SVB Financial Group (SIVB) Q4 2021 Earnings Call Transcript

SVB Financial Group (SIVB.Q -1.96%)
Q4 2021 Earnings Call
Jan 20, 2022, 6:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the SVB Financial Group Q4 2021 earnings call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session [Operator instructions] It is now my pleasure to turn the call over to Meghan O'Leary, head of investor relations. Ma'am, please go ahead.

Meghan O'Leary -- Head of Investor Relations

Thank you, Brent, and thank you, everyone, for joining us today. Our president and CEO, Greg Becker; and our CFO, Dan Beck, are here and will be joined by other members of our management team for Q&A regarding our fourth quarter and full-year 2021 financial results. We'll be making forward-looking statements during this call, and actual results may differ materially. We encourage you to review the disclaimer in our earnings release dealing with forward-looking information, which applies equally to statements made in this call.

In addition, some of our discussion may include references to non-GAAP financial measures. Information about those measures, including reconciliation to GAAP measures, may be found in our SEC filings, specifically our financial release and slide deck. And now I will turn the call over to our president and CEO, Greg Becker.

Greg Becker -- President and Chief Executive Officer

Thanks, Meghan, and thank all of you for joining us today. We're pleased to be reporting another quarter of strong growth and profitability. Our core business continues to fire on all cylinders with a growing balance sheet, healthy net interest income in spite of NIM pressure, robust fee income, and excellent credit quality. While warrants and investment gains moderated from record levels in Q3, we see continued strength across our entire business.

We are reiterating our strong 2022 outlook and raising our expectations for loan growth and net interest income. In addition, our outlook does not include the significant positive impact of future short-term rate increases, which seem increasingly likely. We filed our earnings materials earlier this afternoon, and they are available on the Investor Relations section of our website. And with that, I'll ask the operator to open up the lines and turn it over for questions.

Thank you.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good afternoon.

Greg Becker -- President and Chief Executive Officer

Hey, Ebrahim.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

I guess -- hey, Greg. Maybe just in your letter, you mentioned public market volatility a couple of times. When I look at your results, extremely strong. The outlook is strong.

But when you look at the stock performance since October, it's tracked what we are seeing in with tech stocks in the IPO market. Remind us in terms of if we do have a sustained sell-off in technology, higher growth stocks, where will that manifest itself in terms of your growth outlook, be it credit, be it in terms of fee or balance sheet growth.

Greg Becker -- President and Chief Executive Officer

Yes. So, I'll try to answer it in a couple of different ways, Ebrahim, and then Marc Cadieux may want to talk about credit or Mike may want to talk about the commercial bank. When you see the volatility that we've seen in public markets, there's a few places that you could see that. Obviously, in any ECM business we have in the investment bank, that could be one area.

But I'll counter that with the upside of we have a lot of M&A capabilities, and so I think M&A will pick up. So, I actually think it will offset, and there is more upside there. And we can get into investment banking a little bit later. So, that's one place.

Second place is in the volatility we would see in moderating warrant and investment gains, which we talked about in the letter. And so, clearly, if we stay in this place for a material period of time where tech stocks are down, you could see some compression there. But still, we expect -- even with some compression, we still believe it will be healthy in 2020. Credit quality-wise, I'll give my perspective, and then Marc may want to add.

You really have to see the ripple effect in a pretty material way, right? Valuations are not what repays loans. You have cash flow and cash that repays loans. And the companies, public and private, are incredibly strong from a balance sheet perspective, and their ability to raise money is also very strong. So, we don't see -- and the outlook, obviously, is very healthy.

We think it's going to be healthy even if there is some volatility in the market. So those are a few places that you could see it and maybe new client growth. But again, we've seen, for the last three years, a really nice tick-up in our new client additions. And we still obviously are very bullish on the innovation economy, and so I don't see that slowing down.

So, a temporary volatility in the public markets, net-net, isn't going to have that material of an impact.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. I guess just a separate question maybe around rate sensitivity for you, Dan. So, you've laid out the impact from rate hikes, both on NII and investment fees. Talk to us about, one, cash came down a fair bit this quarter.

How are you thinking about the bond book in terms of what are we adding, duration and credit-wise? And is there any meaningful credit risk in that corporate bond portfolio that you added over the last few years? Just give us some color into that if you could.

Dan Beck -- Chief Financial Officer

Yes, Ebrahim. So, on the first question, specifically, if you look at cash balances, as we've talked about in previous years, there's a pretty substantial amount of distributions that happen around private equity and venture capital. We saw that plus the -- effectively putting over $20 billion to work in the investment securities portfolio in the quarter. So, we're still bullish on liquidity as you see in the guidance for 2022.

Now, when we look at the investment securities portfolio and where we're putting money to work, based on the current environment, we'd probably be putting money to work in the 1.65%, 1.75%range but the vast majority of that still being agency mortgage backs, mortgage collateral, things along those lines. The corporate book is still quite small, and that's all high credit quality. So, don't expect to see any issues there from a credit perspective. So, the good news at least on where we're putting money to work is that that is above effectively the yield of the portfolio.

So, the margin compression that we've been seeing by putting money to work underneath the securities yield seems to be abating in this better rate environment.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And do you expect any difference in deposit behavior than this cycle versus what we saw in '16, '17 just given the Fed might be hiking at a much faster pace? You have larger customers. Do either of those dynamics change how deposit betas, the mix shift could behave this cycle versus last?

Dan Beck -- Chief Financial Officer

Yeah. Ebrahim, we're watching that and modeling sensitivities to that. All in, in our rate sensitivity, we've got a 60% deposit beta, and that's on the interest-bearing balances that we have in the portfolio, which is consistent with the last cycle. And we've effectively, for conservatism, modeled a faster beta in some of these net interest income assumptions, meaning that they would take place sooner in the rate cycle than we experienced during the last hike.

So, we feel like we've got some measure of conservatism in there just to take into consideration the fact the Fed could move faster, and client behavior could be different this time. But that's how we're getting comfortable with that all-in $100 million to $130 million annualized pre-tax net interest income number.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Steve Alexopoulos with Bank of America. Your line is open.

Steve Alexopoulos -- J.P. Morgan -- Analyst

Hi, everybody. I'm still at J.P. Morgan. 

Greg Becker -- President and Chief Executive Officer

Thought you changed jobs, dude.

Steve Alexopoulos -- J.P. Morgan -- Analyst

No. Ebrahim, I think, is still at BMA. Greg, I wanted to start with the environment. So, we're obviously paying a lot of attention to the equity markets.

But are VCs getting more cautious given the correction in tech stocks now playing out? And with SPAC stocks seeing even more a bit of a beating, are private companies starting to see down rounds?

Greg Becker -- President and Chief Executive Officer

So, it's very early when this -- since this correction in the tech market has played out. I would say the engagement we have in our discussions, we're paying attention, very close attention to it, but we really haven't seen it. So, our channel checks and talking with our clients and talking with venture capital is still very active. And I think you have to -- could there be a little bit of a slowdown? It's possible.

Again, we haven't seen it yet. But you have to remember, there's so much money that was raised last year. There's so much dry powder, and they need to put it to work. And so, could there be some valuation corrections in a later stage? Yes, there could be as companies look to raise money.

But if they do, they're still at healthy valuations. And so, I think companies need to raise money. There's ample money out there for them to raise money. Could they hold out and wait for a high valuation? Possibly.

But again, we're just not seeing it yet. And I think I have to wait at least a quarter or two to really see if there's any -- a trend that start -- anything that starts and then a trend beyond that.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK. I want to follow up on that. So, VCs and PE firms are sitting on a record dry powder. But if the Asia markets were to get disrupted, do you think we would see the pace of investments slow the way we've seen in other cycles? Or because of all this dry powder, do you think that firms will just invest right through a market disruption?

Greg Becker -- President and Chief Executive Officer

Well, when you go back and talk about cycles, right, I mean, the last time we had it, I'll call it, a dip was back in 2016. And if you remember, that was because of Asia and concerns around the Asia market. It literally slowed down for about 90 days or 120 days. So, we were very worried it was going to continue to be a very slow decline or a pause.

It quickly came back. You can look at the beginning of the pandemic. We thought with everyone going to Zoom that people wouldn't be making investments because it's a different way to do it. That was about a 90-day cycle.

You really have to go back and look at 2010 to say when there was really a pause or a slowdown. And when I talk to limited partners, when I talk to investors, the one mistake I think most of them would say is they didn't put money to work more quickly. They waited too long to jump back in. As you combine those things with just the innovation market growing very fast domestically and globally, could there be a prolonged slowdown? It's possible.

I just think the likelihood is a lot less than it has been in prior significant cycles.

Steve Alexopoulos -- J.P. Morgan -- Analyst

And it's because of the dry powder on the sidelines, that's why you think it will be narrower?

Greg Becker -- President and Chief Executive Officer

It's because -- well, it's two things. It's the dry powder, number one. Number two, it's the innovation economy still growing on a global basis, right? And number three, if you do see valuations even do a minor correction, I think people are going to look at it and say that's an opportunity to get back in, that this is going to be temporary. So, those are the three reasons I would point to, to say that it could be short-lived if there is a short-term kind of slowdown.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK. And then final question for Dan. Assuming we do see rate hikes, I know the guidance is ex rate hikes, you talk about reinvesting a portion of it. How should we think about how much of that potential benefit you guys will reinvest back into the company?

Dan Beck -- Chief Financial Officer

Yes. I think, Steve, to the extent that we see rate increases, it's clear we're going to reinvest a portion of those increases across the stated objectives. The question is really about the timing of those rate increases, when that occurs. But imagine, we see rate increases in March-June time frame.

That could potentially move us into the next expense guidance range of the mid-20s. So, that's kind of the way to think about it. If we see a March-June increase that we could move into that next range as we reinvest a portion of that spend and at that point, we would talk about the impacts into 2023, how much of that is one-time, how much of that is recurring.

Steve Alexopoulos -- J.P. Morgan -- Analyst

OK. That's helpful. Thanks for taking my questions.

Greg Becker -- President and Chief Executive Officer

Yup, thanks.

Operator

Your next question comes from the line of Casey Haire from Jefferies. Your line is open.

Casey Haire -- Jefferies -- Analyst

Thanks. Good afternoon, guys.

Greg Becker -- President and Chief Executive Officer

Hi, Casey.

Casey Haire -- Jefferies -- Analyst

So, on the loan growth guidance, just curious about the mix. Obviously, fund banking capital call drove about 60% of it in '21. Are you expecting the same kind of strength where it's driving the majority of the loan growth? Or do you see the mix changing? And if so, how?

Dan Beck -- Chief Financial Officer

Hey, Casey, it's Dan. I'll start. Mike might want to add. But as we look at 2022, I think the mix will still be predominantly capital call lending from a growth perspective.

But as we continue to develop and we continue to be excited about the integration with Boston Private, private bank wealth management and see the opportunity for mortgage lending, which is already strong to continue to see that growth. So, still predominantly capital call lending but starting to see mortgage, as well as other elements of private bank lending, pick up in the new year. Now, at the same time, don't count out what's happening in technology, healthcare, life science lending. And even with all of the liquidity that's been in the markets, we've seen good growth there.

So, still predominantly capital call, but private bank, as well as what we do in core technology, healthcare, and life sciences, will also contribute.

Casey Haire -- Jefferies -- Analyst

Very good. Thank you. And then just, Dan, you mentioned that the new securities yields, 1.65%, 1.75%. I know you guys kind of -- you kind of update that at year-end, the 10-year, obviously, 30 bps higher than where we were at the beginning of the year.

Is that 1.65%, 1.75% accurate relative to where we are today rate-wise?

Dan Beck -- Chief Financial Officer

Yeah. I think based on where the 10-year is sitting and the sell-off we've seen over at least the last couple of weeks, you could, and it's hard to count on this for a longer period of time, look to add another 10, 15 basis points to that yield if we stay effectively at the same rates today throughout the rest of the quarter. But a lot of that depends on market opportunities. A lot of that depends on liquidity flow.

So, we're comfortable with the 1.65% to 1.75%. And to the extent that longer-term rates and the sell-off, that year-to-date sticks, there could be some small opportunity there.

Casey Haire -- Jefferies -- Analyst

OK. And just last one for me on the credit front. The charge-off guidance, down a little bit. Is that -- the slide deck makes it seem like it's more environment-driven.

But is that finally just a reflection that the low-risk capital call is just a much -- is over half the book? And then also the ACL ratio kind of plateauing here at 65 bps, is that also a good level going forward?

Marc Cadieux -- Chief Credit Officer

Yes. So, starting -- it's Marc Cadieux, and starting on the charge-off question. Yes, I think it is reflective of the continued evolution of the portfolio toward the lower risk forms of lending like capital call lending, mortgage lending, and by extension, while early stage lending, where we've historically taken, the majority of our losses continues to grow in dollar terms but continues to shrink as a percentage of total loans. And so, those things are certainly conspiring to bring the guidance down.

And then to your question about reserve, I think adjusted for the change in composition of the portfolio from the beginning of COVID to now. I think what you see basically is that adjusted for that change in composition, we have finally, I think, found if not the bottom, probably pretty close to it. It's hard to imagine where more reserve release would come from. We'll certainly have some growth in capital call lending, as we've mentioned before, and certainly figures prominently in the outlook.

And if that continues, you could see some continued modest downward pressure on the reserve. But I think at this point, most of what was built during COVID is now out of it, and we're back to normal, as I think the also more normal provision in the fourth quarter reflective of the growth would suggest.

Casey Haire -- Jefferies -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of John Pancari with Evercore ISI. Your line is open.

John Pancari -- Evercore ISI -- Analyst

Good afternoon.

Greg Becker -- President and Chief Executive Officer

Hey, John.

John Pancari -- Evercore ISI -- Analyst

On the -- back to the loan growth, just to kind of dig in a little bit more. In terms of -- if we do get the -- I mean, there's some expectations for practically eight hikes by the end of '23. If we do get that and we get that pace starting relatively soon in 2022, does that -- can you talk about how, in isolation, that may impact your loan growth expectations at all? Just curious if in that dynamic, if you've seen much of an impact or does the -- again, does the dry powder factor that you've talked about really choke that? Thanks.

Greg Becker -- President and Chief Executive Officer

So, I'll start.

Mike Descheneaux -- President of Silicon Valley Bank

John, this is Mike. Go ahead, Greg.

Greg Becker -- President and Chief Executive Officer

Go ahead, Mike.

Mike Descheneaux -- President of Silicon Valley Bank

John, this is Mike Descheneaux here. In general, I mean, the first, as you know, and you've been following us for a number of years, the first few-basis-point hike really is not going to have much impact on the loan books as well. So, clearly, you're looking at some leverage loans and that particularly are some buyouts that they might consider, but still, nonetheless, debt is still so much cheaper than equity. So, you're still going to have people that are going to use this here.

So, we're not really anticipating that we'll have that strong of an impact here, but it's obviously something to keep an eye on.

John Pancari -- Evercore ISI -- Analyst

Got it, Mike. That's helpful. Thanks. And then in terms of the warrant and investment gains, I know reasonably you expect them to moderate off of the very strong 2021 levels.

I know this is probably a tough way -- a tough question. But any way to help us gauge the magnitude of moderation that we can expect? Any way to kind of frame it as you're looking at the market now and the backdrop? Just trying to see if there's a -- how we should think about it.

Dan Beck -- Chief Financial Officer

Yes. John, this is Dan. It's really hard, and that's obviously why we don't guide to it, to put a range around what that could look like coming out of the year with close to $1.1 billion worth of warrant and investment gains. But I think it's clear that that's exceptional and likely not to repeat.

But at the same time, as we've been talking about, we're still bullish on the environment. So, hard to put a percentage around it. We just know that with this market volatility it could be slower at least for the next quarter or so, especially relative to what we saw in 2021. Still again expecting 2022 to be a good year.

John Pancari -- Evercore ISI -- Analyst

Got it. OK.

Mike Descheneaux -- President of Silicon Valley Bank

Maybe, John, I'll just add on top of what Dan is saying. I mean, it is, no doubt, a very difficult thing to predict. But just some of those factors to consider. I mean, we keep talking about dry powder.

There's a lot of dollars out there, but there's a lot of companies that have been formed over the last couple of years that are primed and really great candidates to go public as well. I mean, we had something like close to 300 public listings in 2021, but there's -- if you look at some of the fact sheets, the number of companies that are valued greater than the median value of what went public last year is significantly greater than what went public. So, there is a lot of good companies that can be candidates for exit there. So, the fundamentals are still really, really strong, and a lot of good companies out there.

John Pancari -- Evercore ISI -- Analyst

Got it. All right. Thanks, Mike. And then I know, Greg, you referenced it earlier on, but just curious around the investment banking trends.

Can you maybe give us a little bit of color on the outlook there and pipeline and everything? And then also in terms of impacts that you expect from what we're seeing right now if we are looking at sort of in this backdrop we're in, how does that impact that outlook? Thanks.

Greg Becker -- President and Chief Executive Officer

Yes. So, we've got a couple of slides in the deck that talked about both the revenue side of what we've seen on a quarter-to-quarter basis. But really, it's -- when I think of '22, we have a pretty nice growth built in there relative to what the record quarter -- record year was in '21. And the question really is, OK, how volatile is that.

How do we think about that? And to answer that question, I would break down the business into a few categories. First is the historical SVB Leerink business. So, it was mainly biopharma. It was ECM.

It was trading, research, and they just continue to do an exceptional job in that area, exceptional moving up the league tables, had a great year last year. But what we're building out capability-wise is healthcare services, technology, and M&A and ECM and then M&A for biotech and now with research with technology as well. So, while you're hearing from some other larger investment banks softness as they go into '22, for us, especially in technology and healthcare services and then, of course, M&A, we're going from either a zero base or a very little base. And so, when you think about the team that we've assembled, we certainly believe that the upside from where we are is still significant even if it's a softer market in '22.

I also believe that the equity capital markets are slow. Again, what we push toward is having a balance of both ECM and M&A and in fact, in technology and in healthcare services with -- the main teams were more M&A led. So, we feel good about the outlook, and we feel good not just about the outlook for '22 but the trajectory in '23 and '24 based on the people that we brought on to the platform who really are exceptional.

John Pancari -- Evercore ISI -- Analyst

Great. Thanks, Greg. Appreciate it.

Operator

Your next question comes from the line of Bill Carcache with Wolfe Research. Your line is open.

Bill Carcache -- Wolfe Research -- Analyst

Thank you. Good afternoon. Greg, I wanted to ask a question on wealth management. It would seem that the wealth management teams would find the opportunity to join SIVB as quite compelling given your client base.

Can you speak to the pace at which you would expect to onboard new teams as you grow that business? And is there maybe a certain number per year that you're targeting? Or are there any sort of parameters you can share on the characteristics of the teams you'd be looking to onboard, including maybe like a minimum level of assets under management, any color?

Greg Becker -- President and Chief Executive Officer

Yeah. So, when we add wealth advisors, it's a little bit different. And so, again, I'll break this down into a couple of different parts. One is the interest level.

The interest level is very high. Lots of inbound and when we do approach targeted individuals that are in the innovation economy, we're getting a very, very positive reception. And so, we added 14 wealth advisor hires in '21. And really think about it, that was mainly the last three or four months of the year.

And then we expect as we roll into this coming year that we're going to have anywhere from 14 to 20, maybe 25 add in '22. I've been on some of those calls to -- recruiting calls and discussions, and it's very positive and talked to some of our team members who have joined, who've been on the platform for 30 days, 60 days kind of getting their feedback and again, very positive for a couple of different reasons. One is the opportunity, which, as we always said, is incredible here given our connections to the innovation space where wealth is created at an incredibly rapid pace. That's number one; and number two, the collaborative environment that exists on the platform.

Those two things are very compelling. And so, it's still early, so we certainly can't claim victory. But so far, I feel really good about our ability to recruit, but it's not just about recruiting. It's about what -- who is the team that you have already here.

And I feel really, really good about that as well. So, I think the outlook is positive. We want to -- we kind of have, I'll call it, a tempered outlook because we want to see the evidence of it happening. And so, more to come over the coming quarters, but the foundation is very strong.

Bill Carcache -- Wolfe Research -- Analyst

That's very helpful. Thank you. Following up on your earlier comments. Where would you say the technology investment banking business is in its ramp from last September's launch? I'm guessing it hasn't hit full stride yet, but it would be helpful if you could frame for us -- I guess just give us a sense of what you've assumed in your outlook.

Greg Becker -- President and Chief Executive Officer

Yes. So, actually, we expected that it would take, really, six, nine months for it really to hit -- I wouldn't even say full stride, but I would say really starting to get a little bit of a flywheel. And I don't think you're really going to see what I'll call the full potential until later this year and into '23. And it just takes -- it takes time to get everything in order, to get everyone communicated with.

That being said, what has impressed me right out of the chute is that we've had more than 10 very significant mandates signed up and a very, very strong pipeline in the technology side and healthcare services. And again, in the biotech side, it's already an incredibly robust team and outlook. So, I think we're in a really good trajectory. And again, most of those are M&A, but we certainly have already signed on a couple public offerings as well.

So, again, feeling really good about the foundation that's being built.

Bill Carcache -- Wolfe Research -- Analyst

OK. Great. That's great to hear. Last one for me for Dan.

Your reserve build was growth-driven. Maybe looking ahead, should we expect the reserve rate to hold such that the growth in your reserves will generally be commensurate with your loan growth? Is that a reasonable way to think about it?

Dan Beck -- Chief Financial Officer

Yeah. Bill, I think that Marc might want to add something to it. But I think when we look at where the reserves are, we're effectively probably at the bottom from a reserve rate perspective. So, I think to the extent that we continue to add on additional lending, that is going to drive the additional formulaic provision that we saw this quarter.

So, obviously, those loans are generating good solid net interest income and client relationships. We're certainly going to see more provision associated with loan growth.

Marc Cadieux -- Chief Credit Officer

Nothing to add here, Dan. Thank you.

Bill Carcache -- Wolfe Research -- Analyst

Thank you for taking my questions.

Operator

Your next question comes from the line of Jared Shaw with Wells Fargo Securities. Your line is open.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hey, everybody, and good afternoon. Thanks.

Greg Becker -- President and Chief Executive Officer

Hey, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Maybe just circling back on the expense conversation and the expectation for additional investment if rates or once rates do go higher. Should we -- how should we be thinking about that? Is that really more -- when we look at Slide 14, will just be an acceleration, a pull-forward of investments that may otherwise have taken a little bit longer? Or would there be new initiatives? Are there new opportunities that you would use that opportunity from revenue to expand?

Mike Descheneaux -- President of Silicon Valley Bank

Yes. Jared -- 

Greg Becker -- President and Chief Executive Officer

Keep going.

Mike Descheneaux -- President of Silicon Valley Bank

Go ahead, Greg.

Greg Becker -- President and Chief Executive Officer

I was just -- Jared, to start, so I wouldn't call it necessarily a pull forward. Here's what I would say, is we have an incredible amount of opportunities to invest in a very long list. And part of this is we're constrained by just how many things you can do at once. And there are some -- we want to make sure that we're investing at the right pace.

If we do see revenue start to pick up with some rate increases, we're going to look at opportunistic opportunities to accelerate some of those investments. So, is it a pull forward? I wouldn't describe it that way because a pull forward means that you have a certain dollar amount, you're moving it up, and then it'll drop down to a lower level. It's more we're going to take advantage of those investment opportunities. So, I think -- I just would think about it as saying it's opportunistic, and we have a lot of opportunities ahead of us.

So, if we do get that rate increase, we'll put some of it to work for sure.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. All right. Thanks. And then looking at the AUM guide and in light of the prior question around the success you've had bringing people, relationship managers, onto the platform and the expectation for that to continue.

The AUM guide seems a little conservative, I guess, given the growth we were used to expecting from Silicon Valley. What could cause AUM to grow faster with the broader expectation of the support you're putting behind the private bank?

Greg Becker -- President and Chief Executive Officer

Yes. I think we have to get what I'll call the flywheel up and running, and we're just getting it started. And so, think about -- that's one thing. And let's just talk about the differences between wealth management and what I'll call commercial banking.

In commercial banking, you have a commercial client. They have a lending need. And it's usually within a reasonable period of time. You put that together.

You put the loan in place, and they borrow money. It's a relatively, I'll call it, short time period to bring on those type of new clients. When you're looking at the private bank and wealth, you typically -- it takes a while to build that relationship, to reconnect with them, to convince them that you have the full product set for them that's capable and that seems for wealth advisors that are coming over because, again, we're looking specifically at the innovation economy. So, it's going to take a little bit of time.

And once we see that, then I think you're going to see an outlook that's going to be increasing at a much-accelerated pace. But I think we're just saying until we see that flywheel effect, we're not going to set overly ambitious goals in wealth AUM at this point.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK, great. Thank you.

Greg Becker -- President and Chief Executive Officer

Yes.

Operator

Your next question comes from the line of Chris McGratty with KBW. Your line is open.

Chris McGratty -- Keefe, Bruyette and Woods -- Analyst

Great. Thanks. I'm interested in kind of your thoughts on the geography of deposit growth in 2022 under a varying rate outlook on or off balance sheet, the mix where you see it going.

Dan Beck -- Chief Financial Officer

Hey, Chris, it's Dan. I think as we look at the first couple of rate increases, imagine 25, 50 basis points, I think we're going to start to see behavior pretty similar to what we saw during the last rate rise cycle, where you're not really seeing a massive shift toward off-balance sheet and not even seeing much of that money start to be motivated to move into the interest-bearing sectors. I think as we start to get into 75, 125 basis point Fed funds, that's when the money market rates off the balance sheet really could start to be more attractive. And I think that's when you could start to see more movement.

And that's where I think we've just got a competitive advantage if you look at the total $400 billion worth of client funds. You have clients that may want to look for some higher rates, which we could offer on the balance sheet and money market as we did during the last cycle, and still, by doing that, end up with a very low cost of deposits and deposit base. So, I think first 25, 50 basis points, no big shift in client behavior. Seventy-five to 100 on this one, you start to see a little bit more migration.

And again, I think that's where the liquidity that we have really plays in our favor to be able to manage between that on-off balance sheet, put to use some of these products that we've been developing here over the last couple of years.

Chris McGratty -- Keefe, Bruyette and Woods -- Analyst

That's great. Thanks, Dan. Maybe a follow-up. I heard from one of your peers yesterday that they obviously are going to try to take down some of the rate sensitivity as rates go up.

I know you have some hedges on the balance sheet, but just interested in kind of the appetite to moderate it a bit if we get the forward curve.

Dan Beck -- Chief Financial Officer

Yeah. Chris, this is one where almost by the balance sheet growth that we've been experiencing, we've been moderating asset sensitivity naturally. So, just look at what we've been doing in moving cash liquidity into the investment securities portfolio as we're seeing at least some movement in the rate environment out in term. That helps dampen some of that sensitivity, in effect, lock in some of that rate environment that we see.

So, you're generally seeing more -- just organically, by the way, we're putting that money to work in the investment securities portfolio, some dampening of the asset sensitivity. And we're taking advantage of those rates in the environment that exists today. So, we will always be asset sensitive just by the nature of the balance sheet but certainly seeing it being tempered in this environment by the actions we're taking with the portfolio.

Chris McGratty -- Keefe, Bruyette and Woods -- Analyst

Thank you.

Operator

[Operator instructions] Your next question comes from the line of Chris Kotowski with Oppenheimer and Co. Your line is open.

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Yeah. Let me start, I guess, with another shot at the equity and warrant gains, just in the sense that in your portfolio today it's about $2.5 billion and back in 2018, 2019, it was like $600 million to $900 million, so it's roughly three times. And I'm sorry, a normalized level should still be bigger than what we saw in 2019, I guess, is the first part of it. And then secondly, am I right in thinking that like you probably wouldn't put an equity position on your balance sheet if you didn't expect a kind of mid-teens through the cycle return-ish?

Dan Beck -- Chief Financial Officer

Hey, Chris, it's Dan. I think the way to think about it is that these are highly granular positions. So, if you think about the fact that we've got warrants and close to -- I think it's close to now 3,000 individual companies, those individual companies obviously react to what's happening from a market condition perspective. Now what's actually happened over the last couple of years is we've gone from a warrant portfolio of 1,500 granular names to closer to that 3,000.

So, there's actually more variability there today than back in the previous period. So, it's really hard to make. And if it were easier, we would certainly have a guidance range about it, the broader assumptions that you're making.

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Yeah. No, but I was wondering specifically -- I realize the warrants are particularly different. But presumably, on the equity positions that you take, presumably, you'd be targeting a mid-teens return granted that there is lumpiness but through the cycle.

Dan Beck -- Chief Financial Officer

Yeah. In many cases, those equity positions are the results of the conversion of the warrants into equity positions while we're in the lock-up period. So, there's no return threshold in particular associated with it. So, it's just a conversion of that into the warrant post the IPO.

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

OK. And then on the $2.5 billion that is on your balance sheet today, is there a mark-to-market risk? Or is that primarily at cost or lower cost of margin?

Dan Beck -- Chief Financial Officer

Yeah. The vast majority of that is mark to market. So, that's a ready mark to market. I mean, we've got the details included in the last 10-K of the mark-to-market methodology associated with it.

So, that's marked on a quarterly basis and is up to date as of 12/31 based on the market activity.

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

OK. And then secondly, just you gave very detailed guidance on an annual basis, and it makes our job very easy. And I was just wondering, do you have a view on the cadence that we should expect through the year either from environmental factors or from internal factors like the fact that you brought on this big team of bankers that we start strong? Or I mean, should we just step it up ratably during the quarter? Or does the team start coming on strong early and then kind of flatten out later? And again, if you don't have a view, then that's fine, but I'm just curious if you have a view on the cadence of the year that we should expect.

Dan Beck -- Chief Financial Officer

I think with balance sheet growth that we've seen, it's been fairly progressive as liquidity has been raised. If you look at core fee income lines, generally less subject to seasonal factors on a quarterly basis. I think if we look at areas where there would be more volatility, you'd be looking at investment banking types of revenues, which are just much more subject to what's happening with market conditions from quarter to quarter, along with the investment and warrant gains that we just talked about. And then there's just, as there always has been, a progressive build from an expense perspective quarter to quarter.

But generally speaking, that's a good way to think about it. There's really no perfect way to break out the quarters.

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

OK, fair enough. Thank you. That's it for me.

Operator

Your next question comes from the line of Jennifer Demba with Truist Securities. Your line is open.

Jennifer Demba -- Truist Securities -- Analyst

Good evening. Question on Leerink. So, with the broader sector focus now, what is the revenue potential for this company over the next few years? How big a business could this be relative to the rest of SVB?

Greg Becker -- President and Chief Executive Officer

Yeah. Jennifer, it's Greg. I'll start and Dan may want to add. You can see what our guidance is for this year, which I would describe it as we're hitting on -- we expect to be hitting on at least in technology and healthcare, it's kind of like four of an eight -- four cylinders on an eight-cylinder engine.

So, we're kind of halfway there. When I think of the full potential, I don't think that's really going to be reached until '23 or maybe even a little bit at '24. But the answer to your question is difficult in the sense of there's two ways to think about it, right? So, one way to think about it is your team and their potential. And the second part is the robustness of the market and the revenue opportunity, the fee opportunities that exist.

So, that's the more unknown. Do I see this business -- or could I see this business as a $1 billion revenue business in the next three years? The answer is yes. And that's a combination of the quality of people we have, the breadth of the products that they're providing to the market, and I think the market staying relatively healthy. So, that's the top line.

And then when you get down to the bottom line, you see pre-tax margins that you could be in the 20% to 25% range, which -- and maybe even a little bit higher than that as we gravitate toward more M&A. So, yes, feel really good about the potential for this business to grow.

Jennifer Demba -- Truist Securities -- Analyst

Thanks so much.

Greg Becker -- President and Chief Executive Officer

Yeah. 

Operator

There are no further questions at this time. I would now like to turn the call back over to the Chief Executive Officer, Mr. Greg Becker.

Greg Becker -- President and Chief Executive Officer

Great. Thanks, everybody. I just want to really thank you all for joining us today. We're certainly proud of what we delivered this past year and very excited about the year ahead and the work we're doing to deepen with our clients, the relationship to add value and insights, and continue to make meaningful differences in their success.

It's one of the things we track, how our clients feel about our ability to have an impact on their success. And we had great uptick in that last year, and we certainly expect it to play out that way this year as well. Obviously, based on the questions, we're keeping an eye on the markets and we wouldn't be surprised given the current kind of volatility to see some volatility in private company valuations. But again, as we said, the market is still so robust.

There's so much potential. There's so much dry powder that we remain still very optimistic. The bottom line is that we've been here before. We've seen our clients go through many cycles, large and small.

We know from experience that those cycles are short, but in no way do they diminish the power of this innovation economy that is just getting more and more attention. So, I just want to thank our employees around the world for always giving their best to SVB, to hanging in there during the pandemic, and taking care of each other and their colleagues and especially the clients. I want to thank our clients for their partnership and trust in us. And finally, as we hopefully are in the final stages of the pandemic, I certainly look forward to more in-person meetings, in-person dinners, and getting to spend time with members of our team and clients in the market.

So, in the meantime, while we wait for that to play out, hopefully, everyone stays healthy and take care of themselves. Thanks a lot, and take care.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Meghan O'Leary -- Head of Investor Relations

Greg Becker -- President and Chief Executive Officer

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Dan Beck -- Chief Financial Officer

Steve Alexopoulos -- J.P. Morgan -- Analyst

Casey Haire -- Jefferies -- Analyst

Marc Cadieux -- Chief Credit Officer

John Pancari -- Evercore ISI -- Analyst

Mike Descheneaux -- President of Silicon Valley Bank

Bill Carcache -- Wolfe Research -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Chris McGratty -- Keefe, Bruyette and Woods -- Analyst

Chris Kotowski -- Oppenheimer & Co. Inc. -- Analyst

Jennifer Demba -- Truist Securities -- Analyst

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