Moelis & Company’s $35 million payout to its mainly staff owners shows the partnership model in investment banking can deliver. The maiden distribution is part balance-sheet tending, part carrot to stop staff jumping ship. The snag is that Moelis’ liquidity-deprived partners will expect a repeat.
The quasi-dividend is worth less than $300,000 per partner. But it provides an incentive for executives to stick with their firm. Previously, their only remuneration in addition to salary and bonus was in small tax rebates linked to their equity share. Rival bankers at listed boutiques like Evercore or Greenhill can convert the shares they earn into hard cash after a typical three-year vesting period.
Moelis bankers will now expect such payments to come every year â€" and to grow in size. Indeed, the payout’s timing â€" almost exactly halfway between year-end bonus payments â€" signals this is no one-off. The firm has kept some cash in reserve, according to a person familiar with the situation. So there should be enough for a further payment in 2014 and possibly beyond.
But is it really sustainable? Moelis is a fast-growing firm and expansion hasn’t come cheap. It takes time for new hires to turn into revenue. Headcount has surged from 20 to 600 in the six years of its existence. League tables tell a conflicting story: Moelis is ranked 10th for announced U.S. M&A this year, but is outside the top 25 in Europe, the Middle East and Africa, Thomson Reuters data show. Moelis’ British business made a loss in 2011, its most recent accounts show.
The summer dividend payments should help bind the firm together however well any one geography is doing. A global revenue sharing agreement already rewards London-based bankers for advising on pitchbooks and deals from Baltimore to Beijing.
If the dividend isn’t sustained and increased, retaining staff will get harder. A handful of senior bankers have left in the last year. Partnerships will always be under pressure to dissolve and give staff an exit. Even Goldman Sachs, which Moelis is trying to ape, succumbed to an initial public offering in the end.
Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
