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Cowen Group Inc (NASDAQ:COWN)
Q1 2020 Earnings Call
Apr 29, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Thank you for joining us to discuss Cowen's results for the First Quarter of 2020. By now, you should have received a copy of the earnings release, which can be accessed 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. Many of these risks are currently increased by and may or will continue to be increased by the COVID-19 pandemic. A more complete description of these and other risks and uncertainties and assumptions is included in the Company's filings with the SEC, including the upcoming first quarter 2020 10-Q filing, which will be available on the Company's website. Cowen has no obligation to update the information presented on today's call.

Also on today's call, our speakers will reference certain non-GAAP financial measures, which the Company believes will provide useful information for investors. 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 Solomon, Chairman and Chief Executive Officer.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Thank you, operator, and good morning, everyone, and welcome to Cowen's first quarter 2020 earnings call. This is Jeff Solomon. And joining me today on the call from his home is our CFO, Steve Lasota. As a reminder, we make available quarterly financial supplement in the Investor Relations section of our website and we encourage you to review it in conjunction with our earnings release.

This morning, I would like to review the extraordinary events of the past several weeks and how we at Cowen have responded to the new reality of the COVID-19 pandemic. Then Steve will review the financial results for the quarter, and we will offer some thoughts on where we stand today. After that, we would be happy to answer your questions.

Over the past few months, I've been asked by a number of our clients not only to present our views on the health crisis and the current economic situation, but also how we have been managing our own organization through this time. I've started each time by highlighting our management team made critical decisions early and that [Technical Issues] of vision, empathy, sustainability and tenacious teamwork.

As I will detail in a bit more on this call, when the enormity of the pandemic became more evident, we prioritized the health and safety of our team and our families in all the decisions that we made.

We work tirelessly and collaboratively across the entire firm to ensure that we were able to continue delivering high-quality engagement for our clients even as we quickly implemented our robust business continuity plan, which enabled all of us -- all 1,300 of us to work effectively from our homes. It is a feat that none of us could have ever imagined having to accomplish, and yet our organization swung into action without so much as a hesitation.

So before we go any further, I just want to express my gratitude and my pride to everyone at Cowen who helps make this happen. You are the embodiment of our ideals and the essence of what makes us as strong as we are. As we look forward to navigating the next several months, the well-being of the Cowen team, our clients, our families, and our communities will remain our top priority.

Looking back to the first quarter of 2020, specifically the month of March, it was the most challenging period in more than a decade, and we rose to the test with a very strong operating performance in our markets and investment banking businesses for the quarter.

To put it in perspective, the first quarter of 2020 would rank as the ninth most volatile year on record for US equities. March was the most volatile month ever, and with the S&P 500 realized volatility of over 93. As equity prices fell, trading volume surged and economies worldwide downshifted almost to a halt. Cowen weathered this storm well.

The operating company segment was profitable for the quarter, while the asset company posted a negative performance due to writedowns in some of our private investments. I'm proud of the rapid steps we took in early March to reduce risk in our trading books, which resulted in a preservation of our tangible book value.

More importantly, however, we reacted quickly to COVID-19 situation, by mandating work from home for some of our teams beginning on March 9. And by the end of the week, that week, over 80% of our staff globally were sheltering in place well ahead of most of our peers.

Since the third week of March, more than 98% of Cowen employees have been working remotely. Now, if you've told me that we would do record volumes in our markets business in March, while migrating to a work from home plan, I might have taken the other side of that bet. But not only did we pull it off, we did so without missing a beat. This is a testament to the dedication skill of our teams in operations and technology. We are grateful for their hard work and their expertise in making this happen so quickly and so seamlessly.

This decision to move to a fully remote workforce was not an easy one. At the time, our actions were well beyond the government's recommended precautions, but our -- and our management team debated whether or not we were taking too much risk to the continuity of our business relative to the perceived health threat. The decision came down to one overriding factor, keeping our people and their families healthy.

Given the escalation of the crisis, particularly in cities where Cowen has a major presence, we're thankful to have made the right decision early and for the foresight to have a robust business continuity plan. Cowen employees have been healthy, productive, and engaged because of this work from home decision. Our strong culture has made a clear difference, enabling us to continue functioning at a high level, even though we are apart. In times of stress like the one we're in, there's no question that empathy has enabled us to be truly present for each other and for our clients.

As we were quick to shift to the work remotely, we sprang into action quickly to virtual engagement with our clients, creating a well attended virtual conference on all aspects of COVID-19 that continued for about a month. We provided our clients with early information on diagnostics, therapies, vaccines, and convene global experts to help make sense of the pandemic from the market and the economic impact to the fiscal and monetary responses.

That conference, and a series of other online events, have attracted more than 14,000 participants over the past several weeks. We may be working remotely, but we're as well connected to our clients as we ever have been perhaps even more so.

The Cowen team has remained extremely well coordinated among ourselves. We successfully combined relevant content with increased client contact frequency, which we believe has further strengthened our client relationships and enabled us to take market share.

Now, I will give you a brief update on how our operating company divisions fared over the quarter. In markets, we had a record quarter in terms of both revenues and trading volumes, and importantly, we gained share as volatility spiked. Our trading volumes in March were 120% above the prior 12-month average, while trading activity from the buy-side clients was over 140% higher. In times of market to risk, clients seek out Cowen for our ability to source liquidity and reduce market impact of trading on a non-biased basis, and we have definitely seen this play out over the past couple of months.

During the first quarter, we aggressively provided liquidity to clients and reduced risk in our securities, finance and SPAC trading books, and still generated record revenues, despite the impacts of the losses in these portfolios.

Revenues and options and non-US execution were extremely strong. Each of those were up 200% year-over-year, while cash trading, electronic trading and prime brokerage revenues were up more than 35% versus the first quarter of 2019. In research, our virtual engagement with clients has drawn very positive feedback. Beyond our Cowen-focused efforts, our research team was very productive in the first quarter, with total reports published up 46%. Client engagement with our research also grew with a number of reports read, up 11%.

In the quarter, we launched a new best ideas euro product and began building out a thematic research product to gain increased mindshare among portfolio managers, family offices, venture capitalists, and private equity funds. In investment banking, we had the second best quarter on record revenues, despite the market turmoil and a sharp drop in overall banking activity toward the quarter-end. Our healthcare focus and expertise are beneficial, as the new issue calendar was significant across biotech and tools and diagnostics, particularly in January and February and again, starting in April. Overall, healthcare accounted for 75% of our banking revenues in the first quarter.

During the extremely volatile environment in March, we stayed focused on our clients and completed 10 transactions across capital markets and M&A advisory. It was a strong quarter for the equity capital markets business, but we had solid performance in other areas of banking as well. It was our strongest quarter for debt advisory in over five years.

We invested in building out that capacity in -- over the past year and that is clearly paying off for us so far in 2020, and as clients think about how to manage their balance sheets more aggressively. M&A compromised about 20% of banking revenue. Capital markets advisory, which includes private placements, pipes and private debt financings was 14% of total banking revenue. Combined, our advisory business represented 34% of banking revenues in the quarter.

In investment management, the market sell-off resulted in declines in investment income and incentive income, but they were modest relative to the steep drops in most asset classes during the quarter, even as we took early steps to derisk the portfolios. Despite the volatile quarter, the management fee run rate hit its highest level in over four years.

Looking at our five investment strategies, our newest strategy, sustainable investing, which launched in the third quarter of 2019, had approximately $210 million in assets at the end of the quarter. The team runs a technology-enabled process and focuses on clean transportation, sustainable food production, industrial efficiency and renewables and storage sectors.

Our healthcare investment strategy had approximately $660 million in assets at year-end. And this strategy is looking for meaningful investments at attractive valuations, particularly in the areas of oncology and rare diseases. Despite the current disruption to the biopharma industry from COVID-19, the strategy experienced negative incentive income and investment income from a handful of positions during the first quarter, but we remain optimistic about the outlook in the intermediate term. The biotech indices have been among the strongest performers of all sectors, and we even had an IPO of one of our recent investments in the first few weeks of April.

HealthCare Royalty Partners ended the quarter with about $3.4 billion in assets. The volatility in the public markets has brought about increased opportunity for this strategy, as companies are looking to finance their balance sheets with less dilutive financing opportunities like the ones done in HealthCare Royalty Partners.

The merger arbitrage strategy had about $465 million in assets at quarter-end. This strategy underperformed the HFRX Merger Arb Index in the first quarter as deal spreads moved to their widest levels since the 2008 financial crisis. The activist strategy had about $5.4 billion in assets at quarter-end. And while absolute performance in the quarter was modestly negative, the strategy strongly outperformed its Russell 2000 benchmark in the first quarter and actually generated significant investment fee income.

Turning to the asset company. As a reminder, this segment includes non-core investments, which we intend to monetize. The global sell-off in the first quarter resulted in writedowns of Asset Co investments totaling $11.7 million. We wrote down $7.3 million in the Surfside real estate investment. And while we had received indications of interest from buyers earlier in the quarter, those indications have faded as a result of the pandemic.

As such, we do not expect renewed interest in the property in the current environment, and we continue to work with a lender to potentially restructure, giving us more time to realize value.

As you may remember, this investment is the largest of the very few remaining exposures we have to commercial real estate. As we exited the real estate investment strategy last fall, the value of our stake in the Italian wireless company, Linkem, which is assessed each quarter by a third-party valuation firm was written down by $4.6 million, or 6%, despite the fact that Linkem actually had strong performance this past quarter.

The company has experienced increased demand for its services, demonstrated by increasing new subscriber growth and a 50% spike in network utilization during the COVID-19 shelter-in-place in Italy. As a reminder, we intend to sell the non-core assets in Asset Co as we -- soon as we are able to do so, although, we are not willing to sell them at a fire sale price.

And now, I will turn the call over to Steve Lasota for a brief review of our financial results for the first quarter. Steve?

Stephen A. Lasota -- Managing Director and Chief Financial Officer

Thanks, Jeff. For the first quarter of 2020, GAAP revenue was up 40% year-over-year to $313.8 million from $224.1 million. We reported a GAAP net loss attributable to common stockholders of $11.6 million versus GAAP net income of $8.1 million in the prior year period. In the first quarter of 2020, GAAP compensation and benefit expenses were $124.4 million, a decrease of $7.5 million from the prior year period.

Non-comp expenses, which exclude comp and D&A, were $101.3 million for the first quarter. And within non-comp expenses, operating, general, administrative and other expenses were $88.1 million, an increase of $10.1 million from the prior year period. D&A expense in the first quarter was $5.4 million. In the first quarter, income tax benefit of $1.2 million, compared to an expense of $3.2 million in the prior year period.

Now turning to our non-GAAP financial measures, which we refer to as economic income. In general, economic income is a pre-tax measure that eliminates the impact of consolidation to consolidating funds and excludes goodwill and intangible impairment, certain other transaction-related adjustments or reorganization expenses and certain costs associated with debt.

Economic income revenues also include incentive income during the period, when incentive fees are not yet realized with GAAP reporting, investment banking retainer fees collectible during the period that would otherwise be deferred for GAAP reporting. Economic income also records costs associated with starting a fund over the expected life of the fund.

The remainder of my remarks will be based on these non-GAAP financial measures. Economic operating income represents economic income before depreciation and amortization expenses. Looking at our business segments, as Jeff noted, we had a profitable quarter for our Op Co segment, driven by strong revenues in markets and investment banking. Op Co had total revenues of $224.8 million, economic income of $4.3 million, and economic operating income of $9.7 million in the first quarter of 2020. Asset Co had an economic income revenue loss of $13.9 million and an economic operating loss of $16.5 million in the first quarter.

On an overall basis, we reported economic income loss of $12.2 million for the first quarter of 2020, compared to income of $15.3 million in the prior year period. First quarter economic operating income was a loss of $6.8 million, compared to income of $20.2 million in the prior year period.

First quarter economic income revenue decreased 10% year-over-year to $210.9 million. For the quarter, investment banking revenue was up 19% year-over-year to $98.8 million, the second best quarter on record. It was a record quarter for brokerage revenues, up 19% year-over-year to $132.7 million, and management fees for the quarter were $14.9 million, compared to $10.4 million in the prior year period. This is the highest level in four years.

Incentive income was a loss of $4.9 million in the first quarter versus income of $16.7 million in the first quarter of 2019. Positive incentive fees generated by the activist strategy in Q1 2020 were offset by reversals of the -- of incentive fees in the healthcare strategy and for some of the legacy Asset Co investments.

Investment income for the quarter was a loss of $31.1 million versus income of $10.3 million in the prior year period, due to weaker performance in the event-driven strategy, the healthcare strategy and the activist strategy, as well as an $11.7 million in writedowns in non-core Asset Co investments.

Starting this quarter in our financial supplement, we have provided an additional transparency into our investment banking revenues by breaking out our capital markets revenues into underwriting revenues and capital markets advisory revenues. This breakout in our financial supplement is provided for the first quarter of 2020 and for any comparative prior years shown.

Also on economic reporting and our financial supplement starting this quarter, we are presenting our brokerage revenues net of associated trading gains or losses, which previously had been reflected investment income. This adjustment has been made to quarterly brokerage revenues and investment income revenues for the first quarter of 2020 and for any comparative period shown.

Turning now to our expenses. Compensation and benefit expense for the quarter was $125.7 million, compared to $131.9 million in the prior year period. Our overall comp to revenue ratio rose year-over-year from 56.5% to 59.6% of economic income revenue. The overall comp ratio was higher due to writedowns in Asset Co investments. The comp ratio for Operating Co was 55.6% in the first quarter.

Firmwide, we are targeting annual comp to rev ratio range between 56% and 57%, although it could remain elevated if revenues are weaker for the balance of the year. Fixed non-comp expenses totaled $37.5 million in the first quarter, up from $34.9 million in the prior year period. The increase was due in part to higher expenses for trading software applications, which have a variable component in times of elevated trading activity.

The variable non-comp expenses in the first quarter of 2020 were $43.3 million, compared to $37.1 million in the first quarter of 2019, due to higher brokerage and trade execution costs related to record volumes. First quarter depreciation and amortization expense were $5.4 million, compared to $5 million in the first quarter of 2019.

Turning to the balance sheet. At quarter-end, the company had invested capital and Op Co totaling $539.9 million. That includes $330.5 million in broker dealer regulatory capital and $60.5 million in additional operating cash. We had invested capital in Asset Co totaling $126.7 million.

During the quarter, as the pandemic spread and volatility increased, we reduced the balance sheet allocations to investment strategies, merchant banking and trading books by more than $90 million. Our balance sheet position is strong with ample liquidity to run our business and no long-term corporate debt maturities until the end of 2022.

Turning to our equity, common equity, which is stockholders' equity less preferred equity was $683.5 million, compared to $708.5 million as of December 31, 2019. Common book value per share, which is common equity divided by total shares outstanding, decreased slightly to $24.74 as of March 31, 2020, compared to $24.77 as of December 31, 2019.

Tangible book value per share was $18.60 at quarter-end, down slightly from $18.72 at the end of 2019. Firmwide return on common equity was negative 7% in the first quarter of 2020. However, Op Co had positive return on common equity of 2.6% for the quarter. And as we noted in the release this morning, our Board of Directors maintained our quarterly cash dividend of $0.04 per common share, which will be paid in June.

During the first quarter, we repurchased 1.38 million shares for $18 million, the highest quarterly share buyback amount in four years. For the remainder of 2020, we may opt to purchase additional shares in the open market on an opportunistic basis. However, we'll weigh the impact of buybacks on our available cash flow, as well as the prevailing market and business conditions.

Our core business is strong and our book value is solid. As expected, business operations, which has always been the backbone of the firm, has held strong during these difficult times. I would like to personally recognize the exceptional effort put forth by everyone in business ops. We appreciate all that you do.

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

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Thanks, Steve. Before we take your questions, I'd like to offer some insight into where we stand today at Cowen. As you probably know, given the volume and deal flow dependent nature of our business, we've never offered earnings guidance and now is certainly not the time to start. But we can offer you some thoughts on the current state of play, given that we are done with the month of April practically.

First off, things are definitely better, which -- by which I mean, simply clear than they were several weeks ago. To use the old Don Rumsfeld categorization of known knowns, known unknowns and unknown unknowns, we have moved over the last several weeks from unknown unknowns, which is truly a difficult place to more known unknowns, which is to say, we know the virus exists and we know a lot more information about it. We're still not necessarily certain on how -- what the longer-term economic impact will be. That's really where market volatility lives. So make no mistake, COVID-19 remains a dangerous ailment and the pandemic has wreaked havoc across economies, markets and tragically, people's lives.

But unlike several weeks ago, we have a somewhat better idea of what we're up against and we continue to learn more everyday. The virus is our collective enemy. Time and science and the capital to fund that science are our allies. The social distancing we are practicing now, the testing strategies being rolled out, and the antiviral treatments and vaccines racing toward development, these will be COVID-19 and eventually allow us to return to our workplaces, seeing our colleagues and clients in person and most importantly, spending time with friends and family in social settings. We believe it is a question of when, not if.

As it relates to Cowen, we're also doing our part. We are using our network to connect key influencers, scientists, doctors and officials with important capital providers that can help accelerate important medical developments. We've also raised money for a number of organizations in support of medical professionals and front-line workers. Because in the end, the challenges we face are ones we can overcome with collective effort, collaboration, and most of all, empathy.

In spite of the challenges we all face, we remain a dedicated, passionate and connected team of 1,300 people across the globe working safely, remotely, to help our clients win in every way they can. In markets, we stepped up and provided liquidity to clients in the insanely volatile days in March, and that has thankfully calmed down. But our markets business actually remains quite strong, with April revenues averaging $2.5 million a day, even as marketwide volumes have declined from the fever pitch reached in March.

In banking, we're encouraged by the solid pipeline and the high level of client engagement. So far this month, banking revenues are running on par with $15 million pace we saw in March, which does not include the $420 million lead-left follow-on offering we did this morning for Immunomedics.

The capital markets pipeline remains strong, particularly in healthcare, and the M&A backlog has also held up fairly well. While the current environment may delay the timing of some of the M&A transactions, history has shown the corrections like the one we saw in the first quarter can make sellers less valuation focused and more willing to transact.

In investment management, we continue to focus on private equity style strategies, where we have domain expertise. The teams running those strategies will use their evaluation skills and look to make opportunistic investments in the current environment. We believe that our prospects in invested management remain positive for consistent management fees and some growth in assets under management during 2020, and we have considerably derisked our balance sheet, so that our daily P&L volatility has been reduced, although we are experiencing positive investment income so far in April on the Op Co balance sheet.

This is due in part to strong performance in the healthcare investment area, tightening spreads in event-related investing, as well as a number of positive alpha events in our activist portfolio. Overall, Cowen is in a solid financial and operating position after a tumultuous quarter. We have a strong balance sheet with $18.60 intangible book value per share, deep relationships with clients for whom we become more critical and robust markets business that has become one of the go-to-organizations for the buy-side when they need to seek liquidity.

While we don't know exactly what the shape of the recovery is going to take, we believe that we are well positioned not only to participate, but to gain share, and help our clients see whatever challenges the market throws their way.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Devin Ryan from JMP Securities. Your line is open.

Devin Ryan -- JMP Securities -- Analyst

Great, thanks. Good morning, everyone.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Good morning, Devin.

Stephen A. Lasota -- Managing Director and Chief Financial Officer

Good morning, Devin.

Devin Ryan -- JMP Securities -- Analyst

I guess, first question here, just I appreciate the increased investment banking detail. Just for clarification, the capital markets advisory, is that where you're receiving advisory fee for transaction versus an underwriting fee? I just want to make sure we understand that. And then I have a follow-up on that.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Yes, that is exactly right. So private placement fees, privately placed equity and debt transactions will fall under capital markets advisory. It's really the convention, Devin, that most of our industry uses. We used to lump that in with capital markets, underwriting revenues, but I think -- we think it's easier and better for you to see as a separate moniker. So we've adjusted that, so you can get a better sense for the balance and diversification in the business away from just plain equity underwritings.

Devin Ryan -- JMP Securities -- Analyst

Yeah. Okay, great. Thanks, Jeff. I appreciate that. So I want to dig in a little bit more into the investment banking outlook. And just to get some perspective, so it sounds like you're seeing kind of the window capital markets and underwriting window reopen in certain areas. And I'm curious, is this kind of purely healthcare dynamic, where companies just ultimately need capital? And so that's why being in healthcare is such a great place, or is there something else kind of you're seeing within the business?

And then bigger picture, how does this health pandemic potentially refocus more capital into the healthcare industry? And what does that mean for the business? I would think that there's probably going to be more capital flowing in coming out of this. And so I'm just curious how you guys are thinking about that and advising clients around that?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Yes. So it's a good question. So there's no question that the market reopened reasonably quickly, actually in April, for biotech companies and tools and diagnostics companies to actually access capital. I would say, the first area that we saw was tools and diagnostics is, clearly, there's a number of companies that are racing to use their technology to be doing more testing around COVID-19. It wasn't just that, but certainly, we're involved in a number of situations, where companies that actually have pretty robust testing mechanisms are raising capital to look at COVID-19 and ways they can bring a product to market very quickly, and we're helping them to raise money in that environment.

But the biotech market is also open. And I think we saw a couple of IPOs and certainly the follow-on, off the back of good news that Immunomedics had last week is indicative of what this industry does. These companies will move from early stage development companies and to commercial companies and increasing their ability to access capital is the element that unlocks that for their shareholders. And so, that deal was a $350 million deal, it got upsized to $420 million. So it shows that there's still significant capital flows into healthcare. We have not seen that reverse at all. And the fact that you -- it goes to the biotech industries is the strongest performing industries in this entire time period, it should give you a pretty good indication as to the fact that the markets are open. And for companies with opportunity sets, the financing is available for them.

And I think that remains, if anything, I think, the big concern that we had coming into the year was around drug pricing policy and some of the rhetoric that was being thrown around with the election toward the end of the year. And I actually think that has abated for the time being. It's interesting how this industry has gone from a whipping boy, if you will, in the halls of government to hero in terms of their ability to find cures for COVID-19. It's something we've always known. These companies are really doing amazing things for people who have little hope. And now, we're relying on companies that are clients of ours, frankly, to help come up with cures for this. And so I think, that has helped investors to really focus their allocations to the space. So I just feel like, when you look at the regulatory environment and you look at the opportunity set in front of us, it remains incredibly robust, and we are very fortunate to be in the center of that in a meaningful way.

Devin Ryan -- JMP Securities -- Analyst

Got it. Great color. Thank you. Maybe a follow-up here on just the brokerage business. So you had a phenomenal quarter there, a lot of market volatility, and it sounds like the strength was across the Board. But I heard the comments about, April remaining strong. I know that the activity in volume in the beginning of the month and volatility was still quite high, but this maybe abated a bit. So I'm curious kind of -- are you seeing kind of did it finish the quarter -- or excuse me, finish the month with the same type of strength that it started? And then what would you attribute that kind of continued momentum through month end to? Just try to think about some of the puts and takes given that 1Q was so strong, but it sounded like it was really across the Board?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

So the Q1 numbers show you net of inventory losses. So I think it's a little bit misleading. We always show you net, but generally speaking, we don't have very many, because this is not a lot of volatility. And when we're facilitating flow for clients, it's not a meaningful number. The month of March was a more meaningful number. So if I were to break out the gross commission dollars, you'd see that we're significantly higher than $132 million that we showed. And what's changed is that, we're not incurring those kinds of portfolio inventory drawdowns, because obviously, we derisked early. And so there -- we're not seeing those at all in the month of April. So, in fact, we've seen the remaining risk positions that we have on rally.

Having said that, it's just the lack of, I would say, the volumes continue to be strong, but we're not having any negative impact from the facilitation of trading. Will that continue? I've been pleasantly -- I've been pleased with the efforts and the client engagement level and that's really the thing that we look at. Are we continuing to engage at a high level with clients? And certainly that is the case in terms of our daily interactions. So, we'll trade a little bit more with market volumes. But I think from what we've seen in April and what we expect to continue is, we're going to be transacting in a much higher level than we were coming into the crisis. And the difference will be that we're not taking the kind of drawdowns on inventory that we had in the month of March.

Devin Ryan -- JMP Securities -- Analyst

Got it. Okay, great. And then just one on the balance sheet. And if it's possible just to think about what the balance sheet looks like today relative to maybe the middle of the quarter and just the changes that were made there as you derisked it? And then just bigger picture kind of the calculus, you had a very strong quarter of stock repurchases. And clearly, the stock is, I think, from a lot of people's perspective pretty attractive at these levels, just given a pretty substantial discount to tangible book value. And so just trying to think about some of the puts and takes and maybe even ability to exit some of the non-core investments, I know it's complicated. But maybe the calculus has changed here in terms of the urgency to do that, just given that the stock is at this price that may not last. So just trying to think about some of those puts and takes around the balance sheet?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

All right. So there's like three different parts of that question. So let me just take -- let me start with a risk on the balance sheet. So, we've said over and over again, that balance sheets are meant to be seen, not heard. And certainly, we did not have a significant amount of market directionality coming into this because we just don't run the balance sheet that way anymore. Obviously, when you have a multi-standard deviation move in spreads, that's something that will -- it impacted us. And I think there's one risk taker in the world that doesn't look back and say, man, I wish I had less exposure. Even at a reduced exposure levels we had, we did not have significant market directionality exposure. We don't generally ever have that.

So our pain really was felt primarily in spread widening. And our view was that, if the Fed hadn't really stepped in here to do some things in a meaningful way to grease the skids on liquidity, that could have been problematic. And well in advance of the Fed doing that, we had to take steps on our own to ensure that as we reached limits, which are very tight risk limits that we do exactly what you'd expect us to do. We don't ask questions and we liquidate portfolios and reduce risk, because we got to take care of ourselves. The drawdown we had was significantly less than what you witnessed in equity -- in the equity markets. I mean, just -- it was an amazing -- actually, on a relative basis, an amazing performance. And so the loss you see in the operating company division is largely a spread-related and event-related activities, and we've taken that exposure down and it continues to be at a lower level, because honestly, spreads continue to be wide and we can make decent money without as much exposure.

So I think we -- it remains -- we remain opportunistic in -- and what ends up happening after times like this when all spreads widen as you get significant alpha in the portfolio, and we certainly have seen positive alpha events occur in the month of April that's allowed us to recover a decent portion of what we lost in the beginning of March. So, that -- even as we continue to keep the balance sheet at a reduced risk level. Your second question was more around the Asset Co, I think, or was that the third part of the question, I can't remember, but...

Devin Ryan -- JMP Securities -- Analyst

Yes. I think that's the second part. But yes, that's -- just get some perspective on the ability to potentially monetize some of these investments just given where the stock is here. And then how -- and just in context of how aggressive you were on the repurchase in past quarter as well?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Yes. So on the Asset Co levels, I think we...

Devin Ryan -- JMP Securities -- Analyst

Sorry?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

On the Asset Co dispositions, I mean -- so the irony of this, of course, is as it relates to Linkem, the operating performance at Linkem has actually never been better. I did not anticipate that we would be going through an offering process with Linkem as early in the year. And so, nothing has changed in terms of our timing. We've talked about the possibility that we could act unilaterally here. But when you look at how things are teeing up for Linkem and the strategic partnerships it has and the timing that we and Jefferies had talked about in terms of seeking liquidity, again, the company is in a much better position to do something, whether that's the end of the year or the beginning of next year, will remain to be seen.

But in terms of our ability to seek liquidity, I feel better about that investment than I have in years, just because everybody is staying at home and in Italy and stressing the system. And with an increase of 50% and bandwidth utilization in that -- on that network, it was one of the best performing networks in Italy. And so it gives you an idea that the product capability, which was always so difficult to articulate to consumers is really strong. So I think it actually teases up to have a realization, maybe along the same kind of timing we talked about as we head into the end of the year, the beginning of the year, the beginning of the year next year, which was always sort of the timing around a potential public offering, but we'll see. Again, I take a lot of comfort in the fact that the business executed incredibly well and continues to do so.

I'm disappointed that we thought we were going to get a sale done in Surfside. We had been -- we've been marketing that property. It would have been an OK outcome for us. But obviously, it's a property in North Miami Beach. And it was maybe two weeks into the crisis when -- those bids faded. Now, could they come back? It's still a very attractive property. We're working with the bank. We'll see. But it's hard not to think that that has been impaired for the near term. And obviously, you see that in the markdown of that.

So that -- those are the two big drivers. It's a shame because from an operating standpoint, if you look at our operating businesses, it was incredibly strong. And honestly, if you look at the first two months record -- with the record revenues we were having in banking and the really strong performance we were having in markets, even outside the volume spike in March, we were on a track to do incredibly well from a profitability standpoint, really validating a lot of the pieces that we put in place toward the end of the year.

And those are still very much at play for us. And so when we looked at the opportunity to buy back stock on some early weaknesses, we were obviously aggressive in that, because as we were looking out over the first few months, we can see what the earnings power of the organization is, extenuating circumstances for the month of March notwithstanding. And so we were aggressive at buying back stock. And our goal has always been to buy back stock to meet -- at a minimum meet the amount of stock that we issue in accordance with our equity plan, and we thought we gain an early jump on it this year. And so I would say, we did get an early jump on this year. It gives you an idea that as things start to prepare themselves, could we do that? Sure.

But I think we need to see how this plays out. And obviously, we did a really good job at keeping our tangible balance -- tangible book value at a very high level. And we maintained significant amounts of liquidity that was extremely helpful during the most stressful periods to have several hundred million dollars of liquidity to process clear and settle the trades that we did. It shows you what we've talked about all along, which is we build the business to be resilient, because we value the opportunity to come in tomorrow and then tomorrow and the next day.

And so when a lot of other firms were really, I think, in a difficult place, we may not have been happy with what was happening in terms of the markets overall, nobody was. But we were really worried ever about whether or not we could do the things we need to do for our clients. And that's because we're well capitalized and we have a lot of liquidity. And so, again, as we look out over the course of the remainder of the year, that liquidity is super important. I don't expect us to be going back to the way things were in March. But it's nice to have it. And we'll need to make sure that, as things turn back on again, and as we start to convert parts of our backlog and M&A and things like that as we come into the end of the year, the more that we're sure of that, then we can look at ways to continue to return capital to shareholders appropriately.

Devin Ryan -- JMP Securities -- Analyst

Okay, terrific. I'll leave it there. Thanks for taking all my questions.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Hey, thanks.

Operator

Thank you. And our next question comes from Sumeet Mody from Piper Sandler. Your line is open.

Sumeet Mody -- Piper Sandler -- Analyst

Thanks. Good morning, guys. Just wanted to pivot over to the asset management front. I wanted to get an update on the pipeline for fundraising this year. And maybe talk about the effect the outbreak has had on client appetite for some of your alternative strategies? What you guys have planned for raising this year? And then maybe what kind of fee rate do you expect on some of that?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Yes. It's a great question. So we've had some very strong interest in the Cowen Healthcare Investments portfolio. And even during the month of March, we continued to see opportunities to do all subsequent closing. I probably need to leave it at that, because when we do the final closing, we'll make an announcement. But I will say, in the throes of some of the most difficult markets I've seen in my life, people remained engaged and they continued to make commitments, which is, I think, a testament not only to the team, but to the strategy and the fact that it's the right place at the right time. And so -- and obviously, we're well known in that space.

So I feel pretty good about that. Obviously, we just closed on HealthCare Royalty Partners' most recent fund. So I love the fact that we have two funds in the healthcare space with a lot of dry powder. That feels pretty good. In terms of making investments, I think, when you look at opportunities in the activist business, it's -- in my conversations with them, it's -- their performance was exceptional during the first quarter. And obviously, there's a significant amount of interest in that. I think, on the back end of that -- on the back end of this, there will be a number of opportunities for them to make decent alpha in the portfolio and in some of the new investments they've made. So feel pretty good about that, and they've continued to -- actually, they've reopened and have taken some incremental subscriptions in. So I feel pretty good about where we are AUM wise.

The last one I would say is, on the sustainability front, people -- our potential clients there continue to remain engaged. I would say, it's really a tale of two cities. If you are a -- an allocator in private investment, you actually have a lot of time to look at opportunities like the sustainability fund and like the healthcare fund. If you were dealing with some of the challenges in the public portfolio, you're probably distracted. So for our clients who are asset allocators and are looking at that space, we continue to move further along in the queue, and we hope to have additional closings in sustainability as we hit the back half of the year.

Sumeet Mody -- Piper Sandler -- Analyst

Great, thanks. And then I appreciate all the color on investment banking, and a lot of my questions have been answered. But I think just one on the debt capital market side. I know it's best quarter you've seen in five plus years. Maybe expand on that opportunity set there in the US and Europe, considering it's not something we've talked about much in the last couple of years. Just talk about the capacity you guys have, keep that ball rolling in this environment. And I know last quarter, you talked about Europe being a little bit locked up, but maybe just an update there in terms of capturing what's out there now?

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Yes. So let me start with Europe, actually. We actually saw a number of transactions closed in the quarter in Europe during the first quarter and even in March and beginning of April. They are actually one of the strongest quarterly performances that we've seen. And I think it is endemic of what we're seeing in M&A generally, which is, if you have transactions that are pretty much on the rails and they're signed and ready to go, they're going to close. If you're about to launch a transaction to do a sale process, you're probably waiting. And so, the ones that we have, some of which are public, some of which are large and public, both in court and in historical Cowen, we expect those to close if we're just waiting for time to pass. And so I feel on the M&A front that's actually a real positive.

On the debt front, yes, I mean, listen, we -- part of what we -- the investments we made coming into 2018 were to bring on this team and we brought on a full fledged team with a number of our people. And it shows that the integration of that team into the dialogue -- the banking dialogue has been extremely successful. Obviously, in the times of distress, the financing dialogue moves from the Treasurer, CFO, into the CEO suite and the boardroom. And our ability to be able to articulate to clients multiple ways to finance their businesses in difficult times has actually been a very strategic dialogue, that feel really good about. So our ability to sign up from and get mandate has increased significantly even as we head into April, because companies are thinking about how to finance through the trough. And then healthcare companies and non-healthcare companies are trying to figure that out. Number of companies are doing private placements and they're doing somewhat dilutive financings.

And so part of the private placement effort we have is about aligning strategic investors or growth equity investors with our clients who were -- who may have been -- who may not have even been thinking about financing their business. But now they are, because they've got top line challenges and they recognize that getting a financing done can enable them to execute on their business strategies as we head into 2021. And so the pipeline for our debt advisory business and that includes sort of our private placements business has actually never been more robust and the conversations around execution continue to move at a fairly rapid pace. That's different for Cowen than it was sort of at the beginning of the year last year when that team was just getting integrated into our platform. So I feel really good about that.

Sumeet Mody -- Piper Sandler -- Analyst

Great. That's all I had for you guys. Thanks for taking the questions.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Thanks, Sumeet.

Operator

Thank you. And that does conclude the question-and-answer session for today's conference. I'd now like to turn the conference back over to Jeffrey Solomon for any closing remarks.

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Well, thank you, operator. In closing, I'd just like again to express my gratitude to our team here at Cowen, in particular, the tech and ops teams and professionals who really enabled us to continue performing well. I've said it two or three times on the call. It was remarkable what happened and couldn't be more thankful for all of us. We also thank all of you for your continued support of us. I've spoken to a number of shareholders over the course of the past few weeks, and I appreciate it every time someone calls to check in. And for those of you that are also clients, we certainly appreciate your support.

We look forward to continuing to do the things that we do and feel extremely positive about how our position going forward. And it feels a little bit sometimes out of step to say that when you look around, you see how many other friends and clients are having challenges. So I think, I've said -- I feel extremely thankful that we are who we are and that we have the opportunity to do what we do though, remotely. And so I just want to say, I feel extremely fortunate for that. And so we'll continue to do what we do in ways we can and, of course, the better it is for us, the more good we get to do. And I think from a psychic level, every time we get to help somebody get through this. It makes us feel good about what we do for a living. And we don't get to do that without support from our shareholders and everybody on the phone. So we really do appreciate it. Thank you all for joining us, and we look forward to speaking with you again on our next call in July. Talk soon.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Jeffrey M. Solomon -- Chairman and Chief Executive Officer

Stephen A. Lasota -- Managing Director and Chief Financial Officer

Devin Ryan -- JMP Securities -- Analyst

Sumeet Mody -- Piper Sandler -- Analyst

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