Photographer: Craig Warga/Bloomberg

How Wall Street's Dealing With a Shortage of Rainmakers

  • Ken Moelis keeps pace with larger rival with younger hires
  • Lazard CEO: ‘It’s been a bit more challenging’ to lure stars

Two of Wall Street’s fastest-growing takeover advisers are perched in towers almost directly across Manhattan’s Park Avenue -- and they’re glowering at each other.

Ralph Schlosstein

Photographer: Christopher Goodney/Bloomberg

On one side, Evercore Partners Inc. has been gobbling up market share advising companies on mergers and acquisitions with a time-tested formula: Hire star bankers and reward them. Chief Executive Officer Ralph Schlosstein, 66, told analysts Thursday that he’d rather leave posts empty than accept someone who isn’t in the top tier.

On the other side, Moelis & Co. is stocking desks with younger go-getters. “What we don’t want to do is hire what I call ‘peak talent,”’ who are too pricey and past their prime, founder Ken Moelis, 59, told analysts this week. His firm also has been climbing league tables, while pouring proceeds into dividends.

Guess which model is helping to generate a bigger stock rally.

While shares of both companies are strong performers this year, Moelis has edged ahead in recent months as investors embrace its strategy. Including dividends, the firm has produced a 76 percent return for shareholders over the past 12 months through Thursday -- compared with 61 percent at Evercore. Moelis has done so, in part, by keeping a lid on personnel costs amid stiff competition for rainmakers. Bidding for those people has intensified in recent years as more executives leave big banks to set up boutiques.

Ken Moelis

Photographer: Simon Dawson/Bloomberg

“There’s just not as much talent being created in the firms that people are used to recruiting from, as was the case in the past,” said Ken Jacobs, the CEO of Lazard Ltd., a rival investment bank. “For the firms that are spending tons on hiring from the outside to grow, it’s been a bit more challenging.”

Read more: Evercore says ‘damn frustrating’ as potential hires rank only B+

Spokesmen for both firms declined to comment.

This week, Moelis capitalized on its rally by selling 6 million shares, which pared the stock price. As of Thursday, the company’s total market value amounted to $2.7 billion, about 17 percent less than Evercore’s.

It’s not the only way that Evercore, founded in 1995 by Roger Altman, is larger than its Manhattan neighbor, which opened in 2007. Last year, the company’s main investment banking operations produced $1.36 billion of revenue, more than double what Moelis brought in. Net income at Evercore (which also operates an equities business) was almost three times larger. Using an adjusted figure at Moelis, which includes profits attributable to minority interests, the gap between the firms is narrower. Evercore has more than twice as many employees.

But the companies’ growth trajectories are similar.

Neither was among the top 20 dealmakers globally in 2007, data compiled by Bloomberg show. Few major firms have climbed as rapidly since then. Schlosstein, who took over in 2009, led his firm to No. 12 so far this year, one spot ahead of Moelis. Placement on the tables hints at future income, as clients complete deals and pay their invoices.

Gaining Market Share

Following the financial crisis, Evercore increased its share of the global market for M&A fees roughly fivefold to 4.4 percent by the end of last year, according to an analysis of Dealogic data by JMP Securities. Moelis jumped from virtually nothing to 2.5 percent. (Lazard, which is almost 170 years old, has about 5.3 percent.)

This week, the two firms’ comments to analysts spotlighted one of their starkest differences. And the philosophies on how to hire are apparent in their results: Evercore typically spends a larger share of its revenue compensating employees. But it generates significantly more money per senior dealmaker. Schlosstein has said that’s one of the hallmarks of an elite firm.

“I’m not sure that there’s necessarily one right way,” said Devin Ryan, an analyst at JMP Securities. “The key question is: ‘Are you hiring the right person, with the right duration and at the right economics so that you’re driving market-share gains, but also doing it profitably for shareholders?’ "
In the end, the numbers indicate that an army of young dealmakers can still compete with a firm that touts an affinity for star power.

“Evercore is stronger than Moelis, but they’re kind of No. 1, No. 2, as far as they’re both outperforming pretty strongly,” Jeff Harte, an analyst at Sandler O’Neill & Partners, said by phone. Evercore, which is more than a decade older, “is filling in the franchise, while Moelis is still kind of building,” Harte said.

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