Moelis & Company (MC) Goldman Sachs 2024 U.S. Financial Services Conference summary

Industry transformation and market outlook

• Transaction finance is shifting from a bank-centric model to alternatives like private credit, insurance, and sovereign wealth, with $20 trillion expected to move from banks to private credit, reshaping the industry.

• Regulatory changes are making it harder for banks to hold certain assets, leading to an open architecture where 50-100 institutions and a few independents will provide capital.

• The U.S. is expected to see a deregulatory environment post-election, with more predictable antitrust policy and increased animal spirits driving deal activity.

• M&A completions were down 8% but announced volumes up 16%, with a strong rebound expected as backlog converts to revenue and high-quality assets come to market.

• Middle market private equity activity may lag until 2026 due to large 2021 LP commitments, but a return to normal is anticipated thereafter.

Strategic initiatives and business focus

• Significant investment in tech and capital markets teams has expanded capabilities, with tech now a major revenue driver and increased engagement with private equity sponsors.

• The firm is focusing on large U.S. fee pools in healthcare, tech, industrials, and energy, with energy expected to benefit from deregulation.

• There is a push to be more aggressive in hiring top talent, especially as regulatory shifts create opportunities for independents to fill gaps left by banks.

• The capital markets advisory business is expected to grow, with high fees available in both healthy and distressed markets, and a focus on providing value in direct lending and liability management.

• Efforts are underway to improve execution in the secondary continuation fund space, recognizing its growing importance.

Financial performance and targets

• The goal is to return to a 60% compensation ratio in a normalized revenue environment, with the potential for 25-35% pre-tax margins if revenue per managing director returns to 2021 levels.

• Fixed costs are expected to remain stable, allowing for significant margin expansion as revenue grows.

• The firm is optimistic about achieving these targets as market conditions improve and animal spirits return.