COWN

Cowen Group, Inc. (COWN)

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Cowen Group, Inc. (COWN)

Q3 2010 Earnings Call Transcript

November 11, 2010 9:00 am ET

Executives

Peter Cohen – Chairman and CEO

Jeff Solomon – COO and Head of Investment Banking, Cowen and Company

Chris White – Chief of Staff

Analysts

Devin Ryan – Sandler O'Neill

Lauren Smith – KBW

Errol Rudman – Rudman Capital

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for joining the Cowen Group Incorporated conference call to discuss the financial results for the 2010 third quarter. By now, you should have received a copy of the company’s earnings release, which can be accessed at the Cowen Group Incorporated website at www.cowen.com. If you do not have Internet access and would like a copy of the press release, please call Cowen Group Incorporated Investor Relations at 646-562-1880.

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

Cowen Group Incorporated has no obligation to update the information presented on the call. A more complete description of these and other risks and uncertainties and assumptions is included in the company’s filings with the SEC, which are available on the company’s website and on the SEC website at www.sec.gov.

Also on today’s call, our speakers will reference certain non-GAAP financial measures, which the company believes will provide useful information for investors. 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. Peter Cohen, Chairman and Chief Executive Officer. Please proceed.

Peter Cohen

Good morning. Thank you, operator. And welcome, everyone, to Cowen’s third quarter 2010 earnings call. I’m joined here today with Jeff Solomon, our Chief Operating Officer and currently Head of Investment Banking; with Chris White, our Chief of Staff; Steve Lasota, our CFO; and Owen Littman, our General Counsel, would be able to respond to any questions.

Later on the call, Jeff will discuss our individual operating businesses and Chris will follow up and take you through the third quarter financials. Before that, though, I would like to briefly discuss some of the results and some progress that have been made over the past 12 months since the Cowen-Ramius business combination was completed, which is exactly a year ago last week.

During the 12 months, our goal has been still the foundation to streamline a growth-oriented financial institution. And as many of you know, we’ve taken a number of steps during the course of the year evaluating and restructuring certain aspects of both our alternative investment management business and our broker-dealer business. As we said on our earlier calls, it had taken us some period of time to assess who are the right people to be part of this going forward and what was the right structure going forward.

At Ramius, consolidation of certain infrastructure, integration of senior management and the dedicated focus on products and services with satisfied current client demand has been successful. As reflected in our results, the assets under management having increased by about $680 million over the past 12 months, including an increase of $330 million in the third quarter, and that’s net of assets that have been the return to volumes.

Overall, our ability to attract new investments is the strong indicator of success of our platform and our team, and we are very pleased to report that we continue to see strong interest and exciting opportunities from alternative platforms and believe that we’re building up a very healthy backlog.

At the broker-dealer, we’ve taken significant steps to reorganize and focus the business and its leadership. We recently announced the appointment of Jeff Solomon as Head of Investment Banking. Jeff has had a long history of building successful businesses for this firm and also brings broad investment experience to our investment banking efforts.

In addition to the leadership, we recently announced the reorganization of our capital markets area by combining equity capital markets, private equity capital markets, and debt capital markets into one unified global capital markets group, which now allows cross-selling across the whole banking platform with a variety of products that actually didn’t exist six months ago.

This is in addition to the development of the credit fixed income group, the addition of the senior M&A banker – very senior M&A banker that building out of our presence in the convertibles market and the increase of our technology lead and the trial-based research platforms.

With the right product set for the clients and markets we serve and our strong relationship bankers, I believe we are building an investment banking platform that can support profitable growth by providing a robust set of solutions to specific clients that’s kind of going to be in our sweet spots. We’ve also continued to improve the way we manage the firm’s balance sheet by enabling our talented investment professionals to manage capital in a manner we can commensurate with the risk we collectively believe are appropriate to the firm.

The interaction between our portfolio management leadership and our risk management continues to evolve. As a result, we have improved upon our ability to allocate across strategies and use those details in the global marketplace to improve our returns. These efforts partially responsible for our investment performance in the third quarter and likely result in very solid risk adjusted returns moving forward.

With all these new developments and changes over the course of our first year as a combined organization, I’m pleased to report that in the third quarter we began to see the progress of our efforts. During the quarter, our economic income loss has reduced to $12.9 million that compares to $15.3 million in the 2009 third quarter and a loss of $17.9 million in the second quarter of this year. And that’s with the environment of reduced volume in the third quarter.

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