of what we think the follow-on business will be in health care. And so I'm always pleased to see that quarter-over-quarter, that top line backlog grows even outside of health care ECM.

Devin Ryan -- JMP Securities -- Analyst

Great. Thanks very much, Jeff.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Okay.

Operator

Our next question comes from the line of Sumeet Mody with Sandler O'Neill. Your line is now open

Sumeet Mody -- Sandler O'Neill -- Analyst

Hey, good morning, guys. Just a couple of quick follow-ups to Devin's question, starting with monetization efforts. Can you talk about Formation 8 and any update there at all?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Sumeet, I don't have any updates on that. I mean the biggest investment there, I think we've mentioned on previous calls, is wish.com. The company -- I only know what I read. The company continues to do well. And it's continued to take in capital at higher valuations. I don't have any insight on when they decide to do whatever is they're going to do. I have no view.

Sumeet Mody -- Sandler O'Neill -- Analyst

Okay. And then secondly, on banking. Just wanted to get a little bit more color on the non-health care banking revenue mix in the quarter. Where are you seeing the most momentum and those -- the cannabis hires as you mentioned in your remarks, I just want to get your thoughts on that sector over the next couple of years, or those highest kind of in anticipation of your belief of better legalization. Or what are your thoughts around the potential for kind of material contribution to revenues there going forward?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So I would say the fastest-growing sector that we've outside of health care or the one when you think of the flack definitely be consumer, and on top of that is cannabis. Just for everybody on the call, we don't bank U.S. cannabis companies because of that will be in contravention of federal law. So the vast majority of our revenues is outside the United States or focused on people that don't touch the plant. And so there's a lot to be done there. And from our standpoint, we started this process many years ago, it started around having a dominant research team that enabled us to identify who we think are going to be the best companies in the states and then pursuing those companies. And so I still think we're in the early innings here. I certainly see a number of our competitors trying to play catch-up. I think that's generally good for the market because it will open up capital and capital access. I see people raising money.

Our clients are raising money. They're putting pockets of money and allocating capital in their larger portfolios. Some of the deals we've done this quarter are from some significant long-only investors that you will recognize and that suggests to me that this is becoming much more mainstream in terms of people's investment portfolio.

So that's part of the reason why we've hired more people, frankly, we've had so much inflow of opportunity that's been targeting NOL, and we want to make sure that we're executing at the top of our game. So some of the increased expenses that you've seen this quarter for headhunting fees and some of the investments we're making in individuals are direct results of this clear line of sight we have towards an increased revenue pie in that space.

Sumeet Mody -- Sandler O'Neill -- Analyst

Okay. Great. And then I wanted to get an update on the balance sheet simplification after I'm getting the long/short equity, regarding the remaining strategies. Are you largely comfortable of what you have or it's just a matter of leaning into your strengths for growth? Or are there any potential changes you're still thinking about maybe with Starboard or anything else?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

No, we're good with what we have. I think it's been a long time to get that business humming again. If you see the AUM growth this year and the potential for AUM growth, which you've intimated. Part of that has been in a number of years, and it's really clear. So the fact that we've skinnied down the number of strategies that we're focusing on doing what we do best for the strategies we have, I think it's very comforting, and we spent a lot of time over the last 18 months, exiting things that we just -- and getting rid of trap costs and management time and focused on things that we're just going to think we get to scale.

And so today, I look at our AUM growth, some of that is from market appreciation and some of that is in increased inflows. The fact that our health care investment fund is now two-third investment because of the opportunity going raised another one of those. The fact that we're likely to have a few more closings on our HealthCare Royalty Partners product, all of that suggest that there's forward momentum in that business, honestly, for the first time in a long time. And Starboard continues to chug along, and we're thankful for that.

Sumeet Mody -- Sandler O'Neill -- Analyst

Great. That's helpful. And then just one kind of clean-up question on other revenues for the model maybe for Steve but can you give a little color around that $4.3 million number. Was that, the driver there, was that just the reinsurance business? And how should we think about that line going forward?

Stephen Lasota -- Managing Director and Chief Financial Officer

Yes, primarily insurance business performed well in Q2. I mean that's the majority of it.

Sumeet Mody -- Sandler O'Neill -- Analyst

Got it, okay. All right, that's it from me. Thanks.

Operator

Our next question comes from the line of Chris Walsh with Buckingham Research. Your line is open.

Chris Walsh -- Buckingham Research -- Analyst

Hey, Jeff. Hey, Steve.

Stephen Lasota -- Managing Director and Chief Financial Officer

Hey Chris, how are you?

Chris Walsh -- Buckingham Research -- Analyst

Doing well. Solid quarter, I just had a couple of questions, a lot of things were already asked but on brokerage, in recent years, Cowen has been a pretty clear market share taker. And so just wondering, do you have any sense of what their Deutsche Bank exiting its U.S. equity sales and trading businesses could accelerate your share gains across both institutional brokerage or institutional services?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Well, I would say anytime somebody that size decides to leave the business it becomes a net win for everybody else who isn't leaving. So I can't be more specific than that but certainly, that's a big decision, and Deutsche Bank I think was the top 10 provider of U.S. equity execution for a lot of years. I think in the last few quarters it slipped. And so again, the short answer to your question is yes. I can't be more specific than that, but there's no question that the clients who do a lot of business with Deutsche Bank are doing business elsewhere.

Chris Walsh -- Buckingham Research -- Analyst

Got it. And then just piggybacking on both Devin and Sumeet's question on capital. Although Linkem and Formation 8 could be more intermediate-term opportunities for monetization, I just kind of wanted to take a step back and think about the longer-term monetization potential that Cowen has. So according to your new breakout, you have roughly $150 million of capital tied up in the Asset Co, and also your stake in Starboard is arguably worth around $100 million, so that's around half of your market cap that's in both strategic and noncore investments that could be monetized over time. Am I thinking about that correctly?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Well, I'm going to speak to the value of the Starboard position but obviously, we know how well Starboard does and for us that's been an amazing investment, and it continues to be. I'm not going to speak strategic about what we've might or might not do with that. I will just say that value is there. It's not recognized on our balance sheet anywhere but Starboard and Starboard's performance, just to be clear, is inside Op Co, not inside the Asset Co.

So just to give you a sense as to how we think about it. Their performance is certainly integral to our ability to achieve our target rates of return for sure. In terms of the long-term, in terms of the Asset Co and the longer-term there. Well then, you could be -- intermediate-term and long-term are -- that's a wide-open time frame. I think what we've said is, both of these, if you look at the Linkem investment in particular, the number of our investments we have, like the Formation 8 investment, these are appreciations of much smaller investments.

And I'm not sure if people that are new to the story really fully appreciate that. And some of these are trapped assets or troubled assets, these are assets that appreciated in value over time, and we'd like to be in a position where we help harvest that because we think are the things to do with the capital either returning into the shareholders or investing in businesses where to drive the operating business but I want to be really clear for those of you that our new to the story. I know, Chris, you're relatively new to the story, these are great assets that have been great performance for us over the years and as a result, we just want to highlight that, so that people can do the work around them.

Understand they don't change that much quarter-over-quarter, and then they can focus on the things that we can focus on everyday, which is how we drive the value in the operating business. And to us, that's where we spend 95% of our time plus is driving the value that our operating company, and I think it gives people an opportunity to really see the progress that we've made when you strip out these noncore assets because almost by definition, they're going to be much volatile in terms of their step function on in terms of how the revenue that gets attached in it won't be quarter-over-quarter.

And you can still see that the decisions we're making and how that drives ROCE and the operating company. That's actually what we're going with almost all of our time, and it's important for people to give it a value that separate from the drag that you may have in any one quarter or 2 quarters or any year associated with these assets.

Chris Walsh -- Buckingham Research -- Analyst

Definitely. Seems like Cowen is becoming more and more of an earning story and given the consecutive, 6th consecutive quarter of profitability and strong results this quarter, I think definitely keeping moving in the right direction there.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Right. Thanks, Chris.

Chris Walsh -- Buckingham Research -- Analyst

Thanks, guys.

Operator

And I'm showing no further questions in queue at this time. I would like to turn the call back to Mr. Solomon for closing remarks.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Thank you, operator. Before we sign off, I just want to remind our investors that our progress is really the direct result of the hard work of our team here. And I say this every quarter but it merits repeating. We come in every day with one idea in mind, and that is how we help our clients outperform, and how do we stay true to our core values of vision, empathy, sustainability and tenacious teamwork.

I get a lot of questions about our focus on empathy, and it's something that we've been doing here at Cowen for a long time and we're dedicated to the idea of promoting empathy as a cornerstone of our culture because it is essential to our ability to make those kinds of contributions for our clients, for our teammates, for our families, for our communities and in a world that sometimes feels like it's a little short of empathy, it's really essential to our ability to drive success internally. And we believe that our shared success over the long term is actually what enables us to do more good. So the better we do, the more good we get to do.

And I want to thank our shareholders, the new ones, especially our long-term shareholders for being a part of our continued success because without you, we don't get to do what we do, and I just want to make sure that we express our gratitude. Thank you all for joining us, and we look forward to speaking with you on our next call. Have a nice day.

Operator

[Operator Closing Remarks].

Duration: 42 minutes

Call participants:

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Stephen Lasota -- Managing Director and Chief Financial Officer

Devin Ryan -- JMP Securities -- Analyst

Sumeet Mody -- Sandler O'Neill -- Analyst

Chris Walsh -- Buckingham Research -- Analyst

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