2021
ANNUAL
REPORT
COWENRESEARCH
COWEN
COWEN.COM
COWEN INC.
VISION | EMPATHY | SUSTAINABILITY | TEAMWORK
1
DEAR SHAREHOLDERS, PARTNERS,
COLLEAGUES AND FRIENDS:
LETTER
FROM THE
CHAIR & CEO
2021 was a stellar year for Cowen, with record revenues that
approached $2 billion for the first time and our highest ever after-
tax income. Achieving record results for two consecutive years
shows not only the durability of our business but also our ability
to capture market opportunities based on our differentiated
value proposition. Looking ahead, we will continue to leverage
the strengths of our long-term client relationships, the strategic
investments we have made, and our proven agility to adapt to
more challenging market conditions.
In the beginning of 2022, we entered a more uncertain
geopolitical and macroeconomic environment than we’ve seen in
the last decade, resulting in global equity markets turning in their
worst four-month start to a year in more than 50 years. And
Cowen is prepared. Our team has thoughtfully and intentionally
transformed the firm to perform throughout market cycles. The
breadth of our businesses and the growth potential of the select
opportunities we have identified position us well to continue
driving positive outcomes for our clients, colleagues and the
communities we serve.
COWEN.COM
2
As 2021 came to a close, capping a year of
record performance for Cowen, we saw
changes emerging in the global markets,
which accelerated in early 2022. Supply
chain disruptions. The lingering effects of
the pandemic. Inflation and rising rates.
And, tragically, war in Europe. All of these
factors have come together to create a more
challenging environment, resulting in a shift
in many of the investment paradigms to
which we have become accustomed over the
past decade.
As veterans of an industry that is inherently
cyclical, we are prepared to adapt. The
combination of our legacy as a 104-year-
old firm and the nimbleness of our
entrepreneurial mindset enable us to navigate
different, choppier market conditions. Our
long-term success comes from the fact that
we have become a sustainable business with
upside potential to grow as we focus our
efforts to gain share in areas that are both
addressable and accessible.
Our markets business underpins our
sustainability. We posted record revenues
in 2021, driven by share gains in key areas
of focus such as algorithmic trading, prime
brokerage and securities finance, as well as
our expansion into European trading. The
growth of our markets business enables us
to offset cyclical declines in other areas of
our business, such as a slowdown in capital
formation. Clients always have a need to
transact with trusted counterparties like
Cowen as they reposition their portfolios,
generating revenues and driving profitable
growth. Arguably, in volatile markets with
a lot of uncertainty, our ability to provide
insights and advice becomes even more
critical to our clients.
In investment banking, in addition to
our traditional strength in raising capital
for companies in industries undergoing
meaningful disruption, we are continuing
to build our products and capabilities, both
organically and through acquisition. We
are better positioned today to better serve
financial sponsors, including private equity
and family offices, which have become
important clients for our M&A and capital
markets advisory services. We view this
as a tailwind for our business, generating
resilient growth through the economic cycle,
as sponsors have both ample capital and
ongoing needs to manage their portfolios.
Their decision to do business with Cowen is
a function of our industry domain expertise
and our long-term, partnership-oriented
culture. Our success is also a powerful
example of how relationships forged over
the past few years truly come to bear in
challenging times like these.
At Cowen, we have thoughtfully constructed
our firm to give our clients unbiased advice.
We have built the product breadth to see and
serve the entire landscape of opportunities—
Our long-term success
comes from the fact that we
have become a sustainable
business with upside
potential to grow as we
focus our efforts to gain
share in areas that are both
addressable and accessible.
DEAR SHAREHOLDERS,
PARTNERS, COLLEAGUES
AND FRIENDS:
3
A DECADE OF REVENUE GROWTH...
... GENERATING SUSTAINABLE PROFITABILITY
EXCEEDING OUR MID-TEENS RETURN ON
COMMON EQUITY TARGET...
... AND GENERATING CONSISTENT ANNUAL
SHAREDHOLDER RETURNS
DELIVERING RECORD RESULTS
FOR A SECOND CONSECUTIVE YEAR
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
$(50)
$-
$50
$100
$150
$200
$250
$300
$350
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1 Economic Operating Income is presented after taxes starting in 2020
2 CAGR is based on economic operating income from FY’13 – FY’21
1-YEAR
34.6%
3-YEAR AVG*
23.8%
16.4%
5-YEAR AVG*
ECONOMIC OPERATING
INCOME ($M)
ECONOMIC OPERATING
INCOME ($M) 1
41%
41%
19%
1-YEAR
3-YEAR ANNUALIZED
5-YEAR ANNUALIZED
*Average of annual ROE
4
and the product depth to execute on them.
Our knowledge and innovation span multiple
areas, such as M&A and advisory, debt
capital markets and private capital raises,
with multiple products and solutions that
anticipate and meet the needs of our clients.
Our edge as strategic advisors can be found
in our human capital and intellectual capital.
We bring our deep industry knowledge and
cross-firm collaboration to everything we do.
We also continue to be well known for
our ability to identify emerging industries
undergoing change and working with the
disruptive companies that are making it
happen. A decade ago, we proved ourselves
in biotech and have expanded our expertise
to include tools and diagnostics, as well as
other critical areas of future health. Today,
we are making conscious choices in select
areas where we see similar long-term
potential, such as our firm-wide commitment
to sustainability and environmental, social
and governance (ESG). Sustainability is an
important theme across all our businesses,
from investment banking to investment
management—and we see plenty of
opportunity ahead. We have deep baseline
knowledge to advise and raise capital for
ESG-oriented companies across a wide
+21%
+41%
TOTAL REVENUE1
INCREASE IN
INVESTMENT BANKING REVENUE
+12%
INCREASE IN
MARKETS REVENUE
207,809
PAGES OF
RESEARCH PUBLISHED
+36%
INCREASE IN
MANAGEMENT FEES
POWERFUL GROWTH
#1
BEST ESG RESEARCH2
1 Economic Income
2 Winner of the 2022 ESG Investing Awards
5
variety of industries. That makes our approach far more horizontal than vertical, as every
industry is undergoing some form of ESG revolution.
Whether it’s biotech, sustainability and ESG, electric vehicles, AgTech, robotics and AI, or
many other disruptive trends, all these areas have one important commonality: they are still
not well understood by many institutional investors. At Cowen, our clients look to us for help
discerning the future and finding new ways to capitalize on emerging trends. That starts with
our award-winning independent research that prides itself on truly being “Ahead Of The Curve.”
Collaboration across business lines and functions allows us to deliver the best of ourselves and
our expertise each day, as we strive to outperform on behalf of clients.
Finally, in everything we do, the true secret to our success is our values-driven, inclusive
culture, grounded in Vision, Empathy, Sustainability and Tenacious Teamwork. We are deeply
committed to improving inclusion and diversity, within our firm and in our industry. We are
also highly aware of our responsibility for our impact on the planet, which is why we are
the very first firm on Wall Street to provide ESG scores on all our company research reports
that we issue. These are our priorities, undertaken for the sake of clients, colleagues and the
communities in which we work and live.
As always, a big part of everything we do is attributable to our shareholders. We value
your trust and confidence in us as we strive to deploy your capital intelligently, in all market
conditions. Thank you for your support.
With thanks for your continuing support,
JEFFREY M. SOLOMON
Chair and Chief Executive Officer
VISION | EMPATHY | SUSTAINABILITY | TEAMWORK
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
001-34516
Cowen Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-0423711
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
599 Lexington Avenue
New York, New York 10022
(646) 562-1010
(Address, including zip code, and telephone number, including area code, of registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Exchange on Which Registered
Class A Common Stock, par value $0.01 per share
COWN
The Nasdaq Global Market
7.75% Senior Notes due 2033
COWNL
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☒
Accelerated filer
☐
Non-accelerated filer
(Do not check if a smaller
reporting company)
☐
Smaller reporting
company
☐
Emerging
growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of Class A common stock held by non-affiliates of the registrant on June 30, 2021, the last business day of the registrant's most
recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date was
$1,142,196,218.
As of February 28, 2022 there were 27,428,549 shares of the registrant's Class A common stock outstanding.
Documents incorporated by reference:
Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant's
Proxy Statement for its 2022 Annual Meeting of Stockholders.
TABLE OF CONTENTS
Item No.
Page No.
PART I
1.
Business
1
1A.
Risk Factors
7
1B.
Unresolved Staff Comments
30
2.
Properties
30
3.
Legal Proceedings
30
4.
Mine Safety Disclosures
30
PART II
5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
31
6.
[Reserved]
32
7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
33
7A.
Quantitative and Qualitative Disclosures about Market Risk
73
8.
Financial Statements and Supplementary Data
75
9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
75
9A.
Controls and Procedures
76
9B.
Other Information
76
PART III
10.
Directors, Executive Officers and Corporate Governance
76
11.
Executive Compensation
76
12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
76
13.
Certain Relationships and Related Transactions
76
14.
Principal Accountant Fees and Services
76
PART IV
15.
Exhibits and Financial Statement Schedules
77
16.
Form 10-K Summary
79
Consolidated Financial Statements and Notes
F-1
SIGNATURES
ii
Special Note Regarding Forward-Looking Statements
We have included or incorporated by reference into our Annual Report on Form 10-K (the "Annual Report"), and from time
to time may make in our public filings, press releases or other public documents, certain statements, including (without limitation)
those under Item 1—"Business," Item 1A—"Risk Factors," Item 3—"Legal Proceedings," Item 7—"Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Item 7A—"Quantitative and Qualitative Disclosures about
Market Risk" that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking terms such as
"may," "might," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "project,"
"possible," "potential," "intend," "seek" or "continue," the negative of these terms and other comparable terminology or similar
expressions. In addition, our management may make forward-looking statements to analysts, representatives of the media and
others. These forward-looking statements represent only the Company's beliefs regarding future events (many of which, by their
nature, are inherently uncertain and beyond our control) and are predictions only, based on our current expectations and
projections about future events. There are important factors that could cause our actual results, level of activity, performance or
achievements to differ materially from those expressed or implied by the forward-looking statements. In particular, you should
consider the risks outlined under Item 1A—"Risk Factors" in this Annual Report.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the
accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as
predictions of future events. We undertake no obligation to update any of these forward-looking statements after the date of this
filing to conform our prior statements to actual results or revised expectations.
iii
PART I
When we use the terms "we," "us," "Cowen" and the "Company," we mean Cowen Inc., a Delaware corporation, its
consolidated subsidiaries and entities in which it has a controlling financial interest, taken as a whole, as well as any predecessor
entities, unless the context otherwise indicates.
Item 1. Business
Overview
Cowen Inc., a Delaware corporation formed in 2009, is a diversified financial services firm that, together with its
consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment banking, research, sales and trading,
prime brokerage, global clearing, securities financing, commission management services and investment management through its
two business segments: the Operating Company ("Op Co") and the Asset Company ("Asset Co").
Operating Company
The Op Co segment consists of four divisions: the Cowen Investment Management ("CIM") division, the Investment
Banking division, the Markets division (which includes sales and trading, prime brokerage, global clearing, securities financing
and commission management services) and the Research division. The Company refers to the Investment Banking division, the
Markets division and the Research division collectively as its investment banking businesses. Op Co's CIM division
includes advisers to investment funds (including private equity structures and privately placed hedge funds), and registered funds.
Op Co's investment banking businesses offer industry focused investment banking for growth-oriented companies including
advisory and global capital markets origination, domain knowledge-driven research, sales and trading platforms for institutional
investors, global clearing, commission management services and also a comprehensive suite of prime brokerage services.
The CIM division is the Company's investment management business, which operates primarily under the Cowen
Investment Management name. CIM offers innovative investment products and solutions across the liquidity spectrum to
institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has
been registered with the United States ("U.S.") Securities and Exchange Commission (the "SEC") as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act") since 1997. The Company's investment management
business offers investors access to a number of strategies to meet their specific needs including healthcare investing, sustainable
investing, healthcare royalties, merger arbitrage and activism. A portion of the Company’s capital is invested alongside the
Company's investment management clients. The Company has also invested capital in its insurance and reinsurance businesses.
Op Co's investment banking businesses include investment banking, research, sales and trading, prime brokerage, global
clearing and commission management services provided primarily to companies and institutional investor clients. Sectors
covered by Op Co's investment banking business include healthcare, technology, media and telecommunications, consumer,
industrials, tech-enabled and business services, and energy. We provide research and brokerage services to over 6,000 domestic
and international clients seeking to trade securities and other financial instruments, principally in our sectors. The investment
banking businesses also offer a full-service suite of introduced prime brokerage services targeting emerging private fund
managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well
as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking
clients.
Asset Company
The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy
investment strategies. The focus of Asset Co is to drive future monetization of the invested capital of the segment.
Principal Business Lines
Investment Banking
Our investment banking department provides strategic advisory and capital raising services to U.S. and international public
and private companies, private equity and venture capital firms, and family offices. Our clients are primarily focused on our
sectors. Our strategic advisory services include, among other things, acquisitions, divestitures, fairness opinions, de-SPACs, spin-
offs, and partnerships. Our capital markets group consists of two groups: (i) equity capital markets (including convertible
securities), which focuses on raising equity capital in the public markets, and (ii) private capital solutions, which focuses on
providing clients with alternative sources of capital, including private equity, venture capital, family offices, and various forms of
non-dilutive financing. A significant amount of our investment banking revenue has been earned from high-growth small and
mid-capitalization companies. From time to time, the Company invests in private capital raising transactions of its clients.
1
Brokerage
Our team of brokerage professionals serves institutional investor clients in the U.S. and internationally. We trade common
stocks, listed options, equity-linked securities and other financial instruments on behalf of our clients and offer a full-service suite
of introduced prime brokerage services targeting emerging private fund managers. We provide our clients with an electronic
execution suite. We provide global, multi-asset class algorithmic execution trading models to both buy side and sell side clients
and also offer execution capabilities relating to these trading models through ATM Execution LLC ("ATM Execution"). We also
provide our clients with commentary on political, economic and market conditions. We have relationships with over 6,000
institutional investor clients. Our brokerage team is comprised of experienced professionals dedicated to our sectors, which
allows us to develop a level of knowledge and focus that we believe differentiates our brokerage capabilities from those of many
of our competitors. We tailor our account coverage to the unique needs of our clients. We believe that our sector traders are able
to provide superior execution because of their knowledge of the interests of our institutional investor clients in specific companies
in our sectors.
In connection with the brokerage services we provide, our sales professionals also provide our institutional investor clients
with corporate access to management teams of public and private companies outside the context of financing transactions. These
meetings are commonly referred to as non-deal road shows. Non-deal road shows allow companies to increase their visibility
within the institutional investor community while providing our institutional investor clients with the opportunity to further
educate themselves on companies and industries through meetings with management. We believe our deep relationships with
company management teams and our sector-focused approach provide us with broad access to management teams for the benefit
of our institutional investor clients.
Research
As of December 31, 2021, we had a research team of 60 senior analysts covering 965 stocks. Within our equity coverage
universe, approximately 36% are healthcare companies, 25% are TMT (technology, media and telecom) companies, 12% are
energy companies, 10% are capital goods, industrial and basic materials companies, and 14% are consumer companies. Our
approach to research, underpinned by our marquee Ahead Of The Curve® Series reports, focuses our analysts' efforts toward
delivering differentiated investment ideas and de-emphasizes maintenance research. We place significant emphasis on analyst
collaboration, both within and between sectors. We sponsor a number of conferences every year that are focused on our sectors
and sub-sectors. During these conferences we highlight our investment research and provide significant investor access to
corporate management teams. We provide research solely through our broker-dealers in connection with our provision of
brokerage services.
Investment Management Strategies
The Company's investment management business, within the Op Co segment, focuses on addressing the needs of
institutional investors and high net worth individuals to preserve and grow allocated capital. The Company and its related
investment advisors offer a variety of investment management products that provide access to a number of strategies, including
healthcare investing, sustainable investing, healthcare royalties, merger arbitrage and activism.
The Company's investment management business, within the Asset Co segment, consists of the Company's private
investments, private real estate investments and other legacy investment strategies. Certain multi-strategy hedge funds managed
by the Company are currently in wind-down. The majority of assets remaining in these hedge funds include investments in private
companies.
Information About Geographic Areas
We are principally engaged in providing investment management services to global institutional investors and investment
banking sales and trading and research services to corporations and institutional investor clients primarily in the United States and
Europe. We provide brokerage services to companies and institutional investor clients in Europe through our broker-dealers
located in the United Kingdom ("U.K.") Cowen International Limited ("Cowen International Ltd") and Cowen Execution Services
Limited ("Cowen Execution Ltd"). Cowen and Company (Asia) Limited ("Cowen Asia") is registered with and subject to the
financial resources requirements of the Securities and Futures Commission ("SFC") of Hong Kong.
Human Capital
We believe a strong connected culture is what empowers our team members to help each other and our clients outperform.
We do this by viewing what we do through the lens of our core values of vision, empathy, sustainability, and tenacious teamwork.
During our history we have built and maintained long term relationships with our clients and continue to do so for our
colleagues as evidenced by our 2021 voluntary turnover rate of 10%.
2
Collaboration and teamwork are standard operating procedures for our employees across the globe. As of December 31,
2021, we employed 1,534 employees: 1,264 in the U.S., 259 in Europe, and 11 in Asia (or Hong Kong). We strive to attract
individuals who are smart, ambitious, work collaboratively and most importantly share our core values.
Our client facing professionals create annual business plans at the beginning of each year and are given feedback and
developmental support to help deliver on those plans. We offer certain employees who show high potential work with
performance coaches to develop leadership skills. Our Investment Banking Summer Analyst program is highly competitive and
consists of two of weeks of formal training followed by eight weeks working within an Investment Banking group. This program
is the main feeder to our Full-Time Investment Banking Analyst Program where the individual receives five weeks of formal
training: the Investment Banking Class of 2021 (Full-time Analyst Program) is expected to have approximately 80% of those
analysts who participated in our 2020 Investment Banking Summer Program.
We recognize the importance of insuring that our employees in all of our businesses have the opportunity to learn and
develop in their careers. Investment banking analyst training and training for our research associates covers financial analysis,
modeling and other relevant topics. We also provide our employees with test preparation for the licenses required to work in the
securities industry as well as ongoing training to maintain these licenses. We encourage our employees to attend job-related
seminars, other continuing education courses and provide tuition reimbursement to our full-time employees.
We reward and recognize our employees with competitive health, wellness and compensation programs and for the second
year issued COWN shares to every employee in appreciation for their efforts to live our values and to provide all our colleagues
with an ownership stake in the firm. Examples of our health and wellness benefits include subsidized health club memberships,
emergency back up elder and childcare, transgender services, fertility support, gender neutral caregiver leave, generous parental
leave and working parent support services. When the COVID-19 crisis hit in the first quarter of 2020, we moved rapidly to protect
the health and safety of our team as we transitioned to operating remotely while continuing to serve our clients. We are
approaching the structure of our future workplace with flexibility and considering individual challenges our team members face.
We are committed to Diversity and Inclusion and our Business Resource Groups (“BRGs”) collaborate with the Inclusion &
Diversity and Human Resources teams to promote a sense of community, belonging and inclusion at Cowen. Our BRGs are
employee led organizations empowered to promote our diverse communities, provide recruiting and professional development
strategy, and make a significant impact in our workplace and society. Employees are encouraged to participate as allies to
develop empathy, learn and collaborate with their colleagues.
We have partnered with several non-profit organizations focused on helping to provide career and educational opportunities
to the underserved and underrepresented to further promote diversity and inclusion in the recruiting process.
Our CEO has signed the CEO Action for Diversity & Inclusion in support of creating a more inclusive workplace for our
employees, our communities and society at large. We partner with organizations to recruit and develop underserved students and
established a program to attract women who outperform. We advance our Diversity and Inclusion efforts in several ways,
including by listening and acting on feedback received from employees, engaging senior management in D&I efforts and creating
commitment on the divisional and firm-wide level.
Through our Cowen Cares platform, we have created a culture of charitable giving through our Matching Gift Program and
encourage service through the Volunteer Committee at local, national and global levels.
Competition
We compete with many other firms in all aspects of our business, including raising funds, seeking investment opportunities
and hiring and retaining professionals, and we expect our business will continue to be highly competitive. The investment
management and investment banking industries are currently undergoing contraction and consolidation, reducing the number of
industry participants and generally resulting in the larger firms being better positioned to retain and gain market share. We
compete in the United States and globally for investment opportunities, investor capital, client relationships, reputation and talent.
We face competitors that are larger than we are and have greater financial, technical and marketing resources. Certain of these
competitors continue to raise additional amounts of capital to pursue investment strategies that may be similar to ours. Some of
these competitors may also have access to liquidity sources that are not available to us, which may pose challenges for us with
respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances or make different risk
assessments than we do, allowing them to consider a wider variety of investments and establish broader networks of business
relationships. Our competitive position depends on our reputation, our investment performance and processes, the breadth of our
business platform and our ability to continue to attract and retain qualified employees while managing compensation and other
costs. For additional information regarding the competitive risks that we face, see "Item 1A Risk Factors."
Regulation and Compliance
Our businesses, as well as the financial services industry generally, are subject to extensive regulation, including periodic
examinations by governmental and self-regulatory organizations, in the United States and the jurisdictions in which we operate
3
around the world. As a publicly traded company in the United States, we are subject to the U.S. federal securities laws and
regulation by the SEC. Through our investment management and/or investment bank businesses we are subject to regulation by
the SEC, the U.S. Commodity Futures Trading Commission ("CFTC"), the Financial Industry Regulatory Authority, Inc.
("FINRA") the National Futures Association ("NFA"), other self-regulatory organizations and exchanges related to the financial
services industry and the fifty state securities commissions in the U.S. and by the U.K. Financial Conduct Authority ("FCA") and
the Securities and Finance Commission ("SFC") of Hong Kong.
Virtually all aspects of our business are subject to various laws and regulations both inside and outside the U.S., some of
which are summarized below. Regulatory bodies in the United States and the rest of the world are charged with safeguarding the
integrity of the securities and other financial markets and protecting the interests of customers participating in those markets.
Governmental authorities in the United States and in the other countries in which we operate from time to time propose additional
disclosure requirements and regulations covering our broker-dealers and investment management businesses. The rules governing
the regulation of the various aspects of our business are very detailed and technical. Accordingly, the discussion below is general
in nature, does not purport to be complete and is current only as of the date of this report.
Our businesses have operated for many years within a legal framework that requires us to be able to monitor and comply
with a broad range of legal and regulatory developments that affect our activities both in the United States and abroad. As noted
above, certain of our businesses are subject to compliance with laws and regulations of United States federal and state
governments, foreign governments, their respective agencies and/or various self-regulatory organizations or exchanges, and any
failure to comply with these regulations could expose us to liability and/or reputational damage. Additional legislation, changes in
rules promulgated by the SEC, our other regulators and self-regulatory organizations or changes in the interpretation or
enforcement of existing laws and rules, either in the United States or elsewhere, may directly affect the mode of our operation and
profitability. The United States and non-United States government agencies and self-regulatory organizations, as well as state
securities commissions in the United States, are empowered to conduct administrative proceedings that can result in censure, fine,
the issuance of cease-and-desist orders or the suspension or expulsion or deregulation of a broker-dealer, an investment advisor or
its directors, officers or employees.
Rigorous legal and compliance analysis of our businesses and investments is important to our culture and risk management.
We conduct regular training of our personnel regarding the laws and regulations governing our business and applicable to our
clients as well as with our company's policies and procedures. In addition, we have adopted and implemented disclosure controls
and procedures and internal controls over financial reporting, which have been documented, tested and assessed for design and
operating effectiveness in compliance with the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). We strive to maintain a
culture of compliance through the use of policies and procedures such as oversight compliance, codes of conduct, compliance
systems, communication of compliance guidance, conduct of annual compliance reviews and on-going employee education and
training. Our corporate risk management function further analyzes our business, investment and other key risks, reinforcing their
importance in our environment. We have a compliance group that monitors our compliance with all of the regulatory requirements
to which we are subject and manages our compliance policies and procedures. Our General Counsel supervises our compliance
group, which is responsible for addressing all regulatory and compliance matters that affect our activities. Our compliance
policies and procedures address a variety of regulatory and compliance risks such as the handling of material non-public
information, position reporting, personal securities trading, valuation of investments, document retention, potential conflicts of
interest and the allocation of investment opportunities. Our compliance group also monitors the information barriers that we
maintain between those of our different businesses that we are required to conduct separately or which present conflicts of
interest, which we address through the use of physical and systematic information barriers. We believe that our various
businesses' access to the intellectual capital, contacts and relationships benefit all of our businesses. However, in order to
maximize that access without compromising our legal and contractual obligations, our compliance group oversees and monitors
the communications between or among our different businesses to ensure that we maintain material non-public information, client
information and other confidential information in strict confidence. All parts of our business from time to time are subject to
regulatory exams, investigations and proceedings, and our broker-dealers have received fines and penalties for infractions of
various regulations relating to our activities. For additional information regarding the regulatory and compliance risks that we
face, see "Item 1A Risk Factors."
The investment advisers responsible for the Company's investment management businesses are all registered as investment
advisers with the SEC or rely upon the registration of an affiliated adviser, and all are currently exempt from registration as
Commodity Pool Operators and Commodity Trading Advisors.
Registered investment advisers are subject to the requirements of the Advisers Act and the regulations promulgated
thereunder. Such requirements relate to, among other things, fiduciary duties to clients, maintaining an effective compliance
program, operational and marketing requirements, disclosure obligations, conflicts of interest, fees and prohibitions on fraudulent
activities.
4
The investment activities of our investment management businesses are also subject to regulation under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended ("the Investment Company Act") and various other statutes, as well as the laws of the fifty states and the
rules of various United States and non-United States securities exchanges and self-regulatory organizations, including laws
governing trading on inside information, market manipulation and a broad number of technical requirements (e.g., options and
futures position limits, execution requirements and reporting obligations) and market regulation policies in the United States and
globally. Congress, regulators, tax authorities and others continue to explore and implement regulations governing all aspects of
the financial services industry. Pursuant to systemic risk reporting requirements adopted by the SEC, the Company's affiliated
registered investment advisers with private investment fund clients are required to report certain information about their
investment funds to the SEC.
In addition, certain of our investment advisers may act as a "fiduciaries" under the Employee Retirement Income Security
Act of 1974 ("ERISA") and similar state laws with respect to private and public benefit plan clients. As such, the advisers, and
certain of the investment funds they advise, may be subject to ERISA and similar state law requirements and to regulations
promulgated thereunder. ERISA, similar state laws and applicable provisions of the Internal Revenue Code of 1986 (the "IRC"),
which regulate services provided to individual retirement accounts, impose duties on persons who are fiduciaries and other types
of service providers to benefit plans and individual retirement accounts under ERISA, such state laws and the IRC, prohibit
specified transactions involving IRA and benefit plan clients subject to ERISA or similar state laws (absent the availability of
specified exemptions) and provide monetary penalties for violations of these prohibitions.
Enacted on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was
expansive in scope and led to the adoption of extensive regulations by the CFTC, the prudential regulators, the SEC and other
governmental agencies. Since its adoption, the Dodd-Frank Act has had an impact on the costs associated with derivatives trading
by the Company and its clients, including as a result of requirements that transactions be margined, trade reported and, in some
cases, centrally cleared.
The Dodd-Frank Act established the Financial Services Oversight Council (the "FSOC") to identify threats to the financial
stability of the United States, promote market discipline, and respond to emerging risks to the stability of the United States
financial system. The FSOC is empowered to determine whether the material financial distress or failure of a non-bank financial
company would threaten the stability of the United States financial system, and such a determination can subject a non-banking
finance company to supervision by the Board of Governors of the Federal Reserve and the imposition of standards and
supervision including stress tests, liquidity requirements and enhanced public disclosures including the authority to require the
supervision and regulation of systemically significant non-bank financial companies. We do not believe we are at risk of being
considered a systemically significant non-bank financial company.
The regulation of swaps and derivatives under the Dodd-Frank Act directly affects the manner by which our investment
management businesses utilizes and trades swaps and other derivatives, and has generally increased the costs of derivatives
trading conducted on behalf of our clients. The European Union ("EU") (and some other countries) are now in the process of
implementing similar requirements that will affect derivatives transactions with a counterparty organized in that country or
otherwise subject to that country's derivatives regulation. The mandatory minimum margin requirements for bilateral derivatives
adopted by the U.S. government and the EU came into effect in March 2017 with respect to variation margin and will be
implemented through a phase-in compliance in respect to initial margin with the next compliance date set for October 6, 2021.
Required margining of derivatives has affected our investment management businesses as these requirements generally increase
costs associated with derivatives transactions and makes derivatives transactions more expensive.
Given our investment and insurance activities are carried out around the globe, we are subject to a variety of regulatory
regimes that vary country by country. Our captive insurance and reinsurance companies are regulated by both the New York State
Department of Finance and the Luxembourg Commissariat aux Assurances, respectively. EU financial reforms included a number
of initiatives to be reflected in new or updated directives and regulations, the most significant of which is the amendment to the
pan-European regulatory regime, the Markets in Financial Instruments Directive ("MiFID II"), which went into effect in January
2018. MiFID II regulates the provision of investment services and activities throughout the European Economic Area. MiFID II
requires that investment managers and investment advisers located in the EU "unbundle" research costs from commissions. As a
result, investment firms subject to MiFID II may no longer pay for research using client commissions or "soft dollars." Going
forward, such costs must be paid directly by the investment firm or through a research payment account funded by clients and
governed by a budget that is agreed by the client. In the U.S., our investment management businesses expect to continue to pay
for research using soft dollars consistent with applicable law. The change in regulations has also impacted the provisions of
research by our U.S. broker-dealers. Because the acceptance of hard dollar payments would, under U.S. law, require registration
as an investment adviser, our broker-dealers are requiring clients to continue to pay for research on a soft dollar basis unless the
client is subject to MiFID II and we can rely on SEC no-action relief so as not to have to register as an investment adviser. The
SEC no-action relief expires on July 3, 2023, unless further extended.
5
Cowen and Company, LLC ("Cowen and Company"), ATM Execution LLC ("ATM Execution"), and Westminster
Research Associates LLC ("Westminster") are registered as broker-dealers with the SEC and are members in good standing with
FINRA. All broker-dealers are registered with various U.S. states and territories except for ATM Execution. In addition to
FINRA, some of these Cowen broker-dealers are also members of other self-regulatory organizations, including various registered
securities exchanges. Self-regulatory organizations adopt and enforce rules governing the conduct and activities of their member
firms. As of June 30, 2021, Cowen Prime Services LLC (“Cowen Prime”) and Cowen and Company were granted regulatory
approval to merge from the Financial Industry Regulatory Authority Inc. The companies completed the merger on September 1,
2021 with Cowen and Company being the surviving entity. As a result of the merger, Cowen Prime withdrew its status as a
registered broker-dealer on October 19, 2021 and such withdrawal was approved by the SEC on November 15, 2021.
Accordingly, Cowen and Company, ATM Execution, and Westminster are subject to regulation and oversight by the SEC, the
U.S. states and territories in which they are registered, and FINRA and the other self-regulatory organizations of which they are
members. Cowen and Company is also registered with the CFTC and is a member of the NFA as an introducing broker and,
consequently, is subject to regulation and oversight by them. Additionally, Cowen International Ltd and Cowen Execution Ltd
are primarily regulated in the U.K. by the FCA and Cowen and Company Asia is registered with and subject to the financial
resources requirements of the SFC of Hong Kong.
Broker-dealers are subject to regulations that cover all aspects of the securities business, including sales methods, trade
practices among broker-dealers, use and safekeeping of customers' funds, conflicts of interest, securities and information, capital
structure, research/banking interaction, record-keeping, the financing of customers' purchases and the conduct and qualifications
of directors, officers and employees. In particular, as registered broker-dealers and members of various self-regulatory
organizations, Cowen and Company, ATM Execution, and Westminster are subject to the SEC's uniform net capital rule 15c3-1
("SEC Rule 15c3-1"). SEC Rule 15c3-1 specifies the minimum level of net capital a broker-dealer must maintain and also
requires that a significant part of a broker-dealer's assets be kept in relatively liquid form. The SEC and various self-regulatory
organizations impose rules that require notification when net capital falls below certain predefined criteria, limit the ratio of
subordinated debt to equity in the regulatory capital composition of a broker-dealer and constrain the ability of a broker-dealer to
expand its business under certain circumstances. Additionally, SEC Rule 15c3-1 requires us to give prior notice to the SEC for
certain withdrawals of capital. As a result, our ability to withdraw capital from our broker-dealer subsidiaries may be limited.
The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-
based swap dealers, and/or major security-based swap participants. The CFTC has finalized rules establishing capital
requirements and financial reporting requirements for CFTC registered swap dealers not subject to regulation by a banking
regulator. The SEC has finalized rules establishing similar standards for an entity registering as a standalone securities-based
swaps dealer. On October 6, 2021, Cowen Financial Products LLC (“CFP”) became subject to the SEC’s standalone securities-
based swap regulatory requirements. CFP registered as a securities-based swap dealer with the SEC with an effective date of
November 1, 2021. Under the rules there is a minimum net capital requirement for, among others, an entity that acts as a dealer in
security-based swaps, which is the greater of $20 million or 2% of risk margin amount. The risk margin amount means the sum of
(i) the total initial margin required to be maintained by the SEC securities-based swaps dealer at each clearing agency with respect
to securities-based swaps transactions cleared for securities-based swap customers and (ii) the total initial margin amount
calculated by the SEC securities-based swaps dealer swaps dealer with respect to non-cleared securities-based swaps under new
SEC rules.
The effort to combat money laundering and terrorist financing is a priority in governmental policy with respect to financial
institutions. The Bank Secrecy Act ("BSA"), as amended by Title III of the USA PATRIOT Act of 2001 and its implementing
regulations ("Patriot Act"), requires broker-dealers and other financial services companies to maintain an anti-money laundering
compliance program that includes written policies and procedures, designated compliance officer(s), appropriate training,
independent review of the program, standards for verifying client identity at account opening and obligations to report suspicious
activities and certain other financial transactions. Through these and other provisions, the BSA and Patriot Act seek to promote
the identification of parties that may be involved in financing terrorism or money laundering. We must also comply with sanctions
programs administered by the U.S. Department of Treasury's Office of Foreign Asset Control, which may include prohibitions on
transactions with designated individuals and entities and with individuals and entities from certain countries.
Anti-money laundering laws of certain countries outside the United States contain similar diligence and verification
provisions. The obligation of financial institutions, including ours, to identify their customers, watch for and report suspicious
transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information
with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls
that have increased, and may continue to increase, our costs. Any failure with respect to our programs in this area could subject us
to serious regulatory consequences, including substantial fines, and potentially other liabilities.
Certain of our businesses are subject to laws and regulations enacted by U.S. federal and state governments, the EU or other
non-U.S. jurisdictions and/or enacted by various regulatory organizations or exchanges relating to the privacy of the information
6
of clients, employees or others, including the European Union’s General Data Protection Regulation (the “GDPR”), the California
Consumer Privacy Act (the “CCPA”), and the Gramm-Leach-Bliley Act (the “GLBA”). In the U.S. and elsewhere, additional
privacy legislation has been proposed and may be passed, changes in existing regulations may be made or changes in the
interpretation or enforcement of existing laws and rules may be made.
Available Information
We routinely file annual, quarterly and current reports, proxy statements and other information required by the Exchange
Act with the SEC. Our SEC filings also are available to the public from the SEC's internet site at http://www.sec.gov.
We maintain a public internet site at http://www.cowen.com and make available free of charge through this site our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5
filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the
Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also
post on our website the charters for our Board of Directors' Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee, as well as our Corporate Governance Guidelines, our Code of Business Conduct and Ethics
governing our directors, officers and employees and other related materials. The information on or accessible through our website
is not incorporated by reference into this Annual Report.
Item 1A. Risk Factors
SUMMARY RISK FACTORS
Some of the factors that could materially and adversely affect our business, financial condition, results of operations or
prospects include the following:
Market, Strategy and Industry Risk
a.
Market volatility could have an adverse effect on our businesses, results of operations and financial condition.
b.
The COVID-19 pandemic could adversely affect our business, financial condition and results of operations, including as
a result of employees spending a substantial amount of time working remotely.
c.
Our inability to successfully identify, manage and execute future acquisitions, investments and strategic alliances could
adversely affect our results of operations.
d.
Volatility in the value of our assets and liabilities could adversely affect our results of operations and statement of
financial condition.
e.
Our Linkem investment may not be successful and may adversely affect our results of operations or financial condition.
Human Capital Risk
a.
The loss of key senior personnel would have a material adverse effect on our businesses.
b.
Employee misconduct could harm investor retention and could cause legal liability, reputational harm and loss of
revenue.
Business Risks
a.
Deteriorations in the business environment in sectors focused on by our investment banking businesses could materially
affect our business and cause substantial fluctuations in financial results from period-to-period.
b.
Our capital markets and strategic advisory engagements do not generally provide for subsequent engagements and can
lead to payment risk.
c.
Larger and more frequent capital commitments in our trading and underwriting businesses increase the potential for
significant losses.
d.
The market structure in which our market-making business operates may make sustained profitability difficult.
e.
Electronic trading and new trading technology may adversely affect this business and may increase competition.
f.
We are subject to potential losses and default risks as a result of our clearing and execution activities.
g.
Our securities business and related global clearing operations expose us to material liquidity risk, including as a result of
international market events, decreases in equity trading activity and declining securities prices.
h.
Failures by our third-party clearing agents could materially impact our business and operating results.
7
i.
Our ability to increase revenues and improve profitability will depend on increasing assets under management in existing
investment strategies and marketing new investment products and strategies.
j.
Certain of our investment funds may invest in relatively high-risk, illiquid assets, and we may fail to realize any profits
from these activities.
k.
We may be unable cover our exposure if a counterparty defaults under one of our derivative or non-derivative contracts.
l.
We may suffer losses in connection with the insolvency of agents whose services we use and who may hold our
investment funds’ assets.
m. Risk management activities may materially adversely affect the return on our investment funds' investments.
n.
Our third party reinsurance business could expose us to losses.
Operational Risks
a.
Operational risks relating to the failure of data processing systems and other information systems and technology or other
infrastructure may disrupt our business and result in losses or limit our operations and growth.
b.
Any cyber attack or other security breach of or vulnerability in our technology systems, or those of our clients or other
third party vendors we rely on, could have operational impacts, subject us to significant liability and harm our reputation.
Liquidity Risks
a.
We rely upon our subsidiaries for cash flows and servicing our debt and funding our necessary capital expenditures
requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial
debt or to fund our necessary capital expenditures.
b.
The terms of the credit agreement governing our revolving credit facility and term loan may restrict our current and
future operations, particularly our ability to respond to changes or to take certain actions.
c.
We will be required to use a significant amount of cash to redeem our Series A Cumulative Perpetual Convertible
Preferred Stock, which could adversely affect our liquidity position and could make it more difficult for us to elect to
redeem these securities.
Litigation and Regulatory Risk
a.
Our subsidiaries may become subject to additional regulations which could increase the costs and burdens of compliance
or impose additional restrictions.
b.
We are subject to third party litigation risk and regulatory risk which could result in significant liabilities and
reputational harm.
c.
A failure to appropriately identify and deal with conflicts of interest could adversely affect our businesses.
d.
Increased regulatory focus could result in regulation that limits how we invest.
Other Risks to Our Stockholders
a.
We could change our existing dividend policy in the future.
b.
The terms of our Series A Convertible Preferred Stock contain certain restrictions on our ability to pay dividends and
repurchase our capital stock, and, under certain circumstances, provides the holders thereof the right to elect two
additional directors to our Board of Directors.
c.
Our failure to maintain effective internal controls over financial reporting could have a material adverse effect on our
business.
d.
Certain provisions in our organizational documents could deter an acquisition by a third party.
e.
The change in accounting guidance for our outstanding Series A Cumulative Perpetual Convertible Preferred Stock may
have an adverse effect on our diluted earnings per share in future periods.
Risks Related to the Company's Businesses and Industry
For purposes of the following risk factors, references made to the Company's investment funds include the various
investment management products advised by the Company's investment management business and the investment funds through
which the Company invests its own capital. The Company's investment banking businesses include the Investment Banking
division, the Markets division and the Research division.
8
Market, Strategy and Industry Risk
Difficult market conditions, market disruptions and volatility have adversely affected, and may in the future adversely affect,
the Company's businesses, results of operations and financial condition.
The Company's businesses, by their nature, do not produce predictable earnings, and all of the Company's businesses have
in the past been, and may in the future be affected by conditions in the global financial markets and by global economic
conditions, such as interest rates, the availability of credit, inflation rates, economic uncertainty, changes in laws, commodity
prices, asset prices (including real estate), currency exchange rates and controls and national and international political
circumstances (including wars, terrorist acts, protests or security operations). Challenging market conditions have in the past
affected and in the future could affect the level and volatility of securities prices and the liquidity and the value of investments in
the Company's investment funds or other investments in which the Company has investments of its own capital, and the Company
may not be able to effectively manage its investment management business's exposure to challenging market conditions.
Challenging market conditions have in the past adversely affected and in the future could also adversely affect the Company's
investment banking business as increased volatility and lower stock prices can make companies less likely to conduct
transactions.
In addition, global economic conditions and global financial markets remain vulnerable to the potential risks posed by
certain events, which could include, among other things, political and financial uncertainty in the United States and the European
Union, renewed concern about China's economy, complications involving terrorism and armed conflicts around the world, or
other challenges to global trade or travel, such as have occurred or might occur in the event of a worldwide pandemic such as the
COVID-19 pandemic. More generally, because our businesses are closely correlated to the general economic outlook, a
significant deterioration in that outlook or realization of certain events would likely have an immediate and significant negative
impact on our businesses and overall results of operations.
The effects of the outbreak of COVID-19 have negatively affected the global economy, the United States economy and the
global financial markets, and have disrupted and may further disrupt our operations and our clients' operations. The effects of
the COVID-19 pandemic could in future periods have an adverse effect on our business, financial condition and results of
operations.
The ongoing effects of COVID-19 remain challenging to predict due to multiple uncertainties, including the transmissibility,
severity, duration and resurgences of the outbreak; new virus variants and their spread; the application and effectiveness of health
and safety measures that are voluntarily adopted by the public or required by government or public health authorities, including
vaccines and treatments; the speed and strength of an economic recovery; and the impact to our employees and our operations, our
clients’ operations, suppliers and business partners. Impacts to our businesses could include the following:
•
Employees contracting COVID-19
•
Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations
•
Unavailability of key personnel necessary to conduct our business activities
•
Unprecedented volatility in global financial markets
•
Reductions in revenue across our operating businesses
•
Declines in collateral value
•
Declines in demand for our products or services
•
Unavailability of critical services provided to us by third parties
•
Operational failures due to changes in our normal business practices
•
Credit losses
We are taking precautions to protect the safety and well-being of our employees. However, no assurance can be given that
the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to
our employee's ability to service our clients and provide support for our businesses, particularly if the COVID-19 pandemic
persists for a long period of time. Furthermore, our future success and profitability substantially depends on the management
skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The
unanticipated loss or unavailability of key employees due to the COVID-19 pandemic could harm our ability to operate our
businesses or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event
of key employee loss or unavailability.
9
In the event that the COVID-19 pandemic persists and leads to increased volatility and lower stock prices for many
companies, our investment banking activity could be materiality disrupted.
In addition, a sustained and continuing market downturn could lead to or exacerbate declines in the number of security
transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads.
In addition, revenues from our investment management businesses could be negatively impacted by decreased securities
prices, as well as widely fluctuating securities prices. Because our investment management businesses hold long and short
positions in securities, changes in the prices of these securities, as well as any decrease in the liquidity of these securities, may
adversely affect our revenues from investment management.
Any one or more of these developments could cause, contribute to or exacerbate the other risks and uncertainties discussed
in this Annual Report. Furthermore, such developments may remain prevalent for a significant period of time and may in the
future adversely affect our business, financial condition and results of operations even after the COVID-19 pandemic has
subsided.
We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks,
extreme weather events or other natural disasters.
The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other
widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar
weather events or other natural disasters, could create, and in the case of COVID-19 have created, and may continue to create,
economic and financial disruptions, and in the case of COVID-19 have led to, and other future events could lead to, operational
difficulties (including travel limitations) that may impair our ability to manage our businesses.
Our businesses have traditionally relied on collaboration among our employees, particularly in our markets business. While
our employees have been able to work remotely since March 2020, we do not know how a continuing and prolonged period of
remote working by our employees will impact our ability to collaborate. Accordingly, our business could be adversely affected
by a prolonged period of employees working remotely.
Our business has traditionally relied on collaboration among our employees. In particular, the trading floor environment in
our markets business facilitates idea generation and is more conducive to active trading. While we have been able to continue to
operate all of our businesses, including our markets business, with our employees primarily working remotely since March
2020,we do not know how a continuing and prolonged period of remote working by our employees will impact our ability to
collaborate. Accordingly, our businesses could be adversely affected by a continuing and prolonged period of employees
working remotely.
The Company may be unable to successfully identify, manage and execute future acquisitions, investments and strategic
alliances, which could adversely affect our results of operations.
We intend to continually evaluate potential acquisitions, investments and strategic alliances to expand our business. In the
future, we may seek additional acquisitions, investments, strategic alliances or similar arrangements, which may expose us to risks
such as:
•
the difficulty of identifying appropriate acquisitions, investments, strategic allies or opportunities on terms acceptable to
us;
•
the possibility that senior management may be required to spend considerable time negotiating agreements and
monitoring these arrangements;
•
potential regulatory issues applicable to the financial services business;
•
the loss or reduction in value of the capital investment;
•
our inability to capitalize on the opportunities presented by these arrangements; and
•
the possibility of insolvency of a strategic ally.
Furthermore, any future acquisitions of businesses could entail a number of risks, including:
•
problems with the effective integration of operations;
•
inability to maintain key pre-acquisition business relationships;
•
increased operating costs;
•
exposure to unanticipated liabilities; and
•
difficulties in realizing projected efficiencies, synergies and cost savings.
10
There can be no assurance that we would successfully overcome these risks or any other problems encountered with these
acquisitions, investments, strategic alliances or similar arrangements.
The Company's future results will suffer if the Company does not effectively manage its expanded operations.
The Company may continue to expand its operations through new product and service offerings and through additional
strategic investments, acquisitions or joint ventures, some of which may involve complex technical and operational challenges.
The Company's future success depends, in part, upon its ability to manage its expansion opportunities, which pose numerous risks
and uncertainties, including the need to integrate new operations into its existing business in an efficient and timely manner, to
combine accounting and data processing systems and management controls and to integrate relationships with customers and
business partners. In addition, future acquisitions or joint ventures may involve the issuance of additional shares of common stock
of the Company, which may dilute the ownership of the Company's stockholders.
Volatility in the value of the Company's investments and securities portfolios or other assets and liabilities, including
investment funds, or negative returns from the investments made by the Company have in the past and could in the future
adversely affect the Company's results of operations and statement of financial condition.
The Company invests a significant portion of its capital base to help drive results and facilitate growth of its investment
management and investment bank businesses. As of December 31, 2021, the Company's invested capital amounted to a net value
of $856.0 million (supporting a long market value of $693.5 million), representing approximately 84% of Cowen's stockholders'
equity presented in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). In
accordance with US GAAP, we define fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. US GAAP also establishes a framework for
measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability.
Changes in fair value are reflected in the statement of operations at each measurement period. Therefore, continued volatility in
the value of the Company's investments and securities portfolios or other assets and liabilities, including investment funds, will
result in volatility of the Company's results. We have experienced this type of volatility in prior periods. In addition, the
investments made by the Company may not generate positive returns. As a result, changes in value or negative returns from
investments made by the Company may have an adverse effect on the Company's financial condition or operations in the future.
Our investment in Linkem may not prove to be successful and may adversely affect our results of operations or financial
condition.
As of December 31, 2021, we had an approximately $83.5 million investment in Linkem S.p.A. ("Linkem"), the largest
fixed wireless broadband service provider in Italy. Many factors, most of which are outside of our control, can affect Linkem's
business, including the state of the Italian economy and capital markets in general, competition in the Italian telecommunications
markets and other factors that directly and indirectly affect the results of operations, including the sales and profitability of
Linkem, and consequently may adversely affect our results of operations or financial condition.
The Company faces strong competition from larger firms.
The research, brokerage and investment banking industries are intensely competitive, and the Company expects them to
remain so. The Company competes on the basis of a number of factors, including client relationships, reputation, the abilities of
the Company's professionals, market focus and the relative quality and price of the Company's services and products. The
Company has experienced intense price competition in some of its businesses, including trading commissions and spreads in its
brokerage business. In addition, pricing and other competitive pressures in investment banking, including the trends toward
multiple book runners, co-managers and financial advisors, and a larger share of the underwriting fees and discounts being
allocated to the book-runners, could adversely affect the Company's revenues from its investment bank business.
The Company is a relatively small investment bank. Many of the Company's competitors in the research, brokerage and
investment banking industries have a broader range of products and services, greater financial resources, larger customer bases,
greater name recognition and marketing resources, a larger number of senior professionals to serve their clients' needs, greater
global reach and more established relationships with clients than the Company has. These larger competitors may be better able to
respond to changes in the research, brokerage and investment banking industries, to compete for skilled professionals, to finance
acquisitions, to fund internal growth and to compete for market share generally.
The scale of our competitors in the investment banking industry has increased in recent years as a result of substantial
consolidation among companies in the research, brokerage and investment banking industries. In addition, a number of large
commercial banks and other broad-based financial services firms have established or acquired underwriting or financial advisory
practices and broker-dealers or have merged with other financial institutions. These firms have the ability to offer a wider range of
products than the Company does which may enhance their competitive position. They also have the ability to support their
investment banking and advisory groups with commercial banking and other financial services in an effort to gain market share,
which has resulted, and could further result, in pricing pressure in the Company's businesses. If we are unable to compete
11
effectively with our competitors in the investment banking industry, the Company's business and results of operations may be
adversely affected.
Human Capital Risk
Our businesses are heavily dependent on our personnel so any adverse effects on their well-being or morale could adversely
affect our business.
COVID-19 presents a significant threat to our employees’ well-being and morale and the longer the pandemic persists the
more significant the challenges could be to our employees' morale. While we have implemented a business continuity plan to
protect the health of our employees, our business continuity plan cannot anticipate all scenarios and we may experience potential
loss of productivity or a delay in the roll out of certain strategic plans as a result of the COVID-19 pandemic.
The Company depends on its key senior personnel and the loss of their services would have a material adverse effect on the
Company's businesses and results of operations, financial condition and prospects.
The Company depends on the efforts, skill, reputations and business contacts of its principals and other key senior
personnel, the information and investment activity these individuals generate during the normal course of their activities and the
synergies among the diverse fields of expertise and knowledge held by the Company's senior professionals. Accordingly, the
Company's continued success will depend on the continued service of these individuals. Key senior personnel may leave the
Company in the future, and we cannot predict the impact that the departure of any key senior personnel will have on our ability to
achieve our investment and business objectives. The loss of the services of any of them could have a material adverse effect on
the Company's revenues, net income and cash flows and could harm our ability to maintain or grow assets under management in
existing investment funds or raise additional funds in the future. Our senior and other key personnel possess substantial
experience and expertise and have strong business relationships with the investors in its investment funds, clients and other
members of the business community. As a result, the loss of such personnel could have a material adverse effect on the
Company's businesses and results of operations, financial condition and prospects.
The Company's ability to retain its senior professionals is critical to the success of its businesses, and its failure to do so may
materially affect the Company's reputation, business and results of operations.
Our people are our most valuable resource. Our success depends upon the reputation, judgment, business generation
capabilities and project execution skills of our senior professionals. Our employees' reputations and relationships with our clients
are critical elements in obtaining and executing client engagements. The Company may encounter intense competition for
qualified employees from other companies inside and outside of their industries. From time to time, the Company has experienced
departures of professionals. Losses of key personnel have occurred and may occur in the future. Moreover, if any of our client-
facing employees or executive officers were to join an existing competitor or form a competing company, some of our clients
could choose to use the services of that competitor instead of the services of the Company.
The success of our businesses is based largely on the quality of our employees and we must continually monitor the market
for their services and seek to offer competitive compensation. In challenging market conditions, which occurred in recent years, it
may be difficult to pay competitive compensation without the ratio of our compensation and benefits expense to revenues
becoming higher. In addition, for our investment professionals whose performance-based compensation represents substantially
all of the compensation the professional is entitled to receive in any year, negative performance which results in the professional
not being entitled to receive any performance-based compensation could incentivize the professional to join a competitor.
Employee misconduct could harm the Company by, among other things, impairing the Company's ability to attract and retain
investors and subjecting the Company to significant legal liability, reputational harm and the loss of revenue from its own
invested capital.
It is not always possible to detect and deter employee misconduct. The precautions that the Company takes to detect and
prevent this activity may not be effective in all cases, and we may suffer significant reputational harm and financial loss for any
misconduct by our employees. The potential harm to the Company's reputation and to our business caused by such misconduct is
impossible to quantify.
There is a risk that the Company's employees or partners could engage in misconduct that materially adversely affects the
Company's business, including a decrease in returns on its own invested capital. The Company is subject to a number of
obligations and standards arising from its businesses. The violation of these obligations and standards by any of the Company's
employees could materially adversely affect the Company and its investors. For instance, the Company's businesses require that
the Company properly deal with confidential information. If the Company's employees were to improperly use or disclose
confidential information, we could suffer serious harm to our reputation, financial position and current and future business
relationships. If one of the Company's employees were to engage in misconduct or were to be accused of such misconduct, the
business and reputation of the Company could be materially adversely affected.
12
Business Risks
The Company's investment banking businesses focus principally on specific sectors of the economy, and deterioration in the
business environment in these sectors or a decline in the market for securities of companies within these sectors could
materially affect our investment banking businesses.
Volatility in the business environment in the Company's sectors or in the market for securities of companies within these
sectors could substantially affect the Company's financial results. The business environment for companies in these sectors has
been subject to substantial volatility, and the Company's financial results have consequently been subject to significant variations
from year to year. The market for securities in each of the Company's sectors may also be subject to industry-specific risks. For
example, changes in policies of the United States Food and Drug Administration, along with changes to Medicare and
government reimbursement policies, may affect the market for securities of healthcare companies. In addition, increased antitrust
enforcement, in both the United States and internationally, and changes to how governments review foreign acquisitions of
domestic companies may calm merger and acquisition activity and may make executing merger and acquisition transactions more
difficult. In addition, revenue generated by the Company in its consumer sector could be adversely affected by changes in law or
regulatory action with respect to companies that are in cannabis related businesses.
As an investment bank which focuses primarily on specific growth sectors of the economy, the Company also depends
significantly on private company transactions for sources of revenues and potential business opportunities. To the extent the pace
of these private company transactions slows or the average size declines due to a decrease in private equity financings, difficult
market conditions in the Company's sectors or other factors, the Company's business and results of operations may be adversely
affected.
The financial results of the Company's investment banking businesses may fluctuate substantially from period to period.
The Company has experienced, and we expect the Company to experience in the future, significant periodic variations in its
revenues and results of operations. These variations may be attributed in part to the fact that its investment banking revenues are
typically earned upon the successful completion of a transaction, the timing of which is uncertain and beyond the Company's
control. In most cases, the Company receives little or no payment for investment banking engagements that do not result in the
successful completion of a transaction. As a result, our investment bank business is highly dependent on market conditions as well
as the decisions and actions of its clients and interested third parties. For example, a client's acquisition transaction may be
delayed or terminated because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory
consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or unexpected
financial or other problems in the client's or counterparty's business. If the parties fail to complete a transaction on which the
Company is advising or an offering in which the Company is participating, we will earn little or no revenue from the transaction,
and we may incur significant expenses that may not be recouped. This risk may be intensified by the Company's focus on growth
companies in its sectors as the market for securities of these companies has experienced significant variations in the number and
size of equity offerings. Many companies initiating the process of an IPO are simultaneously exploring other strategic alternatives,
such as a merger and acquisition transaction. The Company's investment bank revenues would be adversely affected in the event
that an IPO for which it is acting as an underwriter is preempted by the company's sale if the Company is not also engaged as a
strategic advisor in such sale. As a result, our investment banking businesses are unlikely to achieve steady and predictable
earnings on a quarterly basis.
Pricing and other competitive pressures may impair the revenues of the Company's brokerage business.
The Company's brokerage business accounted for approximately 27.7% of the Company's revenues during 2021. Along with
other firms, the Company has experienced price competition in this business in recent years. In particular, the ability to execute
trades electronically and through alternative trading systems has increased the pressure on trading commissions and spreads. We
expect to continue to experience competitive pressures in these and other areas in the future as some of our competitors in the
investment banking industry seek to obtain market share by competing on the basis of price or use their own capital to facilitate
client trading activities. In addition, the Company faces pressure from larger competitors, who may be better able to offer a
broader range of complementary products and services to clients in order to win their trading or prime brokerage business. We are
committed to maintaining and improving the Company's comprehensive research coverage to support its brokerage business and
the Company may be required to make additional investments in the Company's research capabilities.
Further, fund investors and shareholders are increasingly focused on ESG matters and certain fund investors consider ESG
factors in determining whether to invest in our funds and our common stock. In addition, some fund investors use third-party
benchmarks or scores to measure our ESG practices and decide whether to invest in our funds, and capital commitments to us and
may condition capital commitments on taking or refraining from taking certain actions. Investors and stockholders may choose
not to invest in our funds or exclude our common stock from their investments if our ESG practices do not fit their investment
profiles, or if we fail to demonstrate progress towards our ESG goals, which could adversely impact our reputation or our ability
to raise capital and could cause the price of our common stock to decrease.
13
The Company's capital markets and strategic advisory engagements are singular in nature, do not generally provide for
subsequent engagements and can lead to payment risk.
The Company's investment banking clients generally retain the Company on a short-term, engagement-by-engagement basis
in connection with specific capital markets or mergers and acquisitions transactions, rather than on a recurring basis under long-
term contracts. As these transactions are typically singular in nature and the Company's engagements with these clients may not
recur, the Company must seek out new engagements when its current engagements are successfully completed or are terminated.
As a result, high activity levels in any period are not necessarily indicative of continued high levels of activity in any subsequent
period. If the Company is unable to generate a substantial number of new engagements that generate fees from new or existing
clients, the Company's investment bank business and results of operations would likely be adversely affected. In addition,
investment banking clients may on occasion refuse to pay investment banking fees owed pursuant to the terms of our engagement
and we may need to expend resources to enforce our contracts. Any failure to pay the investment banking fees owed to us could
adversely affect our results of operations.
Larger and more frequent capital commitments in the Company's trading and underwriting businesses increase the potential
for significant losses.
There has been a trend toward larger and more frequent commitments of capital by financial services firms in many of their
activities. For example, in order to compete for certain transactions, investment banks may commit to purchase large blocks of
stock from publicly traded issuers or significant stockholders, instead of the more traditional marketed underwriting process in
which marketing is completed before an investment bank commits to purchase securities for resale. To the extent the total net
capital of the Company's broker-dealers allows it, the Company anticipates participating in this trend and, as a result, the
Company will be subject to increased risk as it commits capital to facilitate business. Furthermore, the Company may suffer losses
as a result of the positions taken in these transactions even when economic and market conditions are generally favorable for
others in the industry.
The Company may enter into large transactions in which it commits its own capital as part of its trading business to facilitate
client trading activities. The number and size of these large transactions may materially affect the Company's results of operations
in a given period. Market fluctuations may also cause the Company to incur significant losses from its trading activities. To the
extent that the Company owns assets (i.e., has long positions), a downturn in the value of those assets or in the markets in which
those assets are traded could result in losses. Conversely, to the extent that the Company has sold assets it does not own (i.e., has
short positions), in any of those markets, an upturn in the value of those assets or in markets in which those assets are traded could
expose the Company's investment banking businesses to potentially large losses as they attempt to cover short positions by
acquiring assets in a rising market.
The market structure in which our market-making business operates may make it difficult for this business to maintain
profitability.
Market structure changes have had an adverse effect on the results of operations of our market-making business. These
changes may make it difficult for us to maintain and/or predict levels of profitability of, or may cause us to generate losses in, our
market-making business.
The growth of electronic trading and the introduction of new technology in the markets in which our market-making business
operates may adversely affect this business and may increase competition.
The continued growth of electronic trading and the introduction of new technologies is changing our market-making
business and presenting new challenges. Securities, futures and options transactions are increasingly occurring electronically,
through alternative trading systems. It appears that the trend toward alternative trading systems will continue to accelerate. This
acceleration could further increase program trading, increase the speed of transactions and decrease our ability to participate in
transactions as principal, which would reduce the profitability of our market-making business. Some of these alternative trading
systems compete with our market-making business and with our algorithmic trading platform, and we may experience continued
competitive pressures in these and other areas. Significant resources have been invested in the development of our electronic
trading systems, which includes our ATM business, but there is no assurance that the revenues generated by these systems will
yield an adequate return on the investment, particularly given the increased program trading and increased percentage of stocks
trading off of the historically manual trading markets.
We are subject to potential losses and default risks as a result of our clearing and execution activities.
As a clearing member firm providing services to certain of our brokerage customers, we are ultimately responsible for their
financial performance in connection with various securities transactions. Our clearing operations require a commitment of our
capital and involve risks of losses due to the potential failure of our customers to perform their obligations under these
transactions. We are required to finance customers' unsettled positions from time to time, and we could be held responsible for the
defaults of those customers. If customers default on their obligations, we remain financially liable for such obligations, and while
14
some of these obligations may be collateralized, we are still subject to market risk in the liquidation of customer collateral to
satisfy those obligations. While we have risk management procedures designed to mitigate certain risks, there can be no assurance
that our risk management procedures will be adequate. Although we regularly review our credit exposure to customers, default
risk may arise from events or circumstances that may be difficult to detect or foresee. Default by our customers may also give
rise to the Company incurring penalties imposed by execution venues, regulatory authorities and clearing and settlement
organizations. Any liability arising from clearing operations could have a material adverse effect on our business, financial
condition and results of operations.
We are also exposed to credit risk from third parties that owe us money, securities or other obligations, including our trading
counterparties. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or
other reasons, and we could be held responsible for such defaults. In addition, customer trading errors may cause us to incur
financial losses, which customers may be unable or unwilling to cover. Volatile securities markets, credit markets and regulatory
changes may increase our exposure to our customers' and counterparties' credit profiles, which could adversely affect our financial
condition and operating results. Our review of the credit risk of customers and trading counterparties may not be adequate to
provide sufficient protection from these risks.
Our securities business and related clearing operations expose us to material liquidity risk.
We may be required to provide considerable additional funds with clearing and settlement organizations of which we are
members, such as the National Securities Clearing Corporation ("NSCC") or Depository Trust and Clearing Corporation in the
U.S., especially during periods of high market volatility or when we are obligated to clear large notional amounts of securities that
are not eligible for settlement through the NSCC's Continuous Net Settlement system and, consequently, may be subject to higher
margin requirements. In addition, regulatory agencies have recently required these clearing and settlement organizations to
increase the level of margin deposit requirements, and they may continue to do so in the future. We rely on our excess cash,
certain established credit facilities and the use of outsourced clearing arrangements to meet or reduce these demands. While we
have historically met requests for additional margin deposits, there is no guarantee that our excess cash and our established credit
facilities and clearing arrangements will be sufficient for future needs, particularly if there is an increase in requirements. There is
also no guarantee that these established credit facilities will be extended beyond their expiration.
As a clearing member firm of securities clearing houses in the U.S., we are also exposed to clearing member credit risk.
Securities clearing houses require member firms to deposit cash and/or government securities to a clearing fund. If a clearing
member defaults in its obligations to the clearing house in an amount larger than its own margin and clearing fund deposits, the
shortfall is absorbed pro rata from the deposits of the other clearing members. The clearing houses of which we are members also
have the authority to assess their members for additional funds if the clearing fund is depleted. A large clearing member default
could result in a substantial cost to us if we are required to pay such assessments.
In certain jurisdictions we are dependent on third-party clearing agents and any failures by such clearing agents could
materially impact our business and operating results.
In certain jurisdictions we are dependent on agents for the clearing and settlement of securities transactions. If our agents fail
to properly facilitate the clearing and settlement of our customer trades, we could be subject to financial, legal and regulatory risks
and costs that may impact our business and operating results. In addition, it could cause our clients to reduce or cease their trading
with us, which would adversely affect our revenues and financial results.
Moreover, certain of the clearing agreements provide our clearing agents with rights to increase our deposit requirements or
to terminate the agreements upon short notice. There is no guarantee we will be able to satisfy any increased deposit requirements
within the time frames demanded by our clearing agents, and if we fail to satisfy such demands on a timely basis, it could
constitute a default under our clearing agreements. If our clearing agents terminate a clearing agreement on short notice, there is
no guarantee that we could obtain alternative services in a timely manner and any interruption of the normal course of our trading
and clearing operations could have a material impact on our business and results of operations.
Our clearing and execution operations are global and international market events could adversely impact our financial
results.
Because we offer brokerage products and services on a global basis, our revenues derived from non-U.S. operations are
subject to risk of loss from social or political instability, changes in government policies or policies of central banks, downgrades
in the credit ratings of sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative and
political developments in such non-U.S. jurisdictions. Revenues from the trading of non-U.S. securities may be subject to
negative fluctuations as a result of the above factors. The impact of these fluctuations on our results could be magnified because
generally non-U.S. trading markets, particularly in emerging market countries, are smaller, less liquid and more volatile than U.S.
trading markets.
15
Decreases in equity trading activity by active fund managers and declining securities prices could harm our business and
profitability.
Declines in the trading activity of active fund managers generally result in lower revenues from our brokerage products and
services. In addition, securities' price declines adversely affect our trading commissions outside North America, which are based
on the value of transactions. The demand for our brokerage products and services is directly affected by factors such as economic,
regulatory and political conditions that may lead to decreased trading activity and prices in the securities markets in the U.S. and
in all of the foreign markets we serve. Significant flows of investments out of actively managed equity funds have curtailed their
trading activity, which has weighed on our buy-side trading volumes and the use of some of our higher value services. Volatility
levels also impact the amount of trading activity. Sustained periods of low volatility can result in lower levels of trading activity
and trading activity tends to decline in periods following extreme levels of volatility. In addition, any substantial shift from active
fund management to passive fund management could have an adverse effect on our trading commissions.
The Company's revenues and, in particular, its ability to earn incentive and investment income, would be adversely affected if
there are reversals to previously accrued incentive fees or if its investment funds fall beneath their "high-water marks" as a
result of negative performance.
For our private equity funds, the incentive fee crystallizes upon realization of the investment. In those circumstances, until
the investment is realized, the accrued incentive fees are subject to reversal even if those accruals were made in prior years. The
Company's incentive allocations are also subject, in some cases, to performance hurdles or benchmarks. To the extent the
Company's investment funds experience negative investment performance, the investors in or beneficial owners of these
investment funds would need to recover cumulative losses before the Company can earn investment income at the end of the
performance period with respect to the investments of those who previously suffered losses. With respect to our hedge fund
products, incentive income, is, in most cases, subject to "high-water marks" whereby incentive income is earned by the Company
only to the extent that the net asset value of an investment advisory product at the end of a measurement period exceeds the
highest net asset value as of the end of a preceding measurement period for which the Company earned incentive income. The
Company recognizes incentive income charged to the Company's hedge funds based on the net profits of the hedge funds. For a
majority of the hedge funds, the incentive fee crystallizes annually when the high-water mark for such hedge funds is reset, which
delays recognition of the incentive fee until year end. As a result, negative performance could adversely affect the Company’s
incentive and investment income from both its private equity and hedge fund products.
The Company's ability to increase revenues and improve profitability will depend on increasing assets under management in
existing investment strategies and developing and marketing new investment products and strategies, including identifying and
hiring or affiliating with new investment teams.
The Company's investment management business generates management and incentive fee income based on its assets under
management. If the Company is unable to increase its assets under management in its existing products it may be difficult to
increase its revenues. The Company may launch new investment management products and hire or affiliate with new investment
teams focusing on new investment strategies. If these products or strategies are not successful, or if the Company is unable to hire
or affiliate with new investment teams, or successfully manage its relationships with its affiliated investment teams, the
Company's profitability could be adversely affected.
Certain of the Company's investment funds may invest in relatively high-risk, illiquid assets, and the Company may fail to
realize any profits from these activities for a considerable period of time or lose some or all of the principal amounts of these
investments.
Certain of the Company's investment funds invest a significant portion of their assets in securities that are not publicly
traded. In many cases, they may be prohibited by contract or by applicable securities laws from selling such securities for a period
of time or there may not be a public market for such securities. Even if the securities are publicly traded, large holdings of
securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward
movement in market prices during the disposition period. Accordingly, under certain conditions, the Company's investment funds
may be forced to either sell securities at lower prices than they had expected to realize or defer, potentially for a considerable
period of time, sales that they had planned to make. Investing in these types of investments can involve a high degree of risk, and
the Company's investment funds may lose some or all of the principal amount of such investments, including our own invested
capital.
The due diligence process that the Company's investment management business undertakes in connection with investments by
the Company's investment funds is inherently limited and may not reveal all facts that may be relevant in connection with
making an investment.
Before making investments, particularly investments in securities that are not publicly traded, the Company endeavors to
conduct a due diligence review of such investment that it deems reasonable and appropriate based on the facts and circumstances
applicable to each investment. When conducting due diligence, the Company is often required to evaluate critical and complex
16
business, financial, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, accountants, investment
bankers and financial analysts may be involved in the due diligence process in varying degrees depending on the type of
investment. Nevertheless, when conducting due diligence and making an assessment regarding an investment, the Company is
limited to the resources available, including information provided by the target of the investment and, in some circumstances,
third party investigations. The due diligence investigation that the Company conducts with respect to any investment opportunity
may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity.
Moreover, such an investigation will not necessarily result in the investment being successful, which may adversely affect the
performance of the Company's investment funds and the Company's ability to generate returns on its own invested capital from
any such investment.
Investors and beneficial owners in the Company's hedge funds can generally redeem investments with prior notice. The rate of
redemptions could accelerate at any time. Historically, redemptions have created difficulties in managing the liquidity of
certain of the Company's hedge funds, reduced assets under management and adversely affected the Company's revenues, and
may do so in the future.
Investors and beneficial owners in the Company's hedge funds may generally redeem their investments with prior notice,
subject to certain initial holding periods. Investors may reduce the aggregate amount of their investments, or transfer their
investments to other hedge funds or asset managers with different fee rate arrangements, for any number of reasons, including
investment performance, changes in prevailing interest rates and financial market performance. Furthermore, investors in the
Company's hedge funds may be investors in products managed by other asset managers where redemptions have been restricted or
suspended. Such investors may redeem capital from Company's hedge funds, even if the Company's hedge funds' performance is
superior, due to an inability to redeem capital from other managers. Increased volatility in global markets could accelerate the
pace of redemptions. Redemptions of investments in the Company's hedge funds could also take place more quickly than assets
may be sold by those hedge funds to meet the price of such redemptions, which could result in the relevant hedge funds and/or the
Company being in breach of applicable legal, regulatory and contractual requirements in relation to such redemptions, resulting in
possible regulatory and investor actions against the Company and/or the Company's hedge funds. If the Company's hedge funds
underperform, existing investors may decide to reduce or redeem their investments or transfer asset management responsibility to
other asset managers and the Company may be unable to obtain new investment management business. Any such action could
potentially cause further redemptions and/or make it more difficult to attract new investors.
The redemption of investments in the Company's hedge funds could also adversely affect the revenues of the Company's
investment management business, which are substantially dependent upon its assets under management. If redemptions of
investments cause revenues to decline, they would likely have a material adverse effect on our business, results of operations or
financial condition. If market conditions, negative performance or other factors cause an increased level of redemption activity
returns, it could become more difficult to manage the liquidity requirements of the Company's hedge funds, making it more
difficult or more costly for the Company's hedge funds to liquidate positions rapidly to meet redemption requests or otherwise.
This in turn may negatively impact the Company's returns on its own invested capital.
In addition to the impact on the market value of assets under management, illiquidity and volatility of the global financial
markets could negatively affect the ability of the Company's investment management business to manage inflows and outflows
from the Company's hedge funds. A number of asset management firms, including the Company's investment management
business, have in the past exercised, and may in the future exercise, their rights to limit, and in some cases, suspend, redemptions
from the investment management products they advise. The Company's investment management business has also negotiated,
and may in the future negotiate, with investors or exercise such rights in an attempt to limit redemptions or create a variety of
other investor structures to bring assets and liquidity requirements into a more manageable balance. To the extent that the
Company's investment management business has negotiated with investors to limit redemptions, it may be likely that such
investors will continue to seek further redemptions in the future. Such actions may have an adverse effect on the ability of the
Company's hedge funds to attract new capital or to develop new investment platforms. Poor performance relative to other asset
management firms may result in reduced investments in the Company's hedge funds and increased redemptions. As a result,
investment underperformance would likely have a material adverse effect on the Company's results of operations and financial
condition.
Investments made by investment funds, including the investments of the Company's own capital in the Company's investment
funds, are subject to other additional risks.
Investments by the Company's investment funds are subject to certain risks that may result in losses. Decreases to assets
under management as a result of investment losses or client redemptions may have a material adverse effect on the Company's
revenues, net income and cash flows and could harm our ability to maintain or grow assets under management in existing
investment funds or raise additional funds in the future. Additional risks include the following:
17
•
Generally, there are few limitations on investment funds' strategies, which are often subject to the sole discretion of the
management company or the general partner of such funds.
•
Investment funds may engage in short selling, which is subject to a theoretically unlimited risk of loss because there is no
limit on how much the price of a security sold short may appreciate before the short position is closed out. An investment
fund may be subject to losses if a security lender demands return of the lent securities and an alternative lending source
cannot be found or if the investment fund is otherwise unable to borrow securities that are necessary to hedge its
positions. Furthermore, the SEC and other regulatory authorities outside the United States have imposed reporting
requirements on short selling, which in certain circumstances may impair an investment fund's ability to use short selling
effectively.
•
The efficacy of investment and trading strategies depend largely on the ability to establish and maintain an overall
market position through a combination of financial instruments. An investment fund's trading orders may not be
executed in a timely and efficient manner due to various circumstances, including systems failures or human error. In
such event, the investment fund might only be able to acquire some but not all of the components of the position, or if the
overall position were in need of adjustment, the investment fund might not be able to make such an adjustment. As a
result, an investment fund would not be able to achieve the market position selected by the management company or
general partner of such fund, and might incur a loss in liquidating its position.
•
Credit risk may arise through a default by one of several large institutions that are dependent on one another to meet their
respective liquidity or operational needs, so that a default by one institution causes a series of defaults by the other
institutions. This "systemic risk" may adversely affect the financial intermediaries (such as clearing agencies, clearing
houses, banks, securities firms, other counterparties and exchanges) with which the investment funds interact on a daily
basis.
•
Investment funds are subject to risks due to the potential illiquidity of assets. Investment funds may make investments or
hold trading positions in markets that are volatile and which may become illiquid. The timely sale of trading positions
can be impaired by decreased trading volume, increased price volatility, concentrated trading positions, limitations on the
ability to transfer positions in highly specialized or structured transactions to which they may be a party, and changes in
industry and government regulations. It may be impossible or highly costly for investment funds to liquidate positions
rapidly to meet margin calls, redemption requests or otherwise, particularly if there are other market participants seeking
to dispose of similar assets at the same time, if the relevant market is otherwise moving against a position or in the event
of trading halts or daily price movement limitations on the market. In addition, increased levels of redemptions may
result in increased illiquidity as more liquid assets are sold to fund redemptions.
•
Investment fund assets are subject to risks relating to investments in commodities, futures, options and other derivatives,
the prices of which are highly volatile and may be subject to the theoretically unlimited risk of loss in certain
circumstances. Price movements of commodities, futures and options contracts and payments pursuant to swap
agreements are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal,
monetary and exchange control programs and policies of governments and national and international political and
economic events and policies. The value of futures, options and swap agreements also depends upon the price of the
commodities underlying them. In addition, investment funds' assets are subject to the risk of the failure of any of the
exchanges on which their positions trade.
•
Investment fund assets that are not denominated in the U.S. dollar are subject to the risk that the value of a particular
currency will change in relation to one or more other currencies. Among the factors that may affect currency values are
trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies,
long-term opportunities for investment and capital appreciation and political developments. Officials in foreign countries
may, from time to time, take actions in respect of their currencies that could significantly affect the value of an
investment fund's assets denominated in those currencies or the liquidity of such investments. For example, a foreign
government may unilaterally devalue its currency against other currencies, which would typically have the effect of
reducing the U.S. dollar value of investments denominated in that currency. A foreign government may also limit the
convertibility or repatriation of its currency or assets denominated in that currency. While the Company generally
expects to hedge its exposure to currencies other than the U.S. dollar, and may do so through foreign currency futures
contracts and options thereon, forward foreign currency exchange contracts, swaps or any combination thereof, but there
can be no assurance that such hedging strategies will be implemented, or if implemented, will be effective. While an
investment fund may enter into currency hedging transactions to seek to reduce risk, such transactions may result in a
poorer overall performance than if it had not engaged in such hedging transactions. For a variety of reasons, the
Company may not seek to establish a perfect correlation between the hedging instruments utilized and the portfolio
holdings being hedged. Such an imperfect correlation may prevent the Company from achieving the intended hedge or
expose an investment fund to risk of loss.
18
•
Investment funds are also subject to the risk that war, terrorism, and related geopolitical events may lead to increased
short-term market volatility and have adverse long-term effects on the U.S. and world economies and markets generally,
as well as adverse effects on issuers of securities and the value of investments. War, terrorism, and related geopolitical
events have led, and in the future may lead, to increased short-term market volatility and may have adverse long-term
effects on U.S. and non-U.S. economies and markets generally. Those events, as well as other changes in U.S. and non-
U.S. economic and political conditions, also could adversely affect individual issuers or related groups of issuers,
securities markets, interest rates, credit ratings, inflation, investor sentiment and other factors affecting the value of the
investment fund's assets.
If the Company's investment fund's counterparty for any of its derivative or non-derivative contracts defaults on the
performance of those contracts, the Company may not be able to cover its exposure under the relevant contract.
The Company's investment funds enter into numerous types of financing arrangements with a wide array of counterparties
around the world, including loans, hedge contracts, swaps, repurchase agreements and other derivative and non-derivative
contracts. The terms of these contracts are generally complex and often customized and generally are not subject to regulatory
oversight. The Company is subject to the risk that the counterparty to one or more of these contracts may default, either
voluntarily or involuntarily, on its performance under the contract. Any such default may occur at any time without notice.
Additionally, the Company may not be able to take action to cover its exposure if a counterparty defaults under such a contract,
either because of a lack of the contractual ability or because market conditions make it difficult to take effective action. The
impact of market stress or counterparty financial condition may not be accurately foreseen or evaluated and, as a result, the
Company may not take sufficient action to reduce its risks effectively.
Counterparty risk is accentuated where the investment management product has concentrated its transactions with a single or
small group of counterparties. Generally, investment funds are not restricted from concentrating any or all of their transactions
with one counterparty. Moreover, the Company's internal review of the creditworthiness of their counterparties may prove
inaccurate. The absence of a regulated market to facilitate settlement and the evaluation of creditworthiness may increase the
potential for losses.
In addition, these financing arrangements often contain provisions that give counterparties the ability to terminate the
arrangements if any of a number of defaults occurs with respect to the Company's investment funds, including declines in
performance or assets under management and losses of key management personnel, each of which may be beyond our control. In
the event of any such termination, the Company's investment funds may not be able to enter into alternative arrangements with
other counterparties and our business may be materially adversely affected.
The Company may suffer losses in connection with the insolvency of prime brokers, custodians, administrators and other
agents whose services the Company uses and who may hold assets of the Company's investment funds.
Most of the Company's investment funds use the services of prime brokers, custodians, administrators or other agents to
carry out certain securities transactions and to conduct certain business of the Company's investment funds. In the event of the
insolvency of a prime broker and/or custodian, the Company's investment funds might not be able to recover equivalent assets in
full as they may rank among the prime broker's and custodian's unsecured creditors in relation to assets which the prime broker or
custodian borrows, lends or otherwise uses. In addition, the Company's investment funds' cash held with a prime broker or
custodian (if any) may not be segregated from the prime broker's or custodian's own cash, and the investment funds will therefore
rank as unsecured creditors in relation thereto.
Risk management activities may materially adversely affect the return on the Company's investment funds' investments if such
activities do not effectively limit exposure to decreases in investment values or if such exposure is overestimated.
When managing the Company's investment funds' exposure to market risks, the relevant investment management product
may use forward contracts, options, swaps, caps, collars and floors or pursue other strategies or use other forms of derivative
financial instruments to limit its exposure to changes in the relative values of investments that may result from market
developments, including changes in interest rates, currency exchange rates and asset prices. The success of such derivative
transactions generally will depend on the Company's ability to accurately predict market changes in a timely fashion, the degree
of correlation between price movements of a derivative instrument, the position being hedged, the creditworthiness of the
counterparty and other factors. As a result, these transactions may result in poorer overall investment performance than if they had
not been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position increases. A perfect
correlation between the instruments used in a hedging or other derivative transaction and the position being hedged may not be
attained. An imperfect correlation could give rise to a loss. Also, it may not be possible to fully or perfectly limit exposure against
all changes in the value of an investment because the value of an investment is likely to fluctuate as a result of a number of
factors, many of which will be beyond the Company's control or ability to hedge.
Our third party reinsurance business could expose us to losses.
19
We provide third party reinsurance coverage through our Luxembourg subsidiary, Cowen Reinsurance S.A (formerly
“Hollenfels Re S.A.”) ("Cowen Re"). We have written polices relating to property and casualty, workers' compensation, general
liability and construction performance bonds and may issue reinsurance policies relating to other types of insurance. Because we
write reinsurance, the success of our underwriting efforts depends, in part, upon the policies, procedures and expertise of the
ceding companies making the original underwriting decisions. We face the risk that these ceding companies may fail to accurately
assess the risks that they assume initially, which, in turn, may lead us to inaccurately assess the risks we assume. If we fail to
establish and receive appropriate premium rates or the claims we receive exceed the premiums and retrocession recoverables we
are able to collect, we will suffer losses.
We may be unable to purchase retrocession reinsurance and our retrocession agreements subject us to third-party credit risk.
We may enter into retrocession agreements with third parties in order to limit our exposure to losses from the reinsurance
coverage provided by Cowen Re. Changes in the availability and cost of retrocession reinsurance, which are subject to market
conditions that are outside of our control, may reduce to some extent our ability to use retrocession reinsurance to balance
exposures across our reinsurance operations. Accordingly, we may not be able to obtain our desired amounts of retrocession
reinsurance. In addition, even if we are able to obtain such reinsurance, we may not be able to negotiate terms that we deem
appropriate or acceptable or obtain such reinsurance from entities with satisfactory creditworthiness. While we seek to do
business with creditworthy counterparties, if the parties who provide us with retrocession are not able to meet their obligations to
us or fail to make timely payments under the terms of our retrocession agreements, we could be materially and adversely affected
because we may remain liable under the terms.
The Company may incur losses in the future.
The Company may incur losses in any of its future periods. Future losses may have a significant effect on the Company's
liquidity as well as our ability to operate. In addition, we may incur significant expenses in connection with any expansion,
strategic acquisition or investment with respect to our businesses. Specifically, we have invested, and will continue to invest in,
and hire senior professionals to expand our investment banking businesses. Accordingly, the Company will need to increase its
revenues at a rate greater than its expenses to achieve and maintain profitability. If the Company's revenues do not increase
sufficiently, or even if its revenues increase but it is unable to manage its expenses, the Company will not achieve and maintain
profitability in future periods. As an alternative to increasing its revenues, the Company may seek additional capital through the
sale of additional common stock or other forms of debt or equity financing. The Company cannot be certain that it would have
access to such financing on acceptable terms.
Operational Risks
We have taken steps to protect our businesses from cybersecurity attacks while our employees have been working remotely, but
remote working environments may be less secure and more susceptible to cybersecurity attacks which could adversely affect
our ability to securely process transactions and maintain confidential financial, personal and other information.
The Company's businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions
across diverse markets, and the transactions that the Company processes have become increasingly complex. As a result of the
COVID-19 pandemic virtually all of our employees, including those who process our transactions, are spending a substantial
amount of time working remotely. While we have implemented risk management and contingency plans and taken other
precautions with respect to the COVID-19 pandemic, such measures may not adequately protect our businesses from the full
impact of the COVID-19 pandemic as remote working environments may be less secure and more susceptible to hacking attacks,
including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic. Accordingly, if our systems are
breached as a result of a cybersecurity attack that takes advantage of the COVID-19 pandemic, our ability to securely process
transactions and maintain confidential financial, personal and other information could be adversely affected.
In addition, the effects of the COVID-19 pandemic, including remote working arrangements for employees, may also impact
our financial reporting systems and internal control over financial reporting, disclosure controls and procedures, however, to date,
these arrangements have not materially affected our ability to maintain our business operations.
Our information and technology systems are critical components of our business and operations, and a failure of those
systems or other aspects of our business operations may disrupt our business, cause financial loss, increase our legal liability
and constrain our growth.
Our operations rely extensively on the secure processing, storage and transmission of confidential financial, personal and
other information in our computer systems and networks. Although we take protective measures and devote significant resources
to maintaining and upgrading our systems and networks with measures such as intrusion and detection prevention systems,
monitoring firewalls to safeguard critical business applications and supervising third party providers that have access to our
systems, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other
malicious code, and other events that could have a security impact. Additionally, if a client's computer system, network or other
20
technology is compromised by unauthorized access, we may face losses or other adverse consequences by unknowingly entering
into unauthorized transactions. If one or more of such events occur, this potentially could jeopardize our or our clients' or
counterparties' confidential and other information processed and stored in and transmitted through our computer systems and
networks. Furthermore, such events may cause interruptions or malfunctions in our, our clients', our counterparties' or third
parties' operations, including the transmission and execution of unauthorized transactions. We may be required to expend
significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other
exposures, and we may be subject to litigation and financial losses that are either not covered or not fully covered through our
insurance. The increased use of smartphones, tablets and other mobile devices as well as cloud computing may also heighten these
and other operational risks. Similar to other firms, we and our third party providers continue to be the subject of attempted
unauthorized access, computer viruses and malware, and cyber attacks designed to disrupt or degrade service or cause other
damage and denial of service. Additional challenges are posed by external parties, including foreign state actors. There can be no
assurance that such unauthorized access or cyber incidents will not occur in the future, and they could occur more frequently and
on a larger scale. We are also subject to laws and regulations relating to the privacy and security of the information of our clients,
employees or others, and any failure to comply with these regulations could expose us to liability and/or reputational damage.
Operational risks relating to the failure of data processing systems and other information systems and technology or other
infrastructure may disrupt the Company's business and result in losses or limit our operations and growth in the industry.
The Company's business is highly dependent on its ability to process, on a daily basis, a large number of transactions across
diverse markets, and the transactions that the Company processes have become increasingly complex. The inability of the
Company's systems to accommodate an increasing volume of transactions could also constrain the Company's ability to expand its
business. If any of these systems do not operate properly or are disabled, or if there are other shortcomings or failures in the
Company's internal processes, people or systems, the Company could suffer impairments, financial loss, a disruption of its
business, liability to clients, regulatory intervention or reputational damage.
The Company has outsourced certain aspects of its technology infrastructure including data centers and wide area networks,
as well as some trading applications. The Company is dependent on its technology providers to manage and monitor those
functions. A disruption of any of the outsourced services would be out of the Company's control and could negatively impact our
business. The Company has experienced disruptions on occasion, none of which has been material to the Company's operations
and results. However, there can be no guarantee that future material disruptions with these providers will not occur.
The Company also faces the risk of operational failure of or termination of relations with any of the clearing agents,
exchanges, clearing houses or other financial intermediaries that the Company uses to facilitate its securities transactions. Any
such failure or termination could adversely affect the Company's ability to effect transactions and to manage its exposure to risk.
In addition, the Company's ability to conduct its business may be adversely impacted by a disruption in the infrastructure
that supports Company and the communities in which we are located. This may affect, among other things, the Company's
financial, accounting or other data processing systems. This may include a disruption involving electrical, communications,
transportation or other services used by us or third parties with which the Company conducts business, whether due to fire, other
natural disaster, power or communications failure, act of terrorism or war or otherwise. Nearly all of our employees in our
primary locations in New York, Boston, San Francisco and London work in close proximity to each other. Although the Company
has a formal disaster recovery plan in place, if a disruption occurs in one location and our employees in that location are unable to
communicate with or travel to other locations, the Company's ability to service and interact with its clients may suffer, and the
Company may not be able to implement successfully contingency plans that depend on communication or travel.
Our business also relies on the secure processing, storage and transmission of confidential and other information in its
computer systems and networks. The Company's computer systems, software and networks may be vulnerable to unauthorized
access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events
occur, this could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and
transmitted through, the Company's computer systems and networks, or otherwise cause interruptions or malfunctions in our
business', its clients', its counterparties' or third parties' operations. The Company may be required to expend significant additional
resources to modify its protective measures, to investigate and remediate vulnerabilities or other exposures or to make required
notifications, and the Company may be subject to litigation and financial losses that are either not insured against or not fully
covered through any insurance maintained by the Company.
Any cyber attack or other security breach of or vulnerability in our technology systems, or those of our clients or other third
party vendors we rely on, could have operational impacts, subject us to significant liability and harm our reputation.
Our operations rely heavily on the secure processing, storage and transmission of sensitive and confidential financial,
personal and other information in our computer systems and networks. There have been several highly publicized cases involving
financial services companies reporting the unauthorized disclosure of client or other confidential information in recent years, as
well as cyber attacks involving theft, dissemination and destruction of corporate information or other assets, in some cases as a
21
result of failure to follow procedures by employees or contractors or as a result of actions by third parties. Like other financial
services firms, we have been the target of attempted cyber attacks. Cyber attacks can originate from a variety of sources, including
third parties affiliated with foreign governments, organized crime or terrorist organizations and malicious individuals both outside
and inside a targeted comapny. Malicious actors may also attempt to compromise or induce our employees, clients or other users
of our systems to disclose sensitive information or provide access to our data, and these types of risks may be difficult to detect or
prevent. Although cybersecurity incidents among financial services firms are on the rise, we are not aware of any material losses
relating to cyber attacks or other information security breaches. However, the techniques used in these attacks are increasingly
sophisticated, change frequently and are often not recognized until launched. Although we monitor the changing cybersecurity
risk environment and seek to maintain a robust suite of authentication and layered information security controls, these controls
could fail to detect, mitigate or remediate these risks in a timely manner. Despite our implementation of protective measures and
endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human
error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, ransomware, computer
viruses and other malicious code, and other events that could damage to our reputation, and have an ongoing impact on the
security and stability of our operations and expose us to class action lawsuits and regulatory investigation, action and penalties
and significant liability.
We also rely on numerous third-party service providers to conduct other aspects of our business operations, and we face
similar risks relating to them. While we regularly conduct security assessments on these third-party vendors, we cannot be certain
that their information security protocols are sufficient to withstand a cyber attack or other security breach. In addition, in order to
access our products and services, our customers may use computers and other devices that are beyond our security control
systems and processes.
Notwithstanding the precautions we take, if a cyber attack or other information security breach were to occur, this could
jeopardize the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients
and counterparties, exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be
required to expend substantial additional resources to modify or enhance our protective measures, to investigate and remediate
vulnerabilities or other exposures or to communicate about cyber attacks to our customers. Though we have insurance against
some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits or are not covered
under any of our current insurance policies. A technological breakdown could also interfere with our ability to comply with
financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators. Additionally, the
SEC issued guidance in February 2018 stating that, as a public company, we are expected to have controls and procedures that
relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber attacks or other information
security breaches in disclosures required to be made under the federal securities laws. Further, successful cyber attacks at other
large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer
confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of
our security measures or the financial system in general, which could result in a loss of business.
Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties,
and the increasing sophistication of malicious actors, a cyber attack could occur and persist for an extended period of time without
detection. We expect that any investigation of a cyber attack would take substantial amounts of time and resources, and that there
may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the
extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are
discovered. All of which would further increase the costs and consequences of such an attack.
We may also be subject to liability under various data protection laws including, the GDPR and the CCPA. We are subject
to numerous laws and regulations designed to protect personal information. These laws and regulations are increasing in
complexity and number. If any person, including any of our associates, vendors or other service providers, negligently disregards
or intentionally breaches our established controls with respect to sensitive or confidential client, employee or other data, or
otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory
enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client,
employee or other data, whether through system failure, vendor fault, employee negligence, fraud or misappropriation, could
damage our reputation and cause us to lose clients and related revenue. Potential liability in the event of a security breach of
sensitive or confidential data could be significant. Depending on the circumstances giving rise to the breach, this liability may not
be subject to a contractual limit or an exclusion of consequential or indirect damages.
Liquidity Risks
The soundness of other financial institutions may adversely affect Cowen.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Cowen has
exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks and institutional clients. Many of these
22
transactions expose Cowen to credit risk in the event of a default by a counterparty or client. In the past, defaults by, or even
speculation about, one or more financial services institutions or the financial services industry generally during moments of
economic crisis have led to market-wide liquidity problems. The economic volatility resulting from the current COVID-19
pandemic could, as similar events in the past have, result in similar defaults and, as a result, impair the confidence of our
counterparties and ultimately affect our ability to effect transactions. In addition, Cowen’s credit risk may be exacerbated when
the collateral held by Cowen cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the
credit exposure due to Cowen. Any such losses could have an adverse effect on Cowen’s financial condition and results of
operations.
Higher volumes and price volatility in the markets due to COVID-19 and other factors could lead to higher cash requirements
relating to our clearing activities, which could adversely affect our liquidity position.
Since the COVID-19 pandemic began, the capital markets have experienced a higher level of stress due to the global
COVID-19 pandemic. Higher volumes and price volatility have led to increased margin requirements at clearing corporations and
exchanges, along with increased levels of fails due to operational friction in the financial system. Certain of these higher cash
requirements have required us, and may continue to require us, to use more liquidity relating to our clearing activities and our
overall liquidity could, in the future, be adversely affected as a result.
Limitations on access to capital by the Company and its subsidiaries could impair its liquidity and its ability to conduct its
businesses.
Liquidity, or ready access to funds, is essential to the operations of financial services firms. Failures of financial institutions
have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our trading business and
clearing activities and perceived liquidity issues may affect the willingness of the Company's clients and counterparties to engage
in brokerage transactions with us. Our liquidity could be impaired due to circumstances that the Company may be unable to
control, such as a general market disruption or an operational problem that affects the Company, its trading clients or third parties.
Furthermore, the Company's ability to sell assets may be impaired if other market participants are seeking to sell similar assets at
the same time.
The Company primarily depends on its subsidiaries to fund its operations. Cowen and Company, ATM Execution, CFP and
Westminster are subject to the net capital requirements of the SEC and various self-regulatory organizations of which they are
members. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate
that a significant part of its assets be kept in relatively liquid form. Cowen International Ltd, and Cowen Execution Ltd. are also
subject to capital requirements in the U.K. by the FCA. Any failure to comply with these capital requirements could impair the
Company's ability to conduct its investment banking businesses.
We are a holding company and rely upon our subsidiaries for cash flow to make payments of principal and interest on our
outstanding indebtedness.
We are a holding company with no business operations or assets other than the capital stock of our direct and indirect
subsidiaries. Consequently, we are dependent on dividends, distributions, loans and other payments from these subsidiaries to
make payments of principal and interest on all of our indebtedness including our senior notes due 2024 (the "2024 Notes") and
our senior notes due 2033 (the "2033 Notes") and together with the 2024 Notes, (the "Notes") and under our term loan B (“Term
Loan”) under our Credit Agreement. The ability of our subsidiaries to pay dividends and make other payments to us will depend
on their cash flows and earnings, which, in turn, will be affected by all of the factors discussed in this annual report. The ability of
our direct and indirect subsidiaries to pay dividends and make distributions to us may be restricted by, among other things,
applicable laws and regulations and by the terms of any debt agreements or other agreements into which they enter. If we are
unable to obtain funds from our direct and indirect subsidiaries as a result of restrictions under their debt or other agreements,
applicable laws and regulations or otherwise, we may not be able to pay cash interest or principal on the Notes or Term Loan
when due.
Servicing our debt and funding our necessary capital expenditures requires a significant amount of cash, and we may not have
sufficient cash flow from our business to pay our substantial debt or to fund our necessary capital expenditures.
Our ability to make scheduled payments of the principal and to pay interest on or to refinance our indebtedness, including
the Notes and Term Loan depends on our future performance, which is subject to economic, financial, competitive and other
factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service
our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one
or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous
or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such
time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in
a default on our debt obligations.
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Furthermore, to the extent that businesses are unable to generate cash flows sufficient to fund necessary capital expenditures
during the COVID-19 pandemic, we may be required to seek additional capital through issuances of debt or equity securities;
however, we may be unable to complete any such transactions on favorable terms to us, or at all.
Despite our current consolidated debt levels, we may incur substantially more debt or take other actions which would intensify
the risks discussed above.
We may be able to incur substantially more debt in the future, including secured debt. Although the Notes and the Credit
Agreement contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and
exceptions, including with respect to our ability to incur additional senior secured debt, securing existing or future debt or
recapitalizing our debt. The additional debt we may incur in compliance with these restrictions could be substantial.
Additionally, we have the option to raise incremental term loans or increase commitments under the Credit Agreement by certain
amounts pursuant to the terms thereof. Any such increases would be secured debt. These actions that could diminish our ability
to make payments on the Term Loan or the Notes, or to make repayments of any revolving borrowings under our Credit
Agreement.
The terms of the credit agreement governing our revolving credit facility and term loan may restrict our current and future
operations, particularly our ability to respond to changes or to take certain actions.
We are party to a credit agreement (the "Credit Agreement") pursuant to which the lenders party thereto made available to
us an initial term loan B in an aggregate principal amount of $300 million (the “Initial Term Loan”), an incremental term loan B
in an aggregate principal amount of $150 million, fungible with the Initial Term Loan (the “Incremental Term Loan” and, together
with the Initial Term Loan, the “Term Loan”) and a revolving credit facility with aggregate commitments of $25 million (with a
$5 million sub-limit for the issuance of letters of credit) . As of December 31, 2021, the revolving credit facility was unfunded
and $450 million was drawn under the Term Loan. The terms of the Credit Agreement contain a number of restrictive covenants
that impose significant operating and financial restrictions on us and our restricted subsidiaries and may limit our ability to engage
in actions that may be in our long-term best interest. The restrictive covenants include (subject to customary exceptions,
thresholds, qualifications and “baskets”) restrictions on our ability to:
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incur additional indebtedness and guarantee indebtedness;
•
pay dividends or make other distributions or repurchase or redeem capital stock;
•
prepay, redeem or repurchase certain indebtedness;
•
issue certain preferred stock or similar equity securities;
•
make loans and investments;
•
dispose of assets;
•
incur liens;
•
enter into transactions with affiliates;
•
alter the businesses we conduct;
•
enter into agreements restricting our subsidiaries’ ability to pay dividends;
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engage in sale and leaseback transactions; and
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consolidate, merge or sell all or substantially all of our assets.
The restrictive covenants in the Credit Agreement also require us to comply with a financial maintenance covenant,
consisting of a maximum total net leverage ratio of no greater than 3.35 to 1.00, measured as of the last day of each fiscal quarter
on which outstanding borrowings under the revolving credit facility exceed 35.0% of the commitments thereunder (excluding
certain letters of credit).
In addition, our obligations under the Credit Agreement are guaranteed by certain of our wholly-owned domestic
subsidiaries (excluding our broker-dealer subsidiaries) (the “Guarantors”) and secured by substantially all of our and our
Guarantors’ assets, subject in each case to certain customary exceptions.
A breach of the covenants or restrictions under the Credit Agreement could result in an event of default. An event of default
would allow the lenders to accelerate the indebtedness under the Credit Agreement, and could result in the acceleration of any
other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, an event of default would permit
the lenders under our revolving credit facility to terminate all commitments to extend further credit under that facility.
Furthermore, if we were unable to repay the amounts due and payable under our Credit Agreement, those lenders could proceed
against the collateral granted them to secure that indebtedness. In the event our lenders accelerate the repayment of our
borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we
may be:
•
limited in how we conduct our business;
•
unable to raise additional debt or equity financing to operate during general economic or business downturns; and
•
unable to compete effectively or to take advantage of new business opportunities.
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In addition, our Term Loan and new revolving credit facility have a variable rate of interest, which increases our exposure to
interest rate fluctuations, to the extent we elect not to hedge such exposures.
Any substantial and sustained downturn in our operations due to the COVID-19 pandemic or other factors may cause us to be
in breach of our debt covenants which would limit our ability to incur additional indebtedness.
The instruments governing our existing indebtedness, including the Credit Agreement, require us to comply with certain
restrictive covenants and any substantial and sustained downturn in our operations due to the COVID-19 pandemic or other
factors may cause us to be in breach of such covenants. If we breach these covenants our ability to incur additional indebtedness
would be limited. In addition, to the extent we borrow under our $25 million revolving credit facility a breach of the maintenance
covenants under that facility could constitute an event of default and cause our outstanding indebtedness under the revolving
credit facility to be declared immediately due and payable. If applicable, such acceleration of our outstanding indebtedness could
cause our secured lenders to foreclose against the assets securing their borrowings and we could be forced into bankruptcy or
liquidation. Any inability to obtain additional liquidity as and when needed, or to maintain compliance with the instruments
governing our indebtedness, would have a material adverse effect on our financial condition and results of operations.
In addition, the current uncertain condition of the capital markets and their actual or perceived effects on our business,
financial condition and results of operations, along with the current unfavorable economic environment in the United States and
much of the world resulting from the COVID-19 pandemic, may increase the likelihood that one or more of the major
independent credit agencies would downgrade our credit ratings, which could have a negative effect on our access to capital and
the cost of any future debt financing. In addition, the terms of future debt agreements could include more restrictive covenants or
require incremental collateral, which may further restrict our business operations.
We will be required to use a significant amount of cash to redeem our Series A Cumulative Perpetual Convertible Preferred
Stock, which could adversely affect our liquidity position and could make it more difficult for us to elect to redeem these
securities.
We have irrevocably elected to cash settle $1,000 of our obligation in respect of the redemption of any share of our 5.625%
Series A Cumulative Perpetual Convertible Preferred Stock. As a result, the redemption of the Series A Cumulative Perpetual
Convertible Preferred Stock would require us to use a significant amount of cash, which could adversely affect our liquidity
position and could make it more difficult for us to elect to redeem these securities.
Litigation and Regulatory Risk
The Company's subsidiaries may become subject to additional regulations which could increase the costs and burdens of
compliance or impose additional restrictions which could have a material adverse effect on the Company's businesses and the
performance of the Company's investment funds.
Market disruptions like those experienced in 2008 have led to an increase in governmental as well as regulatory scrutiny
from a variety of regulators, including the SEC, CFTC, FINRA, NFA, U.S. Treasury, the NYSE and state attorneys general.
Penalties and fines sought by regulatory authorities have increased substantially over the last several years. In light of current
conditions in the global financial markets and the global economy, regulators have increased their focus on the regulation of the
financial services industry. The Company may be adversely affected by changes in the interpretation or enforcement of existing
laws and rules by these governmental authorities and self-regulatory organizations. The Company also may be adversely affected
as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory
authorities or self-regulatory organizations that supervise the financial markets. The Company could be fined, prohibited from
engaging in some of its business activities or subjected to limitations or conditions on its business activities. In addition, the
Company could incur significant expense associated with compliance with any such legislation or regulations or the regulatory
and enforcement environment generally. Substantial legal liability or significant regulatory action against the Company could
have a material adverse effect on the financial condition and results of operations of the Company or cause significant reputational
harm to the Company, which could seriously affect its business prospects.
The activities of certain of the Company's subsidiaries and affiliates are regulated primarily within the U.S. by the SEC,
FINRA, the NFA, the CFTC and other self-regulatory organizations, as well as various state agencies, and are also subject to
regulation by other agencies in the various jurisdictions in which they operate and are offered, including the FCA, the European
Securities and Markets Authority, or ESMA, and the SFC of Hong Kong. Certain legislation proposing greater regulation of the
industry is regularly considered by the U.S. Congress - as well as by the governing bodies of non-U.S. jurisdictions - and from
time to time adopted as in the case of the Dodd-Frank Act in the U.S. and MiFID II in the EU.
The investment advisers responsible for the Company's investment management business are all registered as investment
advisers with the SEC or rely upon the registration of an affiliated adviser. Certain investment advisors and/or the investment
funds they advise are also subject to regulation by various regulatory authorities outside the U.S., including the U.K. FCA and the
ESMA and may indirectly be subject to MiFID II regulations. Moreover, certain non-U.S. regulatory bodies have imposed
25
reporting requirements on short selling, which have impacted certain of the investment strategies implemented on behalf of the
investment funds it manages, and continued restrictions on or further regulations of short sales could also negatively impact their
performance.
These and other regulators in these jurisdictions have broad regulatory powers dealing with all aspects of financial services
including, among other things, the authority to make inquiries of companies regarding compliance with applicable regulations, to
grant permits and to regulate marketing and sales practices and the maintenance of adequate financial resources as well as
significant reporting obligations to regulatory authorities. Under the EU Alternative Investment Fund Managers Directive, the
Company will only be permitted to actively market its investment funds in the EU if certain disclosure and reporting obligations
are met, and certain cooperation arrangements with the domicile of the investment vehicle are in place. As such, the Company
may need to modify its strategies or operations, face increased constraints on its investment management business or incur
additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment. It is difficult to
predict the impact of such legislative initiatives on the Company and the markets in which it operates and/or invests.
It is difficult to predict what other changes may be instituted in the future in the regulation of the Company or the markets in
which they invest, or the counterparties with which it does business, in addition to those changes already proposed or adopted in
the U.S. or other countries. Any such regulation could have a material adverse effect on the profit potential of the Company's
operations.
Financial services firms are subject to numerous perceived or actual conflicts of interest, which have drawn and which we
expect will continue to draw scrutiny from the SEC, other federal and state regulators, and self-regulatory organizations. For
example, the research areas of investment banks have been and remain the subject of heightened regulatory scrutiny, which has
led to increased restrictions on the interaction between equity research analysts and investment banking personnel at securities
firms. Regulations have also been focusing on potential conflicts of interest or issues relating to impermissible disclosure of
material nonpublic information. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could
be damaged if it fails to do so. Such policies and procedures to address or limit actual or perceived conflicts may also result in
increased costs, additional operational personnel and increased regulatory risk. Failure to adhere to these policies and procedures
may result in regulatory sanctions or client litigation.
We are also subject to laws and regulations, such as the GDPR, the CCPA and the GLBA, relating to the privacy of the
information of clients, employees or others, and any failure to comply with these laws and regulations could expose us to liability
and/or reputational damage. As new privacy-related laws and regulations are implemented and as the interpretation and
enforcement of existing requirements evolves, the time and resources needed for us to comply with such laws and regulations, as
well as our potential liability for non-compliance and reporting obligations in the case of data breaches, may significantly
increase.
The Company is subject to third party litigation risk and regulatory risk which could result in significant liabilities and
reputational harm which, in turn, could materially adversely affect its business, results of operations and financial condition.
The Company depends to a large extent on its reputation for integrity and high-caliber professional services to attract and
retain clients. As a result, if a client is not satisfied with the Company's services, it may be relatively more damaging to the
Company than to other businesses. Moreover, the Company's role as advisor to clients on underwriting or merger and acquisition
transactions involves complex analysis and the exercise of professional judgment, including rendering "fairness opinions" in
connection with mergers and other transactions. Such activities may subject the Company to the risk of significant legal liabilities,
not covered by insurance, to clients and aggrieved third parties, including stockholders of clients who could commence litigation
against the Company. Moreover, many of the clients within the Company’s sectors tend to have higher risk profiles than more
established companies, particularly healthcare and cannabis companies. Cowen currently is, and may in the future be, named as a
defendant in securities-class action lawsuits alleging violations of the securities laws. Although the Company's investment
banking engagements typically include broad indemnities from its clients and provisions to limit exposure to legal claims relating
to such services, these provisions may not protect the Company, may not be enforceable, or may be with foreign companies
requiring enforcement in foreign jurisdictions which may raise the costs and decrease the likelihood of enforcement. As a result,
the Company may incur significant legal and other expenses in defending against litigation and may be required to pay substantial
damages for settlements and/or adverse judgments. In addition, Cowen Prime Advisors, a registered investment advisor, provides
advice to retail investors and retains discretion over some retail investment accounts. The Company could be exposed to potential
litigation and liability if any of these clients are not satisfied with the investment advisory services being provided. Substantial
legal liability or significant regulatory action against the Company could have a material adverse effect on our results of
operations or cause significant reputational harm, which could seriously harm our business and prospects.
In general, the Company is exposed to risk of litigation by investors in its investment management business if the
management of any of its investment funds is alleged to have been grossly negligent or fraudulent. Investors or beneficial owners
of investment funds could sue to recover amounts lost due to any alleged misconduct, up to the entire amount of the loss. In
26
addition, the Company faces the risk of litigation from investors and beneficial owners of any of its investment funds if applicable
restrictions are violated. In addition, the Company is exposed to risks of litigation or investigation relating to transactions that
presented conflicts of interest that were not properly addressed. In the majority of such actions the Company would be obligated
to bear legal, settlement and other costs, which may be in excess of any available insurance coverage. In addition, although the
Company is contractually entitled to indemnification from its investment funds, our rights to indemnification may be challenged.
If the Company is required to incur all or a portion of the costs arising out of litigation or investigations as a result of inadequate
insurance proceeds, if any, or is not wholly indemnified, our business, results of operations and financial condition could be
materially adversely affected. In its investment management business, the Company is exposed to the risk of litigation if an
investment fund suffers catastrophic losses due to the failure of a particular investment strategy or due to the trading activity of an
employee who has violated market rules or regulations. Any litigation arising in such circumstances is likely to be protracted,
expensive and surrounded by circumstances which are materially damaging to the Company's reputation and businesses.
The potential for conflicts of interest within the Company, and a failure to appropriately identify and deal with conflicts of
interest could adversely affect our businesses.
Due to the combination of our investment management and investment banking businesses, we face an increased potential
for conflicts of interest, including situations where our services to a particular client or investor or our own interests in our
investments conflict with the interests of another client. Such conflicts may also arise if our investment banking businesses have
access to material non-public information that may not be shared with our investment management business or vice versa.
Additionally, our regulators have the ability to scrutinize our activities for potential conflicts of interest, including through
detailed examinations of specific transactions.
Appropriately identifying and dealing with conflicts of interest is complex and difficult, and the willingness of clients to
enter into transactions or engagements in which such a conflict might arise may be affected if we fail to identify and appropriately
address potential conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or enforcement
actions.
Increased regulatory focus could result in regulation that may limit the manner in which the Company and its investment
management business invest, materially impacting the Company's business.
The Company's investment management business may be adversely affected if new or revised legislation or regulations are
enacted, or by changes in the interpretation or enforcement of existing rules and regulations imposed by the SEC, other U.S. or
foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets and their
participants. Such changes could place limitations on the type of investor that can invest in the Company's investment funds or on
the conditions under which such investors may invest. Further, such changes may limit the scope of investing activities that may
be undertaken by the Company's investment funds. It is impossible to determine the extent of the impact of any new or recently
enacted laws or any other regulations or initiatives that may be proposed, or whether any proposed regulations or initiatives will
become law. Compliance with any new laws or regulations could be difficult and expensive and affect the manner in which the
Company's investment management business conducts itself, which may adversely impact its results of operations, financial
condition and prospects.
Additionally, as a result of highly publicized financial scandals, investors, regulators and the general public have exhibited
concerns over the integrity of both the U.S. financial markets and the regulatory oversight of these markets. As a result, the
business environment in which Company's investment management business operates is subject to heightened regulation. With
respect to the Company's investment funds, in recent years, there has been debate in both U.S. and foreign governments about
new rules or regulations, including increased oversight or taxation, in addition to the recently enacted legislation described above.
As calls for additional regulation have increased, there may be a related increase in regulatory investigations of the trading and
other investment activities of investment funds, including the Company's investment funds. Such investigations may impose
additional expenses on the Company, may require the attention of senior management and may result in fines if any of the
Company's investment funds are deemed to have violated any regulations.
The U.K. exit from the EU could adversely impact our business, results of operations and financial condition.
The U.K. left the EU on January 31, 2020, with a transition period until December 31, 2020 during which time the U.K.
followed EU rules and a U.K.-EU trade agreement was negotiated governing EU and U.K. relations from January 1, 2021
resulting in a Trade and Cooperation Agreement together with a Political Declaration covering a number of areas including
financial services. The Trade and Cooperation Agreement does not include substantive provisions for financial services, in
particular it does not allow U.K. investment firms to provide services into the EU under the Passporting regime.
We conduct business in Europe primarily through our U.K. subsidiaries. Under the Trade and Cooperation Agreement, our
U.K. subsidiaries are currently not able to rely on "Passporting" that allows immediate access to the single EU market. If the U.K.
27
and EU do not agree to a Passporting regime, we may need to establish one or more new regulated subsidiaries in the EU in order
to provide our trading platform and certain post-trade services to clients in the EU.
In general, the potential impacts related to Brexit or the terms of the new economic and security relationship between the
U.K. and the EU on the movement of goods, services, people and capital between the U.K. and the EU, customer behavior,
economic conditions, interest rates, currency exchange rates, availability of capital or other matters are unclear and could
adversely affect our businesses, including our revenues from our trading activities, particularly in Europe, and our results of
operations and financial condition.
If the Company were deemed an investment company under the U.S. Investment Company Act, applicable restrictions could
make it impractical for the Company to continue its respective businesses as contemplated and could have a material adverse
effect on the Company's businesses and prospects.
We are primarily engaged in a non-investment company business and believe the nature of our assets and the sources of our
income exclude us from the definition of an investment company under the Investment Company Act.
The Investment Company Act and the rules thereunder contain detailed requirements for the organization and operation of
investment companies. Among other things, the Investment Company Act and the rules thereunder limit transactions with
affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose
certain governance requirements. The Company intends to conduct its operations so that the Company will not be deemed to be an
investment company under the Investment Company Act. If anything were to happen which would cause the Company to be
deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company
Act, including limitations on its capital structure, ability to transact business with affiliates (including subsidiaries) and ability to
compensate key employees, could make it impractical for the Company to continue its business as currently conducted, impair the
agreements and arrangements between and among it, its subsidiaries and its senior personnel, or any combination thereof, and
materially adversely affect its business, financial condition and results of operations. Accordingly, the Company may be required
to limit the amount of investments that it makes as a principal or otherwise conduct its business in a manner that does not subject
the Company to the registration and other requirements of the Investment Company Act.
Other Risks to Our Stockholders
We could change our existing dividend policy in the future and there can be no assurance that we will continue to declare cash
dividends.
We began paying quarterly cash dividends to holders of record of our Class A common stock in March 2020. Although we
expect to continue to pay dividends to our stockholders in accordance with our dividend policy, as described under the heading
"Dividend Policy", we have no obligation to pay any dividend, and our dividend policy may change at any time without notice.
The declaration and payment of dividends on our Class A common stock is at the discretion of our Board of Directors in
accordance with applicable law after taking into account various factors, including general economic and business conditions; our
financial condition and operating results; our available cash and current and anticipated cash needs; capital requirements;
contractual restrictions (including under agreements related to indebtedness to which we are a party), legal, tax and regulatory
restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us; and such other
factors as our board of directors may deem relevant. For example, in the event that there is deterioration in our financial
performance and/or our liquidity position, a downturn in global economic conditions or disruptions in the credit markets and our
ability to obtain financing, our Board of Directors could decide to suspend dividend payments in the future. As a Delaware
corporation, we are required to meet certain surplus thresholds for our Board of Directors to declare a dividend in accordance with
the Delaware General Corporation Law. As a result, we may not pay dividends at all in the future.
The terms of our Series A Convertible Preferred Stock contains certain restrictions on our operations.
The certificate of designations governing our Series A Convertible Preferred Stock contains certain restrictions on our and
our subsidiaries' ability to, among other things, pay dividends on, redeem or repurchase our Class A common stock and, under
certain circumstances, our Series A Convertible Preferred Stock, and to issue additional preferred stock. Additionally, if dividends
on our Series A Convertible Preferred Stock are in arrears and unpaid for at least six or more quarterly periods, the holders (voting
as a single class) of our outstanding Series A Convertible Preferred Stock will be entitled to elect two additional directors to our
Board of Directors until paid in full.
The Company's failure to maintain effective internal control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on the Company's financial condition, results of operations and
business and the price of our Class A common stock.
The Sarbanes-Oxley Act and the related rules require our management to conduct an annual assessment of the effectiveness
of our internal control over financial reporting and require a report by our independent registered public accounting firm
addressing our internal control over financial reporting. To comply with Section 404 of the Sarbanes-Oxley Act, we are required
28
to document formal policies, processes and practices related to financial reporting that are necessary to comply with Section 404.
Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of
their potential impact and linkage of those risks to specific areas and activities within our organization.
If we fail for any reason to comply with the requirements of Section 404 in a timely manner, our independent registered
public accounting firm may, at that time, issue an adverse report regarding the effectiveness of our internal control over financial
reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis
and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock
exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us
and the reliability of our financial statements. Any such event could adversely affect our financial condition, results of operations
and business, and result in a decline in the price of our Class A common stock.
Certain provisions of the Company's amended and restated certificate of incorporation and bylaws and Delaware law may
have the effect of delaying or preventing an acquisition by a third party.
The Company's amended and restated certificate of incorporation and bylaws contain several provisions that may make it
more difficult for a third party to acquire control of the Company, even if such acquisition would be financially beneficial to the
Company's stockholders. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or
other transaction that might otherwise result in the Company's stockholders receiving a premium over the then-current trading
price of our common stock. For example, the Company's amended and restated certificate of incorporation authorizes its board of
directors to issue up to 10,000,000 shares of "blank check" preferred stock. Without stockholder approval, the board of directors
has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred
stockholders could make it more difficult for a third party to acquire the Company. In addition, the Company's amended and
restated bylaws provide for an advance notice procedure with regard to the nomination of candidates for election as directors and
with regard to business to be brought before a meeting of stockholders. The Company is also subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyone becomes an "interested
stockholder," the Company may not enter into a "business combination" with that person for three years without special approval,
which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For the
purposes of Section 203, "interested stockholder" means, generally, someone owning 15% or more of the Company's outstanding
voting stock or an affiliate of the Company that owned 15% or more of our outstanding voting stock during the past three years,
subject to certain exceptions as described in Section 203.
If securities analysts stop publishing research or reports about us or our business or if they downgrade our common stock, the
market price of our common stock and, consequently, the trading price of our other securities could decline.
The market for our common stock relies in part on the research and reports that industry or financial analysts publish about
us or our business. We do not control these analysts. If any analyst who covers us downgrades our stock or lowers its future stock
price targets or estimates of our operating results, our stock price could decline rapidly. Furthermore, if any analyst ceases to
cover us, we could lose visibility in the market, which in turn could cause the market price of our securities to decline.
Future sales of our common stock in the public market could adversely impact the trading price of our securities.
In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares
of our common stock are reserved for issuance upon vesting of restricted stock units and performance-linked restricted stock units
and upon the conversion of the Convertible Preferred. We cannot predict the size of future issuances or the effect, if any, that they
may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock, or the
perception that such issuances and sales may occur, could adversely affect the trading price of our securities and impair our ability
to raise capital through the sale of additional equity securities.
The change in accounting guidance for our outstanding Series A Cumulative Perpetual Convertible Preferred Stock may
have an adverse effect on our diluted earnings per share in future periods.
Accounting Standards Codification (the "Accounting Standards") 470-20, simplifies the settlement assessment that entities
are required to perform to determine whether a contract qualifies for equity classification. The guidance requires entities to use the
if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential
share settlement (if the effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-
classified share-based payment awards. The guidance requires new disclosures about events that occur during the reporting period
and cause conversion contingencies to be met and about the fair value of a public business entity’s convertible debt at the
instrument level. For public business entities, the guidance is effective for reporting periods beginning after December 15, 2021.
The Company adopted the guidance as of January 1, 2022 under the modified retrospective method. With the adoption of this
guidance, the Company is required to include the portion of the Series A Convertible Preferred Stock that can be settled in Class
A common stock (the amount in excess of $1,000 per share of the Series A Convertible Preferred Stock) in the diluted earnings
29
per share calculation. This adoption as of January 1, 2022 results in the inclusion of approximately 1,565,000 additional shares in
the denominator of diluted earnings per share.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal offices, all of which are leased, are located in New York City, Boston, San Francisco, Stamford and the
United Kingdom. Our other offices, all of which are leased, are located throughout the United States, Europe and Asia. Our
corporate headquarters are located in New York, New York comprise approximately 150,000 square feet of leased space pursuant
to a lease agreement through 2029. Our additional New York locations are comprised of approximately 19,000 square feet
pursuant to lease agreements through 2031. We lease approximately 19,100 square feet of space in Boston pursuant to lease
agreements expiring through 2023. In San Francisco, we lease approximately 34,700 square feet of space, pursuant to lease
agreements expiring through 2025. In Stamford, we lease approximately 43,000 square feet of space, pursuant to lease agreements
expiring through 2030. Our United Kingdom offices are subject to lease agreements expiring through 2034.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its affiliates, subsidiaries and current and former officers, directors and
employees (the "Company and Related Parties") are named as defendants in, or as parties to, various legal actions and
proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of
securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual
or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or
for injunctive relief.
In the ordinary course of business, the Company and Related Parties are also subject to governmental and regulatory
examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments,
settlements, fines, penalties, injunctions or other relief. Certain of our affiliates and subsidiaries are registered broker-dealers,
futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to regulation by
various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and informal
inquiries by these regulators, we receive requests and orders seeking documents and other information in connection with various
aspects of our regulated activities.
Due to the global scope of our operations, and presence in countries around the world, the Company and Related Parties
may be subject to litigation, governmental and regulatory examinations, information gathering requests, investigations and
proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may differ substantially,
and present substantially different risks, from those to which the Company and Related Parties are subject in the United States.
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best
interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount
of damages or scope of any penalties or other relief sought as appropriate in each pending matter.
In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is
probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency
if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the
conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for
those matters, for which an estimate can be made. Neither a reserve nor disclosure is required for losses that are deemed remote.
The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is
probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued
expenses and other liabilities in the accompanying consolidated statements of financial condition. Estimates, by their nature, are
based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and
nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and
its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other
defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a
matter-by-matter basis, to account for developments in such matters. The Company accrues legal fees as incurred.
Item 4. Mine Safety Disclosures
Not Applicable.
30
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Stock Price Information and Stockholders
Our Class A common stock is listed and trades on the NASDAQ Global Market under the symbol "COWN." As of
February 28, 2022, there were approximately 38 holders of record of our Class A common stock. This number does not include
stockholders for whom shares were held in "nominee" or "street" name.
Dividend Policy
Though we currently expect that cash dividends paid by us during our most recently completed fiscal year will continue to
be paid in the future, the declaration and payment of any future dividends will be at the sole discretion of our board of directors.
Our board of directors will take into account: general economic and business conditions; our financial condition and operating
results; our available cash and current and anticipated cash needs; capital requirements; contractual restrictions (including under
agreements related to indebtedness to which we are a party), legal, tax and regulatory restrictions and implications on the payment
of dividends by us to our stockholders or by our subsidiaries to us; and such other factors as our board of directors may deem
relevant.
We credit dividend equivalents on all unvested Restricted Stock Units and Performance Share Awards concurrently with the
payment of dividends to the holders of Class A common stock. The dividend equivalents have the same vesting and delivery
terms as the underlying award agreements relating to the Restricted Stock Units and Performance Share Awards.
Issuer Purchases of Equity Securities: Sales of Unregistered Securities
As of December 31, 2021, the Company's Board of Directors has approved a share repurchase program that authorizes the
Company to purchase up to $416.6 million of Cowen Class A common stock from time to time through a variety of methods,
including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. The
specific timing and amount of repurchases will vary depending on various factors, including, among others, market conditions and
competing needs for the use of our capital. We may elect to conduct future share repurchases through open market purchases,
private transactions or automatic share repurchase programs under SEC Rule 10b5-1. During the year ended December 31, 2021,
through the share repurchase program, the Company repurchased 4,371,291 shares of Cowen Class A common stock at an
average price of $36.56 per share.
The table below sets forth the information with respect to purchases made by or on the behalf of the Company or any
"affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act, as amended), of our Class A common stock
during the year ended December 31, 2021.
Month 1 (January 1, 2021 – January 31, 2021)
Common stock repurchases(1)
—
$
—
—
$
21,128,277
Employee transactions(2)
—
$
—
—
—
Other (3)
1,155
$
25.33
—
—
Total
1,155
$
25.33
—
Month 2 (February 1, 2021 – February 28, 2021)
Common stock repurchases(1)
171,418
$
30.32
171,418
$
15,931,607
Employee transactions(2)
39
$
26.83
—
—
Other (3)
—
$
—
—
—
Total
171,457
$
30.31
171,418.00
Month 3 (March 1, 2021 – March 31, 2021)
Common stock repurchases(1)
434,285
$
35.53
434,285
$
25,000,000
Employee transactions(2)
148,713
$
42.00
—
—
Other (3)
—
$
—
—
—
Total
582,998
$
37.18
434,285
Month 4 (April 1, 2021 – April 30, 2021)
Common stock repurchases(1)
—
$
—
—
$
50,000,000
Employee transactions(2)
—
$
—
—
—
Other (3)
—
$
—
—
—
Total
—
$
—
—
Month 5 (May 1, 2021 – May 31, 2021)
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares
that May Yet Be Purchased Under
the Plans or Programs
31
Common stock repurchases(1)
957,541
$
39.45
957,541
$
12,222,667
Employee transactions(2)
217,364
$
41.27
—
—
Other (3)
—
$
—
—
—
Total
1,174,905
$
39.79
957,541.00
Month 6 (June 1, 2021 – June 30, 2021)
Common stock repurchases(1)
317,708
$
38.19
317,708
$
50,000,000
Employee transactions(2)
148,946
$
40.39
—
—
Other (3)
—
$
—
—
Total
466,654
$
38.89
317,708
Month 7 (July 1, 2021 – July 31, 2021)
Common stock repurchases(1)
27,158
$
37.35
27,158
$
48,985,776
Employee transactions(2)
—
$
—
—
—
Other (3)
—
$
—
—
—
Total
27,158
$
37.35
27,158
Month 8 (August 1, 2021 – August 31, 2021)
Common stock repurchases(1)
369,845
$
39.41
369,845
$
34,409,988
Employee transactions(2)
—
$
—
—
—
Other (3)
—
$
—
—
—
Total
369,845
$
39.41
369,845
Month 9 (September 1, 2021 – September 30, 2021)
Common stock repurchases(1)
1,058,860
$
34.77
1,058,860
$
43,251,450
Employee transactions(2)
132,985
$
36.44
—
—
Other (3)
—
$
—
—
—
Total
1,191,845
$
34.95
1,058,860
Month 10 (October 1, 2021 – October 31, 2021)
Common stock repurchases(1)
447,575
$
35.56
447,575
$
27,336,659
Employee transactions(2)
—
$
—
—
—
Other (3)
—
$
—
—
—
Total
447,575
$
35.56
447,575
Month 11 (November 1, 2021 – November 30, 2021)
Common stock repurchases(1)
55,000
$
36.34
55,000
$
25,338,091
Employee transactions(2)
700
$
34.26
—
—
Total
55,700
$
36.31
55,000
Month 12 (December 1, 2021 – December 31, 2021)
Common stock repurchases(1)
531,901
$
35.65
531,901
$
6,374,381
Employee transactions(2)
406,873
$
35.12
—
—
Other (3)
—
$
—
—
—
Total
938,774
$
35.42
531,901
Total (January 1, 2021 – December 31, 2021)
Common stock repurchases(1)
4,371,291
$
36.56
4,371,291
$
6,374,381
Employee transactions(2)
1,055,620
$
38.26
—
—
Other (3)
1,855
$
25.33
—
—
Total
5,428,766
$
36.89
4,371,291
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of Shares
that May Yet Be Purchased Under
the Plans or Programs
(1)
The Company's Board of Directors have authorized the repurchase, subject to market conditions, of up to $416.6 million
of the Company's outstanding Class A common stock.
(2)
Represents shares of common stock withheld in satisfaction of tax withholding obligations upon the vesting of equity
awards or other similar transactions.
(3)
Represents shares of common stock distributed to the Company from an escrow account established to satisfy the
Company's indemnification claims arising under the terms of the purchase agreement entered into in connection with the
Company's acquisition of Convergex Group, LLC.
Item 6. [Reserved]
32
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion contains forward-looking statements, which involve numerous risks and uncertainties, including, but not
limited to, those described in the sections titled “Risk Factors” in Item 1A of our Annual Report on Form 10-K, many of which
risks are currently elevated by, and may or will continue to be elevated by, the COVID-19 pandemic. This Management's
Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated
financial statements and related notes of Cowen Inc. included elsewhere in this annual Report on Form 10-K. Actual results may
differ materially from those contained in any forward-looking statements.
Overview
Cowen Inc., a Delaware corporation formed in 2009, is a diversified financial services firm that, together with its
consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment banking, research, sales and trading,
prime brokerage, global clearing, securities financing, commission management services and investment management through its
two business segments: the Operating Company ("Op Co") and the Asset Company ("Asset Co").
Operating Company
The Op Co segment consists of four divisions: the Cowen Investment Management ("CIM") division, the Investment
Banking division, the Markets division (which includes sales and trading, prime brokerage, global clearing, securities financing
and commission management services) and the Research division. The Company refers to the Investment Banking division, the
Markets division and the Research division collectively as its investment banking businesses. Op Co's CIM division
includes advisers to investment funds (including private equity structures and privately placed hedge funds), and registered funds.
Op Co's investment banking businesses offer industry focused investment banking for growth-oriented companies including
advisory and global capital markets origination, domain knowledge-driven research, sales and trading platforms for institutional
investors, global clearing, commission management services and also a comprehensive suite of prime brokerage services.
The CIM division is the Company's investment management business, which operates primarily under the Cowen
Investment Management name. CIM offers innovative investment products and solutions across the liquidity spectrum to
institutional and private clients. The predecessor to this business was founded in 1994 and, through one of its subsidiaries, has
been registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act") since 1997. The Company's investment management business offers investors access to a number of strategies to meet their
specific needs including healthcare investing, sustainable investing, healthcare royalties, merger arbitrage and activism. A portion
of the Company’s capital is invested alongside the Company's investment management clients. The Company has also invested
capital in its insurance and reinsurance businesses.
Op Co's investment banking businesses include investment banking, research, sales and trading, prime brokerage, global
clearing and commission management services provided primarily to companies and institutional investor clients. Sectors
covered by Op Co's investment banking business include healthcare, technology, media and telecommunications, consumer,
industrials, tech-enabled and business services, and energy. We provide research and brokerage services to over 6,000 domestic
and international clients seeking to trade securities and other financial instruments, principally in our sectors. The investment
banking businesses also offer a full-service suite of introduced prime brokerage services targeting emerging private fund
managers. Historically, we have focused our investment banking efforts on small to mid-capitalization public companies as well
as private companies. From time to time, the Company invests in private capital raising transactions of its investment banking
clients.
Asset Company
The Asset Co segment consists of the Company's private investments, private real estate investments and other legacy
investment strategies. The focus of Asset Co is to drive future monetization of the invested capital of the segment.
Certain Factors Impacting Our Business
Our Company's businesses and results of operations are impacted by the following factors:
•
Underwriting, private placement and strategic/financial advisory fees. Our revenues from investment banking are
directly linked to the underwriting fees we earn in equity and debt securities offerings in which the Company acts as an
underwriter, private placement fees earned in non-underwritten transactions, sales commissions earned in at-the-market
offerings and success fees earned in connection with advising both buyers and sellers, principally in mergers and
acquisitions. As a result, the future performance of our investment banking business will depend on, among other things,
our ability to secure lead manager and co-manager roles in clients' capital raising transactions as well as our ability to
secure mandates as a client's strategic financial advisor.
•
Liquidity. As a clearing broker-dealer in the U.S., we are subject to cash deposit requirements with clearing
organizations, brokers and banks that may be large in relation to our total liquid assets.
33
•
Equity research fees. Equity research fees are paid to the Company for providing access to equity research. The
Company also permits institutional customers to allocate a portion of their commissions to pay for research products and
other services provided by third parties. Our ability to generate revenues relating to our equity research depends on the
quality of our research and its relevance to our institutional customers and other clients.
•
Principal transactions. Principal transactions revenue includes net trading gains and losses from the Company's market-
making activities and net trading gains and losses on inventory and other Company positions. In certain cases, the
Company provides liquidity to clients buying or selling blocks of shares of listed stocks without previously identifying
the other side of the trade at execution, which subjects the Company to market risk.
•
Commissions. Our commission revenues depend for the most part on our customers' trading volumes and on the notional
value of the non-U.S. securities traded by our customers.
•
Investment performance. Our revenues from incentive income and carried interest allocations are linked to the
performance of the investment funds and accounts that we manage. Performance also affects assets under management
because it influences investors' decisions to invest assets in, or withdraw assets from, the investment funds and accounts
managed by us.
•
Fee and allocation rates. Our management fee revenues are linked to the management fee rates we charge as a
percentage of contributed and invested capital. Our incentive income revenues are linked to the rates we charge as a
percentage of performance-driven asset growth. Our incentive allocations are generally subject to "high-water marks,"
whereby incentive income is generally earned by us only to the extent that the net asset value of an investment fund at
the end of a measurement period exceeds the highest net asset value as of the end of the earlier measurement period for
which we earned incentive income. Our incentive allocations, in some cases, are subject to performance hurdles.
Additionally, our revenues from management fees are directly linked to assets under management. Positive performance
in our legacy funds increases assets under management which results in higher management fees.
•
Investment performance of our own capital. We invest our own capital and the performance of such invested capital
affects our revenues. Investment income in the investment bank business includes gains and losses generated by the
capital the Company invests in private capital raising transactions of its investment banking clients. Our revenues from
investment income are linked to the performance of the underlying investments.
External Factors Impacting Our Business
Our financial performance is highly dependent on the environment in which our businesses operate. We believe a favorable
business environment is characterized by many factors, including a stable geopolitical climate, transparent financial markets, low
inflation, low interest rates, low unemployment, strong business profitability and high business and investor confidence.
Unfavorable or uncertain economic or market conditions can be caused by declines in economic growth, business activity or
investor or business confidence, limitations on the availability (or increases in the cost of) credit and capital, increases in inflation
or interest rates, exchange rate volatility, unfavorable global asset allocation trends, outbreaks of hostilities or other geopolitical
instability, corporate, political or other scandals that reduce investor confidence in the capital markets, global health crisis, such as
the ongoing COVID-19 pandemic, or a combination of these or other factors. Until the COVID-19 pandemic subsides, we could
experience reduced levels in certain of our investment banking activities, reduced revenues from incentive income in our
investment management business and reduced investment income. Our businesses and profitability have been and may continue
to be adversely affected by market conditions in many ways, including the following:
•
Our investment bank business has been, and may continue to be, adversely affected by market conditions. Increased
competition continues to affect our investment banking and capital markets businesses. The same factors also affect
trading volumes in secondary financial markets, which affect our brokerage business. Commission rates, market
volatility, increased competition from larger financial firms and other factors also affect our brokerage revenues and may
cause these revenues to vary from period to period.
•
Our investment management business can be adversely affected by unanticipated levels of requested redemptions. We
experienced significant levels of requested redemptions during the 2008 financial crisis and, while the environment for
investing in investment management products has since improved, it is possible that we could intermittently experience
redemptions above historical levels, regardless of investment fund performance.
•
Our investment bank business focuses primarily on small to mid-capitalization and private companies in specific industry
sectors. These sectors may experience growth or downturns independent of general economic and market conditions, or
may face market conditions that are disproportionately better or worse than those impacting the economy and markets
generally. In addition, increased government regulation has had, and may continue to have, a disproportionate effect on
capital formation by smaller companies. Therefore, our investment bank business could be affected differently than
overall market trends.
34
Our businesses, by their nature, do not produce predictable earnings. Our results in any period can be materially affected by
conditions in global financial markets and economic conditions generally. We are also subject to various legal and regulatory
actions that impact our business and financial results.
Basis of Presentation
The consolidated financial statements of the Company in this Form 10-K are prepared in accordance with Generally
Accepted Accounting Principles in the United States ("US GAAP") as promulgated by the Financial Accounting Standards Board
("FASB") through Accounting Standards Codification (the "Accounting Standards") as the source of authoritative accounting
principles in the preparation of financial statements and include the accounts of the Company, its subsidiaries, and entities in
which the Company has a controlling financial interest or a substantive, controlling general partner interest. All material
intercompany transactions and balances have been eliminated in consolidation. Certain fund entities that are consolidated in the
consolidated financial statements, are not subject to these consolidation provisions with respect to their own investments pursuant
to their specialized accounting.
The Company serves as the managing member/general partner and/or investment manager to affiliated fund entities which it
sponsors and manages. Certain of these funds in which the Company has a substantive, controlling general partner interest are
consolidated with the Company pursuant to US GAAP as described below (the “Consolidated Funds”). Consequently, the
Company's consolidated financial statements reflect the assets, liabilities, income and expenses of these funds on a gross basis.
The ownership interests in these funds which are not owned by the Company are reflected as redeemable and nonredeemable non-
controlling interests in consolidated subsidiaries in the consolidated financial statements appearing elsewhere in this Form 10-K.
The management fees and incentive income earned by the Company from these funds are eliminated in consolidation.
During the first quarter of 2021, the Company changed the presentation of certain income streams on its consolidated
statements of operations by moving the income streams from Other income - net gains (losses) on securities, derivatives and other
investments to Revenues. Additionally, the Company moved proprietary trading gains and losses generated by the Company’s
broker-dealer entities from Brokerage revenue to Investment income (loss) – securities principal transactions, net. See Note 2 in
our accompanying consolidated financial statements.
The Company believes that these presentation changes provide a better representation of the Company’s operating results as
it is used by management to monitor the Company’s financial performance and is consistent with industry practice. The changes
in presentation have no impact on net income and prior period amounts have been recast to reflect such changes in presentation.
Acquisition
On December 16, 2021, the Company, through its indirect wholly owned subsidiary, Cowen PC Acquisition LLC,
completed its previously announced acquisition of Portico Capital Advisors and certain assets and liabilities of its European
operations (“Portico”). Portico was a privately-held mergers and acquisitions advisory firm focused on the software, data, and
analytics sectors.
On February 26, 2021, the Company, through its indirect wholly owned subsidiary, Cowen Malta Holdings Ltd., completed
the acquisition of all of the outstanding equity interests of Axeria Insurance Limited, an insurance company organized under the
laws of Malta whose principal business activity is to provide insurance coverage to third parties. Axeria Insurance Limited was
renamed Cowen Insurance Company Ltd upon acquisition.
Expenses
The Company's expenses consist of compensation and benefits, insurance and reinsurance costs, general, administrative and
other, and Consolidated Funds expenses.
•
Compensation and Benefits. Compensation and benefits is comprised of salaries, benefits, discretionary cash bonuses
and equity-based compensation. Annual incentive compensation is variable, and the amount paid is generally based on a
combination of employees' performance, their contribution to their business segment, and the Company's performance.
Generally, compensation and benefits comprise a significant portion of total expenses, with annual incentive
compensation comprising a significant portion of total compensation and benefits expenses.
•
Insurance and Reinsurance claims, commissions and amortization of deferred acquisition costs. Insurance and
reinsurance-related expenses reflect loss and claim reserves, acquisition costs and other expenses incurred with respect to
our insurance and reinsurance operations.
•
Operating, General and Administrative. General, administrative and other expenses are primarily related to professional
services, occupancy and equipment, business development expenses, communications, expenses associated with our
reinsurance business and other miscellaneous expenses. These expenses may also include certain one-time charges and
non-cash expenses.
35
•
Depreciation and Amortization. Depreciation and amortization is comprised of depreciation expense for tangible assets
and the amortization of intangible assets. The depreciation of assets capitalized under finance leases is included in
depreciation and amortization expenses as well.
•
Consolidated Funds Expenses. The Company's consolidated financial statements reflect the expenses of the
Consolidated Funds and the portion attributable to other investors is allocated to a non-controlling interest.
Income Taxes
The taxable results of the Company’s operations are subject to U.S. federal, state and local taxation as a corporation. The
Company is also subject to foreign taxation on income it generates in certain countries.
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences
between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or
capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in
management’s view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a
number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized for tax
purposes in the foreseeable future. Deferred tax liabilities that cannot be realized in a similar future time period and thus cannot
offset the Company’s deferred tax assets are not taken into account when calculating the Company’s net deferred tax assets.
Temporary Equity
Temporary equity consists of Redeemable 5.625% Series A cumulative perpetual convertible preferred stock ("Series A
Convertible Preferred Stock") and, in years prior to December 31, 2020, redeemable non-controlling interests. The Company has
irrevocably elected to cash settle $1,000 of each conversion of any share of the Series A Convertible Preferred Stock. As the
holders can exercise the conversion option on their shares at any time and require cash payment upon conversion, the Company
has classified the Series A Convertible Preferred Stock preferred stock in temporary equity. Redeemable non-controlling interests
represented the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners
of such entities. Non-controlling interest is redeemable when the holders have redemption features that can be exercised at the
option of the holder currently or contingent upon the occurrence of future events. Therefore their ownership was classified as a
component of temporary equity.
Non-Redeemable Non-Controlling Interests
Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities
attributable to the other owners of such entities. When non-controlling interest holders do not have redemption features that can
be exercised at the option of the holder currently or contingent upon the occurrence of future events, their ownership has been
classified as a component of permanent equity. Ownership which has been classified in permanent equity are non-controlling
interests for which the holder does not have the unilateral right to redeem its ownership interests.
Investment Fund Performance and Assets Under Management
For the year ended December 31, 2021, the Company's activist and merger arbitrage strategies had positive results. The
Company's healthcare royalty strategy is now making allocations from the strategy's fourth fund. Our Healthcare Investments
strategy is now deploying capital from its third fund, having made investments in 29 companies by the end of the year ended
December 31, 2021, with a pipeline of opportunities ahead. Finally, our Sustainable Investments strategy is now deploying
capital, with three investments made as of December 31, 2021, with a pipeline of opportunities ahead. The liquidation of certain
multi-strategy hedge funds advised by the Company also continues.
As of December 31, 2021, the Company had assets under management of $15.8 billion.
Strategy
Healthcare
Investments
Healthcare
Royalties
Activism
Merger Arbitrage
Sustainable
Investments
Other (a)
(dollars in millions)
AUM
$1,154
$3,557
$8,505
$319
$1,381
$834
Team
Private Equity
ü
ü
ü
Hedge Fund
ü
ü
Managed Account
ü
ü
ü
ü
UCITS
ü
Other
ü
(a) Other strategies include legacy funds and other private investment strategies.
36
The Company's Invested Capital
The Company invests a significant portion of its capital base to help drive results and facilitate the growth of the Op Co and
Asset Co business segments. Within Op Co, management allocates capital to three primary investment categories: (i) broker-
dealer capital and related trading strategies; (ii) liquid alternative trading strategies; and (iii) public and private healthcare
strategies. Broker-dealer capital and related trading strategies include capital investments in the Company's broker-dealers as well
as securities finance and special purpose acquisition company trading strategies to grow liquidity and returns within operating
businesses. Much of the Company's public and private healthcare strategies and liquid alternative trading strategies portfolios are
invested alongside the Company's investment management clients. The Company's liquid alternative trading strategies include
merger arbitrage and activist fund strategies. In addition, from time to time, the Company makes investments in private capital
raising transactions of its investment banking clients.
The Company allocates capital to Asset Co's private investments. Asset Co's private investments include the Company's
investment in Italian wireless broadband provider Linkem, private equity funds Formation8 and Eclipse and legacy real estate
investments.
As of December 31, 2021, the Company's invested capital amounted to a net value of $856.0 million (supporting a long
market value of $693.5 million), representing approximately 84% of Cowen's stockholders' equity presented in accordance with
US GAAP. The table below presents the Company's invested equity capital by strategy and as a percentage of Cowen's
stockholders' equity as of December 31, 2021. The total net values presented in the table below do not tie to Cowen's consolidated
statement of financial condition as of December 31, 2021 because they represent only some of the line items in the accompanying
consolidated statement of financial condition.
Strategy
Net Value
% of Stockholders' Equity
(dollars in millions)
Op Co
Broker-dealer capital and related trading
$
600.8
59%
Public and Private Healthcare
37.1
4%
Liquid Alternative Trading
83.8
8%
Other
13.1
1%
Asset Co
Private Investments
121.2
12%
Total
856.0
84%
Cowen Inc. Stockholders' Equity
$
1,015.9
The allocations shown in the table above will change over time.
Results of Operations
To provide comparative information of the Company's operating results for the periods presented, a discussion of Economic
Income (Loss) (which is a non-GAAP measure) of our Op Co and Asset Co segments follows the discussion of our total
consolidated US GAAP results.
37
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Consolidated Statements of Operations
Year Ended December 31,
Period to Period
2021
2020
$ Change
% Change
(dollars in thousands)
Revenues
Investment banking
$
1,067,162
$
769,486
$
297,676
39 %
Brokerage
585,162
524,361
60,801
12 %
Investment income (loss)
Securities principal transactions, net
122,110
124,667
(2,557)
(2) %
Portfolio fund principal transactions, net
338
20,434
(20,096)
(98) %
Carried interest allocations
5,059
59,250
(54,191)
(91) %
Total investment income (loss)
127,507
204,351
(76,844)
(38) %
Management fees
72,287
47,515
24,772
52 %
Incentive income
2,732
592
2,140
NM
Interest and dividends
219,292
187,459
31,833
17 %
Insurance and reinsurance premiums
39,631
30,147
9,484
31 %
Other revenues, net
5,211
10,503
(5,292)
(50) %
Consolidated Funds revenues
(6,185)
(18,488)
12,303
(67) %
Total revenues
2,112,799
1,755,926
356,873
20 %
Interest and dividends expense
211,387
187,725
23,662
13 %
Total net revenues
1,901,412
1,568,201
333,211
21 %
Expenses
Employee compensation and benefits
1,046,371
860,531
185,840
22 %
Insurance and reinsurance claims, commissions and amortization of
deferred acquisition costs
33,938
33,905
33
— %
Operating, general, administrative and other expenses
430,250
369,840
60,410
16 %
Depreciation and amortization expense
19,004
22,677
(3,673)
(16) %
Consolidated Funds expenses
630
5,409
(4,779)
(88) %
Total expenses
1,530,193
1,292,362
237,831
18 %
Other income (loss)
Net gains (losses) on other investments
35,494
18,879
16,615
88 %
Bargain purchase gain, net of tax
3,855
—
3,855
NM
Gain/(loss) on debt extinguishment
(4,538)
2,719
(7,257)
NM
Total other income (loss)
34,811
21,598
13,213
61 %
Income (loss) before income taxes
406,030
297,437
108,593
37 %
Income tax expense (benefit)
102,039
90,373
11,666
13 %
Net income (loss)
303,991
207,064
96,927
47 %
Net income (loss) attributable to non-controlling interests in consolidated
subsidiaries and investment funds
8,380
(9,299)
17,679
(190) %
Net income (loss) attributable to Cowen Inc.
295,611
216,363
79,248
37 %
Preferred stock dividends
6,792
6,792
—
— %
Net income (loss) attributable to Cowen Inc. common stockholders
$
288,819
$
209,571
$
79,248
38 %
Revenues
Investment Banking
Investment banking revenues increased $297.7 million to $1,067.2 million for the year ended December 31, 2021 compared
with $769.5 million in the prior year period. During the year ended December 31, 2021, the Company completed 190
underwriting transactions, 159 strategic advisory transactions and 20 debt capital markets transactions. During the year ended
December 31, 2020, the Company completed 165 underwriting transactions, 74 strategic advisory transactions and 12 debt capital
markets transactions.
38
Brokerage
Brokerage revenues increased $60.8 million to $585.2 million for the year ended December 31, 2021 compared with $524.4
million in the prior year period. This was attributable to an increase in Institutional Brokerage, primarily Cash, Special Situations,
and Non-Dollar commission revenue. Customer trading volumes across the industry (according to Bloomberg) increased 4% for
the year ended December 31, 2021 compared to the prior year period.
Investment Income (loss)
Securities principal transactions, net
Securities principal transactions, net decreased $2.6 million to $122.1 million for the year ended December 31,
2021 compared with $124.7 million in the prior year period. The decrease in securities principal transactions, net was
primarily attributable to a decrease in our merchant banking investments as prior period included a positive mark to
market of our Nikola investment offset partially by an increase in our swaps business as the Company added both
additional clients and increased activity with existing clients.
Portfolio fund principal transactions, net
Portfolio fund investment income (loss) decreased $20.1 million to $0.3 million for the year ended December 31,
2021 compared with $20.4 million in the prior year period. The decrease is primarily related to public positions in our
healthcare fund investments.
Carried interest allocations
Carried interest allocations decreased $54.2 million to $5.1 million for the year ended December 31, 2021
compared with $59.3 million in the prior year period. The primary driver of the decrease was a decrease in allocations
from our healthcare funds offset only partially from an increase in allocations from our sustainable funds.
Management Fees
Management fees increased $24.8 million to $72.3 million for the year ended December 31, 2021 compared with $47.5
million in the prior year period. This increase is primarily related to our healthcare and sustainable investments businesses.
Incentive Income
Incentive income increased $2.1 million to $2.7 million for the year ended December 31, 2021. This increase was related to
income earned in our Merger Fund. Due to revenue recognition standards, effective January 1, 2018, the Company recognizes the
majority of incentive income allocated to the Company as carried interest allocations, included in investment income (loss).
Interest and Dividends
Interest and dividends increased $31.8 million to $219.3 million for the year ended December 31, 2021 compared with
$187.5 million in the prior year period. Interest and dividends amounts are primarily attributable to securities finance activity. The
increase in the securities finance activity is due to higher customer demand which has created more matched book opportunities
for international securities.
Insurance and Reinsurance Premiums
Insurance and reinsurance premiums increased $9.5 million to $39.6 million for the year ended December 31, 2021
compared with $30.1 million in the prior year period. This increase is driven by $8.8 million of premiums from the insurance
entity acquired in the first quarter of 2021 and a small increase from our reinsurance entity.
Other Revenues, net
Other revenues decreased $5.3 million to $5.2 million for the year ended December 31, 2021 compared with $10.5 million
in the prior year period. This primarily related to foreign currency exchange rate fluctuations from our non-USD transactions.
Consolidated Funds Revenues
Consolidated Funds revenues increased $12.3 million to a loss of $6.2 million for the year ended December 31, 2021
compared with a loss of $18.5 million in the prior year period. The increase is due to the losses in the prior period related to the
UCITS fund as the merger strategy experienced significant challenges in Q1 2020. The UCITS fund was deconsolidated during
the second quarter of 2020. Losses remaining during the year ended 2021 are primarily related to the Enterprise LP fund
primarily driven by foreign revaluation of our Linkem investment. We have offset this revaluation risk outside the fund with
foreign forwards. The amounts shown under Consolidated Funds reflect the consolidated total performance for such investment
funds, and the portion of those gains or losses that are attributable to other investors is allocated to non-controlling interests.
39
Interest and Dividends Expense
Interest and dividends expense increased $23.7 million to $211.4 million for the year ended December 31, 2021 compared
with $187.7 million in the prior year period. Interest and dividends amounts are primarily attributable to securities finance
activities. There was an increase in the securities finance activity due to higher customer demand which has created more
matched book opportunities for international securities.
Expenses
Employee Compensation and Benefits
Employee compensation and benefits expenses increased $185.9 million to $1,046.4 million for the year ended
December 31, 2021 compared with $860.5 million in the prior year period. The increase is primarily due to $356.9 million higher
total revenues as well as an increase of $13.2 million in other income (loss) during 2021 as compared to 2020 and thus resulting in
a higher compensation and benefits accrual. The compensation to revenue ratio, including other income (loss), was 49% for the
year ended December 31, 2021, compared with 48% in the prior year period.
Insurance and Reinsurance Claims and Commissions
Insurance and reinsurance-related expenses remained fairly flat at $33.9 million for the year ended December 31, 2021
compared with the prior year period. An increase of $6.5 million of such expenses from an acquired insurance company was
offset by a corresponding decrease in reinsurance-related expenses.
Operating, General, Administrative and Other Expenses
Operating, general, administrative and other expenses increased $60.5 million to $430.3 million for the year ended
December 31, 2021 compared with $369.8 million in the prior year period. The increase is primarily related to higher brokerage
and trade execution costs due to higher brokerage and investment banking revenues as well as an increase in professional,
advisory and other fees.
Depreciation and Amortization Expenses
Depreciation and amortization expenses decreased $3.7 million to $19.0 million for the year ended December 31, 2021
compared with $22.7 million in the prior year period. The decrease is primarily related to certain intangible assets being fully
amortized in the first quarter of 2021.
Consolidated Funds Expenses
Consolidated Funds expenses decreased $4.8 million to $0.6 million for the year ended December 31, 2021 compared with
$5.4 million in the prior year period. The decrease is due to the deconsolidation of one fund during 2021 and two in 2020. The
amounts shown under Consolidated Funds reflect the consolidated total performance for such investment funds, and the portion of
those gains or losses that are attributable to other investors is allocated to non-controlling interests.
Other Income (Loss)
Other income (loss) increased $13.2 million to $34.8 million for the year ended December 31, 2021 compared with $21.6
million in the prior year period. The increase in other income (loss), which primarily represents our equity method investments,
was primarily attributable to an impairment of $11.3 million occurring in 2020 as well as an increase in performance in our
activist investments and also the bargain purchase gain on an acquisition from the first quarter of 2021, offset partially by a loss
on debt extinguishment.
Income Taxes
Income tax expense increased $11.6 million to $102.0 million for the year ended December 31, 2021 compared with $90.4
million in the prior year period. This change is primarily attributable to the increase in the Company’s income before income
taxes in 2021 compared to 2020.
Net Income (Loss) Attributable to Non-controlling Interests
Net income (loss) attributable to non-controlling interests increased $17.7 million to $8.4 million for the year ended
December 31, 2021 compared with a loss of $9.3 million in the prior year period. The increase was primarily the result losses in
the first half of 2020 related to weaker performance in the UCITS fund, which was deconsolidated during the second quarter of
2020 as well as increased income allocated to the merchant SPVs. Non-controlling interests represent the pro rata share of the
income or loss of the non-wholly owned consolidated entities attributable to the other owners of such entities.
40
Preferred Stock Dividends
On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative
perpetual convertible preferred stock. Each share of the Series A Convertible Preferred Stock is entitled to dividends at a rate of
5.625% per annum. The Company may, at its option, pay dividends in cash, common stock or a combination thereof. The
Company accrued $6.8 million preferred stock dividends for the periods ended December 31, 2021, 2020, and 2019, respectively.
Year Ended December 31, 2020 Compared with the Year Ended December 31, 2019
Consolidated Statements of Operations
Year Ended December 31,
Period to Period
2020
2019
$ Change
% Change
(dollars in thousands)
Revenues
Investment banking
$
769,486
$
375,025
$
394,461
105 %
Brokerage
524,361
389,047
135,314
35 %
Investment income (loss)
Securities principal transactions, net
124,667
39,289
85,378
217 %
Portfolio fund principal transactions, net
20,434
12,060
8,374
69 %
Carried interest allocations
59,250
18,505
40,745
220 %
Investment income (loss)
204,351
69,854
134,497
193 %
Management fees
47,515
32,608
14,907
46 %
Incentive income
592
1,547
(955)
(62) %
Interest and dividends
187,459
174,913
12,546
7 %
Reinsurance premiums
30,147
46,335
(16,188)
(35) %
Other revenues, net
10,503
6,069
4,434
73 %
Consolidated Funds revenues
(18,488)
68,172
(86,660)
(127) %
Total revenues
1,755,926
1,163,570
592,356
51 %
Interest and dividends expense
187,725
168,628
19,097
11 %
Total net revenues
1,568,201
994,942
573,259
58 %
Expenses
Employee compensation and benefits
860,531
535,772
324,759
61 %
Reinsurance claims, commissions and amortization of deferred
acquisition costs
33,905
44,070
(10,165)
(23) %
Operating, general, administrative and other expenses
369,840
335,499
34,341
10 %
Depreciation and amortization expense
22,677
20,460
2,217
11 %
Goodwill impairment
—
4,100
(4,100)
NM
Consolidated Funds expenses
5,409
8,963
(3,554)
(40) %
Total expenses
1,292,362
948,864
343,498
36 %
Other income (loss)
Net gains (losses) on other investments
18,879
24,645
(5,766)
(23) %
Gain/(loss) on debt extinguishment
2,719
—
2,719
NM
Total other income (loss)
21,598
24,645
(3,047)
(12) %
Income (loss) before income taxes
297,437
70,723
226,714
321 %
Income tax expense (benefit)
90,373
14,853
75,520
508 %
Net income (loss)
207,064
55,870
151,194
271 %
Net income (loss) attributable to non-controlling interests in consolidated
subsidiaries and investment funds
(9,299)
31,239
(40,538)
(130) %
Net income (loss) attributable to Cowen Inc.
216,363
24,631
191,732
778 %
Preferred stock dividends
6,792
6,792
—
— %
Net income (loss) attributable to Cowen Inc. common stockholders
$
209,571
$
17,839
$
191,732
1,075 %
Revenues
Investment Banking
Investment banking revenues increased $394.5 million to $769.5 million for the year ended December 31, 2020 compared
with $375.0 million in the prior year period. During the year ended December 31, 2020, the Company completed 165
41
underwriting transactions, 74 strategic advisory transactions and 12 debt capital markets transactions. During the year ended
December 31, 2019, the Company completed 126 underwriting transactions, 48 strategic advisory transactions and 14 debt capital
markets transactions.
Brokerage
Brokerage revenues increased $135.4 million to $524.4 million for the year ended December 31, 2020 compared with
$389.0 million in the prior year period. This was attributable to an increase in Institutional Brokerage, primarily Cash, Options
and Electronic Trading commission revenue and an increase in Institutional Services, primarily Prime Brokerage. Customer
trading volumes across the industry (according to Bloomberg) increased 56% for the year ended December 31, 2020 compared to
the prior year period.
Investment Income (Loss)
Principal transactions, net
Principal transactions, net increased $85.3 million to $124.7 million for the year ended December 31, 2020
compared with $39.3 million for the year ended December 31, 2019. This was attributable to an increase in trading
activity due to new line of business within the Event Driven and Securities Finance businesses and an increase in our
swaps business as the Company added both additional clients and increased activity with existing clients.
Portfolio fund investment income (loss)
Portfolio fund investment income (loss) increased $8.4 million to $20.4 million for the year ended December 31,
2020 compared with $12.1 million in the prior year period. The increase is primarily related to public positions in our
healthcare fund investments.
Carried interest allocations
Carried interest allocations increased $40.8 million to $59.3 million for the year ended December 31, 2020
compared with $18.5 million in the prior year period. The primary driver of the increase was an increase in allocations
from our healthcare funds.
Management Fees
Management fees increased $14.9 million to $47.5 million for the year ended December 31, 2020 compared with $32.6
million in the prior year period. This increase is primarily related to the healthcare royalty business, our healthcare investments
business and our sustainable investments business.
Incentive Income
Incentive income decreased $0.9 million to $0.6 million for the year ended December 31, 2020 compared with $1.5 million
in the prior year period. This decrease is primarily related to the merger arbitrage business. Revenue recognition standards,
effective January 1, 2018, require the Company to recognize the majority of incentive income allocated to the Company as net
gains (losses) on securities, derivatives and other investments or as incentive income when the fees are no longer subject to
reversal or are crystallized.
Interest and Dividends
Interest and dividends increased $12.6 million to $187.5 million for the year ended December 31, 2020 compared with
$174.9 million in the prior year period. Interest and dividends amounts are primarily attributable to securities finance activity. The
increase in the securities finance activity is due to higher customer demand which has created more matched book opportunities
for international securities.
Reinsurance Premiums
Reinsurance premiums decreased $16.2 million to $30.1 million for the year ended December 31, 2020 compared with
$46.3 million in the prior year period. This decrease is because premiums from policies that were not renewed in 2020
outweighed premiums from new policies in 2020 and because of lower activity in certain existing contracts due to COVID-19.
Other Revenues
Other revenues increased $4.4 million to $10.5 million for the year ended December 31, 2020 compared with $6.1 million
in the prior year period.
42
Consolidated Funds Revenues
Consolidated Funds revenues decreased $86.7 million to $18.5 million for the year ended December 31, 2020 compared
with $68.2 million in the prior year period. The decrease was primarily driven by large gains in our Healthcare funds in 2019 and
was slightly up in 2020. The other driver was our UCITS fund which was deconsoldiated in 2020.
Interest and Dividends Expenses
Interest and dividends expense increased $19.1 million to $187.7 million for the year ended December 31, 2020 compared
with $168.6 million in the prior year period. Interest and dividends amounts are primarily attributable to securities finance
activities. There was an increase in the securities finance activity due to higher customer demand which has created more matched
book opportunities for international securities.
Expenses
Employee Compensation and Benefits
Employee compensation and benefits expenses increased $324.7 million to $860.5 million for the year ended December 31,
2020 compared with $535.8 million in the prior year period. The increase is primarily due to $573.9 million higher total revenues
as well as an increase of $15.4 million in other income (loss) during 2020 as compared to 2019 and thus resulting in a higher
compensation and benefits accrual. The compensation to revenue ratio, including other income (loss), was 48% for the year ended
December 31, 2020, compared with 45% in the prior year period.
Reinsurance Claims Commissions
Reinsurance-related expenses decreased $10.2 million to $33.9 million for the year ended December 31, 2020 compared
with $44.1 million in the prior year period. This decrease is due to fewer policies in force during 2020 compared to 2019 partially
offset by a higher loss ratio.
Operating, General, Administrative and Other Expenses
Operating, general, administrative and other expenses increased $34.3 million to $369.8 million for the year ended
December 31, 2020 compared with $335.5 million in the prior year period. The increase is primarily related to higher brokerage
and trade execution costs as well as higher underwriting fees, due to higher brokerage and investment banking revenues, offset
only partially by decreased marketing and business development expenses and occupancy costs.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $2.2 million to $22.7 million for the year ended December 31, 2020
compared with $20.5 million in the prior year period. The increase is primarily related to an increase in tangible and intangible
assets related to software purchases and recent acquisitions.
Consolidated Funds Expenses
Consolidated Funds expenses decreased $3.6 million to $5.4 million for the year ended December 31, 2020 compared with
$9.0 million in the prior year period. The decrease is due to the deconsolidation of two consolidated funds during 2020.
Other Income (Loss)
Other income (loss) decreased $3.0 million to $21.6 million for the year ended December 31, 2020 compared with $24.6
million in the prior year period. The increase primarily relates to an increase in performance in the Company's own invested
capital, primarily Cowen Healthcare (the healthcare investment strategy), and our activist strategy. The gains and losses shown
under Consolidated Funds reflect the consolidated total performance for such investment funds, and the portion of those gains or
losses that are attributable to other investors is allocated to non-controlling interests.
Income Taxes
Income tax expense increased $75.5 million to $90.4 million for the year ended December 31, 2020 compared with an
income tax expense of $14.9 million in the prior year period. This change is primarily attributable to the change in the Company’s
income before income taxes for the respective periods.
Net Income (Loss) Attributable to Non-controlling Interests
Net income (loss) attributable to non-controlling interests decreased $40.5 million to a loss of $9.3 million for the year
ended December 31, 2020 compared with income of $31.2 million in the prior year period. The decrease was primarily the result
of a decrease in income earned from our Cowen Private fund as 2019 had a large amount of positive realizations and the fund
continues to wind down into 2020. We also experienced weaker performance in the Merger Fund and UCITS Fund prior to their
43
deconsolidation in 2020. Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned
consolidated entities attributable to the other owners of such entities.
Preferred Stock Dividends
On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative
perpetual convertible preferred stock (the "Series A Convertible Preferred Stock"). Each share of the Series A Convertible
Preferred Stock is entitled to dividends at a rate of 5.625% per annum. The Company may, at its option, pay dividends in cash,
common stock or a combination thereof.
Segment Analysis, Economic Income (Loss) and related components
Economic Income (Loss) and related components
The Company presents supplemental financial measures that are not prepared in accordance with US GAAP. These non-
GAAP financial measures include (i) Pre-tax Economic Income (Loss) (ii) Economic Income (Loss), (iii) Economic Operating
Income (Loss), (iv) Economic Proceeds and related components, (v) Net Economic Proceeds and related components, (vi)
Economic Expenses and related components and (vii) related per share measures. The Company believes that these non-GAAP
financial measures, viewed in addition to, and not in lieu of, the Company’s reported US GAAP results, provide useful
information to investors and analysts regarding its performance and overall results of operations as it presents investors and
analysts with a supplemental operating view of the Company’s financials to help better inform their analysis of the Company’s
performance.
These Non-GAAP financial measures are an integral part of the Company’s internal reporting to measure the performance
of its business segments, allocate capital and other strategic decisions as well as assess the overall effectiveness of senior
management. The Company believes that presenting these non-GAAP measures may provide expanded transparency into the
Company’s business operations, growth opportunities and expense allocation decisions.
The Company’s primary non-GAAP financial measures of profit or loss are Pre-tax Economic Income (Loss), Economic
Income (Loss) and Economic Operating Income (Loss). Pre-tax Economic Income (Loss) is a pre-tax measure which (i) includes
management reclassifications which the Company believes provides additional insight on the performance of the Company’s core
businesses and divisions; (ii) eliminates the impact of consolidation for Consolidated Funds; and excludes (iii) goodwill and
intangible impairment, (iv) certain other transaction-related adjustments and/or reorganization expenses, as well as (v) certain
costs associated with debt. Economic Income (Loss) is a similar measure, but after tax, which includes the Company’s income
tax expense or benefit calculated on Pre-tax Economic Income (Loss) once all currently available net operating losses have been
utilized (this occurred during tax year 2020) and is presented after preferred stock dividends. Economic Operating Income (Loss)
is a similar measure to Economic Income (Loss), but before depreciation and amortization expenses. The Company believes that
these non-GAAP financial measures provide analysts and investors transparency into the measures of profit and loss management
uses to evaluate the financial performance of and make operating decisions for the segments including determining appropriate
compensation levels. Additionally, the measures provide investors and analysts with additional insight into the activities of the
Company’s core businesses, taking into account, among other things, the impact of minority investment stakes, securities
borrowing and lending activities and expenses from investment banking activities on US GAAP reported results. The Company
presents Pre-tax Economic Income (Loss) in addition to Economic Income (Loss) and Economic Operating Income (Loss) to
provide insight to investors and analysts on how the Company manages its tax position over time.
In addition to Pre-tax Economic Income (Loss), Economic Income (Loss) and Economic Operating Income (Loss), the
Company also presents Economic Proceeds, Net Economic Proceeds, Economic Expenses, as well as their related components.
These measures include management reclassifications and the elimination of the impact of the consolidation for Consolidated
funds as described above. These adjustments are meant to provide comparability to our peers as well as to provide investors and
analysts with transparency into how the Company manages its operating businesses and how analysts and investors review and
analyze the Company’s and its peers’ similar lines of businesses. For example, among others, within the Company’s Op Co
business segment, investors and analysts typically review and analyze the performance of investment banking revenues net of
underwriting expenses and excluding the impact of reimbursable expenses. Additionally, the performance of the Company’s
Markets business is typically analyzed as a unit incorporating commissions, interest from securities financing transactions and
gains and losses from proprietary and facilitation trading. The Company’s investment management business performance is
analyzed and reviewed by investors and analysts through investment income, incentive income and management fees. The
presentation of Economic Proceeds, Net Economic Proceeds, Economic Expenses as well as their related components align with
these and other examples of how the Company’s business activities and performance are reviewed by analysts and investors in
addition to providing simplification related to legacy businesses and investments for which the Company maintains long-term
monetization strategies. Additionally, the Company manages its operating businesses to an Economic Compensation-to-Proceeds
44
ratio. Presentation of Economic Compensation Expense and Economic Proceeds provides transparency in addition to the
Company’s US GAAP Compensation Expense.
Reconciliations to comparable US GAAP measures are presented along with the Company’s Non-GAAP financial
measures. The non-GAAP measures presented herein may not be comparable to similarly titled measures presented by other
public companies and are not identical to corresponding measures used in our various agreements or public filings.
These Non-GAAP measures should not be considered in isolation or as a substitute for revenue, expenses, income (loss)
before income taxes, net income, operating cash flows, investing and financing activities, or other income or cash flow statement
data prepared in accordance with US GAAP. As a result of the adjustments made to arrive at these Non-GAAP measures
described below, these Non-GAAP measures have limitations in that they do not take into account certain items included or
excluded under US GAAP, including its consolidated funds.
For a reconciliation of US GAAP net income (loss) to Pre-tax Economic Income (Loss), Economic Income (Loss) and
Economic Operating Income (Loss) for the periods presented and additional information regarding the reconciling adjustments
discussed above, see the following section "Reconciliation of US GAAP (Unaudited) to Non-GAAP Measures".
The Company conducts its operations through two segments: Op Co and Asset Co. The Company's principle sources of
revenues included in Economic Income (Loss) are derived from activities in the following business segments. The Op Co and
Asset Co segments do not conduct inter-segment transactions.
The Op Co segment generates revenue through several principal sources: investment banking revenue, brokerage revenue,
management fees, incentive income, and investment income earned from the Company's own capital.
The Asset Co segment generates revenue through management fees, incentive income and investment income from the
Company’s own capital.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Total Economic Operating Income (Loss) was $326.4 million for the year ended December 31, 2021, a decrease of $9.5
million compared to Economic Operating Income (Loss) of $335.9 million in the prior year period. Total Economic Income
(Loss) was $312.2 million for the year ended December 31, 2021 compared to Economic Income (Loss) of $313.2 million in the
prior year period. Total Pre-tax Economic Income (Loss) was $428.2 million for the year ended December 31, 2021, an increase
of $108.2 million compared to Pre-tax Economic Income (Loss) of $320.0 million in the prior year period.
Economic Proceeds included in total Economic Income (Loss) were $1,890.6 million for the year ended December 31,
2021, an increase of $334.3 million compared to $1,556.3 million in the prior year period. This was primarily related to an
increase in investment banking, brokerage revenues and management fees only partially offset by a decrease in investment
income (loss) and incentive income.
45
Operating Company Segment
Economic Proceeds
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
(dollars in thousands)
Economic Proceeds
Investment banking
$
1,025,688
$
729,180
$ 296,508
41 %
Brokerage
728,525
652,647
75,878
12 %
Management fees
79,255
58,154
21,101
36 %
Incentive income (loss)
34,579
83,435
(48,856)
(59) %
Investment income (loss)
8,542
37,786
(29,244)
(77) %
Other income (loss) economic proceeds
7,942
775
7,167
925 %
Total: Economic Proceeds
1,884,531
1,561,977
322,554
21 %
Economic Interest Expense
23,914
24,519
(605)
(2) %
Net Economic Proceeds
$
1,860,617
$
1,537,458
$ 323,159
21 %
Economic Proceeds The Op Co segment economic proceeds included in Economic Income (Loss) were $1,884.5 million for the
year ended December 31, 2021, an increase of $322.5 million compared to $1,562.0 million in the prior year period.
Investment Banking Economic Proceeds increased $296.5 million to $1,025.7 million for the year ended December 31,
2021 compared with $729.2 million in the prior year period. During the year ended December 31, 2021, the Company
completed 190 underwriting transactions, 159 strategic advisory transactions and 20 debt capital markets transactions.
During the year ended December 31, 2020, the Company completed 165 underwriting transactions, 74 strategic advisory
transactions and 12 debt capital markets transactions.
Brokerage Economic Proceeds increased $75.9 million to $728.5 million for the year ended December 31, 2021,
compared with $652.6 million in the prior year period. This was attributable to an increase in Institutional Brokerage,
primarily Cash, Special Situations, and Non-Dollar commission revenue. Customer trading volumes across the industry
(according to Bloomberg) increased 4% for the year ended December 31, 2021 compared to the prior year period.
Management Fees Economic Proceeds for the segment increased $21.1 million to $79.3 million for the year ended
December 31, 2021 compared with $58.2 million in the prior year period. This increase in management fees was
primarily related to an increase in management fees from the Cowen Healthcare investments and Cowen Sustainable
funds.
Incentive Income (Loss) Economic Proceeds for the segment decreased $48.8 million to $34.6 million for the year ended
December 31, 2021 compared with income of $83.4 million in the prior year period. This decrease was primarily related
to a decrease in performance fees from our healthcare investments funds.
Investment Income (Loss) Economic Proceeds for the segment decreased $29.3 million to $8.5 million for the year ended
December 31, 2021 compared with $37.8 million in the prior year period. The decrease primarily relates to a decrease in
performance investments across most of our strategies including healthcare, merchant banking and portfolio hedge.
Other Income (Loss) Economic Proceeds for the segment increased $7.1 million to $7.9 million for the year ended
December 31, 2021 compared with income of $0.8 million in the prior year period. The increase comes from a higher
insurance result due to the acquisition of an insurance business in the first quarter of the year.
Economic Interest Expenses were $23.9 million for the year ended December 31, 2021, a decrease of $0.6 million compared with
$24.5 million in the prior year period.
Net Economic Proceeds were $1,860.6 million for the year ended December 31, 2021, an increase of $323.1 million compared
with $1,537.5 million in the prior year period.
46
Economic Expenses
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
Economic Expenses
(dollars in thousands)
Employee compensation and benefits
$
1,046,730
$
860,753
$ 185,977
22 %
Non-Compensation Expense
359,577
312,173
47,404
15 %
Depreciation & Amortization
18,982
22,655
(3,673)
(16) %
Non-Controlling Interest
5,314
6,892
(1,578)
(23) %
Total: Economic Expenses
$
1,430,603
$
1,202,473
$ 228,130
19 %
Economic Expenses were $1,430.6 million for the year ended December 31, 2021, an increase of $228.1 million compared with
$1,202.5 million in the prior year period.
Economic Compensation Expenses were $1,046.7 million compared to $860.8 million in the prior year period. The increase
was due to higher revenues. The economic compensation-to-proceeds ratio increased to 55.5% compared to 55% in the prior
year period.
Economic Non-compensation Expenses Fixed non-compensation expense increased $18.4 million to $160.1 million for the
year ended December 31, 2021 compared with $141.7 million in the prior year period. The increase primarily related to an
increase in professional and advisory fees and communication costs. Variable non-compensation expenses which primarily
are comprised of expenses that are incurred as a direct result of the processing and soliciting of revenue generating activities,
increased $29.0 million to $199.5 million for the year ended December 31, 2021 compared with $170.5 million in the prior
year period. The increase is related to increased brokerage and trade execution costs and increased variable professional and
advisory fees, which includes employment agency fees and legal fees directly related to revenues.
Economic Depreciation and Amortization Expenses decreased to $19.0 million for the year ended December 31, 2021
compared with $22.7 million in the prior year period. The decrease is primarily related to certain intangible assets being
fully amortized in the first quarter of 2021.
Economic Non-controlling interests decreased by $1.6 million to $5.3 million for the year ended December 31, 2021
compared with $6.9 million in the prior year period. Non-controlling interest represents the portion of the net income or loss
attributable to certain non-wholly owned subsidiaries that is allocated to our partners in those subsidiaries.
Economic Income and Economic Operating Income
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
(dollars in thousands)
Pre-tax Economic Income (Loss)
$
430,014
$
334,985
$
95,029
28 %
Economic income tax expense *
109,654
—
109,654
NM
Preferred stock dividends
5,841
5,604
237
4 %
Economic Income (Loss) *
314,519
329,381
(14,862)
(5) %
Add back: Depreciation and amortization expense, net of taxes
14,142
22,655
(8,513)
(38) %
Economic Operating Income (Loss)
$
328,661
$
352,036
$ (23,375)
(7) %
* Economic Income (Loss) is presented net of associated taxes starting in the first quarter of 2021. The Company has utilized all
available federal net operating losses not subject to limitation during 2020.
Preferred Stock Dividends. On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's
5.625% Series A cumulative perpetual convertible preferred stock (the "Series A Convertible Preferred Stock"). Each share of the
Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum. The Company may, at its option, pay
dividends in cash, common stock or a combination thereof.
47
Asset Co Segment
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
Economic Proceeds
(dollars in thousands)
Management fees
$
1,200
$
946
$
254
27 %
Incentive income (loss)
(1,153)
1,927
(3,080)
(160) %
Investment income (loss)
6,014
(8,564)
14,578
170 %
Other income (loss) economic proceeds
(2)
5
(7)
(140) %
Total: Economic Proceeds
6,059
(5,686)
11,745
(207) %
Economic Interest Expense
3,779
5,123
(1,344)
(26) %
Net Economic Proceeds
$
2,280
$
(10,809) $
13,089
(121) %
Economic Proceeds The Asset Co segment proceeds included in Economic Income (Loss) were $6.1 million for the year ended
December 31, 2021, an increase of $11.8 million compared with negative proceeds (due to losses) of $5.7 million in the prior year
period.
Management Fees Economic Proceeds for the segment increased $0.3 million to $1.2 million for the year ended
December 31, 2021 compared with $0.9 million in the prior year period. This increase was related to an increase in
management fees from the Company's multi-strategy business.
Incentive Income (Loss) Economic Proceeds for the segment decreased $3.1 million to a loss of $1.2 million for the year
ended December 31, 2021 compared with income of $1.9 million in the prior year period. This decrease was related to a
decrease in performance fees from the Company's multi-strategy business.
Investment Income (Loss) Economic Proceeds for the segment increased $14.6 million to $6.0 million for the year ended
December 31, 2021, compared with a loss of $8.6 million in the prior year period. The increase primarily relates to an
impairment of an equity method investment during 2020 and increased performance of our multi-strategy funds in 2021.
Economic Interest Expenses were $3.8 million for the year ended December 31, 2021, a decrease of $1.3 million
compared with $5.1 million in the prior year period.
Net Economic Proceeds for the segment were proceeds of $2.3 million for the year ended December 31, 2021, an increase of
$13.1 million compared with negative proceeds (due to losses) of $10.8 million in the prior year period.
Economic Expenses
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
(dollars in thousands)
Economic Expenses
Employee compensation and benefits
$
3,871
$
3,767
$
104
3 %
Non-Compensation Expense
187
350
(163)
(47) %
Depreciation & Amortization
22
22
—
— %
Total: Economic Expenses
$
4,080
$
4,139
$
(59)
(1) %
Economic Expenses were $4.1 million for the year ended December 31, 2021, a decrease of $(0.1) million compared to $4.1
million in the prior year period.
Economic Compensation Expenses were $3.9 million for the year ended December 31, 2021, an increase of $0.1 million
compared to $3.8 million in the prior year period. The increase was due to higher revenues related to investment income
(loss).
Economic Non-compensation Expenses Fixed non-compensation expense decreased $0.2 million for the year ended
December 31, 2021 compared with the prior year period. The decrease is primarily related to decreased professional,
advisory and other fees. Variable non-compensation expenses, which remained consistent for the year ended December 31,
2021 compared with the prior year period, are comprised of expenses that are incurred as a direct result of the processing
and soliciting of revenue generating activities.
48
Economic Depreciation and Amortization Expenses remained consistent for the year ended December 31, 2021 compared to
the prior year period and relates to costs allocated from general company assets.
Economic Income and Economic Operating Income
Year Ended December 31,
Total Period-to-Period
2021
2020
$ Change
% Change
(dollars in thousands)
Pre-tax Economic Income (Loss)
$
(1,800) $
(14,948) $
13,148
(88) %
Economic income tax expense *
(460)
—
(460)
NM
Preferred stock dividends
951
1,188
(237)
(20) %
Economic Income (Loss) *
(2,291)
(16,136)
13,845
(86) %
Add back: Depreciation and amortization expense, net of taxes
16
22
(6)
(27) %
Economic Operating Income (Loss)
$
(2,275) $
(16,114) $
13,839
(86) %
* Economic Income (Loss) is presented net of associated taxes starting in the first quarter of 2021. The Company has utilized all
available federal net operating losses not subject to limitation during 2020.
Preferred Stock Dividends. On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's
5.625% Series A cumulative perpetual convertible preferred stock (the "Series A Convertible Preferred Stock"). Each share of the
Series A Convertible Preferred Stock is entitled to dividends at a rate of 5.625% per annum. The Company may, at its option, pay
dividends in cash, common stock or a combination thereof.
Year Ended December 31, 2020 Compared with Year Ended December 30, 2019
Total Economic Operating Income (Loss) (which is Economic Income (Loss) was $335.9 million for the year ended
December 31, 2020, an increase of $271.8 million compared to Economic Operating Income (Loss) of $64.1 million in the prior
year period. Total Economic Income (Loss) was $313.2 million for the year ended December 31, 2020, an increase of $269.5
million compared to Economic Income (Loss) of $43.7 million in the prior year period.
Proceeds included in total Economic Income (Loss) were $1,556.3 million for the year ended December 31, 2020, an
increase of $616.5 million compared to $939.8 million in the prior year period. This was primarily related to an increase in
investment banking and incentive income offset partially by a decrease in brokerage income.
Operating Company Segment
Economic Proceeds
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
(dollars in thousands)
Economic Proceeds
Investment banking
$
729,180
$
351,085
$ 378,095
108 %
Brokerage
652,647
459,143
193,504
42 %
Management fees
58,154
40,321
17,833
44 %
Incentive income (loss)
83,435
44,600
38,835
87 %
Investment income (loss)
37,786
32,614
5,172
16 %
Other income (loss) economic proceeds
775
5,785
(5,010)
(87) %
Total: Economic Proceeds
1,561,977
933,548
628,429
67 %
Economic Interest Expense
24,519
22,576
1,943
9 %
Net Economic Proceeds
$
1,537,458
$
910,972
$ 626,486
69 %
Economic Proceeds The Op Co segment Economic Proceeds included in Economic Income (Loss) were $1,562.0 million for the
year ended December 31, 2020, an increase of $628.5 million compared to $933.5 million in the prior year period.
Investment Banking Economic Proceeds increased $378.1 million to $729.2 million for the year ended December 31,
2020 compared with $351.1 million in the prior year period. During the year ended December 31, 2020, the Company
completed 165 underwriting transactions, 74 strategic advisory transactions and 12 debt capital markets transactions.
During the year ended December 31, 2019, the Company completed 126 underwriting transactions, 48 strategic advisory
transactions and 14 debt capital markets transactions.
49
Brokerage Economic Proceeds increased $193.5 million to $652.6 million for the year ended December 31, 2020,
compared with $459.1 million in the prior year period. This was attributable to an increase in Institutional Brokerage,
primarily Special Situations and electronic trading commission revenue and an increase in Institutional Services,
primarily Prime Brokerage. Customer trading volumes across the industry (according to Bloomberg) increased 56% for
the year ended December 31, 2020 compared to the prior year period.
Management Fees Economic Proceeds for the segment increased $17.9 million to $58.2 million for the year ended
December 31, 2020 compared with $40.3 million in the prior year period. This increase is primarily related to the
healthcare royalty business and our healthcare investments business.
Incentive Income (Loss) Economic Proceeds for the segment increased $38.8 million to $83.4 million for the year ended
December 31, 2020 compared with $44.6 million in the prior year period. This increase was primarily related to an
increase in performance fees from our healthcare investments businesses and our activist strategy.
Investment Income (Loss) Economic Proceeds for the segment increased $5.2 million to $37.8 million for the year ended
December 31, 2020 compared with income of $32.6 million in the prior year period. The increase primarily relates to an
increase in performance by our merchant banking investments, namely electric truck maker Nikola Corporation,
merchant banking and our activist investments. The liquid strategy increases were partially offset by the impairment of
our Surfside real estate investment.
Other Income (Loss) Economic Proceeds for the segment decreased $5.0 million to $0.8 million for the year ended
December 31, 2020 compared with $5.8 million in the prior year period. This decrease is because premiums from
policies that were not renewed in 2020 outweighed premiums from new policies in 2020 and because of lower activity in
certain existing contracts due to COVID-19.
Economic Interest Expenses were $24.5 million for the year ended December 31, 2020, an increase of $1.9 million
compared to $22.6 million in the prior year period.
Net Economic Proceeds were $1,537.5 million for the year ended, an increase of $626.5 million compared to $911.0 million in the
prior year period.
Economic Expenses
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
(dollars in thousands)
Economic Expenses
Employee compensation and benefits
$
860,753
$
532,468
$ 328,285
62 %
Non-Compensation Expense
312,173
294,614
17,559
6 %
Depreciation & Amortization
22,655
20,403
2,252
11 %
Non-Controlling Interest
6,892
4,796
2,096
44 %
Total: Economic Expenses
$
1,202,473
$
852,281
$ 350,192
41 %
Economic Expenses were $1,202.5 million for the year ended December 31, 2020, an increase $350.2 million compared to $852.3
million in the prior year period.
Economic Compensation Expenses expense was $860.8 million compared to $532.5 million in the prior year period. The
increase was due to higher revenues offset only partially by a lower economic compensation-to-proceeds ratio. The
economic compensation-to-proceeds ratio was 55%, a decrease from 57% in the prior year period.
Economic Non-compensation Expenses Fixed non-compensation expenses decreased $2.4 million to $141.7 million for the
year ended December 31, 2020 compared with $144.1 million in the prior year period. The increase is primarily related to
increased service, professional, advisory and other fees offset partially by lower occupancy and equipment
expenses. Variable non-compensation expense which primarily are comprised of expenses that are incurred as a direct result
of the processing and soliciting of revenue generating activities, increased $20.0 million to $170.5 million for the year ended
December 31, 2020 compared with $150.5 million in the prior year period. The increase is related to increased brokerage
and trade execution costs partially offset by lower marketing and business development costs.
50
Economic Depreciation and Amortization Expenses increased to $22.7 million for the year ended December 31, 2020
compared with $20.4 million in the prior year period.
Economic Non-controlling interests increased by $2.1 million to $6.9 million for the year ended December 31, 2020
compared with $4.8 million in the prior year period. Non-controlling interest represents the portion of the net income or loss
attributable to certain non-wholly owned subsidiaries that is allocated to our partners in those subsidiaries.
Economic Income and Economic Operating Income
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
(dollars in thousands)
Economic Income (Loss)
$
329,381
$
53,257
$ 276,124
518 %
Add back: Depreciation and amortization expense
22,655
20,403
2,252
11 %
Economic Operating Income (Loss)
$
352,036
$
73,660
$ 278,376
378 %
* Economic Income (loss) is net of preferred stock dividends
Economic Income (Loss) was $329.4 million for the year ended December 31, 2020 compared with $53.3 million in the prior
year period.
Economic Operating Income (Loss) was $352.0 million for the year ended December 31, 2020 compared with $73.7 million in the
prior year period.
Asset Co Segment
Economic Proceeds
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
Economic Proceeds
(dollars in thousands)
Management fees
$
946
$
1,976
$
(1,030)
(52) %
Incentive income (loss)
1,927
1,132
795
70 %
Investment income (loss)
(8,564)
3,111
(11,675)
(375) %
Other income (loss) economic proceeds
5
58
(53)
(91) %
Total: Economic Proceeds
(5,686)
6,277
(11,963)
(191) %
Economic Interest Expense
5,123
5,449
(326)
(6) %
Net Economic Proceeds
$
(10,809) $
828
$
(11,637)
(1,405) %
Economic Proceeds The Asset Co segment Economic Proceeds included in Economic Income (Loss) were a loss of $5.7 million
for the year ended December 31, 2020, a decrease of $12.0 million compared with $6.3 million in the prior year.
Management fees Economic Proceeds for the segment decreased $1.1 million to $0.9 million for the year ended
December 31, 2020 compared with $2.0 million in the prior year period. This decrease in management fees was
primarily related to a decrease in management fees from the Company's real estate investments.
Incentive income Economic Proceeds for the segment increased $0.8 million to $1.9 million for the year ended
December 31, 2020 compared with income of $1.1 million in the prior year period. This increase was related to an
increase in performance fees from the Company's multi-strategy business.
Investment income Economic Proceeds for the segment decreased $11.7 million to a loss of $8.6 million for the year
ended December 31, 2020 compared with income of $3.1 million in the prior year period. The decrease primarily relates
to a decrease in valuation of our legacy real estate investments.
Economic Interest Expenses were $5.1 million for the year ended December 31, 2020, a decrease of $0.3 million for the
year ended December 31, 2020 compared with $5.4 million in the prior year period.
Net Economic Proceeds were a loss of $10.8 million for the year ended December 31, 2020, a decrease of $11.6 million
compared with income of $0.8 million in the prior year period.
51
Economic Expenses
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
(dollars in thousands)
Economic Expenses
Employee compensation and benefits
$
3,767
$
5,070
$
(1,303)
(26) %
Non-Compensation Expenses
350
3,924
(3,574)
(91) %
Depreciation & Amortization
22
36
(14)
(39) %
Total: Economic Expenses
$
4,139
$
9,030
$
(4,891)
(54) %
Economic Expenses were $4.1 million for the year ended December 31, 2020, a decrease of $4.9 million compared with $9.0
million in the prior year period.
Economic Compensation Expenses expense was $3.8 million compared to $5.1 million in the prior year period. The decrease
was due to lower revenues related to investment income losses. This resulted in an economic compensation-to-proceeds
ratio of (66)%, a decrease from 81% in the prior year period.
Economic Non-compensation Expenses decreased $3.6 million to $0.3 million for the year ended December 31, 2020
compared with $3.9 million in the prior year period. The decrease is primarily related to decreased professional, advisory
and other fees and fees related to our real estate business. Variable non-compensation expenses are comprised of expenses
that are incurred as a direct result of the processing and soliciting of revenue generating activities.
Economic Depreciation and Amortization Expenses remained fairly flat for the year ended December 31, 2020 compared to
December 31, 2019 and relates to costs allocated from general company assets.
Economic Income and Economic Operating Income
Year Ended December 31,
Total Period-to-Period
2020
2019
$ Change
% Change
(dollars in thousands)
Economic Income (Loss)
$
(16,136) $
(9,560) $
(6,576)
69 %
Add back: Depreciation and amortization expense
22
36
(14)
(39) %
Economic Operating Income (Loss)
$
(16,114) $
(9,524) $
(6,590)
69 %
* Economic Income (loss) is net of preferred stock dividends
Economic Income (Loss) was $(16.1) million for the year ended December 31, 2020 compared with $(9.6) million in the prior
year period.
Economic Operating Income (Loss) was $(16.1) million for the year ended December 31, 2020 compared with $(9.5) million in
the prior year period.
52
Reconciliation of US GAAP to Non-GAAP Measures for the years ended December 31, 2021, 2020 and 2019
The following tables reconciles total US GAAP Revenues to total Economic Proceeds for the year ended December 31, 2021, 2020, and 2019:
(unaudited)
Year Ended December 31, 2021
(Dollar amounts in thousands)
Investment
Banking
Brokerage
Investment
Income
Management
Fees
Incentive
Income
Interest and
Dividends
Reinsurance
Premiums
Other
Revenues,
net
Consolidated
Funds
Revenues
Other
Income
(Loss)
Total
Total US GAAP Revenues and Other
Income (Loss)
$
1,067,162
$
585,162
$
127,507
$
72,287
$
2,732
$
219,292
$
39,631
$
5,211
$
(6,185) $
34,811
$ 2,147,610
Management Presentation Reclassifications:
Underwriting expenses
a
(24,978)
—
—
—
—
—
—
—
—
—
(24,978)
Reimbursable client expenses
b
(16,496)
—
—
—
—
—
—
(1,206)
—
—
(17,702)
Securities financing interest expense
c
—
8,006
—
—
—
(153,928)
—
—
—
—
(145,922)
Fund start-up costs, distribution and other
fees
d
—
(361)
—
(9,190)
—
—
—
(2,633)
—
—
(12,184)
Certain equity method investments
e
—
—
—
15,142
25,802
—
—
—
—
(32,261)
8,683
Carried interest
f
—
—
(5,059)
—
5,486
—
—
—
—
—
427
Proprietary trading, interest and dividends
g
—
44,241
(92,900)
—
(494)
(19,233)
—
875
—
46,918
(20,593)
Insurance related activities expenses
h
—
—
—
—
—
—
(39,631)
5,693
—
—
(33,938)
Facilitation trading gains and losses
i
—
91,477
(11,034)
—
—
(46,131)
—
—
—
(50,151)
(15,839)
Total Management Presentation
Reclassifications:
(41,474)
143,363
(108,993)
5,952
30,794
(219,292)
(39,631)
2,729
—
(35,494)
(262,046)
Fund Consolidated Reclassifications
l
—
—
(3,958)
2,216
(100)
—
—
—
6,185
—
4,343
Income Statement Adjustments:
Bargain purchase gain
n
—
—
—
—
—
—
—
—
—
(3,855)
(3,855)
Debt extinguishment loss
p
—
—
—
—
—
—
—
—
—
4,538
4,538
Total Income Statement
Adjustments:
—
—
—
—
—
—
—
—
—
683
683
Total Economic Proceeds
$
1,025,688
$
728,525
$
14,556
$
80,455
$
33,426
$
—
$
—
$
7,940
$
—
$
—
$ 1,890,590
53
(unaudited)
Year Ended December 31, 2020
(Dollar amounts in thousands)
Investment
Banking
Brokerage
Investment
Income
Management
Fees
Incentive
Income
Interest and
Dividends
Reinsurance
Premiums
Other
Revenues, net
Consolidated
Funds Revenues
Other Income
(Loss)
Total
Total US GAAP Revenues and Other
Income (Loss)
$
769,486
$
524,361
$
204,351
$
47,515
$
592
$
187,459
$
30,147
$
10,503
$
(18,488) $
21,598
$ 1,777,524
Management Presentation
Reclassifications:
Underwriting expenses
a
(22,565)
—
—
—
—
—
—
—
—
—
(22,565)
Reimbursable client expenses
b
(17,741)
—
—
—
—
—
—
(1,099)
—
—
(18,840)
Securities financing interest expense
c
—
14,499
—
—
—
(142,997)
—
—
—
—
(128,498)
Fund start-up costs, distribution and
other fees
d
—
(293)
—
(3,970)
—
—
—
(2,529)
—
—
(6,792)
Certain equity method investments
e
—
—
—
12,540
24,121
—
—
—
—
(28,347)
8,314
Carried interest
f
—
—
(61,367)
—
60,649
—
—
—
—
—
(718)
Proprietary trading, interest and
dividends
g
—
79,955
(102,381)
—
—
(17,443)
—
(2,346)
—
9,468
(32,747)
Insurance related activities expenses
h
—
—
—
—
—
—
(30,147)
(3,759)
—
—
(33,906)
Facilitation trading gains and losses
i
—
34,125
(13,342)
—
—
(27,019)
—
—
—
—
(6,236)
Total Management Presentation
Reclassifications:
(40,306)
128,286
(177,090)
8,570
84,770
(187,459)
(30,147)
(9,733)
—
(18,879)
(241,988)
Fund Consolidated Reclassifications
l
—
—
1,961
3,015
—
—
—
10
18,488
—
23,474
Income Statement Adjustments:
Debt extinguishment loss
—
—
—
—
—
—
—
—
—
(2,719)
(2,719)
Total Income Statement
Adjustments:
—
—
—
—
—
—
—
—
—
(2,719)
(2,719)
Total Economic Proceeds
$
729,180
$
652,647
$
29,222
$
59,100
$
85,362
$
—
$
—
$
780
$
—
$
—
$ 1,556,291
54
(unaudited)
Year Ended December 31, 2019
(Dollar amounts in thousands)
Investment
Banking
Brokerage
Management
Fees
Incentive
Income
Investment
Income
Interest and
Dividends
Reinsurance
Premiums
Other
Revenues,
net
Consolidated
Funds
Revenues
Other Income
Gain/Loss
Total
Total US GAAP Revenues and Other
Income (Loss)
$
375,025
$ 389,047
$
32,608
$
1,547
$
69,854
$
174,913
$
46,335
$
6,069
$
68,172
$
24,645
$ 1,188,215
Management Presentation
Reclassifications:
Underwriting expenses
a
(15,067)
—
—
—
—
—
—
—
—
—
(15,067)
Reimbursable client expenses
b
(15,486)
—
—
—
—
—
—
(1,147)
—
—
(16,633)
Securities financing interest expense
c
—
22,198
—
—
—
(132,000)
—
—
—
—
(109,802)
Fund start-up costs and distribution fees
d
—
—
(5,500)
—
—
—
—
(1,123)
—
—
(6,623)
Certain equity method investments
e
—
—
12,919
19,975
—
—
—
—
—
(25,204)
7,690
Carried interest
f
—
—
—
23,610
(24,046)
—
—
—
—
—
(436)
Proprietary trading gains and losses
g
—
22,364
—
—
(13,054)
(24,068)
—
(336)
—
559
(14,535)
Insurance related activities expenses
h
—
—
—
—
—
—
(46,335)
2,244
—
—
(44,091)
Facilitation trading gains and losses
i
6,613
25,534
—
—
(18,729)
(18,845)
—
—
—
—
(5,427)
Total Management Presentation
Reclassifications:
(23,940)
70,096
7,419
43,585
(55,829)
(174,913)
(46,335)
(362)
—
(24,645)
(204,924)
Fund Consolidated Reclassifications
l
—
—
2,270
600
21,700
—
—
136
(68,172)
—
(43,466)
Total Economic Proceeds
$
351,085
$ 459,143
$
42,297
$
45,732
$
35,725
$
—
$
—
$
5,843
$
—
$
—
$ 939,825
The following table reconciles total US GAAP interest and dividends expense to total Economic Interest Expense for the year ended December 31, 2021, 2020, and 2019:
(unaudited)
Year Ended December 31,
(Dollar amounts in thousands)
2021
2020
2019
Total US GAAP Interest & Dividend Expense
$
211,387
$
187,725
$
168,628
Management Presentation Reclassifications:
Securities financing interest expense
c
(145,922)
(128,498)
(109,802)
Fund start-up costs, distribution and other fees
d
(2,257)
—
—
Proprietary trading gains and losses
g
(12,515)
(18,850)
(21,076)
Facilitation trading gains and losses
i
(15,839)
(6,236)
(5,428)
Total Management Presentation Reclassifications:
(176,533)
(153,584)
(136,306)
Income Statement Adjustments:
Accelerated debt costs
p
(5,557)
—
—
Amortization of discount/(premium) on debt
m
(1,604)
(4,499)
(4,297)
Total Income Statement Adjustments:
(7,161)
(4,499)
(4,297)
Total Economic Interest Expense
$
27,693
$
29,642
$
28,025
55
The following tables reconcile total US GAAP Expenses and non-controlling interests to total Economic Expenses for the year ended December 31, 2021, 2020, and 2019:
(unaudited)
Year Ended December 31, 2021
Year Ended December 31, 2020
(Dollar amounts in thousands)
Employee
Compensation
and Benefits
Non-compensation
US GAAP
Expenses
Net income (loss)
attributable to non-
controlling interests in
consolidated subsidiaries
and investment funds
Total
Employee
Compensation
and Benefits
Non-compensation
US GAAP
Expenses
Net income (loss)
attributable to non-
controlling interests in
consolidated subsidiaries
and investment funds
Total
Total US GAAP
$
1,046,371
$
483,822
$
8,380
$ 1,538,573
$
860,531
$
431,831
$
(9,299) $ 1,283,063
Management Presentation Reclassifications:
Underwriting expenses
a
—
(24,978)
—
(24,978)
—
(22,565)
—
(22,565)
Reimbursable client expenses
b
—
(17,702)
—
(17,702)
—
(18,840)
—
(18,840)
Fund start-up costs, distribution and other fees
d
—
(9,927)
—
(9,927)
—
(6,792)
—
(6,792)
Certain equity method investments
e
—
8,683
—
8,683
—
8,314
—
8,314
Carried interest
f
—
427
—
427
—
(718)
—
(718)
Proprietary trading, interest and dividends
g
—
5,275
(13,353)
(8,078)
—
5,687
(19,584)
(13,897)
Insurance related activities expenses
h
—
(33,938)
—
(33,938)
—
(33,906)
—
(33,906)
Associated partner/banker compensation
j
5,621
(5,621)
—
—
5,377
(5,377)
—
—
Management company non-Controlling
interest
k
(1,391)
(3,923)
5,314
—
(1,388)
(5,504)
6,892
—
Total Management Presentation
Reclassifications:
4,230
(81,704)
(8,039)
(85,513)
3,989
(79,701)
(12,692)
(88,404)
Fund Consolidated Reclassifications
l
—
(630)
4,973
4,343
—
(5,409)
28,883
23,474
Income Statement Adjustments:
Acquisition related amounts
n
—
(6,593)
—
(6,593)
—
(606)
—
(606)
Contingent liability adjustments
n
—
(15,118)
—
(15,118)
—
(8,492)
—
(8,492)
Goodwill and/or other impairment
r
—
(1,009)
—
(1,009)
—
(2,423)
—
(2,423)
Total Income Statement Adjustments:
—
(22,720)
—
(22,720)
—
(11,521)
—
(11,521)
Total Economic Expenses
$
1,050,601
$
378,768
$
5,314
$ 1,434,683
$
864,520
$
335,200
$
6,892
$ 1,206,612
56
(unaudited)
Year Ended December 31, 2019
(Dollar amounts in thousands)
Employee
Compensation
and Benefits
Non-compensation
US GAAP Expenses
Net income (loss) attributable to
non-controlling interests in
consolidated subsidiaries and
investment funds
Total
Total US GAAP
$
535,772
$
413,092
$
31,239
$
980,103
Management Presentation Reclassifications:
Underwriting expenses
a
—
(15,067)
—
(15,067)
Reimbursable client expenses
b
—
(16,633)
—
(16,633)
Fund start-up costs and distribution fees
d
—
(6,623)
—
(6,623)
Certain equity method investments
e
—
7,690
—
7,690
Carried interest
f
—
(434)
—
(434)
Proprietary trading gains and losses
g
—
3,277
3,264
6,541
Insurance related activities expenses
h
—
(44,092)
—
(44,092)
Associated partner/banker compensation
j
3,419
(3,419)
—
—
Management company non-Controlling interest
k
(1,653)
(3,143)
4,796
—
Total Management Presentation Reclassifications:
1,766
(78,444)
8,060
(68,618)
Fund Consolidated Reclassifications
l
—
(8,963)
(34,503)
(43,466)
Income Statement Adjustments:
Acquisition adjustments
n
—
(2,608)
—
(2,608)
Goodwill and other impairment
r
—
(4,100)
—
(4,100)
Total Income Statement Adjustments:
—
(6,708)
—
(6,708)
Total Economic Expenses
$
537,538
$
318,977
$
4,796
$
861,311
57
The following table reconciles US GAAP Net Income (loss) Attributable to Cowen Inc. Common Stockholders to Pre-tax Economic Income (Loss), Economic Income (loss),
and Economic Operating Income (loss) for the year ended December 31, 2021, 2020, and 2019:
(unaudited)
Year Ended December 31,
(Dollar amounts in thousands)
2021
2020
2019
US GAAP Net income (loss) attributable to Cowen Inc. common stockholders
$
288,819
$
209,571
$
17,839
Income Statement Adjustments:
US GAAP Income tax expense (benefit)
o
102,039
90,373
14,853
Amortization of discount (premium) on debt
m
1,604
4,499
4,297
Goodwill and/or other impairment
r
1,009
2,423
4,100
Debt extinguishment gain (loss) and/or accelerated debt costs
p
10,095
(2,719)
—
Bargain purchase gain
n
(3,855)
—
—
Contingent liability adjustments
n
15,118
8,492
—
Acquisition related amounts
n
6,593
606
2,608
Preferred stock dividends
q
6,792
6,792
6,792
Pre-tax Economic Income (Loss)
428,214
320,037
50,489
Economic income tax expense *
(109,194)
—
—
Preferred stock dividends
(6,792)
(6,792)
(6,792)
Economic Income (Loss) *
$
312,228
$
313,245
$
43,697
Add back: Depreciation and amortization expense, net of taxes
14,158
22,677
20,439
Economic Operating Income (Loss)
$
326,386
$
335,922
$
64,136
* Economic Income (Loss) is presented net of associated taxes starting in the first quarter of 2021. The Company has utilized all available federal net operating losses not
subject to limitation during 2020.
58
Management Reclassifications
Management reclassification adjustments and fund consolidation reclassification adjustments have no effect on Economic Operating Income (Loss).
These adjustments are reclassifications to change the location of certain line items.
a
Underwriting expenses: Economic Proceeds presents investment banking revenues net of underwriting expenses.
b
Reimbursable client expenses: Economic Proceeds presents expenses reimbursed from clients and affiliates within their respective expense category
but is included as a part of revenues under US GAAP.
c
Securities financing interest expense: Brokerage within Economic Proceeds included net securities borrowed and securities loaned activities which are
shown gross in interest income and interest expense for US GAAP.
d
Fund start-up costs, distribution and other fees: Economic Proceeds and Economic Interest Expense are net of fund start-up costs and distribution fees
paid to agents and other debt service costs.
e
Certain equity method investments: Economic Proceeds and Economic Expenses recognize the Company's proportionate share of management and
incentive fees and associated share of expenses on a gross basis for equity method investments within the activist business, real estate operating
entities and the healthcare royalty business. The Company applies the equity method of accounting to these entities and accordingly the results from
these businesses are recorded within Other Income (Loss) for US GAAP.
f
Carried interest: The Company applies an equity ownership model to carried interest which is recorded in Investment income - Carried interest
allocation for US GAAP. The Company presents carried interest as Incentive Income Economic Proceeds.
g
Proprietary trading, interest and dividends: Economic Proceeds presents interest and dividends from the Company's proprietary trading in investment
income.
h
Insurance related activities expenses: Economic Proceeds presents underwriting income from the Company's insurance and reinsurance related
activities, net of expenses, within other revenue. The costs are recorded within expenses for US GAAP reporting.
i
Facilitation trading gains and losses: Economic Brokerage Proceeds presents gains and losses on investments held as part of the Company's
facilitation and trading business within brokerage revenues as these investments are directly related to the markets business activities while these are
presented in Investment income - Securities principal transactions, net for US GAAP reporting.
j
Associated partner/banker compensation reclassification: Economic Compensation Expense presents certain payments to associated banking partners
as compensation rather than non-compensation expenses.
k
Management company non-controlling interest: Economic Expenses non-controlling interest represents only operating entities that are not wholly
owned by the Company. The Company also presents non-controlling interests within total expenses for Economic Income (Loss).
Fund Consolidation Reclassifications
l
The impacts of consolidation and the related elimination entries of the Consolidated Funds are not included in Economic Income (Loss). Adjustments to
reconcile to US GAAP Net Income (Loss) included elimination of incentive income and management fees earned from the Consolidated Funds and
addition of investment fund expenses excluding management fees paid, investment fund revenues and investment income (loss).
Income Statement Adjustments
m
Pre-tax Economic Income (Loss) excludes the amortization of discount (premium) on debt.
n
Pre-tax Economic Income (Loss) excludes acquisition related adjustments (including bargain purchase gain and contingent liability adjustments).
o
Pre-tax Economic Income (Loss) excludes US GAAP income taxes.
p
Pre-tax Economic Income (Loss) excludes gain/(loss) on debt extinguishment and accelerated debt costs.
q
Pre-tax Economic income (Loss) excludes preferred stock dividends.
r
Economic Income (Loss) excludes goodwill and other impairments.
59
Liquidity and Capital Resources
We continually monitor our liquidity position. The working capital needs of the Company's business have been met through
current levels of equity capital, current cash and cash equivalents, and anticipated cash generated from our operating activities,
including management fees, incentive income, returns on the Company's own capital, investment banking fees and brokerage
commissions. The Company expects that its primary working capital liquidity needs over the next twelve months will be:
•
to pay our operating expenses, primarily consisting of compensation and benefits, interest on debt and other general and
administrative expenses; and
•
to provide capital to facilitate the growth of our existing business.
Based on our historical results, management's experience, our current business strategy and current assets under
management, the Company believes that its existing cash resources will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next twelve months. However, the Company’s assessment could be affected by
various risks and uncertainties, including but not limited to, the effects of the COVID-19 pandemic. Our cash reserves include
cash, cash equivalents and assets readily convertible into cash such as our securities held in inventory. Securities inventories are
stated at fair value and are generally readily marketable. As of December 31, 2021, we had cash and cash equivalents of $914.3
million and net liquid investment assets of $1.3 billion, which includes cash and cash equivalents and short-term investments held
by foreign subsidiaries as of December 31, 2021 of $130.7 million. The Company continues to permanently reinvest the capital
and accumulated earnings of its subsidiaries in the United Kingdom, Malta, Germany, Switzerland, Canada, South Africa, and
Hong Kong.
The timing of cash bonus payments to our employees may significantly affect our cash position and liquidity from period to
period. While our employees are generally paid salaries semi-monthly during the year, cash bonus payments, which can make up
a significant portion of total compensation, are generally paid by March 15th.
As a clearing member firm providing services to certain of our brokerage customers, we are subject to cash deposit
requirements with clearing organizations, brokers and banks that may be large in relation to total liquid assets and may fluctuate
significantly based upon the nature and size of customers' trading activity and market volatility. At December 31, 2021, the
Company had security deposits totaling $111.9 million with clearing organizations in the U.S. for the settlement of equity trades.
In the normal course of our U.S. settlement activities, we may also need to temporarily finance customer securities positions from
short settlements or delivery failures.
The Company may incur additional indebtedness or raise additional capital under certain circumstances to respond to
market opportunities and challenges. Current market conditions may make it more difficult or costly to borrow additional funds or
raise additional capital.
Unfunded commitments
The following table summarizes unfunded commitments as of December 31, 2021:
Entity
Unfunded Commitments
Commitment term
(dollars in thousands)
HealthCare Royalty Partners funds (a)
$
3,886
3 years
Eclipse Ventures Fund I, L.P.
$
28
3 years
Eclipse Fund II, L.P.
$
23
4 years
Eclipse Continuity Fund I, L.P.
$
20
5 years
Cowen Healthcare Investments III LP
$
2,632
5 years
Cowen Healthcare Investments IV LP
$
6,399
6 years
Cowen Sustainable Investments I LP
$
14,643
8 years
(a) The Company is a limited partner of the HealthCare Royalty Partners funds (which are managed by Healthcare Royalty
Management) and is a member of HealthCare Royalty Partners General Partners. The Company will make its pro-rata investment
in the HealthCare Royalty Partners funds along with the other limited partners.
Due to the nature of the securities business and our role as a market-maker and execution agent, the amount of our cash and
short-term investments, as well as operating cash flow, may vary considerably due to a number of factors, including the dollar
value of our positions as principal, whether we are net buyers or sellers of securities, the dollar volume of executions by our
customers and clearinghouse requirements, among others. Certain regulatory requirements constrain the use of a portion of our
liquid assets for financing, investing or operating activities. Similarly, due to the nature of our business lines, the capital necessary
to maintain current operations and our current funding needs subject our cash and cash equivalents to different requirements and
uses.
60
Preferred Stock and Purchase of Capped Call Option
On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative
perpetual convertible preferred stock ("Series A Convertible Preferred Stock") that provided $117.2 million of proceeds, net of
underwriting fees and issuance costs of $3.6 million. Each share of the Series A Convertible Preferred Stock is entitled to
dividends at a rate of 5.625% per annum, which will be payable, when and if declared by the board of directors of the Company,
quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Company may, at its option, pay
dividends in cash, common stock or a combination thereof. The Company declared and paid a cash dividend in respect of the
Series A Convertible Preferred Stock of $6.8 million, in each of the years ended December 31, 2021, 2020, and 2019.
Each share of Series A Convertible Preferred Stock is non-voting and has a liquidity preference over the Company's Class
A common stock and ranks senior to all classes or series of the Company's Class A common stock, but junior to all of the
Company's existing and future indebtedness with respect to dividend rights and rights upon the Company's involuntary
liquidation, dissolution or winding down.
Upon issuance, each share of Series A Convertible Preferred Stock was convertible, at the option of the holder, into a
number of shares of the Company's Class A common stock equal to the liquidation preference of $1,000 divided by the
conversion rate. The initial conversion rate (subsequent to the December 5, 2016 reverse stock split) is 38.0619 shares (which
equates to $26.27 per share) of the Company's Class A common stock for each share of the Series A Convertible Preferred Stock.
At any time on or after May 20, 2020, when the Company's capped call option expired, the Company was able to elect to convert
all outstanding shares of the Series A Convertible Preferred Stock into shares of the Company's Class A common stock, cash or a
combination thereof, at the Company's election, in each case, based on the then-applicable conversion rate, if the last reported sale
price of the Company's Class A common stock equals or exceeds 150% of the then-current conversion price on at least 20 trading
days (whether or not consecutive) during the period of 30 consecutive trading days (including on the last trading day of such
period) immediately prior to such election. At the time of conversion, the conversion rate may be adjusted based on certain
events, including but not limited to the issuance of cash dividends or Class A common stock as dividends to the Company's Class
A common shareholders or a share split or combination.
On December 31, 2021, the Company irrevocably elected that, upon the conversion of any share of the outstanding Series A
Convertible Preferred Stock, the Company will settle $1,000 of its conversion obligation in cash. With respect to each conversion,
to the extent the conversion obligation per share of Series A Convertible Preferred Stock is greater than $1,000, the Company may
satisfy its conversion obligation in respect of such excess using any settlement method permitted under the Certificate of
Designations. As the holders can exercise the conversion option on their shares at any time and require cash payment upon
conversion, the Company reclassified the Series A Convertible Preferred Stock to temporary equity at December 31, 2021.
Regulation
Regulatory Capital
As registered broker-dealers with the United States Securities and Exchange Commission ("SEC"), Cowen and Company,
ATM Execution and Westminster are subject to the Uniform Net Capital Rule 15c3-1, "SEA Rule 15c3-1," under the Securities
Exchange Act ("SEA") of 1934, which requires the maintenance of minimum net capital. Each registered broker-dealer has
elected to compute net capital under the alternative method permitted by that rule.
Effective June 1, 2021, Cowen Prime Services LLC ("Cowen Prime") transferred all of the net assets of its investment
advisory business to a newly formed investment advisor, Cowen Prime Advisors LLC. Cowen Prime Advisors LLC succeeded to
Cowen Prime’s SEC investment advisor registration on that date pursuant to statutory guidance. As a result of implementing that
guidance and the succession process, Cowen Prime is no longer registered as an investment advisor with the SEC.
As of June 30, 2021, Cowen Prime and Cowen and Company were granted regulatory approval to merge from the Financial
Industry Regulatory Authority Inc. The companies completed the merger on September 1, 2021 with Cowen and Company being
the surviving entity. As a result of the merger, Cowen Prime filed a notice of full withdrawal from registration as a broker-dealer
with the SEC, all self-regulatory organizations, and all states on October 19, 2021 and the withdrawal of its registration with the
SEC became effective on November 15, 2021.
The Company acquired Portico, a registered broker-dealer on December 16, 2021. As a result of the acquisition, Portico's
net assets were transferred into Cowen and Company. The Company applied to withdraw Portico's status as a FINRA registered
broker-dealer on December 20, 2021 which was approved by the SEC on February 18, 2022.
Under the alternative method, Cowen and Company's minimum net capital requirement, as defined in (a)(4) of SEA Rule
15c3-1, is equal to the greater of $1.5 million or 2% of aggregate debits arising from customer transactions. ATM Execution, and
Westminster are required to maintain minimum net capital, as defined in (a)(1)(ii) of SEA Rule 15c3-1, equal to the greater of
$250,000 or 2% of aggregate debits arising from customer transactions. Advances to affiliates, repayment of borrowings,
61
distributions, dividend payments, and other equity withdrawals are subject to certain notification and other provisions of SEA
Rule 15c3-1 and other regulatory bodies.
Cowen and Company is also subject to certain net capital rule requirements under the Regulation 1.17 of the Commodity
Futures Trading Commission ("CFTC") under Commodities Exchange Act (“CEA”) as an introducing broker. Under Regulation
1.17, Cowen and Company is required to maintain net capital equal to or in excess of $45,000 or the amount of net capital
required by SEA Rule 15c3-1, whichever is greater. Additionally, as an options clearing member of the Options Clearing
Corporation ("OCC") under OCC Rule 302, Cowen and Company is required to maintain net capital equal to the greater of $2.0
million or 2% of aggregate debit items. At December 31, 2021, Cowen and Company had $360.3 million of net capital in excess
of its minimum requirements under SEA Rule 15c3-1.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21,
2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-
based swap dealers, and/or major security-based swap participants. The CFTC has finalized rules establishing capital
requirements and financial reporting requirements for CFTC registered swap dealers not subject to regulation by a banking
regulator. The SEC has finalized rules establishing similar standards for an entity registering as a standalone securities-based
swaps dealer. On October 6, 2021, Cowen Financial Products LLC (“CFP”) became subject to the SEC’s standalone securities-
based swap regulatory requirements. CFP registered with the SEC with an effective date of November 1, 2021 as a securities-
based swap dealer and is not using models to compute its net capital. Under the rules there is a minimum net capital requirement
for, among others, an entity that acts as a dealer in security-based swaps, which is the greater of $20 million or 2% of risk margin
amount The risk margin amount means the sum of (i) the total initial margin required to be maintained by the SEC securities-
based swaps dealer at each clearing agency with respect to securities-based swaps transactions cleared for securities-based swap
customers and (ii) the total initial margin amount calculated by the SEC securities-based swaps dealer swaps dealer with respect
to non-cleared securities-based swaps under new SEC rules. At December 31, 2021, CFP had $17.8 million of net capital in
excess of its minimum requirements under SEA Rule 18a-1.
Cowen International Ltd and Cowen Execution Ltd are subject to the capital requirements of the U.K. Financial Conduct
Authority ("FCA"), as defined, and must exceed the minimum capital requirement set forth by the FCA.
Cowen Asia, a previously established entity, was re-registered with regulatory approval on May 17, 2019. Cowen Asia is
subject to the financial resources requirements of the Securities and Futures Commission ("SFC") of Hong Kong. Financial
Resources must exceed the Total Financial Resources requirement of the SFC.
As of December 31, 2021, these regulated broker-dealers had regulatory net capital or financial resources, regulatory net
capital requirements or minimum FCA or SFC requirement and excess as follows:
Subsidiary
Net Capital
Net Capital Requirement
Excess Net Capital
(dollars in thousands)
Cowen and Company
$
367,203
$
6,874
$
360,329
ATM Execution
$
6,778
$
250
$
6,528
Westminster
$
18,997
$
250
$
18,747
Cowen International Ltd
$
52,610
$
22,312
$
30,298
Cowen Execution Ltd
$
16,482
$
4,168
$
12,314
CFP
$
37,756
$
20,000
$
17,756
Cowen Asia
$
2,081
$
385
$
1,696
Customer Protection
The Company's U.S. broker-dealers must also comply with the customer protection provisions under SEA Rule 15c3-3
which requires a computation of a reserve requirement for customer and maintenance of a deposit of cash or securities into a
special reserve bank account for the exclusive benefit of customers; or claim an exemption pursuant to subparagraphs (k)(2)(i) or
(k)(2)(ii) of that rule. Firms can rely on more than one exemption.
ATM Execution claims the (k)(2)(ii) exemption with regard to all of their customer accounts and transactions that are
introduced on a fully-disclosed basis to their clearing agents for clearing, settlement and custody. Westminster claims the (k)(2)(i)
exemption with regards to customer transactions and balances that are cleared, settled and custodied in bank accounts designated
as Special Accounts for the Exclusive Benefit of Customers ("Special Bank Accounts"). Westminster also claims exemption for
other business activities that are not covered under (k)(2)(i) contemplated by Footnote 74 of the SEC Release No. 34-70073
adopting amendments to 17 C.F.R. § 240.17a-5 for receiving transaction-based compensation in return for providing commission
management services.
62
In accordance with the requirements of SEA Rule 15c3-3, Cowen and Company may be required to deposit in a Special
Reserve Account cash or acceptable qualified securities for the exclusive benefit of customers. As of December 31, 2021, Cowen
and Company had segregated approximately $51.8 million of cash to satisfy the customer reserve provision of SEA Rule 15c3-3.
As a clearing and carrying broker-dealer, Cowen and Company is required to compute a reserve requirement for proprietary
accounts of broker-dealers ("PAB"), as defined in SEA Rule 15c3-3. Cowen and Company conducts PAB reserve computations in
order to determine the amount it is required to deposit in its PAB Reserve Bank Accounts pursuant to SEA Rule 15c3-3. This
allows each correspondent firm that uses Cowen and Company as its clearing broker-dealer to classify its PAB account assets held
at Cowen and Company as allowable assets in the correspondent's net capital calculation. At December 31, 2021, Cowen and
Company had $57.2 million of cash on deposit in PAB Reserve Bank Accounts. Cowen and Company and ATM Execution also
maintain certain assets in PAB accounts held at their respective clearing brokers. Each treats its assets held in those PAB accounts
at the respective clearing brokers as allowable assets for net capital purposes.
Cowen Financial Products, as a registered securities based swap dealer, claims Rule 18a-4(f) exemption under the Securities
and Exchange Act of 1934 (the “Act”) with regard to its swap counterparties on the basis that it has provided sufficient notice to
its swap counterparties of their respective rights to require segregation of funds or other property used to secure uncleared security
based swaps pursuant to section 3E(f)(1)(A)-(B) of the Act (15 U.S.C. 78c-5(f)(1)(A)). Any margin collateral received and held
by the security based swap dealer with respect to uncleared security based swaps will not be subject to a segregation requirement.
The notice outlines how a claim of those swap counterparties for the collateral would be treated in a bankruptcy or other formal
liquidation proceeding of the security-based swap dealer.
Other Regulatory Requirements
Cowen Insurance Co and Cowen Re are individually required to maintain a solvency capital ratio as calculated by relevant
European Commission directives and local regulatory rules in Malta and Luxembourg, respectively. Each company's individual
solvency capital ratio calculated at the end of each quarter must exceed a minimum requirement. As of March 31, 2021 and
September 30, 2021 (the last testing date for Cowen Re and Cowen Insurance Co respectively), the solvency capital ratios of both
Cowen Insurance Co and Cowen Re were in excess of the minimum requirements.
Based on minimum capital and surplus requirements pursuant to the laws of the state of New York that apply to captive
insurance companies, RCG Insurance Company, Cowen's captive insurance company incorporated and licensed in the state of
New York, was required to maintain capital and surplus of approximately $0.3 million as of December 31, 2021. RCG Insurance
Company’s capital and surplus as of December 31, 2021 totaled $6.0 million.
Cash Flows Analysis
The Company's primary sources of cash are derived from its operating activities, realized returns on its own invested capital
and borrowings on debt. The Company's primary uses of cash include compensation and general and administrative expenses.
Operating Activities. Net cash provided by operating activities of $306.6 million for the year ended December 31, 2021
was primarily related to (i) Company net income, (ii) a decrease in securities owned, at fair value, (iii) an increase in proceeds
from sales of securities owned, at fair value, (iv) increase in payable to customers and (v) a decrease in stock loan. Net cash
provided by operating activities of $513.2 million for the year ended December 31, 2020 was primarily related to (i) Company net
income, (ii) proceeds from securities owned, at fair value, held at broker-dealers (iii) increase in payable to customers offset
partially by the decrease in purchases of securities owned, at fair value, the decrease in securities borrowed, and the decrease in
receivable from brokers, dealers and clearing organizations. Net cash used in operating activities of $208.3 million for the year
ended December 31, 2019 was primarily related to the purchases of securities owned, at fair value, held at broker-dealer, offset
partially by stock borrow stock loan activity.
Investing Activities. Net cash used in investing activities of $75.5 million for the year ended December 31, 2021 was
primarily related to (i) purchases of other investments only partially offset with the proceeds from sales of other investments and
(ii) purchases of assets through acquisition, net of cash acquired. Net cash used in investing activities of $43.0 million for the year
ended December 31, 2020 was primarily related to the purchases of other investments only partially offset by the proceeds from
sales of other investments. Net cash used in investing activities of $47.6 million for the year ended December 31, 2019 was
primarily related to the purchase of Quarton and other investments.
Financing Activities. Net cash used in financing activities for the year ended December 31, 2021 of $15.7 million was
primarily related to (i) borrowings on notes and other debt partially offset by repayments on notes and other debt and (ii) purchase
of treasury stock and (iii) repayments on convertible debt. Net cash provided by financing activities for the year ended December
31, 2020 of $25.6 million was primarily related to (i) capital contributions by non-controlling interests in Consolidated Funds
offset only partially by capital withdrawals by non-controlling interests in Consolidated Funds and (ii) borrowings on notes and
other debt offset only partially by repayments on notes and other debt. Net cash provided by financing activities for the year
ended December 31, 2019 of $200.4 million was primarily related to (i) capital contributions by non-controlling interests offset
63
only partially by capital withdrawals by non-controlling interests in Consolidating Funds and (ii) borrowings on notes and other
debt.
Debt
Convertible Debt
December 2022 Convertible Notes
The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes
due December 2022 (the “December 2022 Convertible Notes”). The December 2022 Convertible Notes have a final maturity date
of December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior
to such date. The interest on the December 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of
each year. The December 2022 Convertible Notes are senior unsecured obligations of Cowen. The December 2022 Convertible
Notes were issued with an initial conversion price of $17.375 per share of Cowen's Class A common stock. Pursuant to the
indenture governing the December 2022 Convertible Notes, conversions of the December 2022 Convertible Notes will be settled
by the delivery and/or payment, as the case may be, of Cowen’s Class A Common Stock, cash, or a combination thereof, at the
Company's election.
The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial
unamortized discount on the December 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the
accompanying consolidated statements of financial condition. On June 26, 2018, the Company received shareholder approval for
the Company to settle the December 2022 Convertible Notes entirely in Class A common stock. Upon receiving shareholder
approval, the Company reclassified the separately recognized conversion option from a derivative liability to equity.
During December 2020, the Company repurchased and extinguished $46.9 million of the outstanding principal amount of
the December 2022 Convertible Notes for cash consideration of $70.5 million. In conjunction with the partial extinguishment of
the December 2022 Convertible Notes, the Company accelerated the pro rata unamortized discount of $3.6 million and capitalized
debt issuance costs of $0.4 million. The Company allocated $29.6 million of the cash consideration paid to the extinguishment of
the equity component of the December 2022 Convertible Notes. The Company recognized $2.7 million of gain on debt
extinguishment.
On March 24, 2021, the Company issued a redemption notice announcing that the Company would redeem all of the
December 2022 Convertible Notes, and provided holders the option to elect to settle the as-converted value of the December 2022
Convertible Notes as allowed under the terms of the December 2022 Convertible Notes. As a result of the Company’s call for
redemption of the December 2022 Convertible Notes, the December 2022 Convertible Notes were convertible, at the option of the
holder at any time prior to June 22, 2021, the second business day prior to the December 2022 Convertible Notes' Redemption
Date. On June 24, 2021 (the "Redemption Date") the Company redeemed all of the outstanding principal amount of the December
2022 Convertible Notes. The redemption amount was determined based on the holders election to convert, which allowed for
either 100.00% of the principal amount thereof plus accrued and unpaid interest on such principal amount up to June 15, 2021, to,
but not including the Redemption Date of the December 2022 Convertible Notes, or the value of the Company's Class A common
stock to be issued on conversion. The settlement method for the December 2022 Convertible Notes was $88.1 million in cash, (the
outstanding principal amount of the December 2022 Convertible Notes) and 2,938,841 shares of the Company’s Class A
common stock, (the remainder of the conversion obligation in excess of the principal amount). The conversion rate on the
December 2022 Convertible Notes on the Redemption Date was 33.35 shares of the Company’s Class A common stock per
$1,000 principal amount of December 2022 Convertible Notes converted. In conjunction with the redemption of the remaining
December 2022 Convertible Notes, the Company accelerated the pro rata unamortized discount of $5.1 million and capitalized
debt issuance costs of $0.5 million.
Amortization on the discount, included within interest and dividends expense in the accompanying consolidated statements
of operations is $6.7 million, $4.6 million and $4.3 million for the years ended December 31, 2021, 2020, and 2019, respectively,
based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.2 million,
which is a direct deduction from the carrying value of the debt and was amortized over the life of the December 2022 Convertible
Notes in interest and dividends expense in the accompanying consolidated statements of operations. The Company recorded
interest expense of $1.2 million, $4.0 million and $4.1 million for the years ended December 31, 2021, 2020, and 2019,
respectively.
64
Notes Payable
May 2024 Notes
On May 7, 2019, the Company completed its private placement of $53.0 million aggregate principal amount of 7.25% senior
notes due May 2024 (the "May 2024 Notes") with certain institutional investors. On September 30, 2019, the Company issued an
additional $25.0 million of the same series of notes. The additional May 2024 Notes were purchased at a premium of $0.5 million,
which is shown net in notes payable in the accompanying consolidated statement of financial condition. To date the May 2024
Notes have maintained their initial private rating, and the interest rate has remained unchanged. Interest on the May 2024 Notes is
payable semi-annually in arrears on May 6 and November 6. The Company recorded interest expense of $5.7 million, $5.7 million
and $2.9 million for the years ended December 31, 2021, 2020, and 2019, respectively. The Company capitalized debt issuance
costs of approximately $1.5 million in May 2019 and $0.6 million in September 2019, which is a direct deduction from the
carrying value of the debt and will be amortized over the life of the May 2024 Notes in interest and dividends expense in the
accompanying consolidated statements of operations.
June 2033 Notes
On June 11, 2018, the Company completed its public offering of $90.0 million of 7.75% senior notes due June 2033 (the
"June 2033 Notes") and subsequently the underwriters exercised in full their option to purchase an additional $10.0
million principal amount of the June 2033 Notes. Interest on the June 2033 Notes is payable quarterly in arrears on March 15,
June 15, September 15 and December 15. The Company recorded interest expense of $7.7 million for the years ended December
31, 2021, 2020, and 2019, respectively. The Company capitalized debt issuance costs of approximately $3.6 million which is a
direct deduction from the carrying value of the debt and will be amortized over the life of the June 2033 Notes in interest and
dividends expense in the accompanying consolidated statements of operations.
December 2027 Notes
On December 8, 2017, the Company completed its public offering of $120.0 million of 7.35% senior notes due December
2027 (the "December 2027 Notes") and subsequently the underwriters exercised in full their option to purchase an
additional $18.0 million principal amount of the December 2027 Notes. Interest on the December 2027 Notes is payable quarterly
in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $2.5 million,
$10.1 million, and $10.1 million for years ended December 31, 2021, 2020, and 2019, respectively. The Company capitalized
debt issuance costs of approximately $5.0 million which is a direct deduction from the carrying value of the debt and will be
amortized over the life of the December 2027 Notes in interest and dividends expense in the accompanying consolidated
statements of operations. The net proceeds of the offering, after deducting the underwriting discount and estimated offering
expenses payable by the Company were used to redeem all of its 8.25% senior notes due October 2021 and for general corporate
purposes.
On March 24, 2021, the Company delivered payment of and discharged all $138.0 million outstanding aggregate principal
of the December 2027 Notes plus accrued and unpaid interest through the effective redemption date of April 23, 2021. In
conjunction with the extinguishment of the December 2027 Notes , the Company accelerated the pro-rata capitalized debt
issuance costs. For the year ended December 31, 2021, the Company recognized $4.4 million of loss on debt extinguishment.
Term Loan
March 2028 Term LoanOn March 24, 2021, the Company borrowed $300 million of first lien term loan due March 24, 2028. On
December 15, 2021, the Company borrowed an additional $150 million first lien term loan under the same terms and conditions
as, and fungible with, the initial first lien term loan (collectively, the “March 2028 Term Loan”). The aggregate amount borrowed
under the March 2028 Term Loan is $450 million. The March 2028 Term Loan bears interest at an annual rate equal to, at the
option of the Company, either the (a) London Inter-bank Offered Rate ("LIBOR") (adjusted for reserves and subject to a floor of
0.75%) plus a margin of 3.25% or (b) an alternate base rate plus a margin of 2.25%. The Company is required to pay
amortization of approximately 1.00% per annum of the original principal amount of the March 2028 Term Loan. The obligations
of the Company for the March 2028 Term Loan are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries
(excluding its broker-dealer subsidiaries) (the “Guarantors”) and secured by substantially all of the assets of the Company and the
Guarantors, subject in each case to certain customary exceptions. The terms of the March 2028 Term Loan contain customary
affirmative and negative covenants, subject to certain customary exceptions, thresholds, qualifications and “baskets”. Proceeds
from the March 2028 Term Loan were used to (i) satisfy and discharge and redeem the Company’s 2027 Senior Notes, (ii) redeem
the Company’s December 2022 Convertible Notes that remained outstanding as of March 31, 2021 and pay the cash settlement
amount in connection with the conversion of December 2022 Convertible Notes prior to that redemption date, and (iii) for the
payment of fees, commissions, premiums, expenses and other transaction costs (including original issue discount or upfront fees)
65
payable in connection with the transactions related thereto. As of December 31, 2021, the outstanding principal amount of the
March 2028 Term Loan was $446.6 million.
Interest expense for the March 2028 Term Loan was $9.7 million for the years ended December 31, 2021, based on an
effective interest rate of 4.46%. In March 2021, the Company capitalized debt issuance costs of approximately $6.6 million and
initial unamortized discount of $1.5 million related to the March 2028 Term Loan which is a direct deduction from the carrying
value of the debt and will be amortized over the life of the March 2028 Term loan in interest and dividends expense in the
accompanying consolidated statements of operations. In December 2021, the Company capitalized debt issuance costs of
approximately $2.7 million and unamortized discount of $1.5 million related to the additional borrowing of $150 million which is
a direct deduction from the carrying value of the debt and will be amortized over the life of the March 2028 Term loan in interest
and dividends expense in the accompanying consolidated statements of operations.
The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that all US Dollar LIBOR settings will
either cease to be provided by any administrator or no longer be representative as of June 30, 2023. As the March 2028 Term
Loan represents the Company’s only significant exposure to LIBOR as of December 31, 2021, the transition to an alternative
Inter-bank Offer Rate is not expected to have a material impact on Company's consolidated financial statements.
June 2020 Term Loan
On June 30, 2017, a subsidiary of the Company borrowed $28.2 million to fund general corporate purposes. In July 2019,
the subsidiary of the Company borrowed separately, from the same lender, $4.0 million to fund general corporate purposes. Each
loan was secured by the value of the Company's limited partnership interests in two affiliated investment funds. The Company
had provided a guarantee for these loans. Both loans had an effective interest rate of LIBOR plus 3.75% with a lump sum
payment of the entire combined principal amount due (as amended) on June 26, 2020 when they were both fully repaid. The
Company recorded interest expense of $0.8 million and $1.8 million for the years ended December 31, 2020 and 2019.
Other Notes Payable
During January 2021, the Company borrowed $3.0 million to fund insurance premium payments. This note had an effective
interest rate of 2.01% and was due in December 2021, with monthly payment requirements of $0.3 million. As of December 31,
2021, the note was fully repaid. Interest expense for the year ended December 31, 2021 was insignificant.
On September 30, 2020, the Company borrowed $72.0 million from Purple Protected Asset S-81 ("PPA S-81"), a
Luxembourg entity unrelated to Cowen. The Company repaid $60.0 million of the PPA S-81 loan in June 2021. The loan is
payable on September 30, 2023, had an initial interest rate of 1.4 times the Secured Overnight Financing Rate ("SOFR") plus
6.07% until December 31, 2020 and 1.4 times the SOFR plus 5.8% until June 30, 2021 and 3.65 times the SOFR plus 4.0%
thereafter with quarterly interest payments. The loan obligation, as well as a loan issued by The Military Mutual Ltd (a United
Kingdom company unrelated to Cowen) with principal of $28.4 million that was sold by Cowen Re to PPA S-81 at fair value for
no gain or loss on September 30, 2020, are fully cash collateralized through a reinsurance policy provided by Cowen Re which is
reflected in cash collateral pledged in the consolidated statements of financial condition as of December 31, 2020 (see Notes 4 and
22). The Company capitalized debt issuance costs of approximately $1.7 million which is a direct deduction from the carrying
value of the loan and will be amortized over the life of the loan in interest and dividends expense shown in the accompanying
consolidated statements of operations. The Company recorded interest expense of $3.0 million and $1.2 million for the years
ended December 31, 2021 and 2020, respectively, related to its loan payable to PPA S-81.
During November 2019, the Company borrowed $2.6 million to fund general corporate capital expenditures. This note had
an effective interest rate of 6% and is due in November 2024, with monthly payment requirements of $0.1 million. As of
December 31, 2021, the outstanding balance on this note was $1.5 million. Interest expense for the years ended December 31,
2021 and 2020 was and $0.1 million, respectively and for year ended December 31, 2019 was insignificant..
Spike Line
Pursuant to an amendment in May 2020, Cowen and Company replaced Cowen Execution Services LLC ("Cowen
Execution") as the borrower and accepted, reaffirmed and assumed all of Cowen Execution’s rights, duties, obligations and
liabilities under the spike line facility and the related loan documents. In August 2020, Cowen and Company renewed a one-year
committed spike line facility to cover short term increases in National Securities Clearing Corporation margin deposit
requirements. The spike line facility has a capacity of $70.0 million. This facility has (i) an effective interest rate equal to the
Federal Funds rate plus 2.50% on any money drawn from the liquidity facility and (ii) a commitment or unused line fee that is 50
basis points on the undrawn amount. All amounts outstanding under this facility were fully repaid during the second quarter of
2020. Interest expense for the year ended December 31, 2020 was $0.4 million.
66
Revolving Credit Facility
In December 2019, the Company entered into a two-year committed corporate credit facility with a capacity of
$25.0 million. This credit facility has (i) an effective interest rate equal to LIBOR plus 3.25% on any money drawn from the
credit facility and (ii) a commitment or unused line fee that is 50 basis points on the undrawn amount. All amounts outstanding
under this credit facility were fully repaid during the second quarter of 2020. Interest expense for the year ended December 31,
2020 was $0.3 million
Finance Lease Obligations
The Company has entered into various finance leases for computer equipment. These finance lease obligations are included
in notes payable and other debt in the accompanying consolidated statements of financial condition.
For the years ended December 31, 2021, 2020, and 2019, quantitative information regarding the Company's finance lease
obligations reflected in the accompanying consolidated statements of operations, the supplemental cash flow information and
certain other information related to finance leases were as follows:
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Lease cost
Finance lease cost:
Amortization of finance lease right-of-use assets
$
1,274
$
1,232
$
1,266
Interest on lease liabilities
116
171
227
Weighted average remaining lease term - operating leases (in years)
1.71
2.24
3.21
Weighted average discount rate - operating leases
4.70 %
4.89 %
4.88 %
Letters of Credit
As of December 31, 2021, the Company has the following irrevocable letters of credit, related to leased office space, for
which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit. The Company
also has pledged cash collateral for reinsurance agreements which amounted to $44.1 million, as of December 31, 2021, and
$106.8 million, as of December 31, 2020, which are expected to be released periodically as per the terms of the reinsurance policy
between September 30, 2021 and March 31, 2024.
.
Location
Amount
Maturity
(dollars in thousands)
New York
$
209
April 2023
New York
$
1,325
October 2022
New York
$
1,226
August 2022
Boston
$
194
March 2023
San Francisco
$
459
October 2025
$
3,413
To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of
December 31, 2021 and 2020 there were no amounts due related to these letters of credit.
67
Contractual Obligations
The following tables summarize the Company's contractual cash obligations as of December 31, 2021:
Total
< 1 Year
1-3 Years
3-5 Years
More Than
5 Years
(dollars in thousands)
Equipment, Service and Facility Leases
Real Estate and Other Facility Rental
$
109,429
$
24,697
$
46,539
$
18,730
$
19,463
Service Payments
56,810
25,085
17,765
6,603
7,357
Operating Equipment Leases
1,641
520
751
370
—
Total
167,880
50,302
65,055
25,703
26,820
Debt
Notes Payable
281,263
13,405
101,983
15,500
150,375
Term Loan
556,488
22,533
44,519
43,790
445,646
Finance Lease Obligation
1,745
1,128
563
54
—
Other Notes Payable
13,679
543
13,136
—
—
Total
$
853,175
$
37,609
$
160,201
$
59,344
$
596,021
Minimum payments for all debt outstanding
Annual scheduled maturities of debt and minimum payments for all debt outstanding as of December 31, 2021, are as
follows:
Notes
Payable
Term Loan
Other Notes
Payable
Finance Lease
Obligation
(dollars in thousands)
2022
$
13,405
$
22,533
$
543
$
1,128
2023
13,405
22,351
12,593
481
2024
88,578
22,168
543
82
2025
7,750
21,986
—
42
2026
7,750
21,804
—
12
Thereafter
150,375
445,646
—
—
Subtotal
281,263
556,488
13,679
1,745
Less (a)
(107,248)
(121,341)
(1,142)
(73)
Total
$ 174,015
$
435,147
$
12,537
$
1,672
(a) Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at
inception. This amount also includes capitalized debt costs and the unamortized discount on the Company's convertible
debt.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as of December 31, 2021. However, through indemnification
provisions in our clearing agreements, customer activities may expose us to off-balance-sheet credit risk. Pursuant to the clearing
agreements, we are required to reimburse our clearing broker, without limit, for any losses incurred due to a counterparty's failure
to satisfy its contractual obligations. However, these transactions are collateralized by the underlying security, thereby reducing
the associated risk to changes in the market value of the security through the settlement date.
Cowen and Company and ATM Execution are members of various securities exchanges and clearing organizations. Under
the standard membership agreement, members are required to guarantee the performance of other members and, accordingly, if
another member becomes unable to satisfy its obligations to the various securities exchanges and clearing organizations, all other
members would be required to meet the shortfall. The Company's liability under these arrangements is not quantifiable.
Accordingly, no contingent liability is carried in the accompanying consolidated statements of financial condition for these
arrangements.
Cowen and Company temporarily loans securities to other brokers in connection with its securities lending activities.
Cowen and Company receives cash as collateral for the securities loaned. Increases in securities prices may cause the market
value of the securities loaned to exceed the amount of cash received as collateral. In the event that counterparty to these
transactions does not return the loaned securities, Cowen and Company may be exposed to the risk of acquiring the securities at
68
prevailing market prices in order to satisfy its client obligations. Cowen and Company controls this risk by requiring credit
approvals for counterparties, by monitoring the market value of securities loaned on a daily basis, and by requiring additional cash
as collateral or returning collateral when necessary.
Cowen and Company temporarily borrows securities from other brokers in connection with its securities borrowing
activities. Cowen and Company deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause
the market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event that counterparty
to these transactions does not return collateral, Cowen and Company may be exposed to the risk of selling the securities at
prevailing market prices. Cowen and Company controls this risk by requiring credit approvals for counterparties, by monitoring
the collateral values on a daily basis, and by depositing additional collateral with counterparties or receiving cash when deemed
necessary.
Critical Accounting Policies and Estimates
Critical accounting policies are those that require the Company to make significant judgments, estimates or assumptions
that affect amounts reported in its consolidated financial statements or the notes thereto. The Company bases its judgments,
estimates and assumptions on current facts, historical experience and various other factors that the Company believes to be
reasonable and prudent. Actual results may differ materially from these estimates.
The following is a summary of what the Company believes to be its most critical accounting policies and estimates.
Consolidation
The Company's consolidated financial statements include the accounts of the Company, its subsidiaries, and entities in
which the Company has a controlling financial interest, including the Consolidated Funds, in which the Company has a
controlling general partner interest. All material intercompany transactions and balances have been eliminated in consolidation.
The Company's investment funds are not subject to these consolidation provisions with respect to their investments pursuant to
their specialized accounting.
The Company's consolidated financial statements reflect the assets, liabilities, revenues, expenses and cash flows of the
Consolidated Funds on a gross basis. The management fees and incentive income earned by the Company from the Consolidated
Funds were eliminated in consolidation; however, the Company's allocated share of net income from these investment funds was
increased by the amount of this eliminated income. Hence, the consolidation of these investment funds had no net effect on the
Company's net earnings. The Company consolidates all entities that it controls through a majority voting interest or otherwise,
including those investment funds in which the Company either directly or indirectly has a controlling financial interest. In
addition, the Company consolidates all variable interest entities for which it is the primary beneficiary.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is
a Voting Operating Entity ("VOE") or a Variable Interest Entity ("VIE") under US GAAP.
Voting Operating Entities—VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the
entity to finance its activities independently, (ii) the equity holders at risk have the obligation to absorb losses, the right to receive
residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance
and (iii) voting rights of equity holders are proportionate to their obligation to absorb losses or the right to receive returns.
Under US GAAP consolidation requirements, the usual condition for a controlling financial interest in a VOE is ownership
of a majority voting interest. Accordingly, the Company consolidates all VOEs in which it owns a majority of the entity's voting
shares or units.
Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with
US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation
model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's
economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could
potentially be significant to the VIE, is considered to be the primary beneficiary of the VIE and thus is required to consolidate it.
The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE and reassesses
whether it is the primary beneficiary on an ongoing basis as long as it has any continuing involvement with the VIE by
performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital
structure, contractual agreements between the Company and the VIE, the economic interests that create or absorb variability,
related party relationships and the design of the VIE.
The VIEs the Company has invested in act as investment managers and/or investment companies that may be managed by
the Company. The VIEs are financed through their operations and/or loan agreements with the Company.
69
In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs.
These VIEs are primarily investment funds for which the Company serves as the general partner, managing member and/or
investment manager with decision-making rights. The Company consolidates these investment funds when its variable interest is
potentially significant to the entity (see Note 6 for additional disclosures on VIEs).
The Company consolidates investment funds for which it acts as the managing member/general partner and investment
manager. At December 31, 2021, the Company consolidated the following investment funds: Ramius Enterprise LP
(“Enterprise LP”) and Cowen Private Investments LP ("Cowen Private"). At December 31, 2020, the Company consolidated the
following investment funds: Enterprise LP, Cowen Private, and Cowen Sustainable Investments I LP ("CSI I LP"). At December
31, 2019, the Company consolidated the following investment funds: Enterprise LP, Ramius Merger Fund LLC (the "Merger
Fund"), Cowen Private, Ramius Merger Arbitrage UCITS Fund ("UCITS Fund"), and CSI I LP.
During the first quarter of 2021, the Company deconsolidated CSI I LP due to the Company's ownership being diluted
through a capital equalization event. During the second quarter of 2020, the Company deconsolidated the Merger Fund and
UCITS Fund due to a partial redemption of the Company’s direct portfolio fund investment in Merger Fund and a partial
termination of the notional value of UCITS Fund units referenced in a total return swap with a third party. The Company
continues to hold a direct retained portfolio fund investment in the Merger Fund and CSI I LP and continues to have economic
exposure to the returns of UCITS Fund through a total return swap with a third party. Merger Fund, CSI I LP and UCITS Fund
continue to be related parties of the Company after deconsolidation. Each of CSI I Golden Holdco LP ("Golden HoldCo") and
CSI I Prodigy Holdco LP ("Prodigy HoldCo") were deconsolidated in the fourth quarter of 2020 when the Company raised
additional capital within the sustainable investing strategy that diluted the Company's direct and indirect ownership. As a result,
the Company's direct and indirect ownership in Golden Holdco and Prodigy Holdco is no longer expected to be significant to
either entity and the entities were deconsolidated.
Equity Method Investments—For operating entities over which the Company exercises significant influence but which do
not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The
Company's investments in equity method investees are recorded in other investments in the accompanying consolidated
statements of financial condition. The Company's share of earnings or losses from equity method investees is included in Net
gains (losses) on other investments in the accompanying consolidated statements of operations.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances
indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the
equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed
other than temporary.
Other—If the Company does not consolidate an entity or apply the equity method of accounting, the Company accounts for
its investment in such entity (primarily consisting of securities of such entity which are purchased and held principally for the
purpose of selling them in the near term and classified as trading securities), at fair value with unrealized gains (losses) resulting
from changes in fair value reflected within Investment income (loss) - Securities principal transactions, net or Investment income
(loss) - portfolio fund investment income (loss) in the accompanying consolidated statements of operations.
Retention of Specialized Accounting—The Consolidated Funds and certain other consolidated companies are investment
companies and apply specialized industry accounting. The Company reports its investments on the consolidated statements of
financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within
Consolidated Funds - Principal transactions, net in the accompanying consolidated statements of operations. Accordingly, the
accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not
they are held through a consolidated investment company.
Certain portfolio fund investments qualify as equity method investments and are investment companies that apply
specialized industry accounting. In applying equity method accounting guidance, the Company retains the specialized accounting
of the investees and reports its investments on the consolidated statements of financial condition at their estimated fair value, with
unrealized gains (losses) resulting from changes in fair value reflected within Investment Income - portfolio fund principal
transactions, net in the accompanying consolidated statements of operations.
In addition, the Company's broker-dealer subsidiaries apply the specialized industry accounting for brokers and dealers in
securities, which the Company retains upon consolidation.
Valuation of investments and derivative contracts
US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1
70
measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy
are as follows:
Level 1
Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date;
Level 2
Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs
in markets that are not considered to be active; and
Level 3
Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if
any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category
requires significant management judgment or estimation.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants
use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics,
specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to
be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument
within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the
Company's perceived risk of that instrument. Inputs reflect unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
The Company and its operating subsidiaries act as the manager for the Consolidated Funds. Both the Company and the
Consolidated Funds hold certain investments which are valued by the Company, acting as the investment manager. The fair value
of these investments is based on their proportional rights of the underlying portfolio company, and is generally estimated based
on proprietary models developed by the Company, which include discounted cash flow analysis, public market comparables, and
other techniques and may be based, at least in part, on independently sourced market information. The material estimates and
assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates
used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment
and estimation impact the selection of an appropriate valuation methodology as well as the assumptions used in these models, and
the timing and actual values realized with respect to investments could be materially different from values derived based on the
use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the
investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are
relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these
investments may differ significantly from the fair values that would have been used had a ready market for the investments
existed and such differences could be material.
The Company primarily uses the market approach to value its financial instruments measured at fair value. In determining
an instrument's level within the hierarchy, the Company categorizes the Company's financial instruments into three categories:
securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided
between those held long or sold short.
The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair
value recognized in earnings each period. The election is made on an instrument by instrument basis at initial recognition of an
asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected the
fair value option for certain of its investments held by its operating companies. This option has been elected because the
Company believes that it is consistent with the manner in which the business is managed, as well as the way that financial
instruments in other parts of the business are recorded.
Securities—Securities with values based on quoted market prices in active markets for identical assets are classified within
level 1 of the fair value hierarchy. These securities primarily include active listed equities, certain U.S. government and sovereign
obligations, Exchange Traded Funds ("ETFs"), mutual funds and certain money market securities.
Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate
debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The
estimated fair values assigned by management are determined in good faith and are based on available information considering
trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants,
and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As
level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions,
valuations may be adjusted to reflect illiquidity and/or non-transferability.
71
Derivative contracts—Derivative contracts can be exchange-traded or privately negotiated over-the-counter (“OTC”).
Exchange-traded derivatives, such as futures contracts and exchange-traded option contracts, are typically classified within level 1
or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as
generic forwards, swaps and options, are classified as level 2 when their inputs can be corroborated by market data. OTC
derivatives, such as swaps and options, with significant inputs that cannot be corroborated by readily available or observable
market data are classified as level 3.
Other investments—Other investments consist primarily of portfolio funds, carried interest and equity method investments,
which are valued as follows:
i.
Portfolio funds—Portfolio funds include interests in private investment partnerships, foreign investment companies and
other collective investment vehicles which may be managed by the Company or its affiliates. The Company applies the
practical expedient provided by the US GAAP fair value measurements and disclosures guidance relating to investments
in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The practical expedient permits an
entity holding investments in certain entities that either are investment companies or have attributes similar to an
investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable,
to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.
Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value
hierarchy.
ii. Carried Interest—For the private equity and debt fund products the Company offers, the Company is allocated incentive
income by the investment funds based on the extent by which the investment funds performance exceeds predetermined
thresholds. Carried interest allocations are generally structured from a legal standpoint as an allocation of capital in the
Company’s capital account. The Company accounts for carried interest allocations by applying an equity ownership
model. Accordingly, the Company accrues performance allocations quarterly based on the fair value of the underlying
investments assuming hypothetical liquidation at book value.
iii. Equity Method Investments—For operating entities over which the Company exercises significant influence but which
do not meet the requirements for consolidation as outlined above, the Company applies the equity method of accounting.
The Company's investments in equity method investees are recorded in other investments in the accompanying
consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees
is included in Net gains (losses) on other investments in the accompanying consolidated statements of operations.
Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value
assigned to the individual assets acquired and liabilities assumed. Goodwill is allocated to the Company's reporting units at the
date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its
identification with a particular acquisition, but instead becomes identifiable with the reporting unit. As a result, all of the fair
value of each reporting unit is available to support the value of goodwill allocated to the unit.
In accordance with US GAAP requirements for testing for impairment of goodwill, the Company tests goodwill for
impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the
fair value of a reporting unit below its carrying amount. In testing for goodwill impairment, the Company has the option to first
assess qualitative factors to determine whether the existence of events or circumstances led to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and
circumstances, the Company concludes that fair value exceeds its carrying amount, then performing a quantitative impairment test
is not necessary. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test that
requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the
reporting unit exceeds its carrying value, the related goodwill is not considered impaired and no further analysis is required. If the
carrying value of the reporting unit exceeds its fair value, then the Company recognizes an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value.
Intangible assets
Intangible assets with finite lives are amortized over their estimated average useful lives. Intangible assets are tested for
potential impairment whenever events or changes in circumstances suggest that an asset or asset group's carrying value may not
be fully recoverable. An impairment loss, calculated as the difference between the estimated fair value and the carrying value of
an asset or asset group, is recognized in the accompanying consolidated statements of operations if the sum of the estimated
72
undiscounted cash flows from the use or disposition of the asset or asset group is less than the corresponding carrying value. The
Company continually monitors the estimated average useful lives of existing intangible assets.
Legal Reserves
The Company estimates potential losses that may arise out of legal and regulatory proceedings and records a reserve and
takes a charge to income when losses with respect to such matters are deemed probable and can be reasonably estimated, in
accordance with US GAAP. These amounts are reported in other expenses, net of recoveries, in the consolidated statements of
operations. See Note 27 in our accompanying consolidated financial statements for the quarter ended December 31, 2021 for
further discussion.
Recently adopted and future adoption of accounting pronouncements
For a detailed discussion, see Note 2ab "Recent pronouncements" in our accompanying consolidated financial statements for
the year ended December 31, 2021.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary exposure to market risk is a function of our role as investment manager for our funds and managed
accounts, our role as a financial intermediary in customer trading and market-making activities, as well as the fact that a
significant portion of our own capital is invested in securities. Adverse movements in the prices of securities that are either owned
or sold short may negatively impact the Company's management fees and incentive income, as well as the value of our own
invested capital.
The market value of the assets and liabilities in our investment funds and managed accounts, as well as the Company's own
securities, may fluctuate in response to changes in equity prices, interest rates, credit spreads, currency exchange rates,
commodity prices, implied volatility, dividends, prepayments, recovery rates and the passage of time. The net effect of market
value changes caused by fluctuations in these risk factors will result in gains (losses) for our investment funds and managed
accounts which will impact our management fees and incentive income and for the Company's securities which will impact the
value of our own invested capital as well as the capital utilized in facilitating customer trades. Some of the Company's
investments are in private companies and other investments are in securities that are subject, from time to time, to contractual
lock-up agreements or other resale restrictions. The private investments we have made generally have no established trading
market or are generally subject to restrictions on resale. Our inability to liquidate these securities when it may be otherwise
advantageous for us to do so could lead to volatility in the market value ascribed to these investments and securities which could
adversely affect our investment income.
The Company's risk measurement and risk management processes are an integral part of our proprietary investment process
as well as market making and customer facilitation trading activities. These processes are implemented at the individual position,
strategy and total portfolio levels and are designed to provide a complete picture of the risks of the Company's balance sheet. The
key elements of our risk reporting include sensitivities, exposures, stress testing and profit and loss attribution. As a result of our
views of levels of risk being taken, the Company may undertake to hedge out some or all of any or all risks at either the individual
position, strategy or total portfolio levels.
Impact on Management Fees
The Company's management fees are generally based on the net asset value of the Company's investment funds and
managed accounts. Accordingly, management fees will change in proportion to changes in the market value of investments held
by the Company's investment funds and managed accounts.
Impact on Incentive Income
The Company's incentive income is generally based on a percentage of the profits of the Company's various investment
funds and managed accounts, which is impacted by global economies and market conditions as well as other factors.
Consequently, incentive income cannot be readily predicted or estimated.
Custody and prime brokerage risks
There are risks involved in dealing with the custodians or prime brokers who settle trades. Under certain circumstances,
including certain transactions where the Company's assets are pledged as collateral for leverage from a non-broker-dealer
custodian or a non-broker-dealer affiliate of the prime broker, or where the Company's assets are held at a non-U.S. prime broker,
the securities and other assets deposited with the custodian or broker may be exposed to credit risk with regard to such parties. In
addition, there may be practical or timing problems associated with enforcing the Company's rights to its assets in the case of an
insolvency of any such party.
73
Market risk
Market risk represents the risk of loss that may result from the change in value of a financial instrument due to fluctuations
in its market price. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from
transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is primarily related to the
fluctuation in the fair values of securities owned and sold, but not yet purchased in the Company's investment funds and our role
as a financial intermediary in customer trading and to our market making and investment activities. Market risk is inherent in
financial instruments and risks arise in options, warrants and derivative contracts from changes in the fair values of their
underlying financial instruments. Securities sold, but not yet purchased, represent obligations of the Company's investment funds
to deliver specified securities at contracted prices and thereby create a liability to repurchase the securities at prevailing future
market prices. We trade in equity securities as an active participant in both listed and over-the-counter markets. We typically
maintain securities in inventory to facilitate our market making activities and customer order flow. We may use a variety of risk
management techniques and hedging strategies in the ordinary course of our trading business to manage our exposures. In
connection with our trading business, management also reviews reports appropriate to the risk profile of specific trading activities.
Typically, market conditions are evaluated and transaction details and securities positions are reviewed. These activities are
intended to ensure that our trading strategies are conducted within acceptable risk tolerance parameters, particularly when we
commit our own capital to facilitate client trading. Activities include price verification procedures, position reconciliations and
reviews of transaction booking. We believe these procedures, which stress timely communications between traders, trading
management and senior management, are important elements of the risk management process.
A 10% change in the fair value of the investments held by the Company's investment funds as of December 31, 2021 would
result in a change of approximately $1.1 billion in our assets under management and would impact management fees by
approximately $4.4 million on an annual basis. This number is an estimate. The amount would be dependent on the fee structure
of the particular investment fund or funds that experienced such a change.
Currency risk
The Company is also exposed to foreign currency fluctuations. Currency risk arises from the possibility that fluctuations in
foreign currency exchange rates will affect the value of such financial instruments, including direct or indirect investments in
securities of non-U.S. companies. A 10% weakening or strengthening of the U.S. dollar against all or any combination of
currencies to which the Company's investments or the Company's investment funds have exposure to exchange rates would not
have a material effect on the Company's revenues, net loss or Economic Income.
Inflation risk
Because our assets are, to a large extent, liquid in nature, they are not significantly affected by inflation. However, the rate
of inflation affects such expenses as employee compensation and communications charges, which may not be readily recoverable
in the prices of services we offer. To the extent inflation results in rising interest rates and has other adverse effects on the
securities markets, it may adversely affect our financial condition and results of operations in certain businesses.
Leverage and interest rate risk
There is no guarantee that the Company's borrowing arrangements or other arrangements for obtaining leverage will
continue to be available, or if available, will be available on terms and conditions acceptable to the Company. Unfavorable
economic conditions also could increase funding costs, limit access to the capital markets or result in a decision by lenders not to
extend credit to the Company. In addition, a decline in market value of the Company's assets may have particular adverse
consequences in instances where we have borrowed money based on the market value of those assets. A decrease in market value
of those assets may result in the lender (including derivative counterparties) requiring the Company to post additional collateral or
otherwise sell assets at a time when it may not be in the Company's best interest to do so.
Credit risk
The Company clears all of its securities transactions through clearing brokers on a fully disclosed basis. Pursuant to the
terms of the agreements between the Company and the clearing brokers, the clearing brokers have the right to charge the
Company for losses that result from a counterparty's failure to fulfill its contractual obligations. As the right to charge the
Company has no maximum amount and applies to all trades executed through the clearing brokers, we believe there is no
maximum amount assignable to this right. Accordingly, at December 31, 2021, the Company had recorded no liability.
Credit risk is the potential loss the Company may incur as a result of the failure of a counterparty or an issuer to make
payments according to the terms of a contract. The Company's exposure to credit risk at any point in time is represented by the
fair value of the amounts reported as assets at such time.
74
In the normal course of business, our activities may include trade execution for our clients as well as agreements to borrow
or lend securities. These activities may expose us to risk arising from price volatility which can reduce clients' ability to meet their
obligations. To the extent investors are unable to meet their commitments to us, we may be required to purchase or sell financial
instruments at prevailing market prices to fulfill clients' obligations.
In accordance with industry practice, client trades are settled generally two business days after trade date. Should either the
client or the counterparty fail to perform, we may be required to complete the transaction at prevailing market prices.
We manage credit risk by monitoring the credit exposure to and the standing of each counterparty, requiring additional
collateral where appropriate, and using master netting agreements whenever possible.
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from
external events. We outsource all or a portion of certain critical business functions, such as clearing. Accordingly, we negotiate
our agreements with these firms with attention focused not only on the delivery of core services but also on the safeguards
afforded by back-up systems and disaster recovery capabilities. We make specific inquiries on any relevant exceptions noted in a
service provider's System and Organization Controls (SOC) report on the state of its internal controls, when available.
Our service offerings in electronic and algorithmic trading require us to maintain consistent levels of speed and accuracy in
the management of orders generated by our models. We monitor these activities on a continuous basis and do not believe that
they comprise a material risk.
Our Internal Audit department oversees, monitors, measures, analyzes and reports on operational risk across the Company.
The scope of Internal Audit encompasses the examination and evaluation of the adequacy and effectiveness of the Company's
system of internal controls and is sufficiently broad to help determine whether the Company's network of risk management,
control and governance processes, as designed by management, is adequate and functioning as intended. Internal Audit works
with the senior management to help ensure a transparent, consistent and comprehensive framework exists for managing
operational risk within each area, across the Company and globally.
We are focused on maintaining our overall operational risk management framework and minimizing or mitigating these
risks through a formalized control assessment process to ensure awareness and adherence to key policies and control procedures.
Primary responsibility for management of operational risk is with the businesses and the business managers therein. The business
managers, generally, maintain processes and controls designed to identify, assess, manage, mitigate and report operational risk.
As new products and business activities are developed and processes are designed and modified, operational risks are considered.
Legal risk
Legal risk includes the risk of non-compliance with applicable legal and regulatory requirements and standards. Legal risk
also includes contractual and commercial risk such as the risk that a counterparty's performance obligations will be unenforceable.
The Company has established procedures based on legal and regulatory requirements that are designed to achieve compliance
with applicable statutory and regulatory requirements. The Company, principally through the Legal and Compliance Division,
also has established procedures that are designed to require that the Company's policies relating to conduct, ethics and business
practices are followed. In connection with its businesses, the Company has and continuously develops various procedures
addressing issues such as regulatory capital requirements, sales and trading practices, new products, potential conflicts of interest,
use and safekeeping of customer funds and securities, money laundering, privacy, cybersecurity, and recordkeeping. In addition,
the Company has established procedures to mitigate the risk that a counterparty's performance obligations will be unenforceable,
including consideration of counterparty legal authority and capacity, adequacy of legal documentation, the permissibility of a
transaction under applicable law and whether applicable bankruptcy or insolvency laws limit or alter contractual remedies. The
legal and regulatory focus on the financial services industry presents a continuing business challenge for the Company.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are listed in Item 15—"Exhibits and Financial
Statement Schedules" of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
75
Item 9A. Controls and Procedures
Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer (the principal
executive officer and principal financial officer, respectively), evaluated our disclosure controls and procedures as of
December 31, 2021.
Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of
December 31, 2021, our disclosure controls and procedures are effective to provide a reasonable assurance that information
required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is
accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer of the
Company, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal controls over financial reporting that occurred during the Company's fiscal year
ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information in the definitive proxy statement for our 2022 annual meeting of stockholders under the captions
"Executive Officers," "Board of Directors," "Information Regarding the Board of Directors and Corporate Governance—
Committees of the Board—Audit Committee," "Information Regarding the Board of Directors and Corporate Governance—
Director Nomination Process," "Information Regarding the Board of Directors and Corporate Governance—Procedures for
Nominating Director Candidates," "Information Regarding the Board of Directors and Corporate Governance—Code of Business
Conduct and Ethics" and "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
Item 11. Executive Compensation
The information in the definitive proxy statement for our 2022 annual meeting of stockholders under the captions
"Executive Compensation—Compensation and Benefits Committee Report," "Certain Relationships and Related Transactions—
Compensation and Benefits Committee Interlocks and Insider Participation" and "Information Regarding the Board of Directors
and Corporate Governance—Compensation Program for Non-Employee Directors" is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information in the definitive proxy statement for our 2022 annual meeting of stockholders under the captions "Security
Ownership—Beneficial Ownership of Directors, Nominees and Executive Officers," "Security Ownership—Beneficial Owners of
More than Five Percent of our Common Stock" and "Securities Authorized for Issuance Under Equity Compensation Plans" are
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information in the definitive proxy statement for our 2022 annual meeting of stockholders under the captions
"Information Regarding the Board of Directors and Corporate Governance—Director Independence," "Certain Relationships and
Related Transactions—Transactions with Related Persons," and "Certain Relationships and Related Transactions—Review and
Approval of Transactions with Related Persons" is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information in the definitive proxy statement for our 2021 annual meeting of stockholders under the captions "Audit
Committee Report and Payment of Fees to Our Independent Auditor—Auditor Fees" and "Audit Committee Report and Payment
of Fees to Our Independent Auditor—Auditor Services Pre-Approval Policy" is incorporated herein by reference.
76
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Annual Report on Form 10-K:
1.
Consolidated Financial Statements
The consolidated financial statements required to be filed in the Annual Report on Form 10-K are listed on
page F-1 hereof. The required financial statements appear on pages F-1 through F-75 hereof.
2.
Financial Statement Schedules
Separate financial statement schedules have been omitted either because they are not applicable or because the
required information is included in the consolidated financial statements.
3.
Exhibits
2.1
Securities Purchase Agreement, dated as of April 2, 2017, by and among Convergex Holdings LLC, Convergex
Group, LLC, GTCR Convergex Holdings LLC, Cowen CV Acquisition LLC and Cowen Inc. (previously filed
as Exhibit 2.1 to the Form 8-K filed on April 6, 2017)
2.2
Purchase Agreement, dated as of November 20, 2018, by and among Cowen Inc., Cowen International Limited,
Cowen QN Acquisition LLC, the Sellers signatory thereto, the Beneficial Owners signatory thereto and the
Seller Representatives signatory thereto (previously filed as Exhibit 2.1 to the Form 8-K filed on November 21,
2018).
3.1
Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed as Exhibit 3.1 to the
Form 10-Q filed November 25, 2009).
3.2
Second Amended and Restated By-Laws of Cowen Inc. (previously filed as Exhibit 3.1 to the Form 8-K filed on
February 18, 2020).
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cowen Inc. (previously
filed as Exhibit 3.3 to the Form 10-Q filed November 25, 2009).
3.4
Certificate of Designations of the Company for its Series A Cumulative Perpetual Preferred Stock (previously
filed as Exhibit 3.1 to Form 8-K filed May 20, 2015).
3.5
Amendment to the Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed as
Exhibit 3.1 to the Form 8-K filed December 5, 2016).
3.6
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cowen Inc. (previously filed
as Exhibit 3.1 to the Form 8-K filed on May 16, 2017)
4.1
Form of Class A Common Stock Certificate (previously filed as Exhibit 4.1 to Amendment No. 2 to Form S-1
filed on December 14, 2009).
4.2
Indenture, dated March 10, 2014 by and between Cowen Inc., as Issuer and The Bank of New York Mellon, as
Trustee (previously filed as Exhibit 4.1 to Form 8-K filed on March 11, 2014).
4.3
First Supplemental Indenture by and between Cowen Inc., as Issuer and The Bank of New York Mellon, as
Trustee (previously filed as Exhibit 4.1 to the Form 10-Q filed May 8, 2014).
4.4
Senior Notes Indenture dated October 10, 2014, by and between Cowen Inc. and The Bank of New York Mellon
(previously filed as Exhibit 4.1 to Form 8-K filed on October 10, 2014).
4.5
First Supplemental Indenture dated October 10, 2014, by and between Cowen Inc. and The Bank of New York
Mellon (previously filed as Exhibit 4.2 to Form 8-K filed on October 10, 2014).
4.6
Indenture, dated as of December 14, 2017 between Cowen Inc. and The Bank of New York Mellon (previously
filed as Exhibit 4.1 to Form 8-K filed on December 14, 2017).
4.7
Second Supplemental Indenture, dated as of December 8, 2017, by and between Cowen Inc. and The Bank of
New York Mellon, as Trustee. (previously filed as Exhibit 4.2 to Form 8-K filed on December 8, 2017).
4.8
Third Supplemental Indenture, dated June 11, 2018, by and between Cowen Inc. and The Bank of New York
Mellon (previously filed as Exhibit 4.2 to the Form 8-K filed June 11, 2018).
4.9
Form of Note Purchase Agreement including Form of Note attached thereto (previously filed as Exhibit 4.1 to
the Form 8-K filed April 29, 2019).
4.10
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed
herewith).
Exhibit
No.
Description
77
10.1
Lease, dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Cowen Investment
Management LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital Group, LLC)), as
amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599 Lexington
Avenue LLC and Cowen Investment Management LLC (as successor in interest to RCG Holdings LLC (f/k/a
Ramius LLC)) (previously filed as Exhibit 10.14 to Amendment No. 2 to Form S-1 filed on December 14,
2009).
Exhibit
No.
Description
78
10.2
Cowen Inc. 2006 Equity and Incentive Plan (previously filed as Exhibit 10.20 to Amendment No. 2 to Form S-1
filed on December 14, 2009).*
10.3
Cowen Inc. 2007 Equity and Incentive plan (previously filed as Exhibit 10.21 to Amendment No. 2 to Form S-1
filed on December 14, 2009).*
10.4
Cowen Inc. 2010 Equity and Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy
Statement of Cowen Inc., on Schedule 14A for the year ended December 31, 2009, as filed on April 30, 2010).*
10.5
Second Amendment to Lease dated August 20, 2010 between BP 599 Lexington Avenue and the Company,
amending that certain Lease dated as of June 22, 2007 by and between 599 Lexington Avenue LLC and Cowen
Investment Management LLC (as successor in interest to RCG Holdings LLC (f/k/a Ramius Capital
Group, LLC)), as amended by the First Amendment to Lease, dated as of June 9, 2008, by and between BP 599
Lexington Avenue LLC and Ramius LLC (previously filed as Exhibit 10.2 to Form 8-K filed August 24, 2010).
10.6
Initial capped call confirmation, dated as of May 13, 2015, by and between Nomura Global Financial Products
Inc. and the Company (previously filed as Exhibit 10.1 to Form 8-K filed May 20, 2015).
10.7
Additional capped call confirmation, dated as of May 19, 2015, by and between Nomura Global Financial
Products Inc. and the Company (previously filed as Exhibit 10.2 to Form 8-K filed May 20, 2015).
10.8
Form of Performance Shares Award Agreement (previously filed as Exhibit 10.1 to the Form 10-Q filed May 2,
2016).*
10.9
Underwriting Agreement, dated as of December 5, 2017, by and between Cowen Inc. and with Morgan
Stanley & Co. LLC and UBS Securities LLC, as representatives of the several Underwriters named therein.
(previously filed as Exhibit 1.1 to the Form 8-K filed December 8, 2017).
10.10
Underwriting Agreement, dated as of June 6, 2018, by and between Cowen Inc. and with Morgan Stanley & Co.
LLC and UBS Securities LLC, as representatives of the several Underwriters named therein (previously filed as
Exhibit 1.1 to the Form 8-K filed June 11, 2018).
10.11
Form of Performance Shares Award Agreement (previously filed as Exhibit 10.1 to the Form 10-Q filed August
1, 2019).*
10.12
Credit Agreement dated December 2, 2019 (previously filed as Exhibit 10.1 to the Form 8-K filed December 4.
2019).
10.13
Form of Restricted Stock Unit and Deferred Cash Award (previously filed as Exhibit 10.22 to the Form 10-K
filed March 4, 2020).*
10.14
Amended and Restated Employment Agreement between the Company and Jeffrey Solomon dated January 31,
2020 (previously filed as Exhibit 10.1 to Form 8-K filed February 3, 2020). *
10.15
Amended and Restated Employment Agreement between the Company and John Holmes dated January 31,
2020 (previously filed as Exhibit 10.2 to Form 8-K filed February 3, 2020). *
10.16
Amended and Restated Employment Agreement between the Company and Stephen Lasota dated January 31,
2020 (previously filed as Exhibit 10.3 to Form 8-K filed February 3, 2020).*
10.17
Amended and Restated Employment Agreement between the Company and Owen Littman dated January 31,
2020 (previously filed as Exhibit 10.4 to Form 8-K filed February 3, 2020).*
10.18
2020 Equity Incentive Plan (previously filed as Appendix A to the Definitive Proxy Statement of Cowen Inc. on
Schedule 14A for the year ended December 31, 2019, as filed on May 22, 2020).*
10.19
Form of 2020 Performance Share Award Agreement (previously filed as Exhibit 10.20 to the Form 10-K filed
March 3, 2021). *
10.20
Form of 2020 Restricted Stock Unit and Deferred Cash Award Agreement (previously filed as Exhibit 10.21 to
the Form 10-K filed March 3, 2021). *
10.21
Credit Agreement, dated as of March 24, 2021 among the Company, as borrower, the financial institutions from
time to time party thereto, as lenders and Morgan Stanley Senior Funding Inc., as administrative agent and
collateral agent (previously filed as Exhibit 10.1 to the Form 8-K filed on March 30, 2021).
10.22
Cowen Inc. 2020 Equity Incentive Plan (as amended and restated) (Incorporated by reference to Appendix A to
the Definitive Proxy Statement of Cowen Inc. on Schedule 14A for the year ended December 31, 2020, as filed
on May 21, 2021).*
10.23
Amendment No. 1 to Credit Agreement dated as of December 15, 2021, among Cowen Inc., as borrower, the
Loan Guarantors party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent and each 2021
Incremental Term Lender (previously filed as Exhibit 10.1 to the Form 8-K filed on December 21, 2021).
10.24
Form of 2021 Director RSU Award Agreement (filed herewith).*
21.1
Subsidiaries of Cowen Inc. (filed herewith).
23.1
Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1
Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (filed herewith).
32
Certification of CEO and CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS XBRL INSTANCE DOCUMENT
101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
104 Cover Page Interactive Data File - (formatted as inline XBRL and contained in Exhibit 101)
Exhibit
No.
Description
*
Signifies management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
Not Applicable.
79
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Page
Management's Report on Internal Control over Financial Reporting
F-2
Report of Independent Registered Public Accounting Firm (KPMG LLP, New York, NY , Auditor Firm ID: 185)
F-3
Consolidated Statements of Financial Condition
F-5
Consolidated Statements of Operations
F-7
Consolidated Statements of Comprehensive Income (Loss)
F-9
Consolidated Statements of Changes in Equity
F-10
Consolidated Statements of Cash Flows
F-12
Notes to Consolidated Financial Statements
F-14
Note 1—Organization and Business
F-14
Note 2—Significant Accounting Policies
F-14
Note 3—Acquisition
F-28
Note 4—Cash Collateral Pledged
F-33
Note 5— Segregated Cash
F-33
Note 6—Investments of Operating Entities and Consolidated Funds
F-33
Note 7—Fair Value Measurements for Operating Entities and Consolidated Funds
F-41
Note 8—Deposits with Clearing Organizations, Brokers and Banks
F-48
Note 9—Receivable from and Payable to Brokers and Clearing Organizations
F-48
Note 10—Receivable From and Payable to Customers
F-48
Note 11—Fixed Assets
F-49
Note 12—Goodwill and Intangible Assets
F-49
Note 13—Other Assets
F-52
Note 14—Commission Management Payable
F-52
Note 15—Accounts Payable, Accrued Expenses and Other Liabilities
F-52
Note 16—Convertible Debt and Notes Payable
F-53
Note 17—Redeemable Preferred Stock
F-57
Note 18—Stockholder's Equity
F-57
Note 19—Non-Controlling Interests in Consolidated Subsidiaries and Investment Funds
F-59
Note 20—Accumulated Other Comprehensive Income (Loss)
F-60
Note 21—Revenue from Contracts with Customers
F-60
Note 22—Insurance and reinsurance
F-60
Note 23—Share-Based and Deferred Compensation and Employee Ownership Plans
F-61
Note 24—Defined Contribution Plans
F-63
Note 25—Income Taxes
F-63
Note 26—Earnings Per Share
F-65
Note 27—Commitments and Contingencies
F-66
Note 28—Segment Reporting
F-69
Note 29—Regulatory Requirements
F-70
Note 30—Related Party Transactions
F-72
Note 31—Guarantees and Off-Balance Sheet Arrangements
F-73
Note 32—Subsequent Events
F-75
F-1
Management's Report on Internal Control over Financial Reporting
Management of Cowen Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over
financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the
Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with
U.S. generally accepted accounting principles.
As of the end of the Company's 2021 fiscal year, management conducted an assessment of the Company's internal control
over financial reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has
determined that the Company's internal control over financial reporting as of December 31, 2021 was effective.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management
and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements.
The Company's internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report included herein, which expresses an unqualified opinion on
the effectiveness of the Company's internal control over financial reporting as of December 31, 2021.
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Cowen Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Cowen Inc. and subsidiaries (the Company)
as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in
equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively,
the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
F-3
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of fair value of certain level 3 financial assets
As discussed in Notes 2f and 7 to the consolidated financial statements, the Company has recorded financial assets classified
as level 3 in the fair value hierarchy of $182.5 million. Certain of these financial assets are valued based on their proportional
rights of the underlying portfolio company. The fair value of these financial assets is determined based on pricing inputs that
are unobservable and includes situations where there is little, if any, market activity for the asset. The determination of fair
value for these level 3 financial assets involves use of discounted cash flows, which incorporate unobservable inputs and
therefore requires significant management judgment or estimation.
We identified the assessment of the fair value measurement of certain financial assets classified as level 3 in the fair value
hierarchy as a critical audit matter. There is a high degree of auditor judgment involved in evaluating certain inputs used in
these fair value estimates, such as projected future cash flows and the discount rate. In addition, the evaluation of these
estimates required the involvement of individuals with specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of certain level 3 assets,
including controls related to the review of significant unobservable inputs, such as projected future cash flows and the
discount rate, used by the Company in its fair value measurements, including the monitoring of changes to these inputs. We
involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the reasonableness of the
fair value measurement for a selection of level 3 financial assets through developing an independent estimate of the fair value
of the financial asset and comparing the results of our estimate of fair value to the Company's fair value measurement. As part
of this independent estimate, the valuation professionals developed independent pricing inputs, such as the discount rate. We
also evaluated the projected future cash flows by comparing historical projections to financial results, evaluating the
appropriateness of the projected growth rates relative to historical growth, and confirming the projections with the portfolio
company.
/s/ KPMG LLP
We have served as the Company’s auditor since 2017.
New York, New York
March 1, 2022
F-4
As of December 31, 2021
As of December 31, 2020
Assets
Cash and cash equivalents
$
914,343
$
645,169
Cash collateral pledged
47,494
110,743
Segregated cash
194,701
185,141
Securities owned, at fair value ($1,750,346 and $1,524,136 were pledged to various parties)
2,660,742
2,001,602
Securities purchased under agreements to resell
—
191
Receivable on derivative contracts, at fair value
286,135
51,482
Securities borrowed
1,704,603
1,908,187
Other investments ($137,986 and $133,454 at fair value, respectively)
274,111
255,027
Deposits with clearing organizations, brokers and banks
111,857
104,952
Receivable from brokers, dealers and clearing organizations, net of allowance of $636 and $885,
respectively
1,614,347
1,729,744
Receivable from customers, net of allowance of $687 and $530, respectively
159,418
103,963
Fees receivable, net of allowance of $886 and $3,348, respectively
145,809
160,349
Due from related parties
31,449
21,068
Fixed assets, net of accumulated depreciation and amortization of $50,017 and $40,670, respectively
25,976
33,023
Operating lease right-of-use assets
93,655
78,241
Goodwill
234,005
147,084
Intangible assets, net of accumulated amortization of $33,219 and $37,884, respectively
44,167
24,403
Deferred tax asset, net
21,765
9,030
Other assets
84,828
54,884
Consolidated Funds
Cash and cash equivalents
296
417
Securities owned, at fair value
—
10,622
Other investments
99,067
192,670
Other assets
46
207
Total Assets
$
8,748,814
$
7,828,199
Liabilities, Temporary Equity and Permanent Equity
Liabilities
Securities sold, not yet purchased, at fair value
$
1,201,448
$
728,115
Securities sold under agreements to repurchase
63,469
5,036
Payable for derivative contracts, at fair value
60,163
76,160
Securities loaned
1,586,572
2,476,414
Payable to brokers, dealers and clearing organizations
586,553
415,143
Payable to customers
2,432,612
1,680,326
Commission management payable
102,990
116,987
Compensation payable
443,580
373,339
Operating lease liabilities
98,883
82,735
Notes payable and other debt
623,371
383,067
Convertible debt
—
80,808
Fees payable
16,483
43,833
Due to related parties
—
51
Accounts payable, accrued expenses and other liabilities
236,088
196,479
Consolidated Funds
Due to related parties
23
7
Accounts payable, accrued expenses and other liabilities
225
578
Total Liabilities
$
7,452,460
$
6,659,078
Cowen Inc.
Consolidated Statements of Financial Condition
(dollars in thousands, except share and per share data)
F-5
As of December 31, 2021
As of December 31, 2020
(continued)
Commitments and Contingencies (Note 27)
Redeemable Series A Convertible Preferred stock, par value $0.01 per share: 10,000,000 shares
authorized, 120,750 shares issued and outstanding as of December 31, 2021 (aggregate liquidation
preference of $120,750)
$
120,750
—
Permanent Equity
Series A Convertible Preferred stock, par value $0.01 per share: 10,000,000 shares authorized,
120,750 shares issued and outstanding as of December 31, 2020 (aggregate liquidation preference of
$120,750)
$
—
$
1
Class A common stock, par value $0.01 per share: 62,500,000 shares authorized, 55,826,893 shares
issued and 27,778,964 outstanding as of December 31, 2021 and 62,500,000 shares authorized,
49,465,491 shares issued and 26,845,628 outstanding as of December 31, 2020, respectively
(including 901,374 and 334,230 restricted shares, respectively)
334
334
Class B common stock, par value $0.01 per share: 62,500,000 authorized, no shares issued and
outstanding as of December 31, 2021 and 2020, respectively
—
—
Additional paid-in capital
1,100,667
1,130,138
Retained earnings
461,982
185,901
Accumulated other comprehensive income (loss)
(2)
(7)
Less: Class A common stock held in treasury, at cost, 28,047,929 and 22,619,863 shares as of
December 31, 2021 and 2020, respectively
(547,112)
(346,870)
Total Cowen Inc. Stockholders' Equity
1,015,869
969,497
Nonredeemable non-controlling interests
159,735
199,624
Total Permanent Equity
$
1,175,604
$
1,169,121
Total Liabilities, Redeemable Preferred Stock and Permanent Equity
$
8,748,814
$
7,828,199
Cowen Inc.
Consolidated Statements of Financial Condition
(dollars in thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Revenues
Investment banking
$
1,067,162
$
769,486
$
375,025
Brokerage
585,162
524,361
389,047
Investment income (loss)
Securities principal transactions, net
122,110
124,667
39,289
Portfolio fund principal transactions, net
338
20,434
12,060
Carried interest allocations
5,059
59,250
18,505
Total investment income (loss)
127,507
204,351
69,854
Management fees
72,287
47,515
32,608
Incentive income
2,732
592
1,547
Interest and dividends
219,292
187,459
174,913
Insurance and reinsurance premiums
39,631
30,147
46,335
Other revenues, net
5,211
10,503
6,069
Consolidated Funds
Principal transactions, net
(6,194)
(24,338)
58,381
Interest and dividends
9
5,218
9,772
Other revenues
—
632
19
Total revenues
2,112,799
1,755,926
1,163,570
Interest and dividends expense
211,387
187,725
168,628
Total net revenues
1,901,412
1,568,201
994,942
Expenses
Employee compensation and benefits
1,046,371
860,531
535,772
Brokerage and trade execution costs
153,831
139,034
103,235
Underwriting expenses
24,978
22,565
15,067
Professional, advisory and other fees
80,849
59,990
48,385
Service fees
25,768
25,378
23,707
Communications
37,499
32,593
31,894
Occupancy and equipment
40,692
36,559
39,726
Depreciation and amortization
19,004
22,677
20,460
Client services and business development
29,607
20,526
50,371
Goodwill impairment
—
—
4,100
Insurance and reinsurance claims, commissions and amortization of deferred acquisition costs
33,938
33,905
44,070
Other expenses
37,026
33,195
23,114
Consolidated Funds
Interest and dividends
—
2,064
4,602
Professional, advisory and other fees
273
2,087
2,426
Brokerage and trade execution costs
—
37
122
Other expenses
357
1,221
1,813
Total expenses
1,530,193
1,292,362
948,864
Other income (loss)
Net gains (losses) on other investments
35,494
18,879
24,645
Bargain purchase gain, net of tax
3,855
—
—
Gain/(loss) on debt extinguishment
(4,538)
2,719
—
Total other income (loss)
34,811
21,598
24,645
Income (loss) before income taxes
406,030
297,437
70,723
Income tax expense (benefit)
102,039
90,373
14,853
Net income (loss)
303,991
207,064
55,870
Cowen Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Year Ended December 31,
2021
2020
2019
F-7
(continued)
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and
investment funds
8,380
(9,299)
31,239
Net income (loss) attributable to Cowen Inc.
295,611
216,363
24,631
Preferred stock dividends
6,792
6,792
6,792
Net income (loss) attributable to Cowen Inc. common stockholders
$
288,819
$
209,571
$
17,839
Weighted average common shares outstanding:
Basic
27,721
27,790
29,525
Diluted
32,628
29,519
31,286
Earnings (loss) per share:
Basic
$
10.42
$
7.54
$
0.60
Diluted
$
8.85
$
7.10
$
0.57
Cowen Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Year Ended December 31,
2021
2020
2019
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Cowen Inc.
Consolidated Statements of Comprehensive Income (Loss)
(dollars in thousands)
Year Ended December 31,
2021
2020
2019
Net income (loss)
$
303,991
$
207,064
$
55,870
Other comprehensive income (loss), net of tax:
Foreign currency translation
5
(2)
—
Total other comprehensive income (loss), net of tax
5
(2)
—
Comprehensive income (loss)
$
303,996
$
207,062
$
55,870
Less: Comprehensive income (loss) attributable to non-controlling
interests
8,380
(9,299)
31,239
Comprehensive income (loss) attributable to Cowen Inc.
$
295,616
$
216,361
$
24,631
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Cowen Inc.
Consolidated Statements of Changes in Equity
(dollars in thousands, except share data)
(in shares)
Common Shares Outstanding
Beginning balance
26,845,628
28,610,357
28,437,860
Restricted stock awards issued
2,710,719
2,174,859
2,407,857
Common stock issuance for purchase of investment
68,980
—
—
Common stock issuance upon acquisitions (See Note 3)
642,862
74,694
1,033,350
Purchase of treasury stock, at cost
(5,428,066)
(4,014,282)
(3,268,710)
Share settlement of convertible notes (See Note 23)
2,938,841
—
—
Ending balance
27,778,964
26,845,628
28,610,357
Preferred Shares Outstanding
Beginning balance
120,750
120,750
120,750
Reclassification of Series A Convertible Preferred Stock (See Note 17)
(120,750)
—
—
Ending balance
—
120,750
120,750
(in dollars)
Total Cowen Inc. Stockholders' Equity (beginning of period)
$
969,497
$
809,855
$
794,407
Common stock
Beginning balance
334
334
324
Common stock issuance upon acquisitions (See Note 3)
—
—
10
Ending balance
334
334
334
Preferred stock
Beginning balance
1
1
1
Reclassification of Series A Convertible Preferred Stock (See Note 17)
(1)
—
—
Ending balance
—
1
1
Treasury stock
Beginning balance
(346,870)
(284,301)
(234,142)
Purchase of treasury stock, at cost
(200,242)
(62,569)
(50,159)
Ending balance
(547,112)
(346,870)
(284,301)
Additional Paid-in Capital
Beginning balance
1,130,138
1,110,635
1,062,877
Reclassification of Series A Convertible Preferred Stock (See Note 17)
(120,749)
—
—
Common stock issuance for purchase of investment
2,500
—
—
Common stock issuance upon acquisitions (See Note 3)
23,060
926
14,436
Embedded cash conversion option, net of tax (See Note 18)
—
—
(596)
Equity portion of convertible note extinguishment (See Note 18)
—
(29,645)
—
Amortization of share based awards
65,718
48,222
33,918
Ending balance
$
1,100,667
$
1,130,138
$
1,110,635
Accumulated Other Comprehensive Income (Loss)
Beginning balance
$
(7) $
(5) $
(5)
Foreign currency translation
5
(2)
—
Ending balance
(2)
(7)
(5)
Year Ended December
2021
2020
2019
F-10
Retained Earnings/ (Accumulated deficit)
Beginning balance
185,901
(16,809)
(34,648)
Cumulative effect of the adoption of the new revenue recognition standard (See Note 2e)
—
(10)
—
Net income (loss) attributable to Cowen Inc.
295,611
216,363
24,631
Preferred stock dividends (See Note 17)
(6,792)
(6,792)
(6,792)
Cash dividends to common stockholders (See Note 18)
(12,738)
(6,851)
—
Ending balance
461,982
185,901
(16,809)
Total Cowen Inc. Stockholders' Equity (end of period)
$
1,015,869
$
969,497
$
809,855
Nonredeemable Non-controlling Interests
Beginning balance
$
199,624
$
94,320
$
64,880
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries and
investment funds
8,380
23,625
22,797
Capital contributions
55,556
201,223
11,655
Capital withdrawals
(29,012)
(78,251)
(5,012)
Consolidation of entity
—
48,596
—
Deconsolidation of entity
(74,813)
(89,889)
—
Ending balance
159,735
199,624
94,320
Total Permanent Equity
$
1,175,604
$
1,169,121
$
904,175
Year Ended December
2021
2020
2019
The accompanying notes are an integral part of these consolidated financial statements.
F-11
Cash flows from operating activities:
Net income (loss)
$
303,991
$
207,064
$
55,870
Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:
Bargain purchase gain, net of tax
(3,855)
—
—
Depreciation and amortization
19,004
22,677
20,460
Goodwill impairment
—
—
4,100
Amortization of debt issuance costs
2,563
1,512
1,129
Amortization of debt discount (premium)
6,727
4,490
4,598
Noncash lease expense
734
(561)
(2,148)
Asset impairment
—
2,425
—
(Gain) / loss on extinguishment of debt
3,890
(2,719)
—
Share-based awards
65,718
48,222
33,918
Change in deferred taxes
(14,095)
70,136
13,295
Net loss (gain) on disposal of fixed assets
—
—
233
Contingent liability adjustment
(614)
—
—
Purchases of securities owned, at fair value
(1,136,928)
(1,682,598)
(2,107,956)
Proceeds from sales of securities owned, at fair value
1,007,261
1,793,934
2,042,946
Proceeds from sales of securities sold, not yet purchased, at fair value
257,142
821,829
1,360,075
Payments to cover securities sold, not yet purchased, at fair value
(262,362)
(850,608)
(1,408,043)
Proceeds from other investments
27,477
22,453
23,886
Investment Income (loss) principal transactions, net
(66,219)
(161,699)
(74,284)
Consolidated Funds
Purchases of securities owned, at fair value
(4,000)
(1,912,137)
(2,725,439)
Proceeds from sales of securities owned, at fair value
13,748
1,793,528
2,618,200
Purchases of other investments
—
(2,090)
(3,408)
Proceeds from other investments
14,130
6,734
23,954
Investment Income (loss) principal transactions, net
5,990
21,597
(90,900)
(Increase) decrease in operating assets:
Securities owned, at fair value, held at broker-dealer
(496,443)
(335,510)
(990,356)
Receivable on derivative contracts, at fair value
(234,653)
11,394
(37,522)
Securities borrowed
203,584
(1,153,746)
(346,646)
Deposits with clearing organizations, brokers and banks
(6,905)
(13,197)
(2,332)
Receivable from brokers, dealers and clearing organizations
115,397
(1,048,049)
104,418
Receivable from customers, net of allowance
(55,455)
1,684
(67,789)
Fees receivable, net of allowance
16,919
(33,991)
(7,143)
Due from related parties
(10,088)
5,498
7,120
Other assets
(16,738)
63,626
(6,501)
Consolidated Funds
Receivable on derivative contracts, at fair value
(2,917)
(19,710)
(1,417)
Receivable from brokers
—
(961)
(17,636)
Other assets
13
564
(159)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased, at fair value, held at broker-dealer
473,516
286,105
277,119
Securities sold under agreement to repurchase
58,433
(18,208)
23,244
Payable for derivative contracts, at fair value
(15,997)
15,399
44,679
Securities loaned
(889,842)
874,548
1,187,014
Payable to brokers, dealers and clearing organizations
171,410
144,125
42,287
Payable to customers
752,286
1,250,102
(94,929)
Commission management payable
(13,997)
45,367
(23,650)
Compensation payable
29,833
134,522
(38,954)
Fees payable
(27,350)
22,293
(1,025)
Due to related parties
(51)
254
(5,320)
Accounts payable, accrued expenses and other liabilities
15,707
55,879
(3,148)
Consolidated Funds
Contributions received in advance
—
450
50
Payable to brokers
—
8,560
(22,657)
Payable for derivative contracts, at fair value
—
11,967
3,106
Cowen Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Year Ended December 31,
2021
2020
2019
F-12
(continued)
Due to related parties
16
(386)
581
Accounts payable, accrued expenses and other liabilities
(353)
436
(129)
Net cash provided by / (used in) operating activities
306,627
513,204
(187,209)
Cash flows from investing activities:
Securities purchased under agreement to resell
191
(191)
—
Purchases of other investments
(98,375)
(48,634)
(19,812)
Purchase of business
(63,246)
(5,647)
(48,581)
Cash at deconsolidated entity
(5,620)
(22,382)
55
Proceeds from sales of other investments
99,142
44,371
35,648
Purchase of fixed assets and intangibles
(11,819)
(10,721)
(14,882)
Sale of fixed assets
4,183
—
—
Net cash provided by / (used in) investing activities
(75,544)
(43,204)
(47,572)
Cash flows from financing activities:
Repayments on convertible debt
(88,119)
(69,842)
(14,065)
Deferred debt issuance cost
(9,312)
(1,700)
(2,077)
Borrowings on notes and other debt
450,286
159,821
87,365
Repayments on notes and other debt
(206,433)
(121,472)
(10,263)
Purchase of treasury stock
(159,822)
(47,314)
(15,217)
Cash dividends paid
(11,373)
(5,710)
—
Preferred stock dividends paid
(6,792)
(6,792)
(6,792)
Contingent liability payment
(10,698)
(5,653)
(1,234)
Capital contributions by non-controlling interests in operating entities
36,539
9,730
11,108
Capital withdrawals to non-controlling interests in operating entities
(7,601)
(5,605)
(3,788)
Consolidated Funds
Capital contributions by non-controlling interests in Consolidated Funds
19,017
375,716
267,051
Capital withdrawals to non-controlling interests in Consolidated Funds
(21,411)
(255,597)
(111,650)
Net cash provided by / (used in) financing activities
(15,719)
25,582
200,438
Change in cash and cash equivalents
215,364
495,582
(34,343)
Cash and cash equivalents, including cash collateral pledged and segregated cash, beginning of period
941,470
445,888
480,231
Cash and equivalents at end of period:
Cash and cash equivalents
914,343
645,169
301,123
Cash collateral pledged
47,494
110,743
6,563
Segregated cash
194,701
185,141
107,328
Cash and cash equivalents, Consolidated Funds
296
417
30,874
Cash and cash equivalents, including cash collateral pledged and segregated cash, end of period
$
1,156,834
$
941,470
$
445,888
Supplemental information
Cash paid during the year for interest
$
214,909
$
153,653
$
145,877
Cash paid during the year for taxes
$
119,050
$
4,783
$
4,310
Supplemental non-cash information
Purchase of treasury stock, at cost, through net settlement (See Note 18)
$
40,392
$
15,147
$
15,217
Preferred stock dividends declared (See Note 18)
6,792
6,792
6,792
Cash dividends declared (See Note 18)
12,738
6,851
—
Net assets (liabilities) acquired upon acquisition (net of cash)
23,128
9,865
90,727
Initial recognition of operating lease right-of-use assets
—
—
103,694
Initial recognition of operating lease liabilities
—
—
110,505
Noncash transfer of net assets from Unconsolidated Master Fund to Consolidated Fund
—
—
97,655
Net Increase in non-controlling interests due to consolidation of operating entity
—
48,596
—
Net decrease in non-controlling interests in Consolidated Fund due to deconsolidation of Consolidated Fund (See Note 2)
74,813
450,600
—
Common stock issuance for purchase of investment
2,500
—
—
Common stock issuance in relation to acquisitions (See Note 3)
23,060
926
14,446
Cowen Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
Year Ended December 31,
2021
2020
2019
The accompanying notes are an integral part of these consolidated financial statements.
F-13
Cowen Inc.
Notes to Consolidated Financial Statements
1. Organization and Business
Cowen Inc., a Delaware corporation formed in 2009, is a diversified financial services firm that, together with its
consolidated subsidiaries (collectively, "Cowen" or the "Company"), provides investment banking, research, sales and trading,
prime brokerage, global clearing, securities financing, commission management services and investment management through its
two business segments: the Operating Company ("Op Co") and the Asset Company ("Asset Co").
The Op Co segment consists of four divisions: the Investment Banking division, the Markets division, the Research division
and the Cowen Investment Management ("CIM") division. The Company refers to the Investment Banking division, the Markets
division and the Research division combined as its investment banking businesses. Op Co's investment banking businesses offer
advisory and global capital markets origination, domain knowledge-driven research, sales and trading platforms for institutional
investors, global clearing, commission management services and also a comprehensive suite of prime brokerage service. Sectors
covered by Op Co's investment banking business include healthcare, technology, media and telecommunications, consumer,
industrials, tech-enabled and business services, and energy. Op Co’s CIM division includes advisers to investment funds
(including private equity structures and privately placed hedge funds) and registered funds. The Company has also invested
capital in its insurance and reinsurance businesses.
The Asset Co segment consists of certain of the Company's private investments, private real estate investments and other
legacy investment strategies. The focus of Asset Co is to drive future monetization of the invested capital of the segment.
2. Significant Accounting Policies
a. Basis of presentation
These financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America ("US GAAP") as promulgated by the Financial Accounting Standards Board ("FASB") through the Accounting
Standards Codification (the "Accounting Standards") as the source of authoritative accounting principles in the preparation of
financial statements, and include the accounts of the Company, its operating and other subsidiaries, and entities in which the
Company has a controlling financial interest or a general partner interest. All material intercompany transactions and balances
have been eliminated on consolidation. Certain investment funds that are consolidated in these accompanying consolidated
financial statements, as further discussed below, are not subject to the consolidation provisions with respect to their own
controlled investments pursuant to specialized industry accounting.
The Company serves as the managing member/general partner and/or investment manager to investment funds which it
sponsors and manages. Investment funds in which the Company has a controlling financial interest are consolidated with the
Company. Consequently, the Company's consolidated financial statements reflect the assets, liabilities, income and expenses of
these investment funds on a gross basis. The ownership interests in these investment funds that are not owned by the Company are
reflected as redeemable or nonredeemable non-controlling interests, dependent on the non-controlling interest holder's redemption
rights, in consolidated subsidiaries in the accompanying consolidated financial statements. The management fees and incentive
income earned by the Company from these investment funds are eliminated in consolidation.
During 2019, the Company carried out an analysis to evaluate instances where non-controlling interest parties have the
unilateral right to redeem their ownership interest for cash, which resulted in a change to the presentation of certain
nonredeemable non-controlling interests into permanent equity. Accordingly, prior period amounts have been recast to be
presented separately from redeemable non-controlling interests within the permanent equity section of the accompanying
consolidated statements of changes in equity. The change to the presentation of nonredeemable non-controlling interests has no
impact on net income (loss) attributable to Cowen Inc. common stockholders, total assets or total liabilities.
With respect to the Company's private equity investment management strategies, a portion of the Company's carried interest
is granted to employees through profit-sharing awards designed to more closely align compensation with the overall realized
performance of the Company. These arrangements enable certain employees to earn compensation based on performance revenue
earned by the Company and are recorded within compensation payable in the accompanying consolidated statements of financial
condition and employee compensation and benefits expense in the accompanying consolidated statements of operation based on
the probable and estimable payments under the terms of the awards.
During the first quarter of 2021, the Company changed the presentation of certain income streams on its consolidated
statements of operations by moving the income streams from Other income - net gains (losses) on securities, derivatives and other
F-14
investments to Revenues. Additionally, the Company moved proprietary trading gains and losses generated by the Company’s
broker-dealer entities from Brokerage revenue to Investment income (loss) – securities principal transactions, net. The specified
presentation changes included the following:
From
To
Income Streams
Other income - net gains (losses) on
securities, derivatives and other
investments
Investment income (loss) – securities
principal transactions, net
proprietary trading gains and losses
generated outside of the Company’s
broker-dealer entities
Other income - net gains (losses) on
securities, derivatives and other
investments
Investment income (loss) – portfolio fund
principal transactions, net
gains and losses from portfolio funds
Other income - net gains (losses) on
securities, derivatives and other
investments
Investment income (loss) – carried
interest allocations
carried interest allocations
Other income - net gains (losses) on
securities, derivatives and other
investments
Other revenue, net
net gains and losses on foreign currency
transactions
Brokerage revenue
Investment income (loss) – securities
principal transactions, net
proprietary trading gains and losses
generated by the Company’s broker-
dealer entities
Other income – Consolidated Funds – net
realized and unrealized gains (losses) on
investments and other transactions and
other income – Consolidated Funds – net
realized and unrealized gains (losses) on
derivatives
Consolidated Funds – principal
transactions, net
proprietary trading gains and losses
generated from the Consolidated Funds
Other income – Consolidated Funds – net
gains (losses) on foreign currency
transactions
Consolidated Funds – other revenue
net gains and losses on foreign currency
transactions generated by the
Consolidated Funds
The Company believes that these presentation changes provide a better representation of the Company’s operating results as
it is used by management to monitor the Company’s financial performance and is consistent with industry practice. The changes
in presentation have no impact on net income and prior period amounts have been recast to reflect such changes in presentation.
b.
Principles of consolidation
The Company consolidates all entities that it controls through a majority voting interest or otherwise, including those
investment funds in which the Company either directly or indirectly has a controlling financial interest. In addition, the Company
consolidates all variable interest entities for which it is the primary beneficiary.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is
a Voting Operating Entity ("VOE") or a Variable Interest Entity ("VIE") under US GAAP.
Voting Operating Entities—VOEs are entities in which (i) the total equity investment at risk is sufficient to enable the
entity to finance its activities independently, (ii) the equity holders at risk have the obligation to absorb losses, the right to receive
residual returns and the right to direct the activities of the entity that most significantly impact the entity's economic performance
and (iii) voting rights of equity holders are proportionate to their obligation to absorb losses or the right to receive returns.
Under US GAAP consolidation requirements, the usual condition for a controlling financial interest in a VOE is ownership
of a majority voting interest. Accordingly, the Company consolidates all VOEs in which it owns a majority of the entity's voting
shares or units.
Variable Interest Entities—VIEs are entities that lack one or more of the characteristics of a VOE. In accordance with
US GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. Under the US GAAP consolidation
model for VIEs, an enterprise that (1) has the power to direct the activities of a VIE that most significantly impacts the VIE's
economic performance, and (2) has an obligation to absorb losses or the right to receive benefits from the VIE that could
potentially be significant to the VIE, is considered to be the primary beneficiary of the VIE and thus is required to consolidate it.
The Company determines whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE and
reassesses whether it is the primary beneficiary on an ongoing basis as long as it has any continuing involvement with the VIE by
performing a periodic qualitative and/or quantitative analysis of the VIE that includes a review of, among other things, its capital
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-15
structure, contractual agreements between the Company and the VIE, the economic interests that create or absorb variability,
related party relationships and the design of the VIE.
The VIEs the Company has invested in act as investment managers and/or investment companies that may be managed by
the Company. The VIEs are financed through their operations and/or loan agreements with the Company.
In the ordinary course of business, the Company also sponsors various other entities that it has determined to be VIEs.
These VIEs are primarily investment funds for which the Company serves as the general partner, managing member and/or
investment manager with decision-making rights. The Company consolidates these investment funds when its variable interest is
potentially significant to the entity (see Note 6 for additional disclosures on VIEs).
As of December 31, 2021 and 2020, the total assets of the consolidated VIEs were $304.1 million and $325.5 million,
respectively, and total liabilities of the consolidated VIEs were $9.8 million and $10.1 million, respectively.
At December 31, 2019, the Company held a variable interest in Ramius Merger Master Fund Ltd ("Merger Master")
through the consolidated the Merger Fund. Investment companies, which account for their investments under the specialized
industry accounting guidance for investment companies prescribed under US GAAP, are not subject to the consolidation
provisions for their investments. Therefore, the Company had not consolidated the Merger Master.
The Company consolidates investment funds for which it acts as the managing member/general partner and investment
manager. At December 31, 2021, the Company consolidated the following investment funds: Ramius Enterprise LP
(“Enterprise LP”) and Cowen Private Investments LP ("Cowen Private"). At December 31, 2020, the Company consolidated the
following investment funds: Enterprise LP, Cowen Private, and Cowen Sustainable Investments I LP ("CSI I LP"). At December
31, 2019, the Company consolidated the following investment funds: Enterprise LP, Ramius Merger Fund LLC (the "Merger
Fund"), Cowen Private, Ramius Merger Arbitrage UCITS Fund ("UCITS Fund"), and CSI I LP.
During the first quarter of 2021, the Company deconsolidated CSI I LP due to the Company's ownership being diluted
through a capital equalization event. During the second quarter of 2020, the Company deconsolidated the Merger Fund and
UCITS Fund due to a partial redemption of the Company’s direct portfolio fund investment in Merger Fund and a partial
termination of the notional value of UCITS Fund units referenced in a total return swap with a third party. The Company
continues to hold a direct retained portfolio fund investment in the Merger Fund and CSI I LP and continues to have economic
exposure to the returns of UCITS Fund through a total return swap with a third party. Merger Fund, CSI I LP and UCITS Fund
continue to be related parties of the Company after deconsolidation. Each of CSI I Golden Holdco LP ("Golden HoldCo") and
CSI I Prodigy Holdco LP ("Prodigy HoldCo") were deconsolidated in the fourth quarter of 2020 when the Company raised
additional capital within the sustainable investing strategy that diluted the Company's direct and indirect ownership. As a result,
the Company's direct and indirect ownership in Golden Holdco and Prodigy Holdco is no longer expected to be significant to
either entity and the entities were deconsolidated.
Equity Method Investments—For operating entities over which the Company exercises significant influence but which do
not meet the requirements for consolidation as outlined above, the Company uses the equity method of accounting. The
Company's investments in equity method investees are recorded in other investments in the accompanying consolidated
statements of financial condition. The Company's share of earnings or losses from equity method investees is included in Net
gains (losses) on other investments in the accompanying consolidated statements of operations.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances
indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the
equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed
other than temporary.
Other—If the Company does not consolidate an entity or apply the equity method of accounting, the Company accounts for
its investment in such entity (primarily consisting of securities of such entity which are purchased and held principally for the
purpose of selling them in the near term and classified as trading securities), at fair value with unrealized gains (losses) resulting
from changes in fair value reflected within Investment income (loss) - Securities principal transactions, net or Investment income
(loss) - portfolio fund investment income (loss) in the accompanying consolidated statements of operations.
Retention of Specialized Accounting— The Consolidated Funds and certain other consolidated companies are investment
companies and apply specialized industry accounting. The Company reports its investments on the consolidated statements of
financial condition at their estimated fair value, with unrealized gains (losses) resulting from changes in fair value reflected within
Consolidated Funds - Principal transactions, net in the accompanying consolidated statements of operations. Accordingly, the
accompanying consolidated financial statements reflect different accounting policies for investments depending on whether or not
they are held through a consolidated investment company.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-16
Certain portfolio fund investments qualify as equity method investments and are investment companies that apply
specialized industry accounting. In applying equity method accounting guidance, the Company retains the specialized accounting
of the investees and reports its investments on the consolidated statements of financial condition at their estimated fair value, with
unrealized gains (losses) resulting from changes in fair value reflected within Investment Income - portfolio fund principal
transactions, net in the accompanying consolidated statements of operations.
In addition, the Company's broker-dealer subsidiaries, Cowen and Company, LLC ("Cowen and Company"), Westminster
Research Associates LLC ("Westminster"), Cowen Execution Services Limited ("Cowen Execution Ltd"), ATM Execution LLC
("ATM Execution"), Cowen and Company (Asia) Limited ("Cowen Asia"), and Cowen International Limited ("Cowen
International Ltd") apply the specialized industry accounting for brokers and dealers in securities, which the Company retains
upon consolidation.
c.
Use of estimates
The preparation of the accompanying consolidated financial statements in conformity with US GAAP requires the
management of the Company to make estimates and assumptions that affect the fair value of securities and other investments, the
reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the accompanying
consolidated financial statements, as well as the accounting for goodwill and identifiable intangible assets and the reported
amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
d.
Cash and cash equivalents
The Company considers investments in money market funds and other highly liquid investments with original maturities of
three months or less which are deposited with a bank or prime broker to be cash equivalents. Cash and cash equivalents held at
Consolidated Funds, although not legally restricted, are not available to fund the general liquidity needs of the Company. The
Company may also be exposed to credit risk as a result of cash being held at several banks.
e.
Allowance for credit losses
Effective January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments – Credit Losses (“ASC 326”). ASC
326 impacts the prescribed the impairment model for certain financial assets measured at amortized cost by requiring a current
expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset, recorded
at inception or purchase. Under the accounting update guidance, the Company has the ability to determine there are no expected
credit losses in certain circumstances (e.g., based on collateral arrangements or based on the credit quality of the borrower or
issuer).
The Company applies the guidance in ASC 326 to securities borrowed and fees and other receivables carried at amortized
cost (including, but not limited to, receivables related to securities transactions, underwriting fees, strategic/financial advisory
fees and placement and sales agent fees, management fees and incentive fees receivable).
The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments, fees and
other receivables utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age
of balances and current and future economic conditions that may affect the Company’s expectation of the collectability in
determining the allowance for credit losses. The Company’s expectation is that the credit risk associated with fees and other
receivables is not significant until they are 90 days past due based on the contractual arrangement and expectation of collection in
accordance with industry standards.
For securities borrowed, the Company applies a practical expedient to measure the allowance for credit losses based on the
fair value of the collateral. If the fair value of the collateral held exceeds the amortized cost and the borrower is expected to
continue to replenish the collateral as needed, the Company will not recognize an allowance. If the fair value of collateral is less
than amortized cost and the borrower is expected to continue to replenish the collateral as needed, the Company applies the CECL
model, utilizing a probability and loss given default methodology, only to the extent of the shortfall between the fair value of the
collateral and amortized cost.
The credit loss expense related to the allowance for credit losses as well as any recoveries of amounts previously charged is
reflected in other expenses in the accompanying consolidated statements of operations.
f.
Valuation of investments and derivative contracts and other investments
US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy
are as follows:
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-17
Level 1
Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date;
Level 2
Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs
in markets that are not considered to be active; and
Level 3
Fair value is determined based on pricing inputs that are unobservable and includes situations where there is little, if
any, market activity for the asset or liability. The determination of fair value for assets and liabilities in this category
requires significant management judgment or estimation.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants
use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics,
specific and broad credit data, liquidity statistics, and other factors. A financial instrument's level within the fair value hierarchy is
based on the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to
be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument
within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the
Company's perceived risk of that instrument. Inputs reflect unadjusted quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date.
The Company and its operating subsidiaries act as the manager for the Consolidated Funds. Both the Company and the
Consolidated Funds hold certain investments which are valued by the Company, acting as the investment manager. The fair value
of these investments is based on their proportional rights of the underlying portfolio company, and is generally estimated based
on proprietary models developed by the Company, which include discounted cash flow analysis, public market comparables, and
other techniques and may be based, at least in part, on independently sourced market information. The material estimates and
assumptions used in these models include the timing and expected amount of cash flows, the appropriateness of discount rates
used, and, in some cases, the ability to execute, timing of, and estimated proceeds from expected financings. Significant judgment
and estimation impact the selection of an appropriate valuation methodology as well as the assumptions used in these models, and
the timing and actual values realized with respect to investments could be materially different from values derived based on the
use of those estimates. The valuation methodologies applied impact the reported value of the Company's investments and the
investments held by the Consolidated Funds in the consolidated financial statements. Certain of the Company's investments are
relatively illiquid or thinly traded and may not be immediately liquidated on demand if needed. Fair values assigned to these
investments may differ significantly from the fair values that would have been used had a ready market for the investments
existed and such differences could be material.
The Company primarily uses the market approach to value its financial instruments measured at fair value. In determining
an instrument's level within the hierarchy, the Company categorizes the Company's financial instruments into three categories:
securities, derivative contracts and other investments. To the extent applicable, each of these categories can further be divided
between those held long or sold short.
The Company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair
value recognized in earnings each period. The election is made on an instrument by instrument basis at initial recognition of an
asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected the
fair value option for certain of its investments held by its operating companies. This option has been elected because the
Company believes that it is consistent with the manner in which the business is managed, as well as the way that financial
instruments in other parts of the business are recorded.
Securities—Securities with values based on quoted market prices in active markets for identical assets are classified within
level 1 of the fair value hierarchy. These securities primarily include active listed equities, certain U.S. government and sovereign
obligations, Exchange Traded Funds ("ETFs"), mutual funds and certain money market securities.
Certain positions for which trading activity may not be readily visible, consisting primarily of convertible debt, corporate
debt and loans and restricted equities, are stated at fair value and classified within level 2 of the fair value hierarchy. The
estimated fair values assigned by management are determined in good faith and are based on available information considering
trading activity, broker quotes, quotations provided by published pricing services, counterparties and other market participants,
and pricing models using quoted inputs, and do not necessarily represent the amounts which might ultimately be realized. As
level 2 investments include positions that are not always traded in active markets and/or are subject to transfer restrictions,
valuations may be adjusted to reflect illiquidity and/or non-transferability.
Derivative contracts—Derivative contracts can be exchange-traded or privately negotiated over-the-counter (“OTC”).
Exchange-traded derivatives, such as futures contracts and exchange-traded option contracts, are typically classified within level 1
or level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. OTC derivatives, such as
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-18
generic forwards, swaps and options, are classified as level 2 when their inputs can be corroborated by market data. OTC
derivatives, such as swaps and options, with significant inputs that cannot be corroborated by readily available or observable
market data are classified as level 3.
Other investments—Other investments consist primarily of portfolio funds, carried interest and equity method investments,
which are valued as follows:
i.
Portfolio funds—Portfolio funds include interests in private investment partnerships, foreign investment companies and
other collective investment vehicles which may be managed by the Company or its affiliates. The Company applies the
practical expedient provided by the US GAAP fair value measurements and disclosures guidance relating to investments
in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). The practical expedient permits an
entity holding investments in certain entities that either are investment companies or have attributes similar to an
investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable,
to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment.
Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value
hierarchy.
ii. Carried Interest—For the private equity and debt fund products the Company offers, the Company is allocated incentive
income by the investment funds based on the extent by which the investment funds performance exceeds predetermined
thresholds. Carried interest allocations are generally structured from a legal standpoint as an allocation of capital in the
Company’s capital account. The Company accounts for carried interest allocations by applying an equity ownership
model. Accordingly, the Company accrues performance allocations quarterly based on the fair value of the underlying
investments assuming hypothetical liquidation at book value.
iii. Equity Method Investments—For operating entities over which the Company exercises significant influence but which
do not meet the requirements for consolidation as outlined above, the Company applies the equity method of accounting.
The Company's investments in equity method investees are recorded in other investments in the accompanying
consolidated statements of financial condition. The Company's share of earnings or losses from equity method investees
is included in Net gains (losses) on other investments in the accompanying consolidated statements of operations.
See Notes 6 and 7 for further information regarding the Company's investments, including equity method investments
and fair value measurements.
g.
Offsetting of derivative contracts
To reduce credit exposures on derivatives, the Company may enter into master netting agreements with counterparties that
permit the Company the right, in the event of a default by a counterparty, to offset the counterparty’s rights and obligations under
the agreement and to liquidate and offset any collateral against any net amount owed by the counterparty. Derivatives are reported
on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) in
the consolidated statements of financial condition when a legal right of offset exists under an enforceable netting agreement.
Additionally, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements in
the consolidated statements of financial position, provided a legal right of offset exists. See Note 6 for further information about
offsetting of derivative financial instruments.
h.
Due from related parties
The Company may advance amounts and pay certain expenses on behalf of employees of the Company or other affiliates of
the Company. These amounts settle in the ordinary course of business. Such amounts are included in due from related parties on
the accompanying consolidated statements of financial condition.
i.
Receivable from and payable to brokers
Receivable from brokers, dealers, and clearing organizations includes amounts receivable for securities failed to deliver by
the Company to a purchaser by the settlement date, amounts receivable from broker-dealers and clearing organizations,
commissions receivable from broker-dealers, and interest receivable from securities financing arrangements and are reported net
of an allowance for credit losses.
Payable to brokers, dealers and clearing organizations includes amounts payable for securities failed to receive by the
Company from a seller by the settlement date, amounts payable to broker-dealers and clearing organizations for unsettled trades,
interest payable for securities financing arrangements, and payables of deposits held in proprietary account of brokers and dealers.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-19
Receivables and payables with brokers, dealers and clearing organizations arising from unsettled regular-way transactions
are presented net (assets less liabilities) across balances with the same counterparty. The Company's receivable from and payable
to brokers, dealers and clearing organizations balances are held with multiple financial institutions.
j.
Receivable from and payable to customers
Receivable from customers includes amounts owed by customers on cash and margin transactions, recorded on a settlement-
date basis and prepaid research, net of allowance for credit losses. For prepaid research, a prepaid research asset is established for
research and related services disbursed in advance of anticipated client commission volumes.
Payable to customers primarily consists of amounts owed to customers relating to securities transactions not completed on
settlement date, recorded on a settlement-date basis on the statement of financial condition, and other miscellaneous customer
payables.
Securities owned by customers, including those that collateralize margin, are not reflected as assets of the Company on the
statement of financial condition. The Company holds these securities with the intention of settlement against customer orders and
are held as collateral for customer receivables.
k.
Fees receivable
Fees receivable primarily relate to securities transactions and are reported net of an allowance for credit losses. Fees
receivable also include amounts due to the Company for underwriting fees, strategic/financial advisory fees and placement and
sales agent fees. Additionally, management and incentive fees due to the Company are earned as the managing member, general
partner and/or investment manager to the Company's investment funds and are recognized in accordance with appropriate revenue
recognition guidance (see Note 2x).
l.
Securities financing arrangements
Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced or received on a gross basis.
The related rebates are recorded in the accompanying consolidated statements of operations as interest and dividends income and
interest and dividends expense. Securities borrowed transactions require the Company to deposit cash collateral with the lender.
With respect to securities loaned, the Company receives cash or securities as collateral from the borrower. When the Company
receives securities as collateral, and has concluded it (i) is the transferor and (ii) can pledge the securities to third parties, the
Company recognizes the securities received as collateral at fair value in Securities owned, at fair value with the corresponding
obligation to return the securities received as collateral at fair value in Securities sold, not yet purchased, at fair value. Securities
received as collateral are not recognized when the Company either (i) is not the transferor or (ii) cannot pledge the securities to
third parties. The initial collateral advanced or received approximates or is greater than the market value of securities borrowed or
loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral
obtained or returned, as necessary. Securities borrowed and loaned may also result in credit exposures for the Company in an
event that the counterparties are unable to fulfill their contractual obligations. See Note 2d for further information.
Fees and interest received or paid are recorded in interest and dividends income and interest and dividends expense,
respectively, on an accrual basis in the accompanying consolidated statements of operations. Accrued interest income and expense
are recorded in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing
organizations, respectively, on an accrual basis in the accompanying consolidated statements of financial condition.
m.
Securities purchase under agreement to resell and securities sold under agreements to repurchase
Securities purchased under agreement to resell and securities sold under agreements to repurchase ("repurchase
agreements") are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase
amount plus accrued interest. A repo is a transaction in which a firm buys or sells financial instruments from/to a counterparty,
typically in exchange for cash, and simultaneously enters into an agreement to resell or repurchase the same or substantially the
same financial instruments to/from such counterparty at a stated price plus accrued interest at a future date. When the Company
receives securities as collateral, and has concluded it (i) is the transferor and (ii) can pledge the securities to third parties, the
Company recognizes the securities received as collateral at fair value in Securities owned, at fair value with the corresponding
obligation to return the securities received as collateral at fair value in Securities sold, not yet purchased, at fair value. Securities
received as collateral are not recognized when the Company either (i) is not the transferor or (ii) cannot pledge the securities to
third parties. The initial collateral advanced approximates or is greater than the market value of securities purchased or sold in the
transaction. The Company typically enters into repurchase transactions with counterparties that prefer repurchase transactions to
securities borrowed and securities loaned transactions. The Company has executed master repurchase agreements with such
counterparties and utilizes such counterparties to finance its own positions, or replace a securities lending transaction with a
repurchase for matched book purposes. The Company monitors the market value of repurchases on a daily basis, with additional
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-20
collateral obtained or returned, as necessary. Repurchases may also result in credit exposures for the Company in an event that the
counterparties are unable to fulfill their contractual obligations. The Company mitigates its credit risk by continuously monitoring
its credit exposure and collateral values by demanding additional collateral or returning excess collateral in accordance with the
netting provisions available in the master repurchase contracts in place with the counterparties.
Interest paid is recorded in interest and dividends expense in accordance with US GAAP on repurchase agreement
transactions on an accrual basis in the accompanying consolidated statements of operations.
n.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation or amortization. Leasehold improvements are amortized on a
straight-line basis over the lesser of their useful life or lease term. When the Company commits to a plan to abandon fixed assets
or leasehold improvements before the end of its original useful life, the estimated depreciation or amortization period is revised to
reflect the shortened useful life of the asset. Other fixed assets are depreciated on a straight-line basis over their estimated useful
lives.
Asset
Depreciable Lives
Depreciation and/or
Amortization Method
Telecommunication and computer equipment
3 - 5 years
Straight-line
Computer software
3 - 4 years
Straight-line
Furniture and fixtures
5 years
Straight-line
Leasehold improvements
Term of Lease
Straight-line
Finance lease right-of-use asset
Term of Lease
Straight-line
o.
Goodwill and intangible assets
Goodwill
Goodwill represents the excess of the purchase price consideration of acquired companies over the estimated fair value
assigned to the individual assets acquired and liabilities assumed. Goodwill is allocated to the Company's reporting units at the
date the goodwill is initially recorded. Once goodwill has been allocated to the reporting units, it generally no longer retains its
identification with a particular acquisition but instead becomes identifiable with the reporting unit. As a result, all of the fair value
of each reporting unit is available to support the value of goodwill allocated to the unit.
In accordance with US GAAP requirements for testing for impairment of goodwill, the Company tests goodwill for
impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the
fair value of a reporting unit below its carrying amount. In testing for goodwill impairment, the Company has the option to first
assess qualitative factors to determine whether the existence of events or circumstances led to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and
circumstances, the Company concludes that fair value exceeds its carrying amount, then performing a quantitative impairment test
is not necessary. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test that
requires a comparison of the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the
reporting unit exceeds its carrying value, the related goodwill is not considered impaired and no further analysis is required. If the
carrying value of the reporting unit exceeds its fair value, then the Company recognizes an impairment charge for the amount by
which the carrying amount exceeds the reporting unit’s fair value. See Note 12 for the impact of the goodwill impairment test.
Intangible assets
Intangible assets with finite lives are amortized over their estimated average useful lives. Intangible assets are tested for
potential impairment whenever events or changes in circumstances suggest that an asset or asset group's carrying value may not
be fully recoverable. An impairment loss, calculated as the difference between the estimated fair value and the carrying value of
an asset or asset group, is recognized in the accompanying consolidated statements of operations if the sum of the estimated
undiscounted cash flows from the use or disposition of the asset or asset group is less than the corresponding carrying value. The
Company continually monitors the estimated average useful lives of existing intangible assets.
p.
Debt
Long-term debt is carried at the principal amount borrowed net of any unamortized discount/premium. The discount or
premium is accreted to interest expense using the effective interest method over the remaining life of the underlying debt
obligations. Accrued but unpaid coupon interest is included in accounts payable, accrued expenses and other liabilities in the
accompanying consolidated statements of financial condition.
q.
Legal reserves
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-21
The Company establishes reserves for contingencies when the Company believes that it is probable that a loss has been
incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency if there is at least a
reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the conditions above are not
met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for those matters for which an
estimate can be made. Neither reserve nor disclosure is required for losses that are deemed remote.
r.
Capital withdrawals payable
Capital withdrawals from the Consolidated Funds are recognized as liabilities, net of any incentive income, when the
amount requested in the withdrawal notice represents an unconditional obligation at a specified or determined date (or dates) or
upon an event certain to occur. This generally may occur either at the time of the receipt of the notice, or on the last day of a
reporting period, depending on the nature of the request. As a result, withdrawals paid after the end of the year, but based upon
year-end capital balances are reflected as liabilities on the consolidated statements of financial condition.
s.
Temporary Equity
Temporary equity consists of Redeemable 5.625% Series A cumulative perpetual convertible preferred stock ("Series A
Convertible Preferred Stock") and, in years prior to December 31, 2020, redeemable non-controlling interests. The Company has
irrevocably elected to cash settle $1,000 of each conversion of any share of the Series A Convertible Preferred Stock. As the
holders can exercise the conversion option on their shares at any time and require cash payment upon conversion, the Company
has classified the Series A Convertible Preferred Stock preferred stock in temporary equity. Redeemable non-controlling interests
represented the pro rata share of the income or loss of the non-wholly owned consolidated entities attributable to the other owners
of such entities. Non-controlling interest is redeemable when the holders have redemption features that can be exercised at the
option of the holder currently or contingent upon the occurrence of future events. Therefore their ownership was classified as a
component of temporary equity.
t.
Non-controlling interests in consolidated subsidiaries
Non-controlling interests represent the pro rata share of the income or loss of the non-wholly owned consolidated entities
attributable to the other owners of such entities. When non-controlling interest holders do not have redemption features that can
be exercised at the option of the holder currently or contingent upon the occurrence of future events, their ownership has been
classified as a component of permanent equity. Ownership which has been classified in permanent equity are non-controlling
interests for which the holder does not have the unilateral right to redeem its ownership interests.
u.
Treasury stock
In accordance with US GAAP relating to repurchases of an entity's own outstanding common stock, the Company records
the purchases of stock held in treasury at cost and reports them separately as a deduction from total stockholders' equity on the
accompanying consolidated statements of financial condition and changes in equity.
v.
Comprehensive income (loss)
Comprehensive income (loss) consists of net income and other comprehensive income (loss). The Company's other
comprehensive income (loss) is comprised of foreign currency cumulative translation adjustments.
w.
Right-of-use assets and lease liabilities
The Company accounts for leases in accordance with ASC Topic 842, Leases ("ASC 842"). The guidance requires the
recognition of right-of-use assets and lease liabilities on the accompanying consolidated statements of financial condition.
In applying ASC 842, the Company made an accounting policy election not to recognize the right-of-use assets and lease
liabilities relating to short-term leases. On an ongoing basis the Company performs an analysis of new/modified contracts,
including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of right-of-use
assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates. The
Company's operating lease arrangements are primarily for real estate and facility leases as well as office equipment. The
Company has applied an accounting policy election to combine its lease and non-lease components for its real estate and facility
leases. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and lease liabilities
represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are
recognized at the commencement date based on the present value of lease payments over the lease term. The Company's variable
lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the right-of-use asset
and lease liabilities to the extent they are not based on a consumer priced index or a market index and are recognized in the period
in which the obligation for those payments is incurred. As most of the Company's leases do not provide an implicit rate and the
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-22
implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at
the commencement date in determining the present value of lease payments. Right-of-use assets also include any lease payments
made and exclude lease incentives. Many of the Company's operating lease agreements include options to extend the lease, which
the Company does not include in the determination of the minimum lease term unless the options are reasonably certain to be
exercised. Expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
The Company reconciles the operating lease expense with operating lease payments by presenting the amortization of the
operating Right-of-use asset and change in the operating lease liability in a single line item within the adjustments to reconcile net
income (loss) to net cash provided by / (used in) operating activities in the accompanying Consolidated Statements of Cash Flows.
Please refer to Note 16 for information on the Company's finance leases.
x.
Revenue recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC
Topic 606"), which requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
Company follows a five-step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the
contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and
(e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, the
Company includes variable consideration only to the extent that it is probable that a significant reversal in the amount of
cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved.
Significant judgments are required in the application of the five-step model including: when determining whether performance
obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations
are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and
whether constraints on variable consideration should be applied due to uncertain future events.
The Company's principal sources of revenue are generated within two segments. The Op Co segment generates revenue
through five principal sources: investment banking revenue, brokerage revenue, management fees, investment income (loss) and
incentive income. Investment income is excluded from ASC Topic 606. The Asset Co segment generates revenue through
investment income (loss), management fees and incentive income. Investment income is excluded from ASC Topic 606. Revenue
from contracts with customers includes management fees, incentive income, investment banking revenue and brokerage services
revenue excluding principal transactions. ASC Topic 606 does not apply to revenue associated with financial instruments, interest
income and expense, leasing and insurance contracts. The following is a description of principal activities, from which the
Company generates its revenue. For more detailed information about reportable segments, see Note 28.
The Op Co segment generates revenue through several principal sources: investment banking revenue, brokerage revenue,
management fees, incentive income, and investment income earned from the Company's own capital. Investment income is
excluded from ASC Topic 606.
The Asset Co segment generates revenue through management fees, incentive income and investment income from the
Company’s own capital. Investment income is excluded from ASC Topic 606.
Investment banking
The Company earns investment banking revenue primarily from fees associated with public and private capital raising
transactions and providing strategic advisory services. Investment banking revenues are derived primarily from public and private
small- and mid-capitalization companies within the Company's sectors.
Investment banking revenue consists of underwriting fees, strategic/financial advisory fees, expenses reimbursed from
clients and placement and sales agent fees.
•
Underwriting fees. The Company earns underwriting fees in securities offerings in which the Company acts as an
underwriter, such as initial public offerings, follow-on equity offerings, debt offerings, and convertible securities
offerings. Fee revenue relating to underwriting commitments is recorded at the point in time when all significant items
relating to the underwriting process have been completed and the amount of the underwriting revenue has been
determined. This generally is the point at which all of the following have occurred: (i) the issuer's registration statement
has become effective with the SEC or the other offering documents are finalized; (ii) the Company has made a firm
commitment for the purchase of securities from the issuer; (iii) the Company has been informed of the number of
securities that it has been allotted; and (iv) the issuer obtains control and benefits of the offering; which generally occurs
on trade date.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-23
Underwriting fees are recognized gross of transaction-related expenses, and such amounts are adjusted to reflect actual
expenses in the period in which the Company receives the final settlement, typically within 90 days following the closing
of the transaction.
•
Strategic/financial advisory fees. The Company's strategic advisory revenue includes success fees earned in connection
with advising companies, principally in mergers, acquisitions and restructuring transactions. The Company also earns
fees for related advisory work such as providing fairness opinions. A significant portion of the Company's advisory
revenue (i.e., success-related advisory fees) is considered variable consideration and recognized when it is probable that
the variable consideration will not be reversed in a future period. The variable consideration is constrained until
satisfaction of the performance obligation. The Company records strategic advisory revenues at the point in time, gross
of related expenses, when the services for the transactions are completed or the contract is canceled under the terms of
each assignment or engagement.
•
Placement and sales agent fees. The Company earns placement agency fees and sales agent commissions in non-
underwritten transactions, such as private placements of loans and debt and equity securities, including private
investment in public equity transactions ("PIPEs"), and as sales agent in at-the-market offerings of equity securities. The
Company records placement revenues (which may be in cash and/or securities) at the point in time when the services for
the transactions are completed under the terms of each assignment or engagement. The Company records sales agent
commissions on a trade-date basis.
•
Expense reimbursements from clients. Investment banking revenue includes expense reimbursements for transaction-
related expenses, primarily consisting of legal, travel and other costs directly associated with the transaction. Expense
reimbursements associated with investment banking engagements are recognized in revenue at the point in time when the
Company is contractually entitled to reimbursement. The related expenses are presented gross within their respective
expense category in the accompanying consolidated statements of operations.
Brokerage
Brokerage revenue consists of commissions, principal transactions, equity research fees and trade conversion revenue.
•
Commissions. Commission revenue includes fees from executing and clearing client transactions and commission
sharing arrangements. Trade execution and clearing services, when provided together, represent a single performance
obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated
with combined trade execution and clearing services on a standalone basis, are recognized at a point in time on trade-
date. Commission revenues are generally paid on settlement date and the Company records a receivable between trade-
date and payment on settlement date. The Company permits institutional customers to allocate a portion of their
commissions to pay for research products and other services provided by third parties. The amounts allocated for those
purposes are commonly referred to as "soft dollar arrangements". The Company also offers institutional clients the
ability to allocate a portion of their gross commissions incurred on trades executed with various brokers to pay for
research products and other services provided by third parties by entering into commission sharing arrangements. The
Company acts as an agent in the soft dollar and commission sharing arrangements as the customer controls the use of the
soft dollars and directs payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft
dollar arrangements are netted against commission revenues and recorded on trade date. Commissions on soft dollar
brokerage are recorded net of the related expenditures. The costs of commission sharing arrangements are recorded for
each eligible trade and shown net of commission revenue.
•
Equity research fees. Equity research fees are paid to the Company for providing access to equity research. In the US,
revenue is recognized once an arrangement exists, access to research has been provided and the customer has benefited
from the research. As part of MiFID II, the international customers of the Company's broker-dealers have executed
equity research contracts with its clients. The contracts either contain a fixed price for providing access to research or a
price at the discretion of the customer with a contract minimum. Fixed equity research fees are recognized over the
contract period as the customer is benefiting from the research throughout the contract term. When the equity research
fees are based on the customer’s discretion with a contract minimum, the Company recognizes the contract minimum
over the life of the contract as the customer benefits from the research provided and adjusts the revenue when the
Company can estimate the amount of equity research fees over the contract minimum. Additionally, the Company earns
variable consideration for attending client conferences and events. Revenue is recognized when the Company attends a
client conference or event.
•
Trade conversion revenue. Trade conversion revenue includes fees earned from converting foreign securities into an
American Depository Receipt ("ADR") and fees earned from converting an ADR into foreign securities on behalf of
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-24
customers, and margins earned from facilitating customer foreign exchange transactions. Trade conversion revenue is
recognized on a trade-date basis.
Investment Income
•
Securities principal transactions, net. Principal transactions, net includes realized gains and losses from transactions
in financial instruments and unrealized gains and losses from ongoing changes in the fair value of the Company’s
positions.
Principal transactions, net generated by the Company's broker-dealers include net trading gains and losses from the
Company's market-making activities in over-the-counter equity and fixed income securities, trading of convertible
securities, and trading gains and losses on inventory and other Company positions, which include securities previously
received as part of investment banking transactions. In certain cases, the Company provides liquidity to clients by buying
or selling blocks of shares of listed stocks without previously identifying the other side of the trade at execution, which
subjects the Company to market risk. These positions are typically held for a short duration.
With respects to the Company's proprietary trading strategies, purchases and sales of securities, net of commissions,
derivative contracts, and the related revenues and expenses are recorded on a trade-date basis with net trading gains and
losses included as a component of Investment income - Securities principal transactions, net, in the accompanying
consolidated statements of operations.
•
Portfolio Fund principal transactions, net. Portfolio funds include interests in private investment partnerships, foreign
investment companies and other collective investment vehicles which may be managed by the Company or its affiliates.
The Company applies the practical expedient provided by the US GAAP fair value measurements and disclosures
guidance relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent).
The practical expedient permits an entity holding certain investments that calculate NAV per share or its equivalent for
which the fair value is not readily determinable and is considered an investment company under ASC 946 to measure the
fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. Investments
which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy.
Realized and unrealized gains (losses) resulting from changes in NAV per share are reflected within Investment income
– portfolio fund principal transactions, net in the accompanying consolidated statements of operations.
•
Carried interest allocations. The Company is allocated carried interest based on net profits (as defined in the
respective investment management or partnership agreement) related to certain of the Company's private equity
investment funds. For the private equity fund products the Company offers, the carried interest earned is typically up to
30% of the distributions made to investors after return of their contributed capital and generally a preferred return. The
Company recognizes carried interest allocated to the Company under an equity ownership model as investment income -
carried interest allocations in the accompanying consolidated statements of operations accordance with ASC Topic 323.
Under the equity method of accounting the Company recognizes its allocations of incentive income or carried interest
within Investment Income - Carried interest allocations in the accompanying consolidated statements of operations along
with the allocations proportionate to the Company's ownership interests in the investment funds. Generally, carried
interest is recognized after the investor has received a full return of its invested capital, plus a preferred return. However,
for certain private equity structures, the Company is entitled to receive incentive fees earlier, provided that the investors
have received their preferred return on a current basis or on an investor by investor basis. These private equity structures
are generally subject to a potential clawback of these incentive fees upon the liquidation of the private equity structure if
the investor has not received a full return of its invested capital plus the preferred return thereon.
Management fees
The Company earns management fees from investment funds and certain managed accounts for which it serves as the
investment manager; such fees earned are typically based on committed and invested capital. The Company has determined that
the primary drivers of management fees are committed and invested capital relating to private equity funds. The management
fees are earned as the investment management services are provided and are not subject to reversals. The performance obligation
related to the transfer of these services is satisfied over time because the customer is receiving and consuming the benefits as they
are provided by the Company.
Management fees are generally paid on a quarterly basis and are prorated for capital inflows (or commitments) and
redemptions (or distributions) and are recognized as revenue at that time as they relate specifically to the services provided in that
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-25
period, which are distinct from the services provided in other periods. While some investors may have separately negotiated fees,
in general the management fees are as follows:
•
Private equity funds. Management fees for the Company's private equity funds are generally charged at an annual rate
of 1% to 2% of committed capital during the investment period (as defined in the relevant partnership agreement). After
the investment period, management fees for these private equity funds are generally charged at an annual rate of 1% to
2% of the net asset value or the aggregate cost basis of the unrealized investments held by the private equity funds. For
certain other private equity funds (and managed accounts), the management fees range from 0.2% to 1% and there is no
adjustment based on the investment period. Management fees for the Company's private equity funds are generally paid
on a quarterly basis.
•
Hedge funds. Management fees for the Company's hedge funds are generally charged at an annual rate of up to 2% of
net asset value. Management fees are generally calculated monthly at the end of each month.
Incentive income
The Company earns incentive income based on net profits (as defined in the respective investment management or
partnership agreement) related to certain of the Company's investment funds and managed accounts. The incentive income is
charged to the investment funds in accordance with their corresponding investment management or partnership agreement. For the
hedge funds the Company offers, incentive income earned is typically up to 20% (in certain cases on performance in excess of a
benchmark) of the net profits earned for the full year that are attributable to each fee-paying investor.
The Company recognizes incentive income charged to the Company's hedge funds based on the net profits of the hedge
funds. The Company recognizes such incentive income when the fees are no longer subject to reversal or are crystallized. For
certain hedge funds, the incentive fee crystallizes annually when the high-water mark for such hedge funds is reset, which delays
recognition of the incentive fee until year end. In periods following a period of a net loss attributable to an investor, the Company
generally does not earn incentive income on any future profits attributable to such investor until the accumulated net loss from
prior periods is recovered, an arrangement commonly referred to as a "high-water mark." Generally, incentive income is earned
after the investor has received a full return of its invested capital, plus a preferred return.
Interest and dividends
Interest and dividends are earned by the Company from various sources. The Company receives interest and dividends
primarily from securities finance activities and securities held by the Company for purposes of investing capital, investments held
by its Consolidated Funds and its brokerage balances. Interest is recognized in accordance with US GAAP and market convention
for the imputation of interest of the host financial instrument. Interest income is recognized on the debt of those issuers that is
deemed collectible. Interest income and expense includes premiums and discounts amortized and accreted on debt investments
based on criteria determined by the Company using the effective yield method, which assumes the reinvestment of all interest
payments. Dividends are recognized on the ex-dividend date.
Insurance and reinsurance
Premiums for insurance and reinsurance contracts are earned over the coverage period. In most cases, premiums are
recognized as revenues ratably over the term of the contract with unearned premiums computed on a monthly basis. For each of
its contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk, in
accordance with US GAAP. If the Company determines that a contract does not expose it to a reasonable possibility of a
significant loss from insurance risk, the Company records the contract under the deposit method of accounting with any net
amount receivable reflected as an asset in other assets, and any net amount payable reflected as a liability within accounts
payable, accrued expenses and other liabilities on the consolidated statements of financial condition.
The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts, including
reported losses. Estimated ultimate payment amounts are based upon (1) reports of losses from policyholders, (2) individual case
estimates and (3) estimates of incurred but unreported losses.
Provisions for losses and loss adjustment expenses are charged to earnings after deducting amounts recovered and estimates
of recoverable amounts and are included in other expenses on the consolidated statements of operations.
Costs of acquiring new policies, which vary with and are directly related to the production of new policies, have been
deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include
commissions and allowances as well as certain costs of policy issuance and underwriting and are included within other assets in
the consolidated statements of financial condition.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-26
All of the items above are reported net of any Outward Reinsurance (see Note 22), which is determined as the portion of the
Company’s premiums, liabilities for losses and loss adjustment expenses, provisions for losses and loss adjustment expenses, and
costs of acquiring new policies that are ceded to providers of such Outward Reinsurance pursuant to their terms and conditions.
These ceded amounts are calculated based on the same principles outlined above.
Interest and dividends expense
Interest and dividends expense relates primarily to securities finance activities, trading activity with respect to the
Company's investments and interest expense on debt.
y.
Share-based compensation
The Company accounts for its share-based awards granted to individuals as payment for employee services and values such
awards based on grant date fair value. Unearned compensation associated with share-based awards is amortized over the vesting
period of the option or award. The Company estimates forfeiture for equity-based awards that are not expected to vest. See
Note 23 for further information regarding the Company's share-based compensation plans.
z.
Income taxes
The Company accounts for income taxes in accordance with US GAAP which requires the recognition of tax benefits or
expenses based on the estimated future tax effects of temporary differences between the financial statement and tax basis of its
assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that
includes the enactment date. Valuation allowances are established to reduce deferred tax assets to an amount that is more likely
than not to be realized. The Company evaluates its deferred tax assets for recoverability considering negative and positive
evidence, including its historical financial performance, projections of future taxable income, future reversals of existing taxable
temporary differences, and tax planning strategies. The Company records a valuation allowance against its deferred tax assets to
bring them to a level that it is more likely than not to be realized.
US GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements,
requiring the Company to determine whether a tax position is more likely than not to be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting
the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has
a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company
recognizes accrued interest and penalties related to its uncertain tax positions as a component of income tax expense.
In accordance with federal, state and local tax laws, the Company and its subsidiaries file consolidated federal, state, and
local income tax returns as well as stand-alone state and local tax returns. The Company also has subsidiaries that are residents in
foreign countries where tax filings have to be submitted on a stand-alone or combined basis. These foreign subsidiaries are subject
to taxation in their respective resident countries, and the Company is responsible for, and therefore reports, all taxes incurred by
these subsidiaries in the consolidated statements of operations. The foreign jurisdictions where the Company owns subsidiaries
and has tax filing obligations are the United Kingdom, Luxembourg, Malta, Germany, Switzerland, South Africa, Canada and
Hong Kong.
aa.
Foreign currency transactions
The Company consolidates certain foreign subsidiaries that have designated a foreign currency as their functional currency.
For entities that have designated a foreign currency as their functional currency, assets and liabilities are translated into U.S.
dollars based on current rates, which are the spot rates prevailing at the end of each statement of financial condition date, and
revenues and expenses are translated at historical rates, which are the average rates for the relevant periods. The resulting
translation gains and losses, and the tax effects of such gains and losses, are recorded in accumulated other comprehensive income
(loss), a separate component of stockholders' equity.
For subsidiaries that have designated the U.S. Dollar as their functional currency, securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. Dollar amounts at the date of valuation. Purchases and sales of
securities and other assets and liabilities and the related income and expenses denominated in foreign currencies are translated
into U.S. Dollar amounts on the respective dates of the transactions. The Company does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on these balances from fluctuations arising from changes in market
prices of securities and other assets/liabilities held or sold. Such fluctuations are included in the accompanying consolidated
statements of operations as a component of net gains (losses) on securities, derivatives and other investments. Gains and losses
primarily relating to foreign currency broker balances are included in other income (loss) in the accompanying consolidated
statements of operations.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-27
ab.
Recent pronouncements
Recently issued
In August 2020, the FASB issued guidance simplifying an issuer’s accounting for convertible instruments by eliminating
two of the three models in ASC 470-20 that require separate accounting for embedded conversion features; separate accounting is
still required in certain cases. The guidance also simplifies the settlement assessment that entities are required to perform to
determine whether a contract qualifies for equity classification. The guidance requires entities to use the if-converted method for
all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement (if the
effect is more dilutive) for instruments that may be settled in cash or shares, except for certain liability-classified share-based
payment awards. The guidance requires new disclosures about events that occur during the reporting period and cause conversion
contingencies to be met and about the fair value of a public business entity’s convertible debt at the instrument level. For public
business entities, the guidance is effective for reporting periods beginning after December 15, 2021 and interim periods within
those fiscal years with early adoption permitted. The Company adopted the guidance as of January 1, 2022 under the modified
retrospective method. With the adoption of this guidance, the Company is required to include the portion of the Series A
Convertible Preferred Stock that can be settled in Class A common stock (the amount in excess of $1,000.00 per share of the
Series A Convertible Preferred Stock) in the diluted earnings per share calculation. This adoption as of January 1, 2022 results in
the inclusion of approximately 1,565,000 additional shares in the denominator of diluted earnings per share.
In August 2018, the FASB issued guidance prescribing targeted improvements to financial services – insurance industry
accounting guidance for long-duration contracts. The new guidance (i) prescribes the discount rate to be used in measuring the
liability for future policy benefits for traditional and limited payment long-duration contracts, and requires assumptions for those
liability valuations to be updated after contract inception, (ii) requires more market-based product guarantees on certain separate
account and other account balance long-duration contracts to be accounted for at fair value, (iii) simplifies the amortization of
deferred acquisition costs for virtually all long-duration contracts, and (iv) introduces certain financial statement presentation
requirements, as well as significant additional quantitative and qualitative disclosures. For all entities, the guidance is effective for
reporting periods beginning after December 15, 2022 and interim periods within those fiscal years with early adoption permitted.
The Company is currently evaluating the impact of the new guidance.
3. Acquisition
Portico
On December 16, 2021 (the "Portico Acquisition Date"), the Company, through its indirect wholly owned subsidiary,
Cowen PC Acquisition LLC, completed its previously announced acquisition (the "Portico Acquisition") of Portico Capital
Advisors and certain assets and liabilities of its European operations (“Portico”). Portico was privately-held and was a leading
mergers and acquisitions advisory firm focused on the verticalized software, data, and analytics sectors. The Portico Acquisition
was completed for a combination of 75% cash and 25% stock. In the aggregate, the purchase price, specified assets acquired and
liabilities assumed were not significant and the near-term impact to the Company and its consolidated results of operations and
cash flows is not expected to be significant.
The Portico Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP.
Accordingly, the Portico assets purchased and liabilities assumed were recorded on the Company's books at fair value as of the
Portico Acquisition Date, and Portico's post-acquisition results were included in the Company's consolidated financial statements..
The Company applied to withdraw Portico's status as a FINRA registered broker-dealer on December 20, 2021 which was
approved by the SEC on February 18, 2022. Additionally, following the acquisition, the business acquired is included in the
Investment Bank reporting unit within the Operating Company segment.
The aggregate estimated purchase price of the Portico Acquisition was $112.0 million. On the Portico Acquisition Date the
Company paid upfront consideration of $91.3 million subject to certain net working capital and other customary adjustments, with
additional maximum contingent consideration of $58.0 million that will become payable dependent on the achievement of certain
milestones by Portico in each of the first three years (four years if certain conditions are met) following the Portico Acquisition
Date subject to a $19.3 million maximum in each year and a $58.0 million cumulative maximum, with the opportunity for
additional consideration payable in each of the fourth and fifth years following the Portico Acquisition Date upon the achievement
of certain additional milestones. The Company estimated the contingent consideration at $20.7 million using a Monte Carlo
valuation model which requires the Company to make estimates and assumptions regarding the future cash flows and profits. The
contingent consideration liability is included within accounts payable, accrued expenses and other liabilities on the consolidated
statements of financial condition. Changes in these estimates and assumptions could have a significant impact on the amounts
recognized. A portion of the preliminary purchase price was deposited into escrow, in the amount of $4.4 million, as a reserve for
any future claims against the sellers of Portico. The upfront consideration and contingent consideration, consists of a combination
of 75% cash and 25% shares of the Company's Class A common stock and the potential additional consideration payable in each
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-28
of the fourth and fifth years following the Portico Acquisition Date would be paid in cash. Shares issued on the Portico
Acquisition Date of 586,061 were valued based on the 20-trading day volume-weighted average price per share of $37.11 as of
December 13, 2021. The fair value of the shares of Class A common stock issued was determined on the basis of the closing
market price of the Company's shares on the Portico Acquisition Date. Any shares of Class A common stock issued in connection
with any such contingent payments will be valued based on the 20-trading day volume-weighted average price per share as of the
date that in two business days immediately prior to the date on which such shares are to be issued.
In addition, Portico and the Company have established a retention bonus pool, for Portico employees that remain employed
at the end of each year there is a contingent payment which will be settled in a combination of 75% cash and 25% shares of the
Company's Class A common stock based on Portico meeting certain economic performance hurdles. Part of the award is time
based (60%) and part is performance and time based (40%). The time based portion of the award is accrued within compensation
payable in the accompanying consolidated statements of financial condition utilizing a graded vesting attribution method over the
three year vesting period. The total consideration payable under the time based portion of the award is $6 million in aggregate,
and will not exceed $3.6 million in any annual period if all service conditions are met. The performance based portion of the
award is accrued within compensation payable in the accompanying consolidated statements of financial condition based on a
Monte Carlo simulation of the probability that the performance hurdles are met for each discrete year. Updates to the accrual will
be made at each reporting period. The total consideration payable will not exceed $4 million if each of the economic performance
hurdles are met. The Company is recognizing the retention bonus over each contingent payment period based upon the
Company's revenue projections for Portico. The aggregate bonus pool has an aggregate maximum of $10.0 million over a four-
year period.
The table below summarizes the purchase price allocation of net tangible and intangible assets acquired and liabilities
assumed as of December 16, 2021:
(dollars in thousands)
Cash
$
5,089
Operating lease right-of-use assets
2,707
Fixed assets
8
Intangible assets
19,900
Other assets
514
Operating lease liabilities
(2,707)
Other liabilities
(401)
Total net identifiable assets acquired and liabilities assumed
25,110
Goodwill
86,921
Total estimated purchase price
$
112,031
As of the Portico Acquisition Date, the estimated fair value of the Company's intangible assets, as acquired through the
Portico Acquisition, was $19.9 million and had a weighted average useful life of 3.02 years. The allocation of the intangible
assets is shown within the following table:
Estimated intangible
assets acquired
Estimated average remaining
useful lives
(dollars in thousands)
(in years)
Intangible asset class
Trade name
$
400
1
Customer relationships
13,400
4
Backlog
6,100
1
Total intangible assets
$
19,900
Amortization expense for the year ended December 31, 2021 was $0.4 million, and is included in depreciation and
amortization in the accompanying consolidated statements of operations. The estimated amortization expense related to these
intangible assets in future periods is as follows:
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-29
(dollars in thousands)
2022
$
9,579
2023
3,350
2024
3,350
2025
3,210
2026
—
Thereafter
—
$
19,489
In addition to the purchase price consideration, for the year ended December 31, 2021, the Company had incurred
acquisition-related expenses of $4.2 million, including financial advisory, legal and valuation services, which are included in
professional, advisory and other fees in the accompanying consolidated statements of operations.
Malta Holdings
On February 26, 2021 (the "Malta Holdings Acquisition Date"), the Company, through its indirect wholly owned subsidiary,
Cowen Malta Holdings Ltd. (“Malta Holdings”), completed the acquisition of all of the outstanding equity interest of Axeria
Insurance Limited (the “Acquisition”), an insurance company organized under the laws of Malta whose principal business
activity is to provide insurance coverage to third parties (see Note 22). Axeria Insurance Limited was renamed Cowen Insurance
Company Ltd (“Cowen Insurance Co”) upon acquisition. The Acquisition was completed for a combination of cash and deferred
consideration. In the aggregate, the purchase price, assets acquired, and liabilities assumed were not significant and near-term
impact to the Company and its consolidated results of operations and cash flows is not expected to be significant.
The aggregate estimated purchase price of the Acquisition was $12.7 million. On the Malta Holdings Acquisition Date, the
Company paid upfront consideration of $12.5 million, with additional deferred consideration of $0.2 million which was paid
during the second quarter of 2021.
The Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, the
results of operations of the business acquired is included in the accompanying consolidated statements of operations since the date
of the Acquisition and the assets acquired, liabilities assumed recorded at their fair values within their respective line items on the
accompanying consolidated statement of financial condition. The Company has recognized a bargain purchase gain of
$5.2 million related to the Acquisition and is shown net of associated tax of $1.3 million in the consolidated statement of
operations. The bargain purchase gain is primarily driven by the recognition of the customer relationships intangible asset and a
contractual discount on the closing equity balance at the Malta Holdings Acquisition Date. Additionally, following the
Acquisition, the business acquired is included in the Cowen Investment Management reporting unit within the Operating
Company segment.
The table below summarizes the purchase price allocation of net tangible and intangible assets acquired and liabilities
assumed as of February 26, 2021:
(dollars in thousands)
Cash
$
14,844
Securities owned, at fair value
1,571
Fixed assets
30
Intangible assets
4,794
Other assets
12,828
Compensation payable
(17)
Other liabilities
(16,099)
Total net identifiable assets acquired and liabilities assumed
17,951
Bargain purchase gain
(5,216)
Total estimated purchase price
$
12,735
As of the Malta Holdings Acquisition Date, the estimated fair value of the Company's intangible assets, which are primarily
broker relationships, was $4.6 million and had a weighted average useful life of 10 years. The licenses of $0.2 million has
indefinite life. Amortization expense for the year ended December 31, 2021 was $0.3 million.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-30
As of December 31, 2021, the estimated amortization expense related to these intangible assets in future periods is as
follows:
(dollars in thousands)
2022
458
2023
458
2024
458
2025
458
2026
458
Thereafter
2,124
$
4,414
In addition to the purchase price consideration, for the year ended December 31, 2021, the Company had incurred
acquisition-related expenses of $0.2 million, including financial advisory, legal and valuation services, which are included in
professional, advisory and other fees in the accompanying consolidated statements of operations.
MHT
On October 1, 2020 (the "MHT Acquisition Date"), the Company, through its indirect wholly owned subsidiary, Cowen and
Company, completed its previously announced acquisition (the "MHT Acquisition") of certain assets and liabilities of MHT
Partners, LP (“MHT Partners”). MHT Partners was an investment bank, based primarily in Dallas and San Francisco, focused on
representing innovative companies in growing markets. The Acquisition was completed for a combination of cash and contingent
consideration. In the aggregate, the purchase price, specified assets acquired and liabilities assumed were not significant and
near-term impact to the Company and its consolidated results of operations and cash flows is not expected to be significant.
The MHT Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As
such, results of operations for the MHT Acquisition are included in the accompanying consolidated statements of operations since
the Acquisition Date, and the assets acquired and liabilities assumed were recorded at their fair value as of the Acquisition Date.
Subsequent to the Acquisition, the operations of the MHT Acquisition were integrated within the Company's existing businesses.
Additionally, following the acquisition, the business acquired from MHT Partners is included in the Investment Bank reporting
unit within the Operating Company segment.
The aggregate estimated purchase price of the MHT Acquisition was $9.9 million. On the acquisition date, the Company
paid an upfront consideration of $5.7 million, with additional contingent consideration to be paid after December 2023 valued
based on a multiple of three-year average annual revenues of the acquired business less certain expenses. The Company
estimated the fair value of the contingent consideration at $4.2 million using a combination of Monte Carlo and Discounted Cash
Flow methods which require the Company to make estimates and assumptions regarding the future cash flows and profits. The
contingent consideration liability is included within accounts payable, accrued expenses and other liabilities on the consolidated
statements of financial condition. Changes in these estimates and assumptions could have a significant impact on the amounts
recognized. In addition, the Company has established deferred compensation for specified previous MHT Partners employees
which will be settled in cash over a three-year period.
The table below summarizes the purchase price allocation of net tangible and intangible assets acquired and liabilities
assumed as of October 1, 2020:
(dollars in thousands)
Fixed assets
$
101
Operating lease right-of-use assets
1,120
Intangible assets
1,224
Other assets
43
Compensation payable
(533)
Operating lease liabilities
(1,446)
Total net identifiable assets acquired and liabilities assumed
509
Goodwill
9,356
Total estimated purchase price
$
9,865
As of the MHT Acquisition Date, the estimated fair value of the Company's intangible assets, as acquired through the MHT
Acquisition, was $1.2 million and had a weighted average useful life of 4.17 years . The allocation of the intangible assets is
shown within the following table:
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-31
Estimated intangible
assets acquired
Estimated average remaining
useful lives
(dollars in thousands)
(in years)
Intangible asset class
Trade name
$
131
3
Customer relationships
749
4
Non-compete agreements
344
5
Total intangible assets
$
1,224
Amortization expense for the year ended December 31, 2021 and 2020 was $0.3 million and $0.1 million, respectively, and
is included in depreciation and amortization in the accompanying consolidated statements of operations. The estimated
amortization expense related to these intangible assets in future periods is as follows:
(dollars in thousands)
2022
$
300
2023
289
2024
209
2025
52
2026
—
Thereafter
—
$
850
In addition to the purchase price consideration, for the year ended December 31, 2020, the Company had incurred
acquisition-related expenses of $0.8 million, including financial advisory, legal and valuation services, which are included in
professional, advisory and other fees in the accompanying consolidated statements of operations.
Quarton
On January 2, 2019 (the "Quarton Acquisition Date"), the Company, together with its indirect wholly owned subsidiaries,
Cowen International Ltd and Cowen QN Acquisition LLC, completed its previously announced acquisition (the "Quarton
Acquisition") of Quarton International AG through the acquisition of all of the outstanding equity interest of Quarton
International AG's affiliated combining companies, Quarton Management AG, Quarton International Europe AG, Quarton
Partners, LLC and Quarton Securities GP, LLC (which owns a formerly U.S. Securities Exchange Commission ("SEC")
registered broker-dealer that was subsequently renamed to Cowen Securities L.P. ("Cowen Securities") comprising the U.S. and
European operations of the acquired combining companies (collectively "Quarton"). Quarton was a group of leading global
financial advisory companies serving the middle market. Quarton's operations were primarily conducted through eight entities
based in the United States, Switzerland, and Germany.
The Quarton Acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As
such, results of operations for Quarton are included in the accompanying consolidated statements of operations since the Quarton
Acquisition Date, and the assets acquired and liabilities assumed were recorded at their fair value as of the Quarton Acquisition
Date. Subsequent to the Quarton Acquisition, the operations of Quarton were integrated within the Company's existing
businesses.
The aggregate estimated purchase price of the Quarton Acquisition was $103.0 million. On the Quarton Acquisition Date
the Company paid upfront consideration of $75.3 million subject to certain net working capital and other customary adjustments,
with additional maximum contingent consideration of $40.0 million that will become payable dependent on the achievement of
certain milestones by Quarton in each of the first four years (five years if certain conditions are met) following the Quarton
Acquisition Date subject to a $10 million maximum in each year and a $40.0 million cumulative maximum. The Company
estimated the contingent consideration at $27.7 million using a combination of Monte Carlo and Discounted Cash Flow methods
which require the Company to make estimates and assumptions regarding the future cash flows and profits.
As of the Quarton Acquisition Date, the estimated fair value of the Company's intangible assets, as acquired through the
Quarton Acquisition, was $22.2 million and had a weighted average useful life of 2.8 years. Amortization expense for the years
ended December 31, 2021, 2020, and 2019 was $2.6 million, $8.9 million and $8.9 million, respectively, and is included in
depreciation and amortization in the accompanying consolidated statements of operations.
In addition to the purchase price consideration, for the year ended December 31, 2019, the Company had incurred
acquisition-related expenses of $1.2 million, including financial advisory, legal and valuation services, which are included in
professional, advisory and other fees in the accompanying consolidated statements of operations.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-32
4. Cash Collateral Pledged
As of December 31, 2021 and 2020, the Company pledged cash collateral in the amount of $3.4 million and $4.0 million
respectively, which relates to letters of credit issued to the landlords of the Company's premises in New York City, Boston and
San Francisco. The Company also has pledged cash collateral for reinsurance agreements which amounted to $44.1 million, as of
December 31, 2021, and $106.8 million, as of December 31, 2020, which are expected to be released periodically as per the terms
of the reinsurance policy between September 30, 2021 and March 31, 2024 (see Notes 16 and 22).
As of December 31, 2021, the Company has the following irrevocable letters of credit, related to leased office space, for
which there is cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit.
Location
Amount
Maturity
(dollars in thousands)
New York
$
209
April 2023
New York
$
1,325
October 2022
New York
$
1,226
August 2022
Boston
$
194
March 2023
San Francisco
$
459
October 2025
$
3,413
To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of
December 31, 2021 and 2020 there were no amounts due related to these letters of credit.
5. Segregated Cash
As of December 31, 2021 and 2020, cash segregated under federal regulations and other restricted deposits of $194.7
million and $185.1 million, respectively, consisted of cash deposited in Special Reserve Bank Accounts for the exclusive benefit
of customers under SEC Rule 15c3-3 and cash deposited in Special Reserve Bank Accounts for the exclusive benefit of
Proprietary Accounts of Broker-Dealers ("PAB") under SEC Rule 15c3-3.
6. Investments of Operating Entities and Consolidated Funds
a.
Operating entities
Securities owned, at fair value
Securities owned, at fair value are held by the Company and are considered held for trading. Substantially all equity
securities, which are not part of the Company's self-clearing securities finance activities, are pledged to external clearing brokers
under terms which permit the external clearing broker to sell or re-pledge the securities to others subject to certain limitations.
As of December 31, 2021 and 2020, securities owned, at fair value consisted of the following:
As of December 31,
2021
2020
(dollars in thousands)
Common stock
$
2,428,820
$
1,770,301
Preferred stock
134,930
69,358
Warrants and rights
46,459
27,701
Government bonds
16,002
19,721
Corporate bonds
21,468
86,503
Convertible bonds
5,250
6,040
Term loan (*)
3,907
12,623
Trade claims (*)
3,496
8,713
Private investments
410
642
$
2,660,742
$
2,001,602
(*) The Company has elected the fair value option for securities owned, at fair value with a fair value of $3.5 million and
$8.8 million, respectively, at December 31, 2021 and 2020.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-33
Receivable on and Payable for derivative contracts, at fair value
The Company predominantly enters into derivative transactions to satisfy client needs and to manage its own exposure to
market and credit risks resulting from its trading activities. The Company’s direct exposure to derivative financial instruments
includes futures, currency forwards, equity swaps, interest rate swaps and options. The Company's derivatives trading activities
expose the Company to certain risks, such as price and interest rate fluctuations, volatility risk, credit risk, counterparty risk,
foreign currency movements and changes in the liquidity of markets.
The Company's long and short exposure to derivatives is as follows:
Receivable on derivative contracts
As of December 31,
2021
2020
Number of
contracts /
Notional Value
Fair value
Number of
contracts /
Notional Value
Fair value
(dollars in thousands)
Currency forwards
$
10,727
$
80
$
4,902
$
15
Equity swaps
$
2,235,181
306,578
$
944,544
64,634
Options (a)
217,393
61,219
371,188
49,102
Netting - swaps (b)
(81,742)
(62,269)
$
286,135
$
51,482
Payable for derivative contracts
As of December 31,
2021
2020
Number of
contracts /
Notional Value
Fair value
Number of
contracts /
Notional Value
Fair value
(dollars in thousands)
Futures
$
9,378
$
266
$
—
$
—
Currency forwards
$
149,575
1,346
$
123,346
3,067
Equity swaps
$
988,329
114,689
$
896,863
43,560
Options (a)
182,440
36,192
198,320
66,566
Netting - swap (b)
(92,330)
(37,033)
$
60,163
$
76,160
(a) Includes the volume of contracts for index, equity, commodity future and cash conversion options.
(b) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable netting
agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See Note 2f
for further information on offsetting of derivative financial instruments.
The following tables present the gross and net derivative positions and the related offsetting amount, as of December 31,
2021 and 2020. This table does not include the impact of over-collateralization.
Gross amounts offset
on the Consolidated
Statements of
Financial Condition
(a)
Net amounts
included on the
Consolidated
Statements of
Financial Condition
Gross amounts not offset in
the Consolidated Statements
of Financial Condition
Gross amounts
recognized
Financial
instruments
(a)
Cash
Collateral
pledged (a)
Net
amounts
(dollars in thousands)
As of December 31, 2021
Receivable on derivative contracts, at fair value $
367,877
$
81,742
$
286,135
$
1,421
$
211,442
$ 73,272
Payable for derivative contracts, at fair value
152,493
92,330
60,163
2,839
—
57,324
As of December 31, 2020
Receivable on derivative contracts, at fair value $
113,751
$
62,269
$
51,482
$
691
$
169
$ 50,622
Payable for derivative contracts, at fair value
113,193
37,033
76,160
691
3,174
72,295
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-34
(a) Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the
extent an event of default has occurred.
The realized and unrealized gains/(losses) related to derivatives trading activities were $(205.5) million, $(146.9) million
and $(13.0) million for the years ended December 31, 2021, 2020, and 2019, respectively, and are included in Investment income-
Securities principal transactions, net in the accompanying consolidated statements of operations. The net gains (losses) on
derivative contracts in the table above are one of a number of activities comprising the Company's business activities and are
calculated before consideration of economic hedging transactions, which generally offset the net gains (losses) included above.
Pursuant to the various derivatives transactions discussed above, except for exchange traded derivatives and certain options,
the Company is required to post/receive collateral. These amounts are recognized in receivable from brokers, dealers and clearing
organizations and payable to brokers, dealers and clearing organizations respectively. As of December 31, 2021 and 2020, all
derivative contracts were with major financial institutions.
Other investments
As of December 31, 2021 and 2020, other investments included the following:
As of December 31,
2021
2020
(dollars in thousands)
Portfolio funds, at fair value (1)
$
137,986
$
133,454
Carried interest (2)
88,925
82,892
Equity method investments (3)
47,200
38,681
$
274,111
$
255,027
(1) Portfolio funds, at fair value
The portfolio funds, at fair value as of December 31, 2021 and 2020, included the following:
As of December 31,
2021
2020
(dollars in thousands)
HealthCare Royalty Partners LP (a)(*)
$
832
$
1,072
HealthCare Royalty Partners II LP (a)(*)
1,259
1,588
Eclipse Ventures Fund I, L.P. (b)
5,829
4,457
Eclipse Ventures Fund II, L.P. (b)
2,354
1,733
Eclipse Continuity Fund I, L.P. (b)
1,641
1,101
Starboard Value and Opportunity Fund LP (c)(*)
49,252
42,519
Starboard Value and Opportunity Fund Ltd (c) (*)
2,732
2,364
Lagunita Biosciences, LLC (d)
5,671
3,850
Starboard Leaders Fund LP (e)(*)
2,823
2,020
Formation8 Partners Fund I, L.P. (f)
20,992
31,894
BDC Fund I Coinvest 1, L.P. (g)
1,250
1,250
Difesa Partners, LP (h)
1,017
848
Cowen Sustainable Investments I LP (i)(*)
13,102
—
Cowen Healthcare Investments II LP (i) (*)
13,055
26,186
Cowen Healthcare Investments III LP (i)(*)
8,426
5,714
Cowen Healthcare Investments IV LP (i)(*)
1,071
—
Eclipse SPV I, LP (j)(*)
1,445
1,708
TriArtisan ES Partners LLC (k)(*)
1,805
1,657
TriArtisan PFC Partners LLC (l)(*)
1,112
691
Ramius Merger Fund LLC (m)(*)
1,692
2,197
Other private investment (n)(*)
303
326
Other affiliated funds (o)(*)
323
279
$
137,986
$
133,454
* These portfolio funds are affiliates of the Company.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-35
The Company has no unfunded commitments regarding the portfolio funds held by the Company except as noted in Note 27.
(a) HealthCare Royalty Partners, L.P. and HealthCare Royalty Partners II, L.P. are private equity funds and therefore
distributions will be made when cash flows are received from the underlying investments, typically on a quarterly basis.
(b) Each of Eclipse Ventures Fund I, L.P., Eclipse Ventures Fund II, L.P. and Eclipse Continuity Fund I, L.P. are venture
capital funds which invests in early stage and growth stage hardware companies. Distributions will be made when the
underlying investments are liquidated.
(c) Starboard Value and Opportunity Fund LP and Starboard Value and Opportunity Fund Ltd permits quarterly withdrawals
upon 90 days' notice.
(d) Lagunita Biosciences, LLC, is a healthcare investment company that creates and grows early stage companies to
commercialize impactful translational science that addresses significant clinical needs, is a private equity structure and
therefore distributions will be made when the underlying investments are liquidated.
(e) Starboard Leaders Fund LP does not permit withdrawals, but instead allows terminations with respect to capital
commitments upon 30 days' prior written notice at any time following the first anniversary of an investor's initial capital
contribution.
(f)
Formation8 Partners Fund I, L.P. is a private equity fund which invests in early stage and growth transformational
information and energy technology companies. Distributions will be made when the underlying investments are
liquidated.
(g) BDC Fund I Coinvest 1, L.P. is a private equity fund focused on investing in growth companies in industries disrupted
by digitization. Distributions will be made when the underlying investments are liquidated.
(h) Difesa Partners, LP permits semi-annual withdrawals occurring on or after the anniversary of initial contribution upon 90
days written notice.
(i)
Cowen Sustainable Investments I LP, Cowen Healthcare Investments II LP, Cowen Healthcare Investments III LP and
Cowen Healthcare Investments IV LP are private equity funds. Distributions are made from the fund when cash flows or
securities are received from the underlying investments. Investors do not have redemption rights.
(j)
Eclipse SPV I, L.P. is a co-investment vehicle organized to invest in a private company focused on software-driven
automation projects. Distributions will be made when the underlying investments are liquidated.
(k) TriArtisan ES Partners LLC is a co-investment vehicle organized to invest in a privately held nuclear services company.
Distributions will be made when the underlying investment is liquidated.
(l)
TriArtisan PFC Partners LLC is a co-investment vehicle organized to invest in a privately held casual dining restaurant
chain. Distributions will be made when the underlying investment in liquidated.
(m) Ramius Merger Fund LLC permits monthly withdrawals on 45 days prior notice.
(n) Other private investment represents the Company's closed end investment in a portfolio fund that invests in a wireless
broadband communication provider in Italy.
(o) The majority of these investment funds are affiliates of the Company or are managed by the Company and the investors
can redeem from these funds as investments are liquidated.
(2) Carried interest
The Company applies an accounting policy election to recognize incentive income allocated to the Company under an
equity ownership model in other investments in the accompanying consolidated statements of financial condition (see Note 2x).
Carried interest allocated to the Company from certain portfolio funds represents Cowen's general partner capital accounts from
those funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited
partners within the respective funds. All carried interest balances are earned from affiliates of the Company.
A portion of the Company's carried interest is granted to employees through profit sharing awards designed to more
closely align compensation with the overall realized performance of the Company. These arrangements enable certain employees
to earn compensation based on performance revenue earned by the Company and are recorded within compensation payable in the
accompanying consolidated statements of financial condition and employee compensation and benefits expense in the
accompanying consolidated statements of operation based on the probable and estimable payments under the terms of the awards.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-36
The carried interest as of December 31, 2021 and 2020, included the following:
As of December 31,
2021
2020
(dollars in thousands)
Cowen Healthcare Investments II LP
$
23,327
$
62,112
Cowen Healthcare Investments III LP
18,523
11,520
Cowen Sustainable Investments I LP
7,436
—
Cowen Sustainable Investments Offshore I LP
9,196
—
CSI I Prodigy Co-Investment LP
2,436
—
CSI PRTA Co- Investment LP
9,535
—
TriArtisan TGIF Partners LLC
4,047
3,361
TriArtisan ES Partners LLC
3,401
3,152
TriArtisan PFC Partners LLC
9,394
1,455
Ramius Multi-Strategy Fund LP
587
734
Ramius Merger Fund LLC
861
368
RCG IO Renergys Sarl
136
190
Other affiliated funds
46
—
$
88,925
$
82,892
(3) Equity method investments
Equity method investments include investments held by the Company in several operating companies. The operating
agreement that governs the management of day-to-day operations and affairs of these entities stipulates that certain decisions
require support and approval from other members in addition to the support and approval of the Company. As a result, all
operating decisions made in these entities requires the support of both the Company and an affirmative vote of a majority of the
other managing members who are not affiliates of the Company. As the Company does not possess control over any of these
entities, the presumption of consolidation has been overcome pursuant to current Accounting Standards and the Company
accounts for these investments under the equity method of accounting. Included in equity method investments are the investments
in (a) HealthCare Royalty Partners General Partners (b) Starboard Value (and certain related parties) which serves as an operating
company whose operations primarily include the day-to-day management (including portfolio management) of several activist
investment funds and related managed accounts and (c) operating companies whose operations primarily include the day-to-day
management of real estate entities.
During 2020, the Company completed assessments of the recoverability of the Company's equity method investments and
determined that the carrying value of the investment in Surf House Ocean View Holdings, LLC exceeded the estimated fair value
of the Company's interest, which was other than temporary. An other than temporary impairment charge of $11.3 million, and
$2.6 million for the years ended December 31, 2020, and 2019, respectively was recognized to reduce the carrying value of the
investment to fair value, which was then completely impaired. Impairment charges are included in net gains (losses) on other
investments on the accompanying consolidated statement of operations. The Company recorded no impairment charges in
relation to its other equity method investments for the year ended December 31, 2021, 2020, and 2019.
The Company elected to use the cumulative earnings approach for the distributions it receives from its equity method
investments. Under the cumulative earnings approach, any distributions received up to the amount of cumulative earnings are
treated as return on investment and classified in operating activities within the cash flows. Any excess distributions would be
considered as return of investments and classified in investing activities.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-37
The following table summarizes equity method investments held by the Company:
As of December 31,
2021
2020
(dollars in thousands)
Starboard Value LP
$
36,889
$
31,528
HealthCare Royalty GP III, LLC
1,957
2,213
RCG Longview Management, LLC
—
268
HealthCare Royalty GP, LLC
1,451
920
HealthCare Royalty GP II, LLC
213
269
HealthCare Royalty GP IV, LLC
1,716
304
RCG Longview Debt Fund IV Management, LLC
331
331
HCR Overflow Fund GP, LLC
839
740
RCG Longview Equity Management, LLC
—
105
HCRP MGS Account Management, LLC
598
500
HCR Stafford Fund GP, LLC
2,955
1,025
Liberty Harbor North
—
222
Other
251
256
$
47,200
$
38,681
The Company's income (loss) from equity method investments was income of $35.5 million, $18.9 million and
$24.6 million for the years ended December 31, 2021, 2020, and 2019, respectively, and is included in net gains (losses) on other
investments on the accompanying consolidated statements of operations.
Securities sold, not yet purchased, at fair value
Securities sold, not yet purchased, at fair value represent obligations of the Company to deliver a specified security at a
contracted price and, thereby, create a liability to purchase that security at prevailing prices. The Company's liability for securities
to be delivered is measured at their fair value as of the date of the consolidated financial statements. However, these transactions
result in off-balance sheet risk, as the Company's ultimate cost to satisfy the delivery of securities sold, not yet purchased, at fair
value may exceed the amount reflected in the accompanying consolidated statements of financial condition. As of December 31,
2021 and 2020, securities sold, not yet purchased, at fair value consisted of the following:
As of December 31,
2021
2020
(dollars in thousands)
Common stock
$
1,192,396
$
699,894
Corporate bonds
37
11,358
Government bonds
—
1,500
Preferred stock
9,009
6,589
Warrants and rights
6
8,774
$
1,201,448
$
728,115
Securities purchased under agreements to resell/securities sold under agreements to repurchase and securities lending and
borrowing transactions
The following tables present the contractual gross and net securities borrowing and lending agreements and securities sold
under agreements to repurchase and the related offsetting amount as of December 31, 2021 and 2020.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-38
Gross amounts not offset on the Consolidated
Statements of Financial Condition
Gross
amounts
recognized,
net of
allowance
Gross amounts offset
on the Consolidated
Statements of
Financial Condition
(a)
Net amounts
included on the
Consolidated
Statements of
Financial Condition
Additional
Amounts
Available
Financial
instruments
Cash
Collateral
pledged (b)
Net
amounts
(dollars in thousands)
As of December 31, 2021
Securities borrowed
$
1,704,603
$
—
$
1,704,603
$
—
$
1,652,007
$
—
$ 52,596
Securities loaned
1,586,572
—
1,586,572
—
1,592,140
—
(5,568)
Securities sold under
agreements to repurchase
63,469
—
63,469
—
74,443
—
(10,974)
As of December 31, 2020
Securities borrowed
$
1,908,187
$
—
$
1,908,187
$
—
$
1,809,399
$
—
$ 98,788
Securities loaned
2,476,414
—
2,476,414
—
2,383,342
—
93,072
Securities purchased under
agreements to resell
191
—
191
—
204
—
(13)
Securities sold under
agreements to repurchase
5,036
—
5,036
—
5,544
—
(508)
(a) Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the
extent an event of default has occurred.
(b) Includes the amount of cash collateral held/posted.
The following tables present gross obligations for securities loaned and securities sold under agreements to repurchase by
remaining contractual maturity and class of collateral pledged as of December 31, 2021 and 2020:
Open and
Overnight
Up to 30 days
31 - 90 days
Greater than
90 days
Total
(dollars in thousands)
As of December 31, 2021
Securities loaned
Common stock
$
1,570,835
$
—
$
—
$
—
$
1,570,835
Corporate bonds
15,737
—
—
—
15,737
Securities sold under agreements to repurchase
Common stock
—
20,906
42,563
—
63,469
As of December 31, 2020
Securities loaned
Common stock
2,232,688
—
—
—
2,232,688
Corporate bonds
243,726
—
—
—
243,726
Securities sold under agreements to repurchase
Corporate bonds
$
—
$
—
$
5,036
$
—
$
5,036
Variable Interest Entities
The total assets and liabilities of the variable interest entities for which the Company has concluded that it holds a variable
interest, but for which it is not the primary beneficiary, are $9.7 billion and $744.5 million as of December 31, 2021 and $8.0
billion and $1.3 billion as of December 31, 2020, respectively. The carrying value of the Company's exposure to loss for these
variable interest entities as of December 31, 2021 was $165.5 million, and as of December 31, 2020 was $210.7 million, all of
which is included in other investments, at fair value in the accompanying consolidated statements of financial condition.
Additionally, the Company's maximum exposure to loss for the variable interest entities noted above as of December 31, 2021
and 2020, was $233.6 million and $326.0 million, respectively. The maximum exposure to loss often differs from the carrying
value of exposure to loss of the variable interests. The maximum exposure to loss is dependent on the nature of the variable
interests in the VIEs and is limited to the notional amounts of certain commitments and guarantees.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-39
b.
Consolidated Funds
Securities owned, at fair value
As of December 31, 2021 and 2020, securities owned, at fair value, held by the Consolidated Funds consisted of the
following:
As of December 31,
2021
2020
(dollars in thousands)
Common stock
$
—
$
4,816
Warrants and rights
—
5,806
$
—
$
10,622
Other investments, at fair value
Investments in portfolio funds, at fair value
As of December 31, 2021 and 2020, investments in portfolio funds, at fair value, included the following:
As of December 31,
2021
2020
(dollars in thousands)
Investments of Enterprise LP
$
99,067
$
104,475
Investments of Cowen Sustainable Investments I LP
—
88,195
$
99,067
$
192,670
Consolidated portfolio fund investments of Enterprise LP
On May 12, 2010, the Company announced its intention to close Enterprise Master. Enterprise LP operated under a
"master-feeder" structure up until January 1, 2019, when Enterprise Master distributed its capital to each feeder and was
liquidated. As of December 31, 2021 and 2020, the consolidated investments in portfolio funds include Enterprise LP's
investment in RCG Special Opportunities Fund, Ltd which is a portfolio fund that invests in a limited number of private equity
investments directly as well as through affiliated portfolio funds.
Consolidated portfolio fund investments of Cowen Sustainable Investments I LP
Cowen Sustainable Investments I LP ("CSI I LP") is a private investment fund making debt and equity investments in
companies and real assets that are accelerating the global transition to a sustainable economy. The fund primarily focuses its
investments around four themes: (i) renewable energy and battery storage; (ii) clean transportation; (iii) sustainable agriculture
and food production; and (iv) resource and industrial efficiency. As of December 31, 2020, CSI I LP had made investments in
ecoATM, LLC, a manufacturer and owner of automated kiosks that allow consumers to sell back unwanted smart phones, and
Proterra, Inc, a designer and manufacturer of zero-emission electric transit vehicles and electric vehicle technology solutions for
commercial applications. CSI I LP is a private equity-style vehicle that does not permit redemptions; proceeds realized from the
fund’s investments are expected to be distributed after the end of the fund’s investment period. CSI I LP was consolidated as of
December 31, 2020 and deconsolidated during the first quarter of 2021 (See Note 2).
Indirect Concentration of the Underlying Investments Held by Consolidated Funds
From time to time, either directly held by the Company, indirectly through the Company's consolidated entities or indirectly
through its investments in the Consolidated Funds, the Company may maintain exposure to a particular issue or issuer (both long
and/or short) which may account for 5% or more of the Company's equity. Based on information that is available to the Company
as of December 31, 2021 and 2020, the Company assessed whether or not its interests in an issuer for which the Company's pro-
rata share exceeds 5% of the Company's equity. There was one indirect concentration that exceeded 5% of the Company's equity
as of December 31, 2021 and December 31, 2020, respectively.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-40
Through its investments in a Consolidated Fund and combined with direct Company investments, the Company maintained
exposure to a particular investment which accounted for 5% or more of the Company's equity.
Investment's percentage of the Company's stockholders' equity
Issuer
Security Type
Country
Industry
Percentage of
Stockholders'
Equity
Market Value
(dollars in thousands)
As of December 31, 2021
Linkem S.p.A.
Equity and
warrants
Italy
Wireless Broadband
8.22 % $
83,537
As of December 31, 2020
Linkem S.p.A.
Equity, loans and
warrants
Italy
Wireless Broadband
9.07 % $
87,944
7. Fair Value Measurements for Operating Entities and Consolidated Funds
The following table presents the assets and liabilities that are measured at fair value on a recurring basis on the
accompanying consolidated statements of financial condition by caption and by level within the valuation hierarchy as of
December 31, 2021 and 2020:
Assets at Fair Value as of December 31, 2021
Level 1
Level 2
Level 3
Netting (c)
Total
(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds
$
16,002
$
—
$
—
$
—
$
16,002
Preferred stock
12,299
—
122,631
—
134,930
Common stock
2,396,041
121
32,658
—
2,428,820
Convertible bonds
—
—
5,250
—
5,250
Corporate bonds
—
19,049
2,419
—
21,468
Trade claims
—
—
3,496
—
3,496
Term loan
—
3,907
—
—
3,907
Warrants and rights
31,056
—
15,403
—
46,459
Private investments
—
—
410
—
410
Receivable on derivative contracts, at fair value
Currency forwards
—
80
—
—
80
Equity swaps
—
306,578
—
(81,742)
224,836
Options
60,985
—
234
—
61,219
$
2,516,383
$
329,735
$
182,501
$
(81,742) $
2,946,877
Portfolio funds measured at net asset value (a)
137,986
Consolidated Funds' portfolio funds measured at net asset
value (a)
99,067
Carried interest (a)
88,925
Equity method investments (a)
47,200
Total investments
$
3,320,055
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-41
Liabilities at Fair Value as of December 31, 2021
Level 1
Level 2
Level 3
Netting (c)
Total
(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
Common stock
$
1,192,396
$
—
$
—
$
—
$
1,192,396
Corporate bonds
—
37
—
—
37
Preferred stock
9,009
—
—
—
9,009
Warrants and rights
6
—
—
—
6
Payable for derivative contracts, at fair value
Futures
266
—
—
266
Currency forwards
—
1,346
—
—
1,346
Equity swaps
—
114,689
—
(92,330)
22,359
Options
32,773
—
3,419
—
36,192
Accounts payable, accrued expenses and other
liabilities
Contingent consideration liability (b)
—
—
62,223
—
62,223
$
1,234,450
$
116,072
$
65,642
$
(92,330) $
1,323,834
(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its
equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method
investments presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the consolidated statement of financial condition.
(b) In accordance with the terms of the purchase agreements for acquisitions that closed during the first quarter of 2019
(the Quarton acquisition), the fourth quarter of 2020 (the MHT acquisition) and the fourth quarter of 2021 (the Portico
acquisition, see Note 3), the Company is required to pay to the sellers a portion of future net income and/or revenues of
the acquired businesses, if certain targets are achieved through the periods ended through December 31, 2024. For all
acquisitions the Company estimated the contingent consideration liabilities using a combination of Monte Carlo and
Discounted Cash Flow methods which require the Company to make estimates and assumptions regarding the future
cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts
recognized. The undiscounted amounts for the Quarton acquisition can range from $10.1 million to $25.0 million. The
undiscounted amounts for the MHT acquisition have no minimum or maximum as it is calculated based on revenue. The
undiscounted amounts for the Portico acquisition can range from $0 million to $58.0 million.
(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable
netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See
Note 2f for further information on offsetting of derivative financial instruments.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-42
Assets at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Netting (c)
Total
(dollars in thousands)
Operating Entities
Securities owned, at fair value
Government bonds
$
19,721
$
—
$
—
$
—
$
19,721
Preferred stock
9,391
—
59,967
—
69,358
Common stock
1,746,407
108
23,786
—
1,770,301
Convertible bonds
—
—
6,040
—
6,040
Corporate bonds
—
86,368
135
—
86,503
Trade claims
—
—
8,713
—
8,713
Term loan
—
—
12,623
—
12,623
Private investments
—
—
642
—
642
Warrants and rights
21,154
—
6,547
—
27,701
Receivable on derivative contracts, at fair value
Currency forwards
—
15
—
—
15
Equity swaps
—
64,634
—
(62,269)
2,365
Options
48,851
—
251
—
49,102
Consolidated Funds
Securities owned, at fair value
Common stock
1,865
—
2,951
—
4,816
Warrants and rights
—
—
5,806
—
5,806
$
1,847,389
$
151,125
$
127,461
$
(62,269) $
2,063,706
Portfolio funds measured at net asset value (a)
133,454
Consolidated Funds' portfolio funds measured at net asset
value (a)
192,670
Carried interest (a)
82,892
Equity method investments (a)
38,681
Total investments
$
2,511,403
Liabilities at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Netting (c)
Total
(dollars in thousands)
Operating Entities
Securities sold, not yet purchased, at fair value
US Government securities
$
—
$
—
$
1,500
$
—
$
1,500
Common stock
699,894
—
—
—
699,894
Corporate bonds
—
10,654
704
—
11,358
Preferred stock
6,589
—
—
—
6,589
Warrants and rights
8,774
—
—
—
8,774
Payable for derivative contracts, at fair value
Currency forwards
—
3,067
—
—
3,067
Equity swaps
—
43,560
—
(37,033)
6,527
Options
62,651
—
3,915
—
66,566
Accounts payable, accrued expenses and other
liabilities
Contingent consideration liability (b)
—
—
36,718
—
36,718
$
777,908
$
57,281
$
42,837
$
(37,033) $
840,993
(a) In accordance with US GAAP, portfolio funds are measured at fair value using the net asset value per share (or its
equivalent) as a practical expedient are not classified in the fair value hierarchy. Carried interest and equity method
investments presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the consolidated statement of financial condition.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-43
(b) In accordance with the terms of the purchase agreements for acquisitions that closed during the first quarter of 2019
and the fourth quarter of 2020, the Company is required to pay to the sellers a portion of future net income and/or
revenues of the acquired businesses, if certain targets are achieved through the periods ended December 31, 2020 and
December 31, 2023. For both the Quarton acquisition, completed during the first quarter of 2019, and the MHT
acquisition, completed during the fourth quarter of 2020, the Company estimated the contingent consideration liabilities
using a combination of Monte Carlo and Discounted Cash Flow methods which require the Company to make estimates
and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a
significant impact on the amounts recognized. The undiscounted amounts for the Quarton acquisition can range from
$10.1 million to $35.1 million. The undiscounted amounts for the MHT acquisition have no minimum or maximum as it
is calculated based on revenue.
(c) Derivatives are reported on a net basis, by counterparty, when a legal right of offset exists under an enforceable
netting agreement as well as net of cash collateral received or posted under enforceable credit support agreements. See
Note 2f for further information on offsetting of derivative financial instruments.
The following table includes a roll forward of the amounts for the year ended December 31, 2021 and 2020 for financial
instruments classified within level 3. The classification of a financial instrument within level 3 is based upon the significance of
the unobservable inputs to the overall fair value measurement.
Year Ended December 31, 2021
Balance at
December 31,
2020
Transfers
in
Transfers
out
Purchases/
(covers)
(Sales)/
shorts
Realized and
Unrealized
gains/losses
Balance at
December
31, 2021
Change in
unrealized gains/
losses relating to
instruments still
held (1)
(dollars in thousands)
Operating Entities
Preferred stock
$
59,967
$
—
$
(1,531) (b)
$
75,562
$ (9,828) $
(1,539) $
122,631
$
(2,570)
Common stock
23,786
3,409 (e)
(7,357) (b)(j)
19,072
(13,582)
7,330
32,658
5,517
Convertible bonds
6,040
—
(4,031) (j)
11,802
(11,159)
2,598
5,250
(975)
Corporate bond
135
—
—
2,414
(103)
(27)
2,419
6
Options, asset
251
—
—
—
—
(17)
234
(17)
Options, liability
3,915
—
—
—
—
(496)
3,419
(496)
Term loan
12,623
—
—
638
(12,162)
(1,099)
—
—
Warrants and rights
6,547
3,806 (e)(f)
—
10,706
(1,610)
(4,046)
15,403
(2,812)
Trade claims
8,713
—
(1,389)
(f)
3,056
(5,254)
(1,630)
3,496
(2,698)
Private investments
642
—
—
707
(1,153)
214
410
—
Corporate bond, liability
704
—
—
—
(399)
(305)
—
—
Government bonds, liability
1,500
—
—
—
(1,569)
69
—
—
Contingent consideration liability
36,718
—
—
20,729
(10,077)
14,853
62,223
14,853
Consolidated Funds
Common stock
2,951
(4,000) (e)
—
—
—
1,049
—
—
Warrants and rights
5,806
—
—
—
(4,447)
(1,359)
—
—
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-44
Year Ended December 31, 2020
Balance at
December 31,
2019
Transfers
in
Transfers
out
Purchases/
(covers)
(Sales)/
shorts
Realized and
Unrealized
gains/losses
Balance at
December
31, 2020
Change in
unrealized gains
/losses relating
to instruments
still held (1)
(dollars in thousands)
Operating Entities
Preferred stock
$
7,835
$
45,530
(c)
$
(1,653) (g)
$
5,891
$ (4,993) $
7,357
$
59,967
$
10,846
Common stock
17,466
102
(h)
(29) (a)(f)
7,138
(3,818)
2,927
23,786
1,990
Convertible bonds
2,500
—
—
3,787
(1,050)
803
6,040
803
Corporate Bond, asset
2,421
—
(312) (g)
666
(2,432)
(208)
135
(180)
Options, asset
336
—
(102) (h)
—
—
17
251
(1)
Options, liability
2,920
—
—
—
—
995
3,915
995
Warrants and rights
594
4,528 (a)(c)
—
—
—
1,425
6,547
1,425
Term Loan
—
11,149
(c)
—
245
—
1,229
12,623
1,229
Trade claim
7,083
1,044 (a)(f)
—
4,283
(2,944)
(753)
8,713
(777)
Private investments
237
—
—
641
—
(236)
642
(236)
Corporate bond, liability
1,000
—
—
—
—
(296)
704
(248)
Government bonds, liability
1,950
—
—
—
—
(450)
1,500
(450)
Contingent consideration liability
30,896
—
(1,235) (i)
4,218
(5,653)
8,492
36,718
8,492
Consolidated Funds
Preferred stock
4,393
—
(4,000) (d)
—
—
(393)
—
—
Common stock
—
4,000
(d)
(100,000) (j)
100,000
—
(1,049)
2,951
(1,049)
Warrants and rights
5,567
—
—
—
—
239
5,806
239
Convertible bonds
—
—
(76,114) (j)
75,000
—
1,114
—
—
(1) Unrealized gains/losses are reported in Investment income - Securities principal transactions, net in the
accompanying consolidated statements of operations.
(a) The security stopped trading on an open market.
(b) The entity in which the Company is invested completed an initial public offering.
(c) The company consolidated an operating entity which holds preferred stock, loans and warrants.
(d) The investment was involved in a reverse merger and preferred stock was converted to common shares.
(e) Fair market value derived using models and private transaction levels.
(f) The transfers between level 1, level 2 and level 3 are due to the change in the availability of observable inputs.
(g) The investments were converted to common stock.
(h) The options expired and converted into common stock.
(i) The contingent liability reached the end of its earnout period and is now valued based on actual cash payout.
(j) The Company deconsolidated an investment fund.
Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the
tables above.
The Company recognizes all transfers and the related unrealized gain (loss) at the beginning of the reporting period.
Transfers between level 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair
value measurements or due to change in liquidity restrictions for the investments.
The following table includes quantitative information as of December 31, 2021 and 2020 for financial instruments classified
within level 3. The table below quantifies information about the significant unobservable inputs used in the fair value
measurement of the Company's level 3 financial instruments.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-45
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
December 31, 2021
Valuation Techniques
Unobservable Inputs
Range
Weighted
Average
Level 3 Assets
(dollars in thousands)
Common and preferred stocks
$
76,491
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
12.5% - 20%
6.25x - 6.75x
13%
6.5x
Options
234
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
12.5% - 13.5%
6.25x - 6.75x
13%
6.5x
Trade claims
2,376
Discounted cash flows
Discount rate
40%
40%
Warrants and rights
4,483
Discounted cash flows
Guideline companies
Black Scholes Model
Discount rate
EBITDA Market Multiples
Volatility
12.5% - 13.5%
6.25x - 6.75x
90% - 100%
13.0%
6.5x
95%
Other level 3 assets (a)
98,917
Total level 3 assets
$
182,501
Level 3 Liabilities
Options
3,419
Option pricing models
Volatility
35%
35%
Contingent consideration liability
62,223
Discounted cash flows
Monte Carlo simulation
Discount rate
Volatility
7% - 15%
20% - 24%
12%
22%
Total level 3 liabilities
$
65,642
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31, 2020
Valuation Techniques
Unobservable Inputs
Range
Weighted
Average
Level 3 Assets
(dollars in thousands)
Common and preferred stocks
$
65,735
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Trade claims
3,500
Discounted cash flows
Discount rate
15%
15%
Warrants and rights
11,217
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
4% - 11%
6.25x - 6.75x
7%
6.5x
Options
251
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Corporate, convertible bonds and
term loan
12,623
Discounted cash flows
Guideline companies
Discount rate
EBITDA Market Multiples
10% - 12%
6.25x - 6.75x
11%
6.5x
Other level 3 assets (a)
34,135
Total level 3 assets
$
127,461
Level 3 Liabilities
Options
3,915
Option pricing models
Volatility
35%
35%
Contingent consideration liability
36,718
Discounted cash flows
Monte Carlo simulation
Discount rate
Volatility
9% - 16%
22% - 24%
15%
22%
Other level 3 liabilities (a)
2,204
Total level 3 liabilities
$
42,837
(a) The quantitative disclosures exclude financial instruments for which the determination of fair value is based on prices
from recent transactions.
The Company has established valuation policies, procedures and internal control infrastructure over the fair value
measurement of financial instruments. In the event that observable inputs are not available, the control processes are designed to
ensure that the valuation approach utilized is applicable, reasonable and consistently applied. Where a pricing model is used to
determine fair value, these control processes include reviews of the methodology and inputs for both reasonableness and
applicability. Consistent with best practices, recently executed comparable transactions and other observable market data are used
for the purposes of validating both the model and the assumptions used to calculate fair value. Independent of trading and
valuation functions, the Company’s Valuation Committee in conjunction with its Price Verification team, plays an important role
in determining that financial instruments are appropriately valued and that fair value measurements are both reasonable and
reliable. This is particularly important where prices or valuations that require inputs are less observable. The Valuation
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-46
Committee is comprised of senior management, including non-investment professionals, who are responsible for overseeing and
monitoring the pricing of the Company's investments.
The US GAAP fair value leveling hierarchy is designated and monitored on an ongoing basis. In determining the
designation, the Company takes into consideration a number of factors including the observability of inputs, liquidity of the
investment and the significance of a particular input to the fair value measurement. Designations, models, pricing vendors, third
party valuation providers and inputs used to derive fair market value are subject to review by the valuation committee and the
internal audit group. The Company reviews its valuation policy guidelines on an ongoing basis and may adjust them in light of
improved valuation metrics and models, the availability of reliable inputs and information, and prevailing market conditions. The
Company regularly reviews a profit and loss report, as well as other periodic reports, and analyzes material changes from period
to period in the valuation of its investments as part of its control procedures. The Company also performs back testing on a regular
basis by comparing prices observed in executed transactions to previous valuations.
The fair market value for level 3 securities may be highly sensitive to the use of industry-standard models, unobservable
inputs and subjective assumptions. The degree of fair market value sensitivity is also contingent upon the subjective weight given
to specific inputs and valuation metrics. The Company holds various equity and debt instruments where different weight may be
applied to industry-standard models representing standard valuation metrics such as: discounted cash flows, market multiples,
comparative transactions, capital rates, recovery rates and timing, and bid levels. Generally, changes in the weights ascribed to the
various valuation metrics and the significant unobservable inputs in isolation may result in significantly lower or higher fair value
measurements. Volatility levels for warrants and options are not readily observable and subject to interpretation. The
interrelationship between unobservable inputs may vary significantly amongst level 3 securities as they are generally highly
idiosyncratic. Significant increases (decreases) in any of those inputs in isolation can result in a significantly lower (higher) fair
value measurement.
Other financial assets and liabilities
The following table presents the carrying values and fair values, at December 31, 2021 and 2020, of financial assets and
liabilities and information on their classification within the fair value hierarchy which are not measured at fair value on a
recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the
methods and significant assumptions used to estimate their fair value (see Note 2e).
December 31, 2021
December 31, 2020
Fair Value
Hierarchy
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(dollars in thousands)
Financial Assets
Operating companies
Cash and cash equivalents
$
914,343
$
914,343
$ 645,169
$
645,169
Level 1
Cash collateral pledged
47,494
47,494
110,743
110,743
Level 2
Segregated cash
194,701
194,701
185,141
185,141
Level 1
Securities purchased under agreements to resell
—
—
191
204
Level 2
Securities borrowed
1,704,603
1,704,603
1,908,187
1,908,187
Level 2
Loans receivable
4,858
4,858
(d)
7,682
7,682 (d)
Level 3
Consolidated Funds
Cash and cash equivalents
296
296
417
417
Level 1
Financial Liabilities
Securities sold under agreements to repurchase
63,469
63,469
5,036
5,544
Level 2
Securities loaned
1,586,572
1,586,572
2,476,414
2,476,414
Level 2
Convertible debt
—
—
80,808
(a)
135,444 (b)
Level 2
Notes payable and other debt
623,371
(e)
655,229
(c)
383,067
(e)
405,840 (c)
Level 2
(a) The carrying amount of the convertible debt includes an unamortized discount of $6.7 million as of December 31, 2020.
(b) The convertible debt includes the conversion option and is based on the last broker quote available.
(c) Notes payable and other debt are based on the last broker quote available.
(d) The fair market value of level 3 loans is calculated using discounted cash flows where applicable.
(e) The carrying amount of the notes payable and other debt includes an unamortized discount and unamortized premium of
$2.8 million and $0.3 million as of December 31, 2021, respectively and unamortized premium of $0.4 million as of
December 31, 2020.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-47
8. Deposits with Clearing Organizations, Brokers and Banks
Under the terms of agreements between the Company and some of its clearing organizations, brokers and banks, balances
owed are collateralized by certain of the Company's cash and securities balances. As of December 31, 2021 and 2020, the
Company had a total of $111.9 million and $105.0 million, respectively, in deposit accounts with clearing organizations, brokers
and banks that could be used as collateral to offset losses incurred by the clearing organizations, brokers and banks, on behalf of
the Company's activities, if such losses were to occur.
9. Receivable From and Payable To Brokers, Dealers and Clearing Organizations
Receivable from and payable to brokers, dealers and clearing organizations includes cash held at the clearing brokers,
amounts receivable or payable for unsettled transactions, monies borrowed and proceeds from short sales equal to the fair value of
securities sold, not yet purchased, at fair value, which are restricted until the Company purchases the securities sold short.
Pursuant to the master netting agreements the Company entered into with its brokers, dealers and clearing organizations, these
balances are presented net (assets less liabilities) across balances with the same counterparty. The Company's receivable from and
payable to brokers, dealers and clearing organizations balances are held at multiple financial institutions.
As of December 31, 2021 and 2020, amounts receivable from brokers, dealers and clearing organizations include:
As of December 31,
2021
2020
(dollars in thousands)
Broker-dealers
$
1,533,713
$
1,608,273
Securities failed to deliver
17,851
55,655
Clearing organizations
56,075
41,795
Securities borrowed/loaned interest receivable
6,708
24,021
$
1,614,347
$
1,729,744
As of December 31, 2021 and 2020, amounts payable to brokers, dealers and clearing organizations include:
As of December 31,
2021
2020
(dollars in thousands)
Broker-dealers
$
492,577
$
286,011
Securities failed to receive
57,894
68,036
Clearing organizations
37,925
33,732
Securities borrowed/loaned interest payable
(1,843)
27,364
$
586,553
$
415,143
10. Receivable From and Payable To Customers
As of December 31, 2021 and 2020, receivable from customers of $159.4 million and $104.0 million, respectively, consist
of amounts owed by customers relating to securities transactions not completed on settlement date and receivables arising from
prepaid research.
As of December 31, 2021 and 2020, payable to customers of $2.4 billion and $1.7 billion, respectively, include amounts due
on cash and margin transactions to the Company's clients, some of which have their assets held by a Company omnibus account,
which are included within receivables from brokers, dealers and clearing organizations in the accompanying consolidated
statements of financial condition. In the omnibus structure, positions that are owned by Cowen International Ltd are fully cross
collateralized by client funds, meaning that the Company does not have market risk. Additionally, Cowen International Ltd has
no obligation to settle any trade that it deems inappropriate from a risk perspective, adding an important market and counterparty
risk mitigating factor.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-48
11. Fixed Assets
As of December 31, 2021 and 2020, fixed assets consisted of the following:
As of December 31,
2021
2020
(dollars in thousands)
Telecommunication and computer equipment
$
9,379
$
7,921
Computer software
13,715
11,813
Furniture and fixtures
3,607
3,387
Leasehold improvements
42,749
40,468
Finance lease right-of-use asset (See Note 16)
6,468
6,172
Airplane and related equipment
—
3,932
Other
75
—
75,993
73,693
Less: Accumulated depreciation and amortization
(50,017)
(40,670)
$
25,976
$
33,023
Depreciation and amortization expense related to fixed assets was $11.0 million, $9.6 million and $7.3 million for the years
ended December 31, 2021, 2020, and 2019, respectively, and are included in depreciation and amortization expense in the
accompanying consolidated statements of operations.
During the fourth quarter of 2020 the Company purchased an aircraft and related equipment of $4.5 million. This aircraft
was subsequently sold during the fourth quarter of 2021 for a gain of $0.3 million, within the accompanying consolidated
statement of operations.
Assets acquired under finance leases were $6.5 million and $6.2 million as of December 31, 2021 and 2020, respectively. If
the assets acquired under finance leases transfer title at the end of the lease term or contain a bargain purchase option, the assets
are amortized over their estimated useful lives; otherwise, the assets are amortized over the respective lease term. The
depreciation of assets capitalized under finance leases is included in depreciation and amortization expenses and was $1.3 million,
$1.2 million, and $1.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. As of December 31, 2021
and 2020, accumulated depreciation related to assets acquired under finance leases was $4.7 million and $3.4 million,
respectively.
12. Goodwill and Intangible Assets
Goodwill
In accordance with US GAAP, the Company tests goodwill for impairment on an annual basis or at an interim period if
events or changed circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Under US GAAP, the Company first assesses the qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amounts as a basis for determining if it is necessary to perform a quantitative
impairment test. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use
of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an
impairment charge is recorded and the magnitude of such a charge.
Change in segments
During the second quarter of 2019, the Company realigned its business segments to Op Co and Asset Co (See Note 1). Prior
to the reorganization, the Investment Management segment was also a reporting unit for purposes of measuring and reporting
goodwill. The goodwill that was previously attributable to the Investment Management reporting unit was reallocated to the CIM
reporting unit within the Op Co segment and the Asset Co reporting unit based on the relative fair value of the respective portions
that became attributable to those reporting units. The Asset Co segment is also a reporting unit for purposes of measuring and
reporting goodwill.
Based on the change in segments and restructuring of reporting units, the Company determined that it was necessary to
perform a quantitative impairment test which involved estimates of future cash flows, discount rates, economic forecast and other
assumptions which are then used in the market approach (earnings and / or transactions multiples) and / or income approach
(discounted cash flow method).
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-49
Based on the results of the impairment analysis, the Company recognized a goodwill impairment, net of tax, during the
second quarter of 2019, in the amount of $4.1 million within the Asset Co reporting unit.
Annual goodwill impairment test
During the third quarter of 2021, the Company changed the date of its annual goodwill impairment test from December 31
to July 1. The Company believes the change in goodwill impairment date does not result in a material change in the method of
applying the accounting principle. This change provides the Company additional time to complete the annual impairment test of
goodwill in advance of our year end reporting. This change does not result in a delay, acceleration, or avoidance of an impairment
charge. This change has been applied prospectively as retrospective application is deemed impracticable due to the inability to
objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight.
The Company performed its annual impairment test at July 1, 2021 through a quantitative impairment test which involved
estimates of future cash flows, discount rates, economic forecast and other assumptions which are then used in the market
approach (earnings and / or transactions multiples) and / or income approach (discounted cash flow method). Based on the results
of the annual impairment analysis at July 1, 2021, the Company did not recognize a goodwill impairment relating to any of the
Company's reporting units.
The following table presents the changes in the Company's goodwill balance, by reporting unit for the periods ended
December 31, 2021 and 2020:
Investment
Management
Investment
Bank
Cowen
Investment
Management
Asset Co
Total
(dollars in thousands)
Beginning balance - December 31, 2019
Goodwill
$
—
$
132,487
$
22,705
$
6,321
161,513
Accumulated impairment charges
—
(9,485)
(7,979)
(6,321) (23,785)
Net
—
123,002
14,726
—
137,728
Activity: 2020
Recognized goodwill (See note 3)
—
9,356
—
—
9,356
Goodwill impairment charges
—
—
—
—
—
Beginning balance: December 31, 2020
Goodwill
—
141,843
22,705
—
164,548
Accumulated impairment charges
—
(9,485)
(7,979)
—
(17,464)
Net
—
132,358
14,726
—
147,084
Activity: 2021
Recognized goodwill (See note 3)
—
86,921
—
—
86,921
Goodwill impairment charges
—
—
—
—
—
Ending balance: December 31, 2021
Goodwill
—
228,764
22,705
—
251,469
Accumulated impairment charges
—
(9,485)
(7,979)
—
(17,464)
Net
$
—
$
219,279
$
14,726
$
—
$ 234,005
In connection with the Portico transaction (see Note 3), in December 2021, the Company recognized goodwill of
$86.9 million and intangible assets (including customer relationships, trade name, and backlog) with an estimated fair value of
$19.9 million which are included within intangible assets in the consolidated statements of financial condition with the expected
useful lives ranging from 1 to 4 years with a weighted average useful life of 3.02 years. Amortization expense related to
intangibles from the Portico Acquisition for the year ended December 31, 2021 is $0.4 million. Goodwill, the excess of the
purchase price over the fair value of net assets, primarily relates to expected synergies from combining operations and has been
assigned to the Op Co segment of the Company. Tax deductible goodwill will differ from goodwill recognized by the Company in
an amount equal to the difference between actual contingent consideration and estimated contingent consideration (see Note 3).
In connection with the MHT transaction (see Note 3), in October 2020, the Company recognized goodwill of $9.4 million
and intangible assets (including customer relationships, trade name, and non-compete) with an estimated fair value of $1.2 million
which are included within intangible assets, net in the consolidated statements of financial condition with the expected useful lives
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-50
ranging from 3 to 5 years with a weighted average useful life of 4.17. Amortization expense related to intangibles from the MHT
acquisition for the year ended December 31, 2021 totaled $0.3 million. Goodwill primarily relates to expected synergies from
combining the acquired operations with our operations and has been assigned to the Op Co segment of the Company. Tax
deductible goodwill will differ from goodwill recognized by the Company in an amount equal to the difference between actual
contingent consideration and estimated contingent consideration (see Note 3).
Intangible assets
Information for the Company's intangible assets that are subject to amortization is presented below as of December 31,
2021 and 2020.
December 31, 2021
December 31, 2020
Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(in years)
(in thousands)
(in thousands)
Trade names
1 - 3
$
1,431
$
(970) $
461
$
1,031
$
(611) $
420
Customer relationships
4 - 14
57,634
(25,121)
32,513
52,040
(32,154)
19,886
Backlog
1
6,100
(254)
5,846
—
—
—
Non-compete agreements and covenants
with limiting conditions acquired
5
344
(86)
258
344
(17)
327
Intellectual property
8
6,020
(1,061)
4,959
2,972
(328)
2,644
Acquired software
3 - 10
5,857
(5,727)
130
5,900
(4,774)
1,126
$
77,386
$
(33,219) $
44,167
$
62,287
$
(37,884) $
24,403
The Company tests intangible assets for impairment if events or circumstances suggest that the asset groups carrying value
may not be fully recoverable. For the year ended December 31, 2021, no impairment charge for intangible assets was recognized.
The Company recognized impairment charges of $2.4 million during the year ended December 31, 2020. The impairment charges
primarily related the Company’s decision to limit the activities of its clearing business, resulting in a $1.9 million impairment of
a) intangible assets relating to customer lists and b) capitalized internally developed software costs. The remaining impairment
charges related to the impairment of intangible assets related to legacy capitalized software from the 2017 Convergex acquisition.
These impairment charges are recorded in Other Expenses in the accompanying consolidated statements of operations.
Amortization expense related to intangible assets was $8.0 million, $13.0 million, and $13.1 million for the years ended
December 31, 2021, 2020, and 2019 , respectively, which is included in depreciation and amortization expense in the
accompanying consolidated statements of operations. All of the Company's intangible assets have finite lives.
The estimated future amortization expense for the Company's intangible assets placed in service as of December 31, 2021 is
as follows:
(dollars in thousands)
2022
$
15,937
2023
7,762
2024
7,501
2025
6,337
2026
2,431
Thereafter
4,199
$
44,167
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-51
13. Other Assets
Other assets in Operating Entities are as follows:
As of December 31,
2021
2020
(dollars in thousands)
Prepaid expenses
$
21,349
$
14,468
Reinsurance business receivables (a)
24,402
15,387
Tax receivables
6,971
2,280
Interest and dividends receivable
2,147
1,688
Deferred acquisition costs (a)
5,672
5,221
Other (b)
24,287
15,840
$
84,828
$
54,884
(a) Balances relate to the Company's reinsurance business (See Note 22).
(b) As of December 31, 2021 and 2020, the balance includes prepaid expenses, receivables and other assets used for reinsurance
activities of $12.6 million and $7.2 million, respectively.
14. Commission Management Payable
The Company receives a gross commission from various brokers, which is then used to fund commission sharing and
recapture arrangements, less the portion retained as income to the Company. Accrued commission sharing and commission
recapture payable of $103.0 million and $117.0 million, as of December 31, 2021 and 2020, respectively, are classified as
commission management payable in the accompanying consolidated statements of financial condition.
15. Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable, accrued expenses and other liabilities in Operating Entities are as follows:
As of December 31,
2021
2020
(dollars in thousands)
Contingent consideration payable (see Note 3)
$
62,223
$
37,953
Interest and dividends payable
28,948
17,031
Loss reserves and claims incurred but not reported (a)
44,191
37,036
Professional fees payable
11,229
9,495
Unearned premiums (a)
23,241
14,732
Fees payable
7,740
7,958
Accrued tax liabilities
20,540
17,204
Deferred income
6,051
3,199
SEC fees payable
10,804
18,660
Technology costs and software contracts payable
6,263
6,789
Litigation reserve
1,082
—
Accrued expenses and accounts payable (b)
13,776
26,422
$
236,088
$
196,479
(a) Balances relate to the Company's reinsurance business (See Note 22).
(b) As of December 31, 2021 and 2020, the balance includes reinsurance premiums payable of $3.8 million and $15.5 million,
respectively.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-52
16. Convertible Debt and Notes Payable
As of December 31, 2021 and 2020, the Company's outstanding debt was as follows:
As of December 31,
2021
2020
(dollars in thousands)
Convertible debt
$
—
$
80,808
Notes payable
174,015
307,653
Term loan
435,147
—
Other notes payable
12,537
72,505
Finance lease obligations
1,672
2,909
$
623,371
$
463,875
Convertible Debt
December 2022 Convertible Notes
The Company, on December 14, 2017, issued $135.0 million aggregate principal amount of 3.00% convertible senior notes
due December 2022 (the “December 2022 Convertible Notes”). The December 2022 Convertible Notes have a final maturity date
of December 15, 2022 unless earlier repurchased by the Company or converted by the holder in accordance with their terms prior
to such date. The interest on the December 2022 Convertible Notes is payable semi-annually on December 15 and June 15 of
each year. The December 2022 Convertible Notes are senior unsecured obligations of Cowen. The December 2022 Convertible
Notes were issued with an initial conversion price of $17.375 per share of Cowen's Class A common stock. Pursuant to the
indenture governing the December 2022 Convertible Notes, conversions of the December 2022 Convertible Notes will be settled
by the delivery and/or payment, as the case may be, of Cowen’s Class A Common Stock, cash, or a combination thereof, at the
Company's election.
The Company recognized the embedded cash conversion option at issuance date fair value, which also represents the initial
unamortized discount on the December 2022 Convertible Notes of $23.4 million and is shown net in convertible debt in the
accompanying consolidated statements of financial condition. On June 26, 2018, the Company received shareholder approval for
the Company to settle the December 2022 Convertible Notes entirely in Class A common stock. Upon receiving shareholder
approval, the Company reclassified the separately recognized conversion option from a derivative liability to equity.
During December 2020, the Company repurchased and extinguished $46.9 million of the outstanding principal amount of
the December 2022 Convertible Notes for cash consideration of $70.5 million. In conjunction with the partial extinguishment of
the December 2022 Convertible Notes, the Company accelerated the pro rata unamortized discount of $3.6 million and capitalized
debt issuance costs of $0.4 million. The Company allocated $29.6 million of the cash consideration paid to the extinguishment of
the equity component of the December 2022 Convertible Notes. The Company recognized $2.7 million of gain on debt
extinguishment.
On March 24, 2021, the Company issued a redemption notice announcing that the Company would redeem all of the
December 2022 Convertible Notes, and provided holders the option to elect to settle the as-converted value of the December 2022
Convertible Notes as allowed under the terms of the December 2022 Convertible Notes. As a result of the Company’s call for
redemption of the December 2022 Convertible Notes, the December 2022 Convertible Notes were convertible, at the option of the
holder at any time prior to June 22, 2021, the second business day prior to the December 2022 Convertible Notes' Redemption
Date. On June 24, 2021 (the "Redemption Date") the Company redeemed all of the outstanding principal amount of the December
2022 Convertible Notes. The redemption amount was determined based on the holders election to convert, which allowed for
either 100.00% of the principal amount thereof plus accrued and unpaid interest on such principal amount up to June 15, 2021, to,
but not including the Redemption Date of the December 2022 Convertible Notes, or the value of the Company's Class A common
stock to be issued on conversion. The settlement method for the December 2022 Convertible Notes was $88.1 million in cash, (the
outstanding principal amount of the December 2022 Convertible Notes) and 2,938,841 shares of the Company’s Class A
common stock, (the remainder of the conversion obligation in excess of the principal amount). The conversion rate on the
December 2022 Convertible Notes on the Redemption Date was 33.35 shares of the Company’s Class A common stock per
$1,000 principal amount of December 2022 Convertible Notes converted. In conjunction with the redemption of the remaining
December 2022 Convertible Notes, the Company accelerated the pro rata unamortized discount of $5.1 million and capitalized
debt issuance costs of $0.5 million.
Amortization on the discount, included within interest and dividends expense in the accompanying consolidated statements
of operations is $6.7 million, $4.6 million and $4.3 million for the years ended December 31, 2021, 2020, and 2019, respectively,
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-53
based on an effective interest rate of 7.13%. The Company capitalized the debt issuance costs in the amount of $2.2 million,
which is a direct deduction from the carrying value of the debt and was amortized over the life of the December 2022 Convertible
Notes in interest and dividends expense in the accompanying consolidated statements of operations. The Company recorded
interest expense of $1.2 million, $4.0 million and $4.1 million for the years ended December 31, 2021, 2020, and 2019,
respectively.
Notes Payable
May 2024 Notes
On May 7, 2019, the Company completed its private placement of $53.0 million aggregate principal amount of 7.25% senior
notes due May 2024 (the "May 2024 Notes") with certain institutional investors. On September 30, 2019, the Company issued an
additional $25.0 million of the same series of notes. The additional May 2024 Notes were purchased at a premium of $0.5 million,
which is shown net in notes payable in the accompanying consolidated statement of financial condition. To date the May 2024
Notes have maintained their initial private rating, and the interest rate has remained unchanged. Interest on the May 2024 Notes is
payable semi-annually in arrears on May 6 and November 6. The Company recorded interest expense of $5.7 million, $5.7 million
and $2.9 million for the years ended December 31, 2021, 2020, and 2019, respectively. The Company capitalized debt issuance
costs of approximately $1.5 million in May 2019 and $0.6 million in September 2019, which is a direct deduction from the
carrying value of the debt and will be amortized over the life of the May 2024 Notes in interest and dividends expense in the
accompanying consolidated statements of operations.
June 2033 Notes
On June 11, 2018, the Company completed its public offering of $90.0 million of 7.75% senior notes due June 2033 (the
"June 2033 Notes") and subsequently the underwriters exercised in full their option to purchase an additional $10.0
million principal amount of the June 2033 Notes. Interest on the June 2033 Notes is payable quarterly in arrears on March 15,
June 15, September 15 and December 15. The Company recorded interest expense of $7.7 million for the years ended December
31, 2021, 2020, and 2019, respectively. The Company capitalized debt issuance costs of approximately $3.6 million which is a
direct deduction from the carrying value of the debt and will be amortized over the life of the June 2033 Notes in interest and
dividends expense in the accompanying consolidated statements of operations.
December 2027 Notes
On December 8, 2017, the Company completed its public offering of $120.0 million of 7.35% senior notes due December
2027 (the "December 2027 Notes") and subsequently the underwriters exercised in full their option to purchase an
additional $18.0 million principal amount of the December 2027 Notes. Interest on the December 2027 Notes is payable quarterly
in arrears on March 15, June 15, September 15 and December 15. The Company recorded interest expense of $2.5 million,
$10.1 million, and $10.1 million for years ended December 31, 2021, 2020, and 2019, respectively. The Company capitalized
debt issuance costs of approximately $5.0 million which is a direct deduction from the carrying value of the debt and will be
amortized over the life of the December 2027 Notes in interest and dividends expense in the accompanying consolidated
statements of operations. The net proceeds of the offering, after deducting the underwriting discount and estimated offering
expenses payable by the Company were used to redeem all of its 8.25% senior notes due October 2021 and for general corporate
purposes.
On March 24, 2021, the Company delivered payment of and discharged all $138.0 million outstanding aggregate principal
of the December 2027 Notes plus accrued and unpaid interest through the effective redemption date of April 23, 2021. In
conjunction with the extinguishment of the December 2027 Notes , the Company accelerated the pro-rata capitalized debt
issuance costs. For the year ended December 31, 2021, the Company recognized $4.4 million of loss on debt extinguishment.
Term Loan
March 2028 Term Loan
On March 24, 2021, the Company borrowed $300 million of first lien term loan due March 24, 2028. On December 15,
2021, the Company borrowed an additional $150 million first lien term loan under the same terms and conditions as, and fungible
with, the initial first lien term loan (collectively, the “March 2028 Term Loan”). The aggregate amount borrowed under the March
2028 Term Loan is $450 million. The March 2028 Term Loan bears interest at an annual rate equal to, at the option of the
Company, either the (a) London Inter-bank Offered Rate ("LIBOR") (adjusted for reserves and subject to a floor of 0.75%) plus a
margin of 3.25% or (b) an alternate base rate plus a margin of 2.25%. The Company is required to pay amortization of
approximately 1.00% per annum of the original principal amount of the March 2028 Term Loan. The obligations of the Company
for the March 2028 Term Loan are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries (excluding its
broker-dealer subsidiaries) (the “Guarantors”) and secured by substantially all of the assets of the Company and the Guarantors,
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-54
subject in each case to certain customary exceptions. The terms of the March 2028 Term Loan contain customary affirmative and
negative covenants, subject to certain customary exceptions, thresholds, qualifications and “baskets”. Proceeds from the March
2028 Term Loan were used to (i) satisfy and discharge and redeem the Company’s 2027 Senior Notes, (ii) redeem the Company’s
December 2022 Convertible Notes that remained outstanding as of March 31, 2021 and pay the cash settlement amount in
connection with the conversion of December 2022 Convertible Notes prior to that redemption date, and (iii) for the payment of
fees, commissions, premiums, expenses and other transaction costs (including original issue discount or upfront fees) payable in
connection with the transactions related thereto. As of December 31, 2021, the outstanding principal amount of the March 2028
Term Loan was $446.6 million.
Interest expense for the March 2028 Term Loan was $9.7 million for the years ended December 31, 2021, based on an
effective interest rate of 4.46%. In March 2021, the Company capitalized debt issuance costs of approximately $6.6 million and
initial unamortized discount of $1.5 million related to the March 2028 Term Loan which is a direct deduction from the carrying
value of the debt and will be amortized over the life of the March 2028 Term loan in interest and dividends expense in the
accompanying consolidated statements of operations. In December 2021, the Company capitalized debt issuance costs of
approximately $2.7 million and unamortized discount of $1.5 million related to the additional borrowing of $150 million which is
a direct deduction from the carrying value of the debt and will be amortized over the life of the March 2028 Term loan in interest
and dividends expense in the accompanying consolidated statements of operations.
The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that all US Dollar LIBOR settings will
either cease to be provided by any administrator or no longer be representative as of June 30, 2023. As the March 2028 Term
Loan represents the Company’s only significant exposure to LIBOR as of December 31, 2021, the transition to an alternative
Inter-bank Offer Rate is not expected to have a material impact on Company's consolidated financial statements.
June 2020 Term Loan
On June 30, 2017, a subsidiary of the Company borrowed $28.2 million to fund general corporate purposes. In July 2019,
the subsidiary of the Company borrowed separately, from the same lender, $4.0 million to fund general corporate purposes. Each
loan was secured by the value of the Company's limited partnership interests in two affiliated investment funds. The Company
had provided a guarantee for these loans. Both loans had an effective interest rate of LIBOR plus 3.75% with a lump sum
payment of the entire combined principal amount due (as amended) on June 26, 2020 when they were both fully repaid. The
Company recorded interest expense of $0.8 million and $1.8 million for the years ended December 31, 2020 and 2019.
Other Notes Payable
During January 2021, the Company borrowed $3.0 million to fund insurance premium payments. This note had an effective
interest rate of 2.01% and was due in December 2021, with monthly payment requirements of $0.3 million. As of December 31,
2021, the note was fully repaid. Interest expense for the year ended December 31, 2021 was insignificant.
On September 30, 2020, the Company borrowed $72.0 million from Purple Protected Asset S-81 ("PPA S-81"), a
Luxembourg entity unrelated to Cowen. The Company repaid $60.0 million of the PPA S-81 loan in June 2021. The loan is
payable on September 30, 2023, had an initial interest rate of 1.4 times the Secured Overnight Financing Rate ("SOFR") plus
6.07% until December 31, 2020 and 1.4 times the SOFR plus 5.8% until June 30, 2021 and 3.65 times the SOFR plus 4.0%
thereafter with quarterly interest payments. The loan obligation, as well as a loan issued by The Military Mutual Ltd (a United
Kingdom company unrelated to Cowen) with principal of $28.4 million that was sold by Cowen Re to PPA S-81 at fair value for
no gain or loss on September 30, 2020, are fully cash collateralized through a reinsurance policy provided by Cowen Re which is
reflected in cash collateral pledged in the consolidated statements of financial condition as of December 31, 2020 (see Notes 4 and
22). The Company capitalized debt issuance costs of approximately $1.7 million which is a direct deduction from the carrying
value of the loan and will be amortized over the life of the loan in interest and dividends expense shown in the accompanying
consolidated statements of operations. The Company recorded interest expense of $3.0 million and $1.2 million for the years
ended December 31, 2021 and 2020, respectively, related to its loan payable to PPA S-81.
During November 2019, the Company borrowed $2.6 million to fund general corporate capital expenditures. This note had
an effective interest rate of 6% and is due in November 2024, with monthly payment requirements of $0.1 million. As of
December 31, 2021, the outstanding balance on this note was $1.5 million. Interest expense for the years ended December 31,
2021 and 2020 was and $0.1 million, respectively and for year ended December 31, 2019 was insignificant.
Spike Line
Pursuant to an amendment in May 2020, Cowen and Company replaced Cowen Execution Services LLC ("Cowen
Execution") as the borrower and accepted, reaffirmed and assumed all of Cowen Execution’s rights, duties, obligations and
liabilities under the spike line facility and the related loan documents. In August 2020, Cowen and Company renewed a one-year
committed spike line facility to cover short term increases in National Securities Clearing Corporation margin deposit
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-55
requirements. The spike line facility has a capacity of $70.0 million. This facility has (i) an effective interest rate equal to the
Federal Funds rate plus 2.50% on any money drawn from the liquidity facility and (ii) a commitment or unused line fee that is 50
basis points on the undrawn amount. All amounts outstanding under this facility were fully repaid during the second quarter of
2020. Interest expense for the year ended December 31, 2020 was $0.4 million.
Revolving Credit Facility
In December 2019, the Company entered into a two-year committed corporate credit facility with a capacity of
$25.0 million. This credit facility has (i) an effective interest rate equal to LIBOR plus 3.25% on any money drawn from the
credit facility and (ii) a commitment or unused line fee that is 50 basis points on the undrawn amount. All amounts outstanding
under this credit facility were fully repaid during the second quarter of 2020. Interest expense for the year ended December 31,
2020 was $0.3 million.
Finance Lease Obligations
The Company has entered into various finance leases for computer equipment. These finance lease obligations are included
in notes payable and other debt in the accompanying consolidated statements of financial condition.
For the years ended December 31, 2021, 2020, and 2019, quantitative information regarding the Company's finance lease
obligations reflected in the accompanying consolidated statements of operations, the supplemental cash flow information and
certain other information related to finance leases were as follows:
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Lease cost
Finance lease cost:
Amortization of finance lease right-of-use assets
$
1,274
$
1,232
$
1,266
Interest on lease liabilities
$
116
$
171
$
227
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
$
116
$
171
$
227
Financing cash flows from finance leases
$
1,532
$
1,033
$
1,266
Weighted average remaining lease term - operating leases (in years)
1.71
2.24
3.21
Weighted average discount rate - operating leases
4.70 %
4.89 %
4.88 %
Annual scheduled maturities of debt and minimum payments (of principal and interest) for all debt outstanding as of
December 31, 2021, are as follows:
Notes
Payable
Term Loan
Other Notes
Payable
Finance Lease
Obligation
(dollars in thousands)
2022
$
13,405
$
22,533
$
543
$
1,128
2023
13,405
22,351
12,593
481
2024
88,578
22,168
543
82
2025
7,750
21,986
—
42
2026
7,750
21,804
—
12
Thereafter
150,375
445,646
—
—
Subtotal
281,263
556,488
13,679
1,745
Less (a)
(107,248)
(121,341)
(1,142)
(73)
Total
$
174,015
$
435,147
$
12,537
$
1,672
(a) Amount necessary to reduce net minimum payments to present value calculated at the Company's implicit rate at
inception. This amount also includes capitalized debt costs and the unamortized discount on the Company's convertible
debt.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-56
Letters of Credit
As of December 31, 2021, the Company has six irrevocable letters of credit, related to leased office space, for which there is
cash collateral pledged, which the Company pays a fee on the stated amount of the letter of credit. The Company also has
pledged cash collateral for reinsurance agreements (See Note 4).
To the extent any letter of credit is drawn upon, interest will be assessed at the prime commercial lending rate. As of
December 31, 2021 and 2020, there were no amounts due related to these letters of credit.
17. Redeemable Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. Subject to the rights of
holders of any outstanding preferred stock, the number of authorized shares of preferred stock may be increased or decreased by
the affirmative vote of the holders of a majority of the shares entitled to vote on such matters, but in no instance can the number of
authorized shares be reduced below the number of shares then outstanding. The Company's amended and restated certificate of
incorporation permits the Company to issue up to 10,000,000 shares of preferred stock in one or more series with such
designations, titles, voting powers, preferences and rights and such qualifications, limitations and restrictions as may be fixed by
the board of directors of the Company without any further action by the Company's stockholders. The Company's board of
directors may increase or decrease the number of shares of any series of preferred stock following the issuance of that series of
preferred stock, but in no instance can the number of shares of a series of preferred stock be reduced below the number of shares
of the series then outstanding.
On May 19, 2015, the Company completed its offering of 120,750 shares of the Company's 5.625% Series A cumulative
perpetual convertible preferred stock ("Series A Convertible Preferred Stock") that provided $117.2 million of proceeds, net of
underwriting fees and issuance costs of $3.6 million. Each share of the Series A Convertible Preferred Stock is entitled to
dividends at a rate of 5.625% per annum, which will be payable, when and if declared by the board of directors of the Company,
quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Company may, at its option, pay
dividends in cash, common stock or a combination thereof. The Company declared and paid a cash dividend in respect of the
Series A Convertible Preferred Stock of $6.8 million in each of the years ended December 31, 2021, 2020, and 2019. Each share
of Series A Convertible Preferred Stock is non-voting and has a liquidity preference over the Company's Class A common stock
and ranks senior to all classes or series of the Company's Class A common stock, but junior to all of the Company's existing and
future indebtedness with respect to dividend rights and rights upon the Company's involuntary liquidation, dissolution or winding
down.
Upon issuance, each share of Series A Convertible Preferred Stock was convertible, at the option of the holder, into a
number of shares of the Company's Class A common stock equal to the liquidation preference of $1,000 divided by the
conversion rate. The initial conversion rate (subsequent to the December 5, 2016 reverse stock split) is 38.0619 shares (which
equates to $26.27 per share) of the Company's Class A common stock for each share of the Series A Convertible Preferred Stock.
At any time on or after May 20, 2020, when the Company's capped call option expired, the Company was able to elect to convert
all outstanding shares of the Series A Convertible Preferred Stock into shares of the Company's Class A common stock, cash or a
combination thereof, at the Company's election, in each case, based on the then-applicable conversion rate, if the last reported sale
price of the Company's Class A common stock equals or exceeds 150% of the then-current conversion price on at least 20 trading
days (whether or not consecutive) during the period of 30 consecutive trading days (including on the last trading day of such
period) immediately prior to such election. At the time of conversion, the conversion rate may be adjusted based on certain
events, including but not limited to the issuance of cash dividends or Class A common stock as dividends to the Company's Class
A common shareholders or a share split or combination.
On December 31, 2021, the Company irrevocably elected that, upon the conversion of any share of the outstanding Series A
Convertible Preferred Stock, the Company will settle $1,000 of its conversion obligation in cash. With respect to each conversion,
to the extent the conversion obligation per share of Series A Convertible Preferred Stock is greater than $1,000, the Company may
satisfy its conversion obligation in respect of such excess using any settlement method permitted under the Certificate of
Designations. As the holders can exercise the conversion option on their shares at any time and require cash payment upon
conversion, the Company reclassified the Series A Convertible Preferred Stock to temporary equity at December 31, 2021.
18. Stockholder's Equity
The Company is authorized to issue 125,000,000 shares of common stock, which shall consist of 62,500,000 shares of
Class A common stock, par value $0.01 per share, and 62,500,000 shares of Class B common stock, par value $0.01 per share.
Subject to the rights of holders of any outstanding preferred stock, the number of authorized shares of common stock may be
increased or decreased by the affirmative vote of the holders of a majority of the shares entitled to vote on such matters, but in no
instance can the number of authorized shares be reduced below the number of shares then outstanding.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-57
The certificate of incorporation of the Company provides for two classes of common stock, and for the conversion of each
class into the other, to provide a mechanism by which holders of Class A common stock of the Company who may be limited in
the amount of voting common stock of the Company they can hold pursuant to federal, state or foreign bank laws, to convert their
shares into non-voting Class B common stock to prevent being in violation of such laws. Each holder of Class A common stock is
entitled to one vote per share in connection with the election of directors and on all other matters submitted to a stockholder vote,
provided, however, that, except as otherwise required by law, holders of Class A common stock are not entitled to vote on any
amendment to the Company's amended and restated certificate of incorporation that relates solely to the terms of one or more
outstanding series of the Company's preferred stock, if holders of the preferred stock series are entitled to vote on the amendment
under the Company's certificate of incorporation or Delaware law. No holder of Class A common stock may accumulate votes in
voting for directors of the Company.
No holder of Class B common stock is entitled to vote except as otherwise provided by law, provided however that the
Company must obtain the consent of a majority of the holders of Class B common stock to effect any amendment, alteration or
repeal of any provision of the Company's amended and restated certificate of incorporation or amended and restated by-laws that
would adversely affect the voting powers, preferences or rights of holders of Class B common stock. Except as otherwise
provided by law, Class B common stock shares will not be counted as shares held by stockholders for purposes of determining
whether a vote or consent has been approved or given by the requisite percentage of shares.
Each share of Class A common stock is convertible at the option of the holder and at no cost into one share of Class B
common stock, and each share of Class B common stock is convertible at the option of the holder and at no cost into one share of
Class A common stock. The conversion ratios will be adjusted proportionally to reflect any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the Class A common stock and Class B common stock. Upon conversion,
converted shares resume the status of authorized and unissued shares.
Subject to the preferences of the holders of any of the Company's preferred stock that may be outstanding from time to
time, each share of Class A common stock and Class B common stock will have an equal and ratable right to receive dividends
and other distributions in cash, property or shares of stock as may be declared by the Company's board of directors out of assets or
funds legally available for the payment of dividends and other distributions.
In the event of the liquidation, dissolution or winding up of the Company, subject to the preferences of the holders of any
preferred stock of the Company that may be outstanding from time to time, holders of Class A common stock and Class B
common stock will be entitled to share equally and ratably in the assets available for distribution to the Company's stockholders.
There are no redemption or sinking fund provisions applicable to the Class A or the Class B common stock.
Embedded Cash Conversion Option on the December 2022 Convertible Notes
Upon issuance of the December 2022 Convertible Notes (see Note 16), the Company recognized the embedded cash
conversion option at fair value of $23.4 million which was valued as of June 26, 2018 at $29.0 million. On June 26, 2018, the
Company received shareholder approval for the Company to settle the December 2022 Convertible Notes entirely in Class A
common stock. Upon receiving shareholder approval, the Company reclassified the separately recognized conversion option from
a derivative liability to equity. The Company allocated $29.6 million of the cash consideration paid on the December 2020 partial
extinguishment of the Convertible Notes (see Note 16) to this equity component. The Company redeemed all of the remaining
December 2022 Convertible Notes on June 24, 2021.
Cash Dividends to Common Stockholders
During the first quarter of 2020, the Company began the declaration of a quarterly cash dividend payable on its common
stock. During March 2021, the Company's Board of Directors declared a cash dividend of $0.08 per share of Class A common
stock. During June 2021, September 2021 and December 2021, the Company's Board of Directors declared a cash dividend of
$0.10 per share of Class A common stock. Dividends are payable on all outstanding shares of Class A common stock and on
granted but unvested shares of Class A common stock under the Equity Plans on the date of record (See Note 23). During the
year ended December 31, 2021, the Company paid $11.4 million of cash dividends to its holders of Class A common stock,
respectively.
Treasury Stock
Treasury stock of $547.1 million as of December 31, 2021, compared to $346.9 million as of December 31, 2020, resulted
from $40.4 million acquired through repurchases of shares to cover employee minimum tax withholding obligations related to
stock compensation vesting events under the Equity Plans or other similar transactions, $0.03 million received from an escrow
account established to satisfy the Company's indemnification claims arising under the terms of the purchase agreement entered
into in connection with the Company's acquisition of Convergex Group, LLC and $159.8 million purchased in connection with a
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-58
share repurchase program.
The following represents the activity relating to the treasury stock held by the Company during the year ended December 31,
2021:
Treasury Stock Shares
Cost
(dollars in thousands)
Average Cost per
Share
Balance outstanding at December 31, 2020
22,619,863
$
346,870
$
15.33
Shares purchased for minimum tax withholding under the 2010 and 2020
Equity Plans or other similar transactions
1,055,620
40,392
38.26
Shares of stock received in respect of indemnification claims
1,155
29
25.33
Purchase of treasury stock
4,371,291
159,821
36.56
Balance outstanding at December 31, 2021
28,047,929
$
547,112
$
19.51
19. Non-Controlling Interests in Consolidated Subsidiaries and Investment Funds
Redeemable and nonredeemable non-controlling interests in consolidated subsidiaries and investment funds and the related
net income (loss) attributable to non-controlling interests in consolidated subsidiaries and investment funds are comprised as
follows:
As of December 31,
2021
2020
2019
(dollars in thousands)
Redeemable non-controlling interests in consolidated subsidiaries and investment funds
Consolidated Funds
Beginning balance
$
—
$
391,275
$
216,923
Capital contributions
—
184,223
266,504
Capital withdrawals
—
(181,863)
(100,594)
Deconsolidation of entity
—
(360,711)
—
Income (loss) attributable to non-controlling interests
—
(32,924)
8,442
Ending balance
—
—
391,275
Nonredeemable non-controlling interests in consolidated subsidiaries and investment funds
Operating companies
Beginning balance
83,818
11,513
7,457
Capital contributions
36,539
9,730
11,108
Capital withdrawals
(7,601)
(5,605)
(3,788)
Consolidation of entity
—
48,596
—
Income (loss) attributable to non-controlling interests
13,349
19,584
(3,264)
Ending balance
126,105
83,818
11,513
Consolidated Funds
Beginning balance
115,806
82,807
57,423
Capital contributions
19,017
191,493
547
Capital withdrawals
(21,411)
(72,646)
(1,224)
Deconsolidation of entity
(74,813)
(89,889)
—
Income (loss) attributable to non-controlling interests
(4,969)
4,041
26,061
Ending balance
33,630
115,806
82,807
Total Nonredeemable non-controlling interests in consolidated subsidiaries and investment funds
$
159,735
$
199,624
$
94,320
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-59
20. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income includes the after tax change in Other revenues in the accompanying
consolidated statement of operations. During the periods presented, the Company did not have material reclassifications out of
other comprehensive income.
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Beginning balance
$
(7) $
(5) $
(5)
Foreign currency translation
5
(2)
—
Ending balance
$
(2) $
(7) $
(5)
21. Revenue from Contracts with Customers
For the year ended December 31, 2021, 2020, and 2019, the following tables presents revenues from contracts with
customers disaggregated by fee type and segment.
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Revenue from contracts with customers
Operating Company
Investment banking
Underwriting fees
$
421,081
$
427,670
$
211,666
Strategic/financial advisory fees
433,909
190,958
79,208
Placement and sales agent fees
195,676
133,171
69,070
Expense reimbursements from clients
16,496
17,687
15,081
Total investment banking revenue
1,067,162
769,486
375,025
Brokerage
Commissions
530,927
479,762
348,241
Trade conversion revenue
24,098
21,389
20,958
Equity research fees
21,015
19,757
19,006
Total brokerage revenue from customers
576,040
520,908
388,205
Management fees
71,374
46,556
31,361
Incentive income
2,732
592
1,532
Total revenue from contracts with customers - Op Co
$
1,717,308
$
1,337,542
$
796,123
Asset Company
Management fees
913
959
1,248
Incentive income
—
—
15
Total revenue from contracts with customers - Asset Co
913
959
1,263
Total revenue from contracts with customers
$
1,718,221
$
1,338,501
$
797,386
22. Insurance and reinsurance
The Company completed the acquisition of Cowen Insurance Co on February 26, 2021. (See Note 3). Cowen Insurance Co
is a Malta based insurance company that reinsures a significant proportion of its portfolio (“Outward Reinsurance”). The
Company's wholly owned Luxembourg subsidiary, Cowen Reinsurance S.A. (formerly “Hollenfels Re S.A.”) (“Cowen Re”)
provides reinsurance to third party insurance and reinsurance companies (“Inward Reinsurance”). Cowen Insurance Co’s and
Cowen Re's share of claims incurred and paid during the periods below, as well as the change in claims outstanding and claims
incurred but not reported ("IBNR") during these periods, net of reinsurance, were as follows:
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-60
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Incurred and paid claims
Insurance (net of Outward Reinsurance)
$
3,285
$
—
$
—
Inward Reinsurance
17,140
14,838
24,380
Total
$
20,425
$
14,838
$
24,380
Change in claims outstanding and claims IBNR
Insurance (net of Outward Reinsurance)
$
112
$
—
$
—
Inward Reinsurance
3,304
11,599
5,700
Total
$
3,416
$
11,599
$
5,700
Cowen Insurance Co and Cowen Re utilize several methods to determine their claims IBNR. Cowen Insurance Co and
Cowen Re generally employ an estimation methodology whereby historical average claims ratios over a period of up to 10 years
are utilized, based on availability of data. In cases where current claims development contradicts historical results, Cowen
Insurance Co and Cowen Re employ a method to average claims ratios derived through different actuarial calculation methods. If
an event occurs that may give rise to significant future claims in excess of the amount calculated using the above-mentioned
methodologies, the impact of such an event is calculated using existing claims data and actuarial estimation methods to adjust
Cowen Insurance Co's and Cowen Re's IBNR provision. During the year ended December 31, 2021, claims liability and claim
adjustment expenses were calculated using the above-mentioned methods consistent with prior years.
While Cowen Insurance Co and Cowen Re typically settle their premiums and claim payments on a quarterly basis, the
frequency of claims in the underlying policies is impractical for Cowen Insurance Co and Cowen Re to obtain. Cowen Insurance
Co and Cowen Re write contracts on both a proportional and non-proportional basis. The contracts contain inspection rights to
allow the companies to inspect the policy documents that provide the source for the underlying data provided by the cedant. This
negates the need for them to collect and hold the documents themselves which would be impracticable. Cowen Insurance Co and
Cowen Re did not discount any of its reserves and did not cede any portion of its exposures during the years ended December 31,
2021, 2020, and 2019.
From time to time, Cowen Insurance Co and Cowen Re may enter into insurance and reinsurance agreements that require it
to post collateral of cash or U.S. government bonds to cover certain exposures as defined in the respective insurance and
reinsurance agreements. As of December 31, 2021, Cowen Re had pledged $60.1 million of collateral towards such reinsurance
obligations, of which $44.1 million was in cash and $16.0 million was in U.S. government bonds. As of December 31, 2020, total
collateral pledged was $120.5 million, of which 106.8 million was cash and $13.7 million was U.S. government bonds. The
collateral pledged as of December 31, 2021 was $60.4 million lower than the amounts pledged at December 31, 2020. This is due
to the Company’s redemption of the September 2023 Loan Notes. Cowen Re expects $40.5 million of the cash collateral pledged
to be released on September 30, 2023. The remaining collateral of $19.6 million is expected to be released periodically between
October 1, 2021 and March 31, 2024 in accordance with the terms of the underlying insurance and reinsurance agreements. As of
December 31, 2021, Cowen Insurance Co had no pledged collateral.
23. Share-Based Payments, Deferred Compensation and Employee Ownership Plans
The Company has issued share-based compensation under the 2010 and 2020 Equity Incentive Plan (the "Equity Plans").
The Equity Plans permit the grant of options, restricted shares, restricted stock units, and other equity-based awards to the
Company's employees and directors. Stock options granted generally vest over two to five-year periods and expire seven years
from the date of grant. Restricted shares and restricted share units issued, both of which are eligible to accrue dividend
equivalents, may be immediately vested or may generally vest over a two-to five-year period. Awards are subject to the risk of
forfeiture, inclusive of accrued dividend equivalents. As of December 31, 2021, there were 2.5 million shares available for future
issuance under only the 2020 Equity Incentive Plan.
Under the Equity Plans, the Company awarded $36.8 million of deferred cash awards to its employees during the year
ended December 31, 2021. These awards vest over a four-year period and accrue interest at 0.70% per year. As of December 31,
2021, the Company had unrecognized compensation expense related to the Equity Plans' deferred cash awards of $58.3 million.
The Company measures compensation cost for share-based awards according to the equity method. In accordance with the
expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share-based
awards on a straight-line basis over the vesting period of the option or award, net of estimated forfeitures. In relation to awards
under the Equity Plan, the Company recognized compensation expense of $85.0 million, $48.1 million and $34.0 million for the
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-61
years ended December 31, 2021, 2020, and 2019, respectively. The income tax effect recognized for the Equity Plans was a
benefit of $33.5 million, $13.8 million, and $8.8 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Restricted Stock Units Granted to Employees
Restricted shares and restricted stock units are referred to collectively as restricted stock. The following table summarizes
the Company's restricted share and restricted stock unit activity for the years ended December 31, 2021 and 2020:
Year Ended December 31, 2021
Year Ended December 31, 2020
Nonvested Restricted
Class A Common Shares
and Class A Common
Restricted Stock Units
Weighted-Average
Grant Date
Fair Value
Nonvested Restricted
Class A Common Shares
and Class A Common
Restricted Stock Units
Weighted-Average
Grant Date
Fair Value
Beginning balance outstanding
5,450,191
$
17.56
5,364,486
$
16.67
Granted
2,092,904
35.31
2,709,979
17.40
Vested
(2,785,535)
19.46
(2,419,818)
15.59
Canceled
—
—
(87,348)
14.80
Forfeited
(162,218)
22.23
(117,108)
15.62
Ending balance outstanding
4,595,342
$
24.33
5,450,191
$
17.56
Included in the restricted share and restricted stock unit activity are performance-linked restricted stock units of 1,603,630
which were awarded in March 2016, April 2019, July 2020 and February 2021. Each RSU is equal to one share of the Company's
Class A common stock. Certain of the awards granted have the ability to be cash settled when the attained award exceeds a
certain percentage of granted amount. The cash portion of the award has been bifurcated from the equity component and recorded
as a compensation payable in the accompanying consolidated statement of financial condition. Of the awards granted, 712,652
have vested and 320,681 have been canceled, as they did not meet the performance criteria, through December 31, 2021. Included
in vested shares are 233,333 shares that had an attainable value of 420,000, and were delivered in March 2021. Of this attainable
value 350,000 shares were settled in the issuance of restricted stock units and were delivered in March 2021 with the remaining
70,000 shares being settled in cash at the volume weighted average price on settlement date. Also included in vested shares are
333,333 shares that had an attainable value of 666,666, due to reaching certain performance goals. Of this attainable value
528,800 shares will be settled in the issuance of restricted stock units and will be delivered in March 2022 with the remaining
137,866 shares being settled in cash at the volume weighted average price on settlement date. The remaining awards, included in
the outstanding balance as of December 31, 2021, vest on December 2022 and December 2023 and will be earned only to the
extent that the Company attains specified market conditions relating to its volume-weighted average share price and total
shareholder return in relation to certain benchmark indices and performance goals relating to aggregate net income and average
return on shareholder equity. The actual number of RSUs ultimately earned could vary from zero, if performance goals are not
met, to as much as 220% of the targeted award. Compensation expense is recognized to the extent that it is probable that the
Company will attain the performance goals. The fair value of restricted stock is determined based on the number of shares
granted and the quoted price of the Company's common stock on the date of grant.
As of December 31, 2021, there was $78.4 million of unrecognized compensation expense related to the Company's grant of
nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested
restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of
1.86 years.
Restricted Shares and Restricted Stock Units Granted to Non-Employee Board Members
There were 28,463 restricted stock units awarded to non-employee board members during the year ended December 31,
2021. There were 90,465 restricted stock units awarded to non-employee board members during the year ended December 31,
2020. The Company delivered 41,667 units to non-employee board members during the year ended December 31, 2021 and
48,021 were delivered during the year ended December 31, 2020. As of December 31, 2021 and 2020, there were 246,333 and
259,536 restricted stock units outstanding for non-employee board members, respectively.
Other Share Based Payments
In certain circumstances, the Company grants carried interest in consolidated managing member/general partner subsidiaries
to third parties through the grant of equity awards in exchange for professional, advisory and other services. The equity awards
are recorded within additional paid in capital in the accompanying consolidated statements of financial condition and professional,
advisory and other fees expense in the accompanying consolidated statements of operations based on the fair value of the award
granted and expensed over the terms of the award. In addition, the equity awards provide the third parties profit points aligned to
the allocated carried interest distributions. Upon vesting of the awards, the third parties' allocation of carried interest is determined
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-62
by applying an equity ownership model. Accordingly, the Company accrues carried interest allocations based on the fair value of
the underlying investments assuming hypothetical liquidation at book value upon vesting as nonredeemable non-controlling
interest.
24. Defined Contribution Plans
The Company sponsors a Retirement and Savings Plan which is a defined contribution plan pursuant to Section 401(k) of
the Internal Revenue Code (the "401(k) Plans"). All full-time employees of the Company can contribute on a tax deferred basis
and an after-tax basis to the 401(k) Plans up to federal contribution limits or up to 100% of their annual compensation, subject to
certain limitations. The Company provides matching and profit sharing contributions to employees that are equal to a specified
percentage of the eligible participant's contribution as defined by the 401(k) Plans. For the years ended December 31, 2021, 2020,
and 2019, the Company's contributions to the 401(k) Plans were $3.9 million, $2.9 million, and $1.0 million, respectively.
25. Income Taxes
The taxable results of the Company’s operations are included in the consolidated income tax returns of Cowen Inc. as well
as stand-alone state and local tax returns. The Company has subsidiaries that are resident in foreign countries where tax filings
have to be submitted on a stand-alone or combined basis. These subsidiaries are subject to tax in their respective countries and the
Company is responsible for and, thus, reports all taxes incurred by these subsidiaries. The countries where the Company owns
subsidiaries with tax filing obligations are the United Kingdom, Luxembourg, Malta, Germany, Switzerland, South Africa,
Canada and Hong Kong.
The Company is subject to U.S. tax on its Global Intangible Low-Taxed Income ("GILTI"). The Company elected to
account for taxes on GILTI inclusions in U.S. taxable income as incurred on the current year basis and not included any related
amounts in deferred taxes.
The components of the Company's income tax expense for the years ended December 31, 2021, 2020 and 2019 are as
follows:
Year ended December 31,
2021
2020
2019
(dollars in thousands)
Current tax expense/(benefit)
Federal
$
92,390
$
13,840
$
(731)
State and local
21,842
5,060
457
Foreign
1,867
1,355
1,831
Total
$
116,099
$
20,255
$
1,557
Deferred tax expense/(benefit)
Federal
$
(10,163) $
53,231
$
10,242
State and local
(4,861)
17,337
3,598
Foreign
964
(450)
(544)
Total
(14,060)
70,118
13,296
Total tax expense/(benefit)
$
102,039
$
90,373
$
14,853
Consolidated U.S. income/(loss) before income taxes was $385.1 million in 2021, $289.6 million in 2020, and $68.9
million in 2019. The corresponding amounts for non-U.S.-based income/(loss) were $20.9 million in 2021, $7.9 million in 2020,
and $2.2 million in 2019.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-63
The reconciliations of the Company's federal statutory rate to the effective income tax rate for the years ended
December 31, 2021, 2020, and 2019 are as follows:
Year ended December 31,
2021
2020
2019
Pre-tax net income at U.S. statutory rate
21.0 %
21.0 %
21.0 %
Nondeductible expenses
2.6
1.5
4.1
State and foreign tax
5.0
7.3
8.0
Reversal of income attributable to non-controlling interests
(0.4)
0.7
(9.2)
Other, net
(3.1)
(0.1)
(2.9)
Total
25.1 %
30.4 %
21.0 %
As of December 31, 2021, the Company has net income taxes receivable of approximately $5.0 million representing state
and foreign tax overpayments, which is included in other assets on the accompanying consolidated statements of financial
condition. The Company also has income taxes payable of approximately $16.6 million representing federal and foreign payables,
which is included in other liabilities on the accompany consolidated statements of financial condition.
The components of the Company's deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows:
As of December 31,
2021
2020
(dollars in thousands)
Deferred tax assets, net of valuation allowance
Net operating loss
$
14,649
$
18,039
Deferred compensation
34,342
24,068
Tax credits
3,241
6,230
Lease liability
24,373
20,401
Other
7,134
7,371
Total deferred tax assets
83,739
76,109
Valuation allowance
(4,226)
(5,194)
Deferred tax assets, net of valuation allowance
79,513
70,915
Deferred tax liabilities
Right-of-use on certain assets
(22,568)
(19,443)
Unrealized gains on investments
(30,393)
(33,439)
Other
(4,787)
(9,003)
Total deferred tax liabilities
(57,748)
(61,885)
Deferred tax assets/(liabilities), net
$
21,765
$
9,030
Deferred tax assets, net of valuation allowance, are reported in the accompanying consolidated statements of financial
condition. In addition to the deferred tax balances in the table above, the Company records balances related to its operating losses
in Luxembourg, which are discussed below.
The Company records deferred tax assets and liabilities for the future tax benefit or expense that will result from differences
between the carrying value of its assets for income tax purposes and for financial reporting purposes, as well as for operating or
capital loss and tax credit carryovers. A valuation allowance is recorded to bring the net deferred tax assets to a level that, in
management’s view, is more likely than not to be realized in the foreseeable future. This level will be estimated based on a
number of factors, especially the amount of net deferred tax assets of the Company that are actually expected to be realized for tax
purposes in the foreseeable future. The Company recorded approximately $4.2 million valuation allowance against its deferred tax
assets of $83.7 million as of December 31, 2021 and recorded approximately $5.2 million valuation allowance against its deferred
tax assets of $76.1 million as of December 31, 2020. Separately, the Company has deferred tax liabilities of $57.7 million as of
December 31, 2021 and $61.9 million as of December 31, 2020.
For tax year 2021, the Company's total deferred tax benefit of $14.1 million was derived by the reversal of timing
differences in the normal course of business. The deferred tax expense of $70.1 million in 2020 was derived by the utilization of
net operating losses and the reversal of timing differences in the normal course of business. The deferred tax expense of $13.3
million in 2019 was derived by the reversal of timing differences in the normal course of business.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-64
As of December 31, 2021, the Company has foreign tax credit carryforwards of $3.2 million which expire between 2022 and
2029. Valuation allowance of $3.1 million was established against foreign tax credit carryforward as the Company determined
that it is not more likely than not that the credits will be utilized.
The Company has the following net operating loss carryforwards at December 31, 2021:
Jurisdiction:
Federal
New York State
New York City
Hong Kong
Net operating loss (in millions)
$16.9
$31.9
$64.5
$13.3
Year of expiration
2030
2034
2034
Indefinite
In addition to the net operating loss carryforwards in the table above, the Company also has net operating loss carryforwards
in Luxembourg. These loss carryforwards are only accessible to the extent of taxable income generated by the Luxembourg
reinsurance companies, including any deferred income that will be generated in the future. Consequently, the Company recorded a
deferred tax asset of $130.6 million, net of deferred tax liabilities of $76.5 million in connection with future taxable income, and
an offsetting valuation allowance of $130.6 million against its Luxembourg net operating loss carryforwards that are in excess of
such taxable income.
In June 2011, the Company acquired a subsidiary with net operating loss carryovers that underwent a change of control
under Section 382 of the Internal Revenue Code due to the acquisition. Accordingly, a portion of the Company’s deferred tax
assets, are subject to an annual limitation under Section 382. The deduction limitation is approximately $6.7 million annually and
applies to approximately $16.9 million of net operating losses. The Company is not expected to lose any deferred tax assets due to
these limitations.
As a result of the enactment of the American Rescue Plan Act signed on March 11, 2021, the Company is required to assess
the tax impact of the Act in the quarter the law was enacted. Based on management’s analysis, there was no material impact on
the Company's financial statements as of December 31, 2021.
The components of unrecognized tax benefits are as follows:
As of December 31,
2021
2020
(dollars in thousands)
Beginning balance at January 1
$
299
$
299
Settlement of positions
(64)
—
Increases/(Decreases) due to prior year positions
(235)
—
Ending balance at December 31
$
—
$
299
A tax benefit of $0.2 million was recognized in the consolidated statement of operations for the tax year ended December
31, 2021 related to the release of uncertain tax positions previously established. No additional unrecognized tax benefit was
recorded in the consolidated statement of financial condition at December 31, 2021.
The following are the major jurisdictions in which the Company has significant business operations and the earliest open
tax year subject to examination in these jurisdictions:
Jurisdiction:
Federal
New York State
New York City
United Kingdom
Luxembourg
Germany
Switzerland
Tax Year
2018
2018
2018
2017
2019
2017
2016
In November 2021, the Company concluded its New York State audit for tax years 2013-2017 which caused a release of the
unrecognized tax benefits of $0.2 million.
The Company continues to permanently reinvest the capital and accumulated earnings of its subsidiaries in the United
Kingdom, Malta, Germany, Switzerland, Canada, South Africa, and Hong Kong.
26. Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to the Company's common stockholders by the
weighted average number of shares of Class A common stock outstanding for the period. As of December 31, 2021, there were
27,778,964 shares of Class A common stock outstanding. As of December 31, 2021, the Company has included 972,732 fully
vested, unissued restricted stock units and restricted shares in its calculation of basic earnings per share. As of December 31,
2020, there were 26,845,628 shares of Class A common stock outstanding. As of December 31, 2020, the Company has included
334,230 fully vested, unissued restricted stock units in its calculation of basic earnings per share.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-65
Diluted earnings per common share are calculated by adjusting the weighted average outstanding shares to assume
conversion of all potentially dilutive items. The Company uses the treasury stock method to reflect the potential dilutive effect of
the unvested restricted shares, and restricted stock units. In calculating the number of dilutive shares outstanding, the shares of
common stock underlying unvested restricted shares and restricted stock units are assumed to have been delivered, for the entire
period being presented. The number of performance-linked unvested restricted stock units that are included in the calculation are
at the amount that could be earned using current payout rates. The assumed proceeds from the assumed vesting, delivery and
exercising were calculated as the amount of compensation cost attributed to future services and not yet recognized.
The Company previously concluded that it had the intent and ability to settle the December 2022 Convertible Notes in cash
and, as a result, the convertible notes did not have an impact on the Company's diluted earnings per share calculation. On March
24, 2021, the Company issued a redemption notice announcing that the Company would redeem all of the December 2022
Convertible Notes (See Note 16). On June 24, 2021, the Company cash settled the December 2022 Convertible Notes up to the
principal amount of the December 2022 Convertible Notes and share settled through the delivery of shares of the Company’s
Class A common stock for the remainder of the conversion obligation in excess of the principal amount. The shares of the
Company’s Class A common stock issued are within basic earnings per share subsequent to June 24, 2021. Prior to that date, the
Company has applied the if-converted method to the portion of the December 2022 notes above the principal amount that settled
in shares upon a conversion in dilutive earnings per share.
On December 31, 2021, the Company irrevocably elected to cash settle $1,000 of its obligation in respect of each conversion
of any share of the Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”). Prior to this date, the
Company could elect to settle the Series A Convertible Preferred Stock in shares, cash, or a combination of both. The Company’s
intent is to settle in cash. As a result, the Series A Convertible Preferred Stock does not have an impact on the Company’s diluted
earnings per share calculation. See Note 2 for the impact of the Series A Convertible Preferred Stock earnings per share
calculation with the adoption of ASU 2020-06 on January 1, 2022.
The computation of earnings per share is as follows:
Year Ended December 31,
2021
2020
2019
(dollars and share data in thousands, except per share data)
Net income (loss)
$
303,991
207,064
$
55,870
Net income (loss) attributable to non-controlling interests in consolidated
subsidiaries and investment funds
8,380
(9,299)
31,239
Net income (loss) attributable to Cowen Inc.
295,611
216,363
24,631
Preferred stock dividends
6,792
6,792
6,792
Net income (loss) attributable to Cowen Inc. common stockholders
$
288,819
$
209,571
$
17,839
Shares for basic and diluted calculations:
Weighted average shares used in basic computation
27,721
27,790
29,525
Performance based restricted stock
755
—
—
Contingently issuable common stock in connection with acquisitions
—
85
26
December 2022 Convertible Notes
1,404
—
—
Restricted stock
2,748
1,644
1,735
Weighted average shares used in diluted computation
32,628
29,519
31,286
Earnings (loss) per share:
Basic
$
10.42
$
7.54
$
0.60
Diluted
$
8.85
$
7.10
$
0.57
27. Commitments and Contingencies
Operating Lease Obligations
The Company has entered into leases for real estate and other facilities. These leases contain rent escalation clauses and
options to extend the lease term. The Company does not include renewal options in the lease term for calculating the Company's
lease liability as the renewal options allow the Company operational flexibility and the Company is not reasonably certain to
exercise these renewal options at this time. The Company records the expenses related to occupancy and equipment on a straight-
line basis over the lease term and these expenses are included in occupancy and equipment expense and client services and
business development expense in the accompanying consolidated statements of operations.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-66
For the year ended December 31, 2021, 2020 and 2019, quantitative information regarding the Company's operating lease
obligations reflected in the accompanying consolidated statements of operations were as follows:
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Lease cost
Operating lease cost
$
25,268
$
22,759
$
23,540
Short-term lease cost
150
207
253
Variable lease cost
3,526
3,550
3,580
Sublease income
(583)
(781)
(953)
Total lease costs
$
28,361
$
25,735
$
26,420
The following table summarizes the supplemental cash flow information and certain other information related to operating
leases for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021
2020
(dollars in thousands)
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
27,429
$
25,012
Weighted average remaining lease term - operating leases (in years)
5.27
4.58
Weighted average discount rate - operating leases
4.06 %
3.66 %
As of December 31, 2021, maturities of the outstanding operating lease liabilities for the Company were as follows:
Equipment Leases
(operating) (d)
Real Estate and Other
Facility Rental (a) (b) (c)
(dollars in thousands)
2022
$
520
$
24,697
2023
381
24,687
2024
370
21,852
2025
370
11,137
2026
278
7,593
Thereafter
—
19,463
Total operating leases
1,919
109,429
Less discount
124
12,232
Less short-term leases
—
109
Total lease liability
$
1,795
$
97,088
(a) The Company has entered into various agreements to sublease certain of its premises.
(b) During the year ended December 31, 2021, the Company recognized an increase of $37.7 million of operating right-of-
use assets and leases liabilities related to facility leases.
(c) During the fourth quarter of 2021, the Company completely vacated leased office space in New York and New Jersey
which resulted in an acceleration of expense of approximately $0.9 million within occupancy and equipment expense in
the accompanying consolidated statements of operations during the year ended December 31, 2021.
(d) During the year ended December 31, 2021, the Company recognized an increase of $1.7 million of operating right-of-use
assets and leases liabilities related to equipment leases.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-67
Other Commitments
As of December 31, 2021, future minimum annual service payments for the Company were as follows:
Service Payments
(dollars in thousands)
2022
$
25,085
2023
12,511
2024
5,254
2025
3,366
2026
3,237
Thereafter
7,357
Total service payment commitments
$
56,810
Unfunded Commitments
The following table summarizes unfunded commitments as of December 31, 2021:
Entity
Unfunded Commitments
Commitment Term
(dollars in thousands)
HealthCare Royalty Partners funds (a)
$
3,886
3 years
Eclipse Ventures Fund I, L.P.
$
28
3 years
Eclipse Fund II, L.P.
$
23
4 years
Eclipse Continuity Fund I, L.P.
$
20
5 years
Cowen Healthcare Investments III LP
$
2,632
5 years
Cowen Healthcare Investments IV LP
$
6,399
6 years
Cowen Sustainable Investments I LP
$
14,643
8 years
(a) The Company is a limited partner of the HealthCare Royalty Partners funds (which are managed by Healthcare Royalty
Management) and is a member of HealthCare Royalty Partners General Partners. The Company will make its pro-rata investment
in the HealthCare Royalty Partners funds along with the other limited partners.
Litigation
In the ordinary course of business, the Company and its affiliates, subsidiaries and current and former officers, directors and
employees (the "Company and Related Parties") are named as defendants in, or as parties to, various legal actions and
proceedings. Certain of these actions and proceedings assert claims or seek relief in connection with alleged violations of
securities, banking, anti-fraud, anti-money laundering, employment and other statutory and common laws. Certain of these actual
or threatened legal actions and proceedings include claims for substantial or indeterminate compensatory or punitive damages, or
for injunctive relief.
In the ordinary course of business, the Company and Related Parties are also subject to governmental and regulatory
examinations, information gathering requests (both formal and informal), certain of which may result in adverse judgments,
settlements, fines, penalties, injunctions or other relief. Certain of the Company's affiliates and subsidiaries are registered broker-
dealers, futures commission merchants, investment advisers or other regulated entities and, in those capacities, are subject to
regulation by various U.S., state and foreign securities, commodity futures and other regulators. In connection with formal and
informal inquiries by these regulators, the Company receives requests and orders seeking documents and other information in
connection with various aspects of the Company's regulated activities.
Due to the global scope of the Company's operations, and its presence in countries around the world, the Company and
Related Parties may be subject to litigation, governmental and regulatory examinations, information gathering requests,
investigations and proceedings (both formal and informal), in multiple jurisdictions with legal and regulatory regimes that may
differ substantially, and present substantially different risks, from those to which the Company and Related Parties are subject in
the United States.
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best
interests of the Company and its shareholders, and contests liability, allegations of wrongdoing and, where applicable, the amount
of damages or scope of any penalties or other relief sought as appropriate in each pending matter.
In accordance with US GAAP, the Company establishes reserves for contingencies when the Company believes that it is
probable that a loss has been incurred and the amount of loss can be reasonably estimated. The Company discloses a contingency
if there is at least a reasonable possibility that a loss may have been incurred and there is no reserve for the loss because the
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-68
conditions above are not met. The Company's disclosure includes an estimate of the reasonably possible loss or range of loss for
those matters, for which an estimate can be made. Neither a reserve nor disclosure is required for losses that are deemed remote.
The Company appropriately reserves for certain matters where, in the opinion of management, the likelihood of liability is
probable and the extent of such liability is reasonably estimable. Such amounts are included within accounts payable, accrued
expenses and other liabilities in the accompanying consolidated statements of financial condition. Estimates, by their nature, are
based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and
nature of the litigation, claim or proceeding, the progress of the matter, the advice of legal counsel, the Company's defenses and
its experience in similar cases or proceedings as well as its assessment of matters, including settlements, involving other
defendants in similar or related cases or proceedings. The Company may increase or decrease its legal reserves in the future, on a
matter-by-matter basis, to account for developments in such matters. The Company accrues legal fees as incurred.
28. Segment Reporting
The Company has two reportable business segments: Op Co and Asset Co. The Op Co segment consists of Cowen
Investment Management ("CIM"), Investment Banking, Markets and Research. The Asset Co segment consists of the Company's
private investments, private real estate investments and other legacy investment strategies.
Segment Measures
The measure of profit or loss for these segments is Economic Income (Loss), which management uses to evaluate the
financial performance of and make operating decisions for the segments including determining appropriate compensation levels.
Expenses not directly associated with specific segments are allocated based on the most relevant measures applicable, including
headcount, square footage and other factors.
In general, Economic Income (Loss) is an after tax measure (which represents the Company’s income tax expense or
benefit calculated on Pre-tax Economic Income (Loss) once all currently available net operating losses have been utilized (this
occurred during tax year 2020)) and is presented after preferred stock dividends. Economic Income (Loss) (i) includes
management reclassifications which the Company believes provides additional insight into the performance of the Company’s
core businesses and divisions (ii) eliminates the impact of consolidation for Consolidated Funds and (iii) excludes goodwill and
certain other impairments, certain other transaction-related adjustments and/or reorganization expenses and certain costs
associated with debt.
The Company does not disclose total asset information for its business segments as the information is not reviewed by the
Chief Operating Decision Maker ("CODM"). The Op Co and Asset Co segments do not conduct inter-segment transactions.
The following table sets forth operating results for the Company's consolidated US GAAP net income (loss) and related
reclassifications and adjustments necessary to reconcile to the Company's Economic Income (Loss) measure which represents the
Company's Op Co and Asset Co segments' results:
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Economic Income
Op Co
$
314,519
$
329,381
$
53,257
Asset Co
(2,291)
(16,136)
(9,560)
Adjustments applied to arrive at Net Income (loss)
Income attributable to non-controlling interest
8,380
(9,299)
31,239
Preferred stock dividends
6,792
6,792
6,792
Amortization of (discount)/premium on convertible debt
(1,604)
(4,499)
(4,297)
Acquisition related amounts
(6,593)
(606)
(2,608)
Contingent liability adjustments
(15,118)
(8,492)
—
Debt extinguishment gain (loss) and accelerated debt costs
(10,095)
2,719
—
Bargain purchase gain
3,855
—
—
Goodwill and other impairment
(1,009)
(2,423)
(4,100)
US GAAP Income tax expense
(102,039)
(90,373)
(14,853)
Economic income tax expense *
109,194
—
—
Net income (loss)
$
303,991
$
207,064
$
55,870
* Economic Income (Loss) is presented net of associated taxes starting in the first quarter of 2021. The Company has utilized
all available federal net operating losses not subject to limitation during 2020.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-69
Economic Income (Loss) information provided and reviewed by the CODM includes (i) non-interest revenue, (ii) interest
revenue, (iii) interest expense, (iv) depreciation and amortization expense and (v) income taxes (subsequent to 2020 after all
available net operating losses were utilized) presented on an Economic Income (Loss) basis by Segment. The following table sets
forth the included segment information on a US GAAP basis with reconciliations to consolidated amounts.
Year Ended December 31,
2021
2020
2019
(dollars in thousands)
Op Co
Non-Interest Revenue
$
1,917,406
$
1,564,710
981,131
Interest Revenue
192,756
169,358
165,443
Interest Revenue, Consolidated funds
—
2,683
6,746
Total Revenues
2,110,162
1,736,751
1,153,320
Interest Expense
199,570
173,537
155,974
Interest Expense, Consolidated funds
—
1,376
3,553
Depreciation and Amortization
18,982
22,655
20,424
Income Taxes
103,149
90,373
14,853
Asset Co
Non-Interest Revenue
2,163
18,396
9,957
Interest Revenue
465
770
284
Interest Revenue, Consolidated funds
9
9
9
Total Revenues
2,637
19,175
10,250
Interest Expense
5,035
6,120
3,835
Interest Expense, Consolidated funds
—
—
—
Depreciation and Amortization
22
22
36
Income Taxes
(1,110)
—
—
Total Segment
Non-Interest Revenue *
1,919,569
1,583,106
991,088
Interest Revenue
193,221
170,128
165,727
Interest Revenue, Consolidated funds
9
2,692
6,755
Total Revenues
$
2,112,799
$
1,755,926
1,163,570
Interest and Dividend Expense (includes dividend expense of $6.8 million, $8.1
million and $8.8 million for the years ended December 31, 2021, 2020, and 2019,
respectively)
211,387
187,725
168,628
Interest and Dividend Expense, Consolidated funds (includes dividend expense of
$0 million, $0.7 million and $1.0 million for the years ended December 31, 2021,
2020, and 2019, respectively)
—
2,064
4,602
Depreciation and Amortization
19,004
22,677
20,460
Income Taxes
102,039
90,373
14,853
* Includes dividend revenue of $26.0 million, $17.3 million and $9.2 million for the years ended December 31, 2021,
2020, and 2019, respectively. In addition, includes dividend revenue, consolidated funds, of $0.0 million and $2.5 million and
$3.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.
29. Regulatory Requirements
Regulatory Capital
As registered broker-dealers with the United States Securities and Exchange Commission ("SEC"), Cowen and Company,
ATM Execution and Westminster are subject to the Uniform Net Capital Rule 15c3-1, "SEA Rule 15c3-1," under the Securities
Exchange Act ("SEA") of 1934, which requires the maintenance of minimum net capital. Each registered broker-dealer has
elected to compute net capital under the alternative method permitted by that rule.
Effective June 1, 2021, Cowen Prime Services LLC ("Cowen Prime") transferred all of the net assets of its investment
advisory business to a newly formed investment advisor, Cowen Prime Advisors LLC. Cowen Prime Advisors LLC succeeded to
Cowen Prime’s SEC investment advisor registration on that date pursuant to statutory guidance. As a result of implementing that
guidance and the succession process, Cowen Prime is no longer registered as an investment advisor with the SEC.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-70
As of June 30, 2021, Cowen Prime and Cowen and Company were granted regulatory approval to merge from the Financial
Industry Regulatory Authority Inc. The companies completed the merger on September 1, 2021 with Cowen and Company being
the surviving entity. As a result of the merger, Cowen Prime filed a notice of full withdrawal from registration as a broker-dealer
with the SEC, all self-regulatory organizations, and all states on October 19, 2021 and the withdrawal of its registration with the
SEC became effective on November 15, 2021.
The Company acquired Portico, a registered broker-dealer on December 16, 2021. As a result of the acquisition, Portico's
net assets were transferred into Cowen and Company. The Company applied to withdraw Portico's status as a FINRA registered
broker-dealer on December 20, 2021 which was approved by the SEC on February 18, 2022.
Under the alternative method, Cowen and Company's minimum net capital requirement, as defined in (a)(4) of SEA Rule
15c3-1, is equal to the greater of $1.5 million or 2% of aggregate debits arising from customer transactions. ATM Execution, and
Westminster are required to maintain minimum net capital, as defined in (a)(1)(ii) of SEA Rule 15c3-1, equal to the greater of
$250,000 or 2% of aggregate debits arising from customer transactions. Advances to affiliates, repayment of borrowings,
distributions, dividend payments, and other equity withdrawals are subject to certain notification and other provisions of SEA
Rule 15c3-1 and other regulatory bodies.
Cowen and Company is also subject to certain net capital rule requirements under the Regulation 1.17 of the Commodity
Futures Trading Commission ("CFTC") under Commodities Exchange Act (“CEA”) as an introducing broker. Under Regulation
1.17, Cowen and Company is required to maintain net capital equal to or in excess of $45,000 or the amount of net capital
required by SEA Rule 15c3-1, whichever is greater. Additionally, as an options clearing member of the Options Clearing
Corporation ("OCC") under OCC Rule 302, Cowen and Company is required to maintain net capital equal to the greater of $2.0
million or 2% of aggregate debit items. At December 31, 2021, Cowen and Company had $360.3 million of net capital in excess
of its minimum requirements under SEA Rule 15c3-1.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21,
2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-
based swap dealers, and/or major security-based swap participants. The CFTC has finalized rules establishing capital
requirements and financial reporting requirements for CFTC registered swap dealers not subject to regulation by a banking
regulator. The SEC has finalized rules establishing similar standards for an entity registering as a standalone securities-based
swaps dealer. On October 6, 2021, Cowen Financial Products LLC (“CFP”) became subject to the SEC’s standalone securities-
based swap regulatory requirements. CFP registered with the SEC with an effective date of November 1, 2021 as a securities-
based swap dealer and is not using models to compute its net capital. Under the rules there is a minimum net capital requirement
for, among others, an entity that acts as a dealer in security-based swaps, which is the greater of $20 million or 2% of risk margin
amount The risk margin amount means the sum of (i) the total initial margin required to be maintained by the SEC securities-
based swaps dealer at each clearing agency with respect to securities-based swaps transactions cleared for securities-based swap
customers and (ii) the total initial margin amount calculated by the SEC securities-based swaps dealer swaps dealer with respect
to non-cleared securities-based swaps under new SEC rules. At December 31, 2021, CFP had $17.8 million of net capital in
excess of its minimum requirements under SEA Rule 18a-1.
Cowen International Ltd and Cowen Execution Ltd are subject to the capital requirements of the U.K. Financial Conduct
Authority ("FCA"), as defined, and must exceed the minimum capital requirement set forth by the FCA.
Cowen Asia, a previously established entity, was re-registered with regulatory approval on May 17, 2019. Cowen Asia is
subject to the financial resources requirements of the Securities and Futures Commission ("SFC") of Hong Kong. Financial
Resources must exceed the Total Financial Resources requirement of the SFC.
As of December 31, 2021, these regulated broker-dealers had regulatory net capital or financial resources, regulatory net
capital requirements or minimum FCA or SFC requirement and excess as follows:
Subsidiary
Net Capital
Minimum Net Capital
Requirement
Excess Net Capital
(dollars in thousands)
Cowen and Company
$
367,203
$
6,874
$
360,329
ATM Execution
$
6,778
$
250
$
6,528
Westminster
$
18,997
$
250
$
18,747
Cowen International Ltd
$
52,610
$
22,312
$
30,298
Cowen Execution Ltd
$
16,482
$
4,168
$
12,314
CFP
$
37,756
$
20,000
$
17,756
Cowen Asia
$
2,081
$
385
$
1,696
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-71
Customer Protection
The Company's U.S. broker-dealers must also comply with the customer protection provisions under SEA Rule 15c3-3
which requires a computation of a reserve requirement for customer and maintenance of a deposit of cash or securities into a
special reserve bank account for the exclusive benefit of customers; or claim an exemption pursuant to subparagraphs (k)(2)(i) or
(k)(2)(ii) of that rule. Firms can rely on more than one exemption.
ATM Execution claims the (k)(2)(ii) exemption with regard to all of their customer accounts and transactions that are
introduced on a fully-disclosed basis to their clearing agents for clearing, settlement and custody. Westminster claims the (k)(2)(i)
exemption with regards to customer transactions and balances that are cleared, settled and custodied in bank accounts designated
as Special Accounts for the Exclusive Benefit of Customers ("Special Bank Accounts"). Westminster also claims exemption for
other business activities that are not covered under (k)(2)(i) contemplated by Footnote 74 of the SEC Release No. 34-70073
adopting amendments to 17 C.F.R. § 240.17a-5 for receiving transaction-based compensation in return for providing commission
management services.
In accordance with the requirements of SEA Rule 15c3-3, Cowen and Company may be required to deposit in a Special
Reserve Account cash or acceptable qualified securities for the exclusive benefit of customers. As of December 31, 2021, Cowen
and Company had segregated approximately $51.8 million of cash to satisfy the customer reserve provision of SEA Rule 15c3-3.
As a clearing and carrying broker-dealer, Cowen and Company is required to compute a reserve requirement for proprietary
accounts of broker-dealers ("PAB"), as defined in SEA Rule 15c3-3. Cowen and Company conducts PAB reserve computations in
order to determine the amount it is required to deposit in its PAB Reserve Bank Accounts pursuant to SEA Rule 15c3-3. This
allows each correspondent firm that uses Cowen and Company as its clearing broker-dealer to classify its PAB account assets held
at Cowen and Company as allowable assets in the correspondent's net capital calculation. At December 31, 2021, Cowen and
Company had $57.2 million of cash on deposit in PAB Reserve Bank Accounts. Cowen and Company and ATM Execution also
maintain certain assets in PAB accounts held at their respective clearing brokers. Each treats its assets held in those PAB accounts
at the respective clearing brokers as allowable assets for net capital purposes.
Cowen Financial Products, as a registered securities based swap dealer, claims Rule 18a-4(f) exemption under the Securities
and Exchange Act of 1934 (the “Act”) with regard to its swap counterparties on the basis that it has provided sufficient notice to
its swap counterparties of their respective rights to require segregation of funds or other property used to secure uncleared security
based swaps pursuant to section 3E(f)(1)(A)-(B) of the Act (15 U.S.C. 78c-5(f)(1)(A)). Any margin collateral received and held
by the security based swap dealer with respect to uncleared security based swaps will not be subject to a segregation requirement.
The notice outlines how a claim of those swap counterparties for the collateral would be treated in a bankruptcy or other formal
liquidation proceeding of the security-based swap dealer.
Other Regulatory Requirements
Cowen Insurance Co and Cowen Re are individually required to maintain a solvency capital ratio as calculated by relevant
European Commission directives and local regulatory rules in Malta and Luxembourg, respectively. Each company's individual
solvency capital ratio calculated at the end of each quarter must exceed a minimum requirement. As of March 31, 2021 and
September 30, 2021 (the last testing date for Cowen Re and Cowen Insurance Co respectively), the solvency capital ratios of both
Cowen Insurance Co and Cowen Re were in excess of the minimum requirements.
Based on minimum capital and surplus requirements pursuant to the laws of the state of New York that apply to captive
insurance companies, RCG Insurance Company, Cowen's captive insurance company incorporated and licensed in the state of
New York, was required to maintain capital and surplus of approximately $0.3 million as of December 31, 2021. RCG Insurance
Company’s capital and surplus as of December 31, 2021 totaled $6.0 million.
30. Related Party Transactions
The Company and its affiliated entities are the managing member, general partner and/or investment manager to the
Company's investment funds and certain managed accounts. Management fees and incentive income are primarily earned from
affiliated entities. As of December 31, 2021 and 2020, $16.6 million and $28.4 million, respectively, included in fees receivable,
are earned from related parties. The Company may, at its discretion, reimburse certain fees charged to the investment funds that it
manages to avoid duplication of fees when such funds have an underlying investment in another affiliated investment fund. For
the years ended December 31, 2021 and 2020, the amounts which the Company reimbursed the investment funds it manages were
immaterial. Fees receivable and fees payable are recorded at carrying value, which approximates fair value.
The Company may also make loans to employees or other affiliates, excluding executive officers of the Company. These
loans are interest bearing and settle pursuant to the agreed-upon terms with such employees or affiliates, and are included in due
from related parties in the accompanying consolidated statements of financial condition. As of December 31, 2021 and 2020,
loans to employees of $8.8 million and $9.5 million, respectively, were included in due from related parties on the accompanying
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-72
consolidated statements of financial condition. Of these amounts $3.8 million and $4.6 million, respectively, are related to
forgivable loans. These forgivable loans provide for a cash payment up-front to employees, with the amount due back to the
Company forgiven over a vesting period. An employee that voluntarily ceases employment, or is terminated with cause, is
generally required to pay back to the Company any unvested forgivable loans granted to them. The forgivable loans are recorded
as an asset to the Company on the date of grant and payment, and then amortized to compensation expense on a straight-line basis
over the vesting period. The vesting period on forgivable loans is generally one to three years. The Company recorded
compensation expense of $5.7 million, $3.7 million and $3.8 million for the years ended December 31, 2021, 2020, and 2019,
respectively. This expense is included in employee compensation and benefits in the accompanying consolidated statements of
operations. For the years ended December 31, 2021, 2020, and 2019 the interest income was $0.1 million, for these related party
loans and advances, and are included in interest and dividends in the accompanying consolidated statements of operations.
As of December 31, 2020, included in due from related parties is $3.6 million, related to the sales of portions of the
Company's ownership interest in the activist business of Starboard Value to the Starboard principals. It is being financed through
the profits of the relevant Starboard entities over a five-year period and earns interest at 5.0% per annum. As of December 31,
2021, the balance had been repaid in full. The interest income for the year ended December 31, 2021 was insignificant. The
interest income for the years ended December 31, 2020, and 2019 was $0.2 million and $0.3 million, respectively.
The remaining balance included in due from related parties of $22.6 million and $7.9 million as of December 31, 2021 and
2020, respectively, relates to amounts due to the Company from affiliated investment funds and real estate entities due to
expenses paid on their behalf.
Employees and certain other related parties invest on a discretionary basis within consolidated entities. These investments
generally are subject to preferential management fee and performance fee arrangements. As of December 31, 2021 and 2020, such
investments aggregated $53.9 million and $84.3 million, respectively, were included in non-controlling interests on the
accompanying consolidated statements of financial condition. Their share of the net income (loss) attributable to non-controlling
interests in consolidated subsidiaries and investment funds aggregated $14.9 million, $21.2 million and $7.9 million for the years
ended December 31, 2021, 2020, and 2019, respectively.
The Company may, at times, have unfunded commitment amounts pertaining to related parties. See Note 27 for amounts
committed as of December 31, 2021.
31. Guarantees and Off-Balance Sheet Arrangements
Guarantees
US GAAP requires the Company to disclose information about its obligations under certain guarantee arrangements. Those
standards define guarantees as contracts and indemnification agreements that contingently require a guarantor to make payments
to the guaranteed party based on changes in an underlying security (such as an interest or foreign exchange rate, security or
commodity price, an index or the occurrence or nonoccurrence of a specified event) related to an asset, liability or equity security
of a guaranteed party. Those standards also define guarantees as contracts that contingently require the guarantor to make
payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of
the indebtedness of others.
In the normal course of its operations, the Company enters into contracts that contain a variety of representations and
warranties which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against the Company that have not yet occurred. However, based on
experience, the Company expects the risk of loss to be remote.
The Company indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and
administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the
Company or its affiliates. The Company also indemnifies some clients against potential losses incurred in the event specified
third-party service providers, including sub-custodians and third-party brokers, improperly execute transactions. The maximum
potential amount of future payments that the Company could be required to make under these indemnifications cannot be
estimated. However, the Company believes that it is unlikely it will have to make significant payments under these arrangements
and has not recorded any contingent liability in the consolidated financial statements for these indemnifications.
The Company also provides representations and warranties to counterparties in connection with a variety of commercial
transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and
warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event
additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These
indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum
potential amount of future payments that the Company could be required to make under these indemnifications cannot be
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-73
estimated. However, the Company believes it is unlikely it will have to make material payments under these arrangements and has
not recorded any contingent liability in the accompanying consolidated financial statements for these indemnifications.
The Company may maintain cash and cash equivalents at financial institutions in excess of federally insured limits. The
Company has not experienced any material losses in such accounts and does not believe it is exposed to significant credit risks in
relation to such accounts.
Off-Balance Sheet Arrangements
The Company has no material off-balance sheet arrangements, which have not been disclosed, as of December 31, 2021 and
2020. Through indemnification provisions in clearing agreements with clients, customer activities may expose the Company to
off-balance-sheet credit risk. Pursuant to the clearing agreement, the Company is required to reimburse the Company's clearing
broker, without limit, for any losses incurred due to a counterparty's failure to satisfy its contractual obligations. However, these
transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of
the security through the settlement date.
The Company's customer securities activities are transacted on a delivery versus payment, cash or margin basis. In delivery
versus payment transactions, the Company is exposed to risk of loss in the event of the customers' or brokers' inability to meet the
terms of their contracts.
In margin transactions, the Company extends credit to clients collateralized by cash and securities in their account. In the
event the customers or brokers fail to satisfy their obligations, the Company may be required to purchase or sell securities at
prevailing market prices in order to fulfill the obligations.
The Company's exposure to credit risk can be directly impacted by volatile securities markets, which may impair the ability
of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of
reporting and control procedures, including establishing credit limits based upon a review of the customers' financial condition
and credit ratings. The Company seeks to control the risk associated with its customer margin transactions by requiring customers
to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company also monitors required
margin levels daily and, pursuant to its guidelines, requires customers to deposit additional collateral, or reduce positions, when
necessary.
In addition, during the normal course of business, the Company has exposure to a number of risks including market risk,
currency risk, credit risk, operational risk, liquidity risk and legal risk. As part of the Company's risk management process, these
risks are monitored on a regular basis throughout the course of the year.
The Company enters into secured and unsecured borrowing agreements to obtain funding necessary to cover daily securities
settlements with clearing corporations. At times, funding is required for unsettled customer delivery versus payment and riskless
principal transactions, as well as to meet deposit requirements with clearing organizations. Secured arrangements are
collateralized by the securities. The Company maintains uncommitted financing arrangements with large financial institutions,
the details of which are summarized below as of December 31, 2021.
Lender
Contractual
Amount
Available
Amount
Maturity Date
Description
Pledge Lines
(dollars in thousands)
BMO Harris Bank
$
75,000
$
75,000
None
Secured Tri-Party Pledge Facility
BMO Harris Bank
150,000
150,000
None
Secured Depository Trust Company Pledge
Line
Total
225,000
225,000
Spike Line
BMO Harris Bank
Canadian Imperial Bank
of Commerce, in syndication
70,000
70,000
August 19, 2022
Unsecured committed spike line facility to
cover short term increases in National
Securities Clearing Corporation margin
deposit requirements
Revolving Credit Facility
Morgan Stanley
25,000
25,000
March 24, 2026
Unsecured Corporate Revolver
Total Credit Lines
$
320,000
$
320,000
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-74
32. Subsequent Events
On January 20, 2022 the Company announced that its Board of Directors has approved an increase in the Company’s
existing share repurchase program. With this increase, the total amount now available for repurchase under the current plan is
$50 million.
On February 15, 2022 the Board of Directors declared a quarterly cash dividend payable on its common stock of $0.12 per
common share, payable on March 15, 2022, to stockholders of record on March 1, 2022.
The Company has evaluated events that have occurred after the balance sheet date but before the financial statements are
issued and has determined that there were no other subsequent events requiring adjustment or disclosure in the consolidated
financial statements.
Cowen Inc.
Notes to Consolidated Financial Statements (Continued)
F-75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COWEN INC.
By:
/s/ JEFFREY M. SOLOMON
Name: Jeffrey M. Solomon
Date: March 1, 2022
Title:
Chair and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons in the capacities indicated and on the dates indicated.
Signature
Title
Date
/s/ JEFFREY M. SOLOMON
Chair and Chief Executive Officer (Principal
Executive Officer)
Jeffrey M. Solomon
March 1, 2022
/s/ STEPHEN A. LASOTA
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Stephen A. Lasota
March 1, 2022
/s/ BRETT H. BARTH
Brett H. Barth
Director
March 1, 2022
/s/ KATHERINE E. DIETZE
Katherine E. Dietze
Director
March 1, 2022
/s/ GREGG A. GONSALVES
Gregg A. Gonsalves
Director
March 1, 2022
/s/ LORENCE KIM
Lorence Kim
Director
March 1, 2022
/s/ STEVEN KOTLER
Steven Kotler
Director
March 1, 2022
/s/ LAWRENCE E. LEIBOWITZ
Lawrence E. Leibowitz
Director
March 1, 2022
/s/ MARGARET L. POSTER
Margaret L. Poster
Director
March 1, 2022
/s/ DOUGLAS A. REDIKER
Douglas A. Rediker
Director
March 1, 2022
Exhibit 31.1
Certification
I, Jeffrey M. Solomon, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cowen Inc:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 1, 2022
/s/ JEFFREY M. SOLOMON
Name: Jeffrey M. Solomon
Title: Chief Executive Officer
(principal executive officer)
Exhibit 31.2
Certification
I, Stephen A. Lasota, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cowen Inc:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 1, 2022
/s/ STEPHEN A. LASOTA
Name: Stephen A. Lasota
Title: Chief Financial Officer (principal financial officer and
principal accounting officer)
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cowen Inc. (the "Company") on Form 10-K for the year ended December 31,
2021, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers
of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to such officer's knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 1, 2022
/s/ JEFFREY M. SOLOMON
Name: Jeffrey M. Solomon
Title: Chief Executive Officer
(principal executive officer)
/s/ STEPHEN A. LASOTA
Name: Stephen A. Lasota
Title: Chief Financial Officer (principal financial
officer and principal accounting officer)
* The foregoing certification is being furnished solely pursuant to 18 U.S.C Section 1350 and is not being filed as part of the
Report or as a separate disclosure document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2021
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-34516
Cowen Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
27-0423711
(I.R.S. Employer
Identification No.)
599 Lexington Avenue
New York, New York 10022
(212) 845-7900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading
Symbol
Name of Exchange on Which Registered
Class A Common Stock, par value $0.01 per share
COWN
The Nasdaq Global Market
7.75% Senior Notes due 2033
COWNL
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer
¨
(Do not check if a
smaller
reporting company)
Smaller reporting
company ¨
Emerging growth
company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of Class A common stock held by non-affiliates of the registrant on June 30, 2021, the last business day of the registrant’s
most recently completed second fiscal quarter, based upon the closing sale price of the Class A common stock on the NASDAQ Global Market on that date
was $1,142,196,218.
As of April 29, 2022 there were 27,494,230 shares of the registrant’s Class A common stock outstanding.
Auditor Firm: KPMG LLP
Auditor Location: New York
Audit Firm ID: 185
Explanatory Note
Cowen Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 (the “Form 10-K”) to provide additional information required by Part III, because the definitive proxy statement for our 2022 Annual
Meeting of Stockholders will not be filed within 120 days after the end of our 2021 fiscal year. This Amendment No. 1 on Form 10-K/A does not change the
previously reported financial statements or any of the other disclosure contained in Part I or Part II. Part IV is being amended solely to add new certifications
in accordance with Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Because no financial statements have been
included in this Amendment No. 1 on Form 10-K/A and this Amendment No. 1 on Form 10-K/A does not contain or amend any disclosure with respect to
Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. We are not including the certifications under Section 906
of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Form 10-K/A.
2
PART III
Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS OF THE COMPANY
The number of directors currently serving on our Board of Directors is nine. The members of our Board of Directors are elected to serve a one-year
term.
Set forth below is biographical information for each of the members of our Board of Directors. All ages are as of April 29, 2022.
Jeffrey M. Solomon. Age 56. Mr. Solomon is Chair and Chief Executive Officer of the Company and Chief Executive Officer of Cowen and
Company, LLC, or Cowen and Company, and was appointed a director of the Company in December 2011. Previously, Mr. Solomon served as President of
the Company, after serving in the roles of Chief Operating Officer and Head of Investment Banking. Mr. Solomon serves as a member of the Management
Committee of Cowen. Mr. Solomon joined Cowen Investment Management (formerly Ramius) when it was founded in 1994 and was the co-portfolio
manager responsible for the development, management and oversight of the multi-strategy investment portfolio. Currently, Mr. Solomon is Vice Chair and an
inaugural member of the Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee which provides advice and
recommendations on the Securities and Exchange Commission’s rules, regulations and policy matters related to small businesses, including smaller public
companies. Mr. Solomon serves on the Board of Directors of the American Securities Association and serves on the Executive Committee of the Partnership
for NYC. Mr. Solomon is on the Board of Directors of the UJA-Federation of New York and is the Co-Chair of the King David Society. Mr. Solomon is also
on the Board of Directors of the Foundation for Jewish Camp. Previously, Mr. Solomon was a member of the Committee on Capital Markets Regulation, an
independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets. Mr. Solomon graduated from the
University of Pennsylvania in 1988 with a B.A. in Economics. Mr. Solomon provides the board with institutional knowledge of all aspects of the Company’s
businesses and, as Chief Executive Officer, he is able to provide in-depth knowledge of the Company’s business and affairs, management’s perspective on
those matters and an avenue of communication between the Board and senior management.
Brett H. Barth. Age 50. Mr. Barth was elected to our Board on June 26, 2018. Mr. Barth co-founded BBR Partners in 2000 and is a Co-CEO, co-
managing the firm and overseeing all investment and client activity. He has extensive experience vetting investment opportunities across the asset class
spectrum and through a range of market environments, working with both traditional and alternative investment managers. Mr. Barth is also a member of
BBR’s Executive Committee and Investment Committee. Prior to founding BBR, Mr. Barth was in the Equities Division of Goldman Sachs. Previously, he
served in Goldman’s Equity Capital Markets groups in New York and Hong Kong. He began his career in Goldman Sachs’ Corporate Finance Department.
Mr. Barth is an independent director of Golden Arrow Acquisition Corp (“GAMC”) and serves on GAMC’s Audit Committee. Mr. Barth is a trustee of the
University of Pennsylvania as well as a member of the Board of Overseers of the Graduate School of Education. He previously served as both the Chair of
the Penn Fund, the University of Pennsylvania’s undergraduate annual giving program, and as the Inaugural Chair of the Undergraduate Financial Aid
Leadership Council. He is a member of the board and executive committee of the UJA-Federation of New York, he co-chairs the Annual Campaign and he
serves on the endowment’s Investment Committee. Mr. Barth was awarded the Alan C. Greenberg Young Leadership Award by UJA-Federation of New
York, Wall Street & Financial Services Division. In addition, Mr. Barth is a member of the Investment Advisory Counsel for Waycrosse, Inc., a premier
multi-generational, single-family office based in Minneapolis, MN. Mr. Barth graduated summa cum laude with concentrations in Finance and Accounting
from the Wharton School of the University of Pennsylvania. Mr. Barth provides the Board with extensive investment and wealth management expertise.
3
Katherine E. Dietze. Age 64. Ms. Dietze was appointed to our Board in June 2011 upon the completion of Cowen’s acquisition of LaBranche &
Co., Inc., or LaBranche. Ms. Dietze was a member of LaBranche’s board of directors since January 2007. Ms. Dietze served as the Audit Committee Chair at
LaBranche. Ms. Dietze spent over 20 years in the financial services industry prior to her retirement in 2005. From 2003 to 2005, Ms. Dietze was Global
Chief Operating Officer for the Investment Banking Division of Credit Suisse First Boston. From 1996 to 2003, she was a Managing Director in Credit
Suisse First Boston’s Telecommunications Group. Prior to that, Ms. Dietze was a Managing Director and Co-Head of the Telecommunications Group in
Salomon Brothers Inc’s Investment Banking Division. Ms. Dietze began her career at Merrill Lynch Money Markets after which she moved to Salomon
Brothers Inc. to work on money market products and later became a member of the Investment Banking Division. Ms. Dietze is a director, a member of the
Governance Committee and Chair of the Finance Committee of Matthews International Corporation (MATW), a designer, manufacturer and marketer of
memorialization products and brand solutions. Ms. Dietze was a member of the Board of Trustees for Liberty Property Trust, which was purchased by
Prologis. Ms. Dietze holds a B.A. from Brown University and an M.B.A. from Columbia Graduate School of Business. Ms. Dietze provides the Board with
extensive experience in Investment Banking management and corporate governance expertise as a public company director.
Gregg A. Gonsalves. Age 54. Mr. Gonsalves was appointed to our Board in April 2020. Mr. Gonsalves has been an advisory partner with Integrated
Capital LLC, a leading, hotel-focused, private real estate advisory and investment firm since 2013. Prior to joining Integrated Capital, Mr. Gonsalves was a
managing director at Goldman Sachs and was the partner responsible for the Real Estate Mergers & Acquisition business. In his 20-year career at Goldman
Sachs, Mr. Gonsalves completed over 50 M&A transactions worth approximately $100 billion in deal value, working with a variety of companies in a wide
range of industries. Mr. Gonsalves serves as Chairman of the Board of Directors of Cedar Realty Trust, a publicly-traded retail REIT, and is on the Board of
RREEF America REIT II, a private, open-end core real estate fund, and on the Board of POP Tracker LLC, a private company focused on providing proof of
performance to the out-of-home advertising industry. He began his career as a sales engineer at Mobil Oil Corporation from 1989 to 1991. Mr. Gonsalves
received a B.S. from Columbia University and received an M.B.A. from Harvard Business School. Mr. Gonsalves is presently Chairman of the Board of
Directors of the Jackie Robinson Foundation, where he has served as a Board member for approximately the past ten years. Mr. Gonsalves provides the
Board with extensive investment banking and real estate investment experience.
Lorence H. Kim M.D.. Age 48. Dr. Kim was appointed to our Board on February 15, 2022. Dr. Kim is currently a Venture Partner at Third Rock
Ventures. Until June 2020, he served as Chief Financial Officer of Moderna, leading efforts to raise $4.4 billion of capital to build the company’s mRNA
platform and a pipeline of novel medicines. At the time of his departure, Moderna had raised the three largest private financings and the largest IPO in
biotech history. Dr. Kim joined Moderna after spending 14 years at Goldman Sachs, most recently as a Managing Director and co-head of the U.S.
biotechnology investment banking effort. Dr. Kim currently serves as a member of the Boards of Directors of Flare Therapeutics, a biotechnology company
targeting transcription factors to discover precision medicines for cancer and other diseases, and Abata Therapeutics, a company focused on translating the
biology of regulatory T cells (Tregs) into transformational medicines for patients living with severe autoimmune and inflammatory diseases, and on the
Board of Governors of the American Red Cross. He previously served on the Board of Seres Therapeutics. Dr. Kim graduated magna cum laude from
Harvard University with a bachelor’s degree in biochemical sciences. He earned an M.B.A. in healthcare management as a Palmer Scholar from the Wharton
School of the University of Pennsylvania and an M.D. from the University of Pennsylvania School of Medicine. Dr. Kim provides the Board with expertise
and insight into matters such as investment banking, biotechnology corporate finance, oversight and strategy.
Steven Kotler. Age 75. Mr. Kotler was elected to our Board on June 7, 2010. Mr. Kotler currently serves as Vice Chairman of the private equity firm
Gilbert Global Equity Partners, which he joined in 2000. Prior to joining Gilbert Global, Mr. Kotler, for 25 years, was with the investment banking firm of
Schroder & Co. and its predecessor firm, Wertheim & Co., where he served in various executive capacities including President & Chief Executive Officer,
and Group Managing Director and Global Head of Investment and Merchant Banking. Mr. Kotler is a director of CPM Holdings, an international agricultural
process equipment company; and Co-Chairman of Birch Grove Capital, an asset management firm. Mr. Kotler is a member of the Council on Foreign
Relations; and, from 1999 to 2002, was Council President of The Woodrow Wilson International Center for Scholars. Mr. Kotler has previously served as a
Governor of the American Stock Exchange, The New York City Partnership and Chamber of Commerce’s Infrastructure and Housing Task Force, The Board
of Trustees of Columbia Preparatory School; and, the Board of Overseers of the California Institute of the Arts. Mr. Kotler also previously served as a
director of Cowen Holdings from September 2006 until June 2007. Mr. Kotler provides the Board with extensive experience in leading an international
financial institution and expertise in private equity.
4
Lawrence E. Leibowitz. Age 62. Mr. Leibowitz was elected to our Board on June 26, 2018. Mr. Leibowitz is a finance and technology entrepreneur
who specializes in business transformation and capital markets. Mr. Leibowitz serves as Vice Chairman of XCHG Xpansiv, an intelligent commodities
exchange focusing on renewable energy products. Mr. Leibowitz also serves on the board of various other private companies in the data management and
digital law businesses. Most recently, Mr. Leibowitz served as Chief Operating Officer, Head of Global Equities Markets and as a Member of the board of
directors of NYSE Euronext, holding such positions from 2007 to 2013. Prior to that, Mr. Leibowitz served as Chief Operating Officer of Americas Equities
at UBS, Co-head of Schwab Soundview Capital Markets, and CEO of Redibook. Mr. Leibowitz was formerly a founding partner at Bunker Capital, and
Managing Director and Head of Quantitative Trading and Equities technology at CS First Boston. Mr. Leibowitz provides the Board with extensive capital
markets knowledge, including trading microstructure, regulation, asset management and quantitative methods.
Margaret L. Poster. Age 70. Ms. Poster was appointed to our Board in April 2019. Ms. Poster served as Chief Operating Officer and Managing
Director of Willkie Farr & Gallagher LLP from 1991 through 2018. Ms. Poster is an Executive Managing Director at Cushman & Wakefield, serving in an
advisory capacity in the legal sector. Ms. Poster formerly served as President of Workbench, Inc., Chief Financial Officer of Barnes & Noble Bookstores Inc.
and Chief Financial Officer of the Jewelry & Sporting Good Division at W.R. Grace & Co. Ms. Poster began her career as an auditor at
PricewaterhouseCoopers LLP. Ms. Poster was a Director of Generation Citizen, where she was the Chair of the Finance Committee and Audit Committee,
and was a trustee of Blythedale Children’s Hospital from 1992 until 2011. Ms. Poster is a certified public accountant and received a Masters of Business
Administration from Harvard Business School. Ms. Poster provides the Board with comprehensive operating and public accounting experience.
Douglas A. Rediker. Age 62. Mr. Rediker was appointed to our Board in April 2015. Mr. Rediker is the Executive Chairman of International Capital
Strategies, LLC, a policy and markets advisory boutique based in Washington, D.C. Until 2012, he was a member of the Executive Board of the International
Monetary Fund representing the United States. He has held senior and visiting fellowships at Brookings, the Peterson Institute for International Economics
and at the New America Foundation. He has written extensively and testified before Congress on the subject of state capitalism, global finance, Sovereign
Wealth Funds and other issues surrounding the relationship between international economic policy, financial markets, global capital flows and foreign policy.
Mr. Rediker previously served as a senior investment banker and private equity investor for a number of investment banks, including Salomon Brothers,
Merrill Lynch and Lehman Brothers. Mr. Rediker began his career as an attorney with Skadden Arps in New York and Washington, D.C. Mr. Rediker’s
experience on global macro issues provides the Board with expertise relating to capital markets, the economy and global governance.
EXECUTIVE OFFICERS OF THE COMPANY
Biographies of the current executive officers of the Company are set forth below, excluding Mr. Solomon’s biography, which is included under
“Directors of the Company” above. Each executive officer serves at the discretion of the Board.
John Holmes. Age 58. Mr. Holmes serves as Chief Operating Officer and serves as a member of the Management Committee of Cowen. Mr. Holmes
previously served as the Company’s Chief Administrative Officer and was appointed an executive officer in May 2013. Mr. Holmes was the Head of
Technology and Operations at Cowen following the merger between Cowen and Company and Cowen Investment Management (formerly Ramius).
Mr. Holmes joined Cowen Investment Management in June 2006 as Global Head of Operations. Prior to joining Cowen Investment Management,
Mr. Holmes was Global Head of the Equity Product Team at Bank of America Securities. Mr. Holmes has also held senior operations management positions
at Deutsche Bank, Credit Lyonnais and Kidder Peabody. His experience includes treasury, foreign exchange, equity, fixed income & derivative operations.
Mr. Holmes is NASD licensed as a General Securities Representative, General Securities Principal and a Financial & Operations Principal.
Stephen A. Lasota. Age 59. Mr. Lasota serves as Chief Financial Officer of Cowen and serves as a member of the Management Committee of Cowen.
Mr. Lasota was appointed Chief Financial Officer in November 2009. Prior to the consummation of the business combination of Cowen Holdings and Cowen
Investment Management (formerly Ramius) in November 2009, Mr. Lasota was the Chief Financial Officer of Cowen Investment Management and a
Managing Director of the company. Mr. Lasota began working at Cowen Investment Management in November 2004 as the Director of Tax and was
appointed Chief Financial Officer in May 2007. Prior to joining Cowen Investment Management, Mr. Lasota was a Senior Manager at
PricewaterhouseCoopers LLP.
Owen S. Littman. Age 49. Mr. Littman serves as General Counsel and Secretary of Cowen and serves as a member of the Management Committee of
Cowen. Mr. Littman was appointed General Counsel and Secretary in July 2010. Following the consummation of the business combination of Cowen
Holdings and Cowen Investment Management (formerly Ramius) in November 2009, Mr. Littman was appointed Deputy General Counsel, Assistant
Secretary and Managing Director of Cowen and General Counsel and Secretary of Cowen Investment Management. Mr. Littman began working at Cowen
Investment Management in October 2005 as its senior transactional attorney and was appointed General Counsel in February 2009. Prior to joining Cowen
Investment Management, Mr. Littman was an associate in the Business and Finance Department of Morgan, Lewis & Bockius LLP.
5
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the
code on our website, www.cowen.com. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ Stock Market
listing standards concerning any amendments to, or waivers from, any provision of the code. You may also request a copy of the code by writing to Cowen
Inc., Attn: Secretary, 599 Lexington Avenue, New York, NY 10022.
AUDIT COMMITTEE
Our Board has established a separately-designated standing Audit Committee which operates under a charter that has been approved by our Board.
Our Board has determined that all of the members of the Audit Committee are independent as defined under the rules of the Nasdaq Stock Market, and
the independence requirements contemplated by Rule 10A-3 under the Exchange Act.
The current members of our Audit Committee are Ms. Dietze (Chairperson), Mr. Gonsalves, Mr. Kotler and Ms. Poster. The Board has determined that
Ms. Poster is an “audit committee financial expert” as defined by applicable SEC rules.
Item 11: Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
In addition to performing the roles and responsibilities described under “Committees of the Board — Compensation Committee” above, our
Compensation Committee, which is composed entirely of independent directors, determined the 2021 compensation of our named executive officers:
·
Jeffrey M. Solomon, Chief Executive Officer;
·
Stephen A. Lasota, Chief Financial Officer;
·
John Holmes, Chief Operating Officer; and
·
Owen S. Littman, General Counsel and Secretary.
The above named executive officers represented all of our executive officers as of December 31, 2021.
To assist stockholders in finding important information within this Compensation Discussion and Analysis, we call your attention to the following
sections:
Advisory Vote on Executive Compensation and Stockholder Engagement
7
2021 Performance Overview
8
Key Features of Our Compensation Program
9
Compensation Philosophy and Objectives
9
Compensation Determinations for 2021
12
Compensation Program and Payments
15
Setting Compensation
19
Relationship of Compensation Policies and Practices to Risk Management
20
Clawback Policy
20
Executive Officer Stock Ownership Guidelines
21
Anti-Hedging Policy
21
Tax and Accounting Impact and Policy
21
6
ADVISORY VOTE ON EXECUTIVE COMPENSATION AND STOCKHOLDER ENGAGEMENT
2021 Stockholder Outreach
The Company received stockholder approval for both the Advisory Say on Pay vote and the increase in the shares available for issuance under the
Amended 2020 Equity Plan vote in 2021. Voting results improved slightly from 2020, with shareholder support at 62.5% for the Advisory Say on Pay and
62.3% for the Amended 2020 Equity Plan, respectively. In light of these results, we undertook a robust outreach campaign to solicit stockholder feedback on
our compensation policies and our equity plans beginning in the fall of 2021. We contacted our top 25 stockholders, who hold an estimated 70% of our
outstanding Class A common stock, which represents in excess of 80% of our outside stockholder base.
We received requests for engagement from 6 of the 25 stockholders, representing approximately 20% of our outside stockholder base.
Our outreach team, comprised of our Lead Independent Director, who is also the Chair of our Compensation Committee, our Chief Financial Officer, our
General Counsel, and our Head of Investor Relations, held virtual meetings with all of the stockholders who requested engagement.
Compensation Practice Changes in Response to Stockholder Feedback
Following our stockholder outreach initiative, the outreach team discussed the feedback received from our stockholders with the Compensation
Committee. Additionally, the Compensation Committee obtained feedback, advice and recommendations on improvements to our compensation program
from its independent compensation consultant, Pay Governance LLC. The Compensation Committee also reviewed the Company’s performance, the
compensation practices of its peers and other materials regarding executive compensation. The Compensation Committee has introduced the following
changes to our executive compensation program, partly in response to feedback received from our stockholders:
What We Heard from Stockholders
Action Taken by Company Management and the Compensation
Committee
Stockholders recommended that the Company provide additional disclosure
regarding the pay determination process.
We have continued to enhance the description in the “Compensation and
Philosophy and Objectives” section below to provide a more robust and
detailed discussion related to the Compensation Committee’s
determinations related to firmwide compensation as well as the
compensation of our named executive officers.
Stockholders recommended that the Company use after-tax Return on
Common Equity, or ROCE, as an appropriate criterion for performance-
based compensation as well as some form of total shareholder return, or
TSR, as an additional measure used in the determination of performance-
based equity compensation.
The Company added a TSR modifier as a component of Performance
Shares awarded in respect of 2020 and in respect of 2021 increased the
effect the TSR modifier can have on the Performance Shares. In addition,
the Company changed to after-tax ROCE for Performance Shares awarded
in connection with 2021 compensation.
Stockholders recommended that the Company consider strengthening the
performance goals underlying the Performance Shares given the strong
operating performance of the Company in 2020 and 2021.
In addition to changing to after-tax ROCE, the Company increased the
performance goals underlying the Performance Shares which will require
continued strong operating performance by the Company to achieve the
target value contemplated by the Performance Shares.
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8
2021 PERFORMANCE OVERVIEW
The following 2021 financial performance highlights were considered by our Compensation Committee when determining named executive officer
compensation for 2021. Economic Income is shown on a pre-tax basis in order to illustrate the factors considered by the Compensation Committee in its
2021 compensation determinations.
•
Record 2021 investment banking Economic Proceeds of $1,025.7 million were up 41% due to higher capital markets advisory and M&A revenues.
•
2021 brokerage Economic Proceeds increased 12%, due to an increase in cash trading, non-U.S. execution, securities finance, prime services and cross-
asset trading.
•
2021 management fees of $80.5 million increased 36%, driven primarily by higher assets under management in the sustainability, activist and healthcare
strategies.
•
Incentive income declined 61% to $33.4 million in 2021. This decrease was primarily related to a decrease in performance fees in our healthcare
investments strategy.
•
2021 compensation and benefits costs were $1,050.6 million compared to $864.5 million in 2020. The increase was due to higher 2021 revenues. The
economic compensation-to-proceeds ratio was 55.6%, which is unchanged from the prior year period.
•
The Company’s headcount increased from 1,364 in 2020 to 1,534 in 2021.
•
As of December 31, 2021, the Company had assets under management of $15.8 billion, an increase of $3.3 billion from December 31, 2020.
•
As of December 31, 2021, the Company had book value of $36.57 per common share, up from book value of $32.34 per common share as of
December 31, 2020.
•
During 2021, the Company repurchased 4,371,291 shares of its Class A common stock for $159.8 million, or an average price of $36.56 per share under
the Company’s existing share repurchase program. In addition, the Company acquired approximately $40.4 million of shares of its Class A common
stock as a result of net share settlements relating to the vesting of equity awards or 1,055,620 shares at an average price of $38.26 per share.
•
The Company established a quarterly dividend payment on its Class A common stock in February of 2020 with a dividend payment of $0.04 per share.
The Company increased the quarterly dividend payment to $0.08 per share in October 2020 and to $0.12 per share in February 2022.
Please refer to the Company’s Segment Reporting Note in its financial statements included on pages F-69 to F-70 of its Form 10-K for the year ended
December 31, 2021, as filed with the SEC, for reconciliations of the non-GAAP financial measures above to their most directly comparable GAAP measures.
KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAM
What We Do
•
We pay for performance through a careful quarterly and year-end review of the Company’s financial results, stockholder return and individual
performance.
•
We consider peer groups in establishing compensation.
•
The Compensation Committee considers firm-wide initiatives related to the Company’s culture, including those related to diversity and inclusion, in its
compensation determinations.
•
We granted performance share awards, or PSAs, to named executive officers in March 2022. The PSAs are earned based on forward-looking
performance metrics that consider long-term performance from 2022 through 2024. The PSAs we awarded include after-tax ROCE as a performance
measurement in response to shareholder feedback. We had previously calculated ROCE on a pre-tax basis. We also increased the performance goals
underlying the PSAs which will require continued strong operating performance by the Company to achieve the target value contemplated by the PSAs.
Additionally, we introduced a TSR modifier to the PSAs awarded in February 2021 in response to the stockholder feedback received in 2020 and
increased the effect of the TSR modifier in the PSAs awarded in 2022.
•
We have stock ownership guidelines for our directors and executive officers.
•
We have double-trigger equity vesting in the event of a change in control.
•
We require our named executive officers to comply with reasonable restrictive covenants.
•
We subject our deferred bonus awards to named executive officers to a clawback policy.
•
We seek to maintain a conservative compensation risk profile.
•
The Compensation Committee retains an independent compensation consultant.
•
We have an anti-hedging policy, and, during 2021, all executive officers were in compliance with this policy.
What We Don’t Do
•
We do not pay dividend equivalents on unvested RSUs or PSAs.
•
We do not pay tax gross-ups on our limited perquisites.
•
We do not provide “single-trigger” equity vesting in the event of a change in control.
•
We do not provide golden parachute excise tax gross-ups.
•
We do not provide minimum guaranteed bonuses to our named executive officers.
COMPENSATION PHILOSOPHY AND OBJECTIVES
We are focused on building long-term value for the Company. Our named executive officers, who collectively own approximately 4.6% of our
outstanding shares of Class A common stock, are financially, strategically and philosophically aligned with our stockholders. Our intention is to base the
compensation of our named executive officers on the performance of the Company, with total compensation of our named executive officers increasing or
decreasing along with the performance of the Company.
9
10
To this end, when Mr. Solomon became our Chief Executive Officer at the beginning of 2018, he emphasized the objective of the Company generating a
mid-teens pre-tax Return on Common Equity, or ROCE, by the end of 2020. The Company not only achieved, but far exceeded this goal for the year ended
December 31, 2020. Mr. Solomon has since stated that the objective of the Company is to generate a mid-teens after-tax ROCE on a consistent basis. Our
plan is to compensate our named executive officers in a manner that will incent them to meet or exceed after-tax ROCE in the mid-teens on a consistent
basis, which we believe will create long-term value for our stockholders.
Accordingly, as we think about compensation for our named executive officers, our approach aims to treat our named executive officers fairly when
taking into account the Company’s performance while also ensuring their retention given other opportunities that might be available to them.
The chart below illustrates the factors considered by the Compensation Committee in its compensation determinations
Specifically, our compensation programs, including compensation of our named executive officers, are designed to achieve the following objectives:
•
Pay for Performance. A significant portion of the total compensation paid to each named executive officer is variable and is directly tied to the
Company’s Economic Operating Income. The amount of compensation available to be paid to our named executive officers is determined based on: (i)
the management committee compensation pool based on the Company’s performance as described in more detail below; (ii) the performance of the
Company on an absolute basis and through a comparison of our results to competitor firms; (iii) an evaluation of each named executive officer’s
contribution to the Company, including contributions related to the revenue and profitability of the Company as well as leadership in alignment with our
core values of Vision, Empathy, Sustainability and Tenacious Teamwork; and (iv) specific performance against individual qualitative goals.
•
Align Named Executive Officers’ Interests with Stockholders’ Interests. Our Compensation Committee reviews each named executive officer’s
performance as well as the Company’s financial results in the context of the market environment when determining year-end, performance-related
compensation allotted from the management committee compensation pool. In addition, our Compensation Committee evaluated the Company’s
performance compared to the performance of its peers and also considered an analysis of competitive compensation levels of named executive officers at
the Company’s peer firms that was conducted by Pay Governance LLC, the independent compensation consultant to the Compensation Committee. Our
Compensation Committee believes year-end, performance-related compensation should be delivered in a combination of short-term and long-term
instruments. We believe that deferred cash, equity and equity-related instruments align the interests of our named executive officers with those of our
stockholders, help retain key talent, and ensure that our named executive officers are focused on the long-term performance of the Company. In
connection with fiscal 2021 bonus payments, each of our named executive officers received a portion of their bonus in cash, deferred cash, RSUs and
PSAs. In addition, in March 2022, our named executive officers received profit sharing awards related to the Cowen Digital business as described below
(the “CDIG Awards”). Awards granted in connection with the CDIG Awards are subject to a vesting period and will not be realized until certain
performance levels are attained in the Cowen Digital business. The Compensation Committee believes that the payment of a significant portion of an
employee’s compensation in the form of performance-based awards properly aligns the employee’s interests with those of the Company’s stockholders
and effectively mitigates any risks associated with the Company’s compensation practices.
•
Recruiting and Retention. We operate in an intensely competitive industry, and we believe that our success is closely related to our recruiting and
retention of highly talented employees and a strong management team. We try to keep our compensation program generally competitive with industry
practices so that we can continue to recruit and retain talented executive officers and employees.
11
2021 COMPENSATION DETERMINATIONS
As noted above, compensation for our named executive officers comes from our management committee compensation pool. The following is a
summary of the process for determining the 2021 management committee compensation pool:
Actions Taken at the Beginning of 2021
•
In consultation with the Compensation Committee, at the beginning of 2021, the Company established a targeted Economic Income compensation-to-
revenue ratio for the year of between 56% and 57%.
•
The Company has set a goal of achieving mid-teens after-tax ROCE on a consistent basis and this objective was reviewed with the Compensation
Committee at the beginning of 2021. ROCE is calculated by taking the sum of the Company’s Adjusted Economic Operating Income divided by the
average Common Equity of the Company during the fiscal year (with the average Common Equity for the fiscal year calculated by adding the Common
Equity at the beginning of the fiscal year and the Common Equity at the end of the fiscal year and dividing by two).
•
Also at the beginning of the year, we established compensation guidelines, which established the percentage of revenue that the Company plans to
allocate to compensation, for revenues generated by each of the Company’s businesses. Each of the Company’s revenue generating businesses has a
different compensation guideline. For example, the percentage of revenue we pay as compensation for capital markets-related revenue is different from
the percentage of revenue we pay as compensation for mergers and acquisitions advisory-related revenue and is also different from the percentage of
revenue we pay as compensation for markets-related revenue. Because we do not know at the beginning of the year the mix of revenue we will have
across product lines, we are unable to predict the actual amount of compensation that we are likely to pay at the end of the year with respect to each of
our revenue generating businesses.
•
With respect to areas of the firm that do not generate revenue, such as research and business operations, the Company set a targeted budget for
compensation in these areas based on expected revenues for the year.
•
The Management Committee Pool, which includes the Company’s named executive officers, is determined after the revenue-generating compensation
pools are finalized, as described in more detail below.
Actions Taken During the Course of 2021
•
During the year, the Compensation Committee met on a quarterly basis to review, among other things, the Company’s performance relative to the
targeted Economic Income compensation-to-revenue ratio for the year.
•
During the year, management provides the Compensation Committee with information about the relative amounts of revenue being generated by our
different business lines as that affects the amount of compensation the Company accrues for compensation under the pre-established guidelines
described above. The Compensation Committee then compares the amounts being accrued with respect to the revenue generating businesses to the
amounts accrued based on the Company’s overall compensation to revenue ratio.
•
Quarterly meetings with the Compensation Committee also provided an opportunity to discuss any changing dynamics in the markets that may affect
positively or negatively the Company’s expected revenues and related compensation accruals.
Actions Taken at the End of 2021 to Determine Compensation
•
At the end of 2021, compensation pools for investment banking, markets and investment management were finalized based on the revenue guidelines
established at the beginning of the year, with some modifications made based on the Company’s overall strong performance for the year in each of these
areas. The total amount of compensation accrued with respect to the Company’s revenue generating business lines was based on the mix of revenue
generated by each of its different business lines.
12
•
The compensation pool for research was finalized by making adjustments to the budget established at the beginning of the year to account for higher
revenues than were expected at the beginning of the year. The compensation pool for business operations was also increased from its budgeted amount
to account for the Company’s overall strong performance.
•
The combination of the compensation guidelines established at the beginning of the year for our revenue generating businesses, the budgets established
at the beginning of the year for our non-revenue generating employees and the overall compensation to revenue ratio target established at the beginning
of the year meant that there was a relatively limited amount of potential compensation that could be allocated to the management committee pool, which
includes the CEO and the other executive officers of the Company, in order to stay within the Company wide targeted compensation to revenue ratio of
56%-57%.
•
Once the compensation pools were finalized, the Compensation Committee considered the amount of compensation to be included in the pool for the
members of the Company’s management committee, which includes the Company’s named executive officers. This pool was determined with reference
to (i) the Economic Income compensation-to-revenue ratio and (ii) the overall Economic Operating Income to Stockholders.
–
The Compensation Committee approved an Economic Income compensation-to-revenue ratio for 2021 of 55.6%, which was below the range
established by the Compensation Committee at the beginning of 2021.
–
Management and the Compensation Committee believe that the compensation pool for members of the Company’s management committee, which
includes the Company’s named executive officers, should be directly tied to the Company’s operating performance. Accordingly, the Compensation
Committee has determined guidelines that the management committee’s participation in the Company’s Economic Operating Income should be a
percentage of the total amount of Economic Operating Income, with the management committee’s incremental participation decreasing as Economic
Operating Income increases. There is a limit on how much compensation can be paid to the management committee, which includes the CEO and
other named executive officers, given the compensation allocated to the Company’s revenue generating businesses under the pre-established
guidelines, the compensation allocated to research and business operations based on the budget established at the beginning of the year and the fact
that the amount of compensation allocated to the management committee pool decreases as revenue increases.
•
The Company’s pre-tax ROCE for the 2021 fiscal year was approximately 34.6%, well in excess of the mid-teens ROCE that the Company targeted at
the beginning of the year.
•
As discussed further below, final compensation decisions for the Company’s named executive officers are made at the discretion of the Compensation
Committee out of the available management committee compensation pool. We believe this approach to compensation is consistent with common
market practice in the financial services sector, but as noted above, the pool from which compensation is determined is tied directly to the Company’s
operating performance for the year. Further, although the size of incentive compensation awards is based on current fiscal year results, a portion of it is
delivered in the form of equity awards that vest over time to encourage retention and further link executive pay with longer-term stock performance. In
addition, a portion of incentive compensation is also delivered in the form of performance-based awards whose future value is uncertain, ultimately
depending on the performance of the Company, and, in the case of the CDIG Awards, on the performance of the Cowen Digital business, over the
relevant measurement period.
After the Compensation Committee determined the management compensation pool for 2021 as described above, the Compensation Committee then
considered:
•
the named executive officers’ collective and individual contributions to the Company’s strategic initiatives and leadership in 2021;
•
historical compensation information for each named executive officer;
•
the Company’s desire to retain and incentivize its named executive officers;
•
the recommendations of Mr. Solomon, our Chief Executive Officer, regarding total compensation of our named executive officers (other than
himself);
•
the financial performance of the Company during 2021 compared to comparable public companies and other companies in the securities industry;
•
a review of public filings and other market data regarding total compensation paid by certain peer investment banks and asset management
companies; and
13
·
base salary, cash bonus, equity awards and all other compensation paid by the compensation peer group.
The Compensation Committee considered the following collective and individual factors in the determinations made for each named executive officer in
2021:
Benefits of the Long-term Partnership Among the Named Executive Officers. One of the key factors to the Company’s resilience during the Covid-19
pandemic and the positioning of the Company for success over the long term has been the more than 15-year partnership among the Company’s named
executive officers. Messrs. Solomon, Holmes, Lasota and Littman have been instrumental in the transformation of the Company’s business. They have
worked collaboratively on the recruitment and retention of key employees and managers across the platform and oversaw the acquisition and integration
of 13 businesses. In 2021, the Company demonstrated its core earnings power and the growing breadth and depth of its capabilities across the platform.
This performance is the result of years of strategic investments and careful planning, which has enabled the Company to deliver consistent profitability
at a much higher level.
The Compensation Committee recognizes the importance of having and retaining an experienced management team like the one the Company has and,
in 2021, this took on even more significance with the ongoing challenges presented by the Covid-19 pandemic.
•
Revenue Generation and Drivers of Profitability. As noted below, each of our named executive officers plays an important role in revenue generation
and driving profitability While this may not always be the case with a company’s named executive officers, it is the case with ours. Our named executive
officers are not compensated directly based on the revenue they generate or, with respect to Messrs. Holmes, Lasota and Littman, the profitability
directly attributable to their teams in business operations, but the Compensation Committee does take this into account when determining compensation
for the named executive officers. The Compensation Committee also considered the following individual factors in the determinations made for each
named executive officer in 2021:
–
Jeffrey Solomon. Mr. Solomon’s compensation reflected his significant contributions regarding the Company’s record revenue and profitability.
Mr. Solomon also played an important role in the acquisition of Portico Capital Advisors (“Portico”), further increasing M&A revenues and
increasing capabilities in sectors with an attractive long-term outlook (verticalized software, data and analytics) and complementary to the
Company’s technology-enabled services franchise. Mr. Solomon’s compensation also reflected his efforts to recruit and retain talent as well as the
further enhancements to the Company’s culture and diversity and inclusion initiatives. Mr. Solomon helped to bring numerous clients into the
Company by providing investment banking advice. Mr. Solomon also worked closely with clients in the Company’s markets division, research
division and investment management division. Mr. Solomon also played a key role in the development of Cowen Digital, the business created to
offer the Company’s institutional clients execution services relating to the trading of digital assets. Mr. Solomon also spent a significant amount of
time discussing capital formation and other regulatory matters of interest to the Company through his regular interactions with both the SEC and
lawmakers.
–
John Holmes. Mr. Holmes’s compensation reflected his role in the continued enhancement and development of trading capabilities by growing
existing infrastructure and implementing new products, including those related to Cowen Digital. Under Mr. Holmes’s leadership, the Company
recognized cost savings and process efficiencies by leveraging new and existing technologies. The Compensation Committee also recognized
Mr. Holmes’s significant contributions related to the Company’s strategic response to Covid-19 and return to office, creating an approach that
provides flexibility as the Company moves towards a hybrid work environment and prioritizes the health and safety of its employees.
–
Stephen Lasota. Mr. Lasota’s compensation reflected significant contributions related to the continued enhancement of the Company’s financial
reporting, despite the challenges of employees working remotely due to the Covid-19 pandemic. Mr. Lasota played a leading role in changing the
Company’s capital structure and accounting policy to simultaneously optimize for profitability and liquidity. Mr. Lasota also played a significant
role in the Company’s revenue-generating captive reinsurance business.
–
Owen Littman. Mr. Littman’s compensation reflected significant contributions related to his efforts to develop, implement and improve
comprehensive legal and compliance programs, including with respect to Cowen Digital so that the Company can provide execution services with
respect to digital assets. Mr. Littman played a significant role in the merger and integration of Cowen Prime Services and Cowen and Company
which resulted in a significant increase in the Company’s net capital. Mr. Littman also played a significant role in the Company’s revenue-
generating captive reinsurance business. Mr. Littman played a leading role in the Portico acquisition. Mr. Littman also oversaw the Legal and
Compliance strategic hiring process to support the Company’s growing business lines in the international markets. Mr. Littman also spent a
significant amount of time discussing capital formation and other regulatory matters of interest to the Company through his regular interactions with
both the SEC and lawmakers.
14
At meetings held on December 14, 2021, December 22, 2021, January 6, 2022, January 13, 2022 and February 25, 2022 and numerous executive
sessions following these meetings, the Compensation Committee considered and discussed management’s compensation recommendations for our named
executive officers other than the Chief Executive Officer.
Upon consideration of these factors the Compensation Committee approved the Chief Executive Officer’s recommendations for the named executive
officers and determined the total pay for our Chief Executive Officer, Mr. Solomon.
COMPENSATION PROGRAM AND PAYMENTS
Base Salary
The purpose of base salary is to provide a set amount of cash compensation for each named executive officer that is not variable in nature and is
generally competitive with market practices. We seek to limit the base salaries of our named executive officers such that a significant amount of their total
compensation is contingent upon the performance of the Company and the named executive officer during the fiscal year. This was consistent with standard
practice within the securities and asset management industries and we believe this allowed us to reward performance.
In 2021 Mr. Solomon received a base salary of $1,000,000 and each of Messrs. Lasota, Holmes and Littman received a base salary of $700,000. In
April 2022, the Compensation Committee approved an increase in base salaries for Messrs. Lasota, Holmes and Littman to $725,000 each.
Annual Cash Bonus
The Compensation Committee approved annual cash bonus amounts for each of our named executive officers after review and consideration of the
above factors and within the scope and confines of the established management committee compensation pool.
Annual cash bonuses are determined based on an informed judgment with final amounts determined at the discretion of the Committee within the
confines of the established management committee compensation pool. This is consistent with our view that a significant portion of compensation paid is to
be based on the performance of the Company and of each named executive officer.
In 2021, Mr. Solomon received a cash bonus of $16,000,000, Mr. Lasota received a cash bonus of $4,613,000, Mr. Holmes received a cash bonus of
$5,056,000 and Mr. Littman received a cash bonus of $4,613,000.
Deferred Compensation
The annual bonus is typically paid partially in cash, partially in deferred cash and partially in equity. The deferred cash and equity components of the
annual bonus are paid in lieu of, not in addition to, a cash payment and are subject to service-based vesting conditions. The Compensation Committee
believes that the practice of paying a portion of each named executive officer’s annual bonus in the form of deferred cash and equity awards is consistent
with compensation practices at our peer companies and is a useful tool to continue aligning the long-term interests of our named executive officers with the
interests of our stockholders.
15
After determining the aggregate cash values of annual bonuses payable to each of our named executive officers in respect of fiscal 2021, the
Compensation Committee considered the percentage of the annual bonus compensation that each of our named executive officers would receive in the form
of deferred awards. Jeffrey Solomon, our Chief Executive Officer, developed a proposal for the allocation of annual bonus compensation among the cash and
deferred compensation awarded to Messrs. Holmes, Lasota and Littman. The Compensation Committee discussed and ultimately approved the proposal and
established an allocation of annual bonus compensation awarded to Mr. Solomon.
Deferred Cash Awards
Deferred cash awards relating to fiscal 2021 annual bonuses were awarded to our named executive officers in February 2021. Mr. Solomon received a
deferred cash award of $4,000,000, Mr. Lasota received a deferred cash award of $343,500, Mr. Holmes received a deferred cash award of $372,125 and
Mr. Littman received a deferred cash award of $343,500. The deferred cash awards will vest with respect to 12.5% on August 15, 2022, 12.5% on May 15,
2023, 25% on May 15, 2024, 25% on May 15, 2025 and 25% on May 15, 2026.
Restricted Stock Units (“RSUs”)
RSUs relating to fiscal 2021 annual bonuses were awarded to our named executive officers in February 2022. RSUs will vest with respect to 12.5% on
September 1, 2022; 12.5% on June 1, 2023; 25% on June 1, 2024; 25% on June 1, 2025; and 25% on June 1, 2026. To eliminate the impact that a short-term
significant price change in the market value of our Class A common stock may have on the number of RSUs that are intended to be delivered to an
employee, the Compensation Committee approved valuing the RSU grants using the volume-weighted average price for the 30 trading days ended
January 14, 2022, which was the day prior to the date that compensation was first communicated to the Company’s employees. The grant date value of the
RSUs equaled $35.60 per share. In 2022, Mr. Solomon received an award of 112,360 RSUs, Mr. Lasota received an award of 9,649 RSUs, Mr. Holmes
received an award of 10,453 RSUs and Mr. Littman received an award of 9,649 RSUs.
Performance-Based Compensation
This year, performance-based compensation, which was a key component of overall compensation awarded for 2021, consisted of two components,
Performance Share Awards as well as profits interests awards relating to Cowen Digital Holdings LLC.
Performance Share Awards (“PSAs”)
In March 2022, the Company entered into a performance shares award agreement, or PSA Agreement, with each of our named executive officers. Under
the terms of the PSA Agreement, each named executive officer was awarded PSAs, based on the attainment of certain performance metrics. Mr. Solomon
received 99,986 PSAs, Mr. Lasota received 19,095 PSAs, Mr. Holmes received 21,201 PSAs and Mr. Littman received 19,095 PSAs. The Compensation
Committee approved the allocation of PSAs awarded using the same value as the RSUs, or $35.60 per share. The PSAs awarded are subject to a three-year
performance period and are scheduled to vest on December 31, 2024. At the end of the performance period, the PSAs will be multiplied by an applicable
percentage (set forth below) based on the Company’s after-tax AROCE. The Company changed to the after-tax AROCE performance metric in 2022 in
response to shareholder feedback. If the Company’s performance is below the specified threshold, no shares will be delivered to the named executive
officers. The resulting number of attained RSUs will then be subject to a multiplier based on the Company’s total shareholder return, or TSR, relative to other
companies in the S&P SmallCap 600 Financial Sector Index, or the Index. For the PSAs awarded in 2022, the TSR modifier was increased to 20% from the
10% modifier used for PSAs awarded in 2021.
After-tax AROCE will be calculated by (i) taking the sum of the Company’s Adjusted Economic Operating Income during each of the fiscal years
during the Performance Period divided by the average Common Equity of the Company during each such fiscal year (with the average Common Equity for
each fiscal year calculated by adding the Common Equity at the beginning of such fiscal year and the Common Equity at the end of such fiscal year and
dividing by two) and (ii) dividing such sum by three.
16
At the end of the performance period, the PSAs will be multiplied by the percentages set forth below based on the Company’s after-tax AROCE with
respect to such performance period:
After-tax AROCE Performance Scale
Performance Level*
3-Year After-Tax AROCE**
Payout Rate***
Below Threshold
Below 8%
0% Payout
Threshold
8%
50% Payout
Above Threshold / Below Target
10%
75% Payout
Target
12.5%
100% Payout
Above Target
15%
125% Payout
Above Target / Below Maximum
17.5%
150% Payout
Maximum (capped)
Greater than 20%
200% Payout
*
Payout for performance between the Threshold and the Maximum will be interpolated.
**
While the Company’s ROCE in 2021 was substantially above the Target rate, the Compensation Committee sets the AROCE Performance Scale
based on the objective of achieving consistent after-tax mid-teen ROCE returns over the three year performance period covered by the PSAs.
Accordingly, there may be outliers in performance, both positive and negative, during the three year performance period, but the PSAs are
structured to reward the Company’s executive officers for meeting the after-tax mid-teen ROCE return over the long-term, which we believe leads
to long-term shareholder value creation.
***
Payout in excess of 120% of target for the 2021 PSAs will be settled in cash.
In addition to ROCE being measured on an after-tax basis in the PSAs awarded in 2022 compared to being measured on a pre-tax basis for PSAs
awarded in 2021, the Company also increased the performance metrics themselves as described below:
17
Changes to AROCE Performance Scale in 2022 vs. 2021
Performance Level
Pre-Tax 2021 3-Year
AROCE
After-Tax 2022 3-Year
AROCE
Payout Rate
Below Threshold
Below 8%
Below 8%
0% Payout
Threshold
8%
8%
50% Payout
Above Threshold / Below Target
(Level Introduced in 2021)
--
10%
75% Payout
Target
10%
12.5%
100% Payout
Above Target
12%
15%
125% Payout
Above Target / Below Maximum
(Level Introduced in 2021)
--
17.5%
150% Payout
Maximum (capped)
Greater than 15%
Greater than 20%
200% Payout
The number of PSAs that become vested and settled at the end of the performance period will equal the product of the preliminary PSAs and the
applicable total shareholder return (TSR) modifier, as set forth below, determined based on the Company’s TSR during the performance period versus the
TSR of the companies comprising the Index (adjusted as set forth in the award agreement), as of the first day of each performance period for the same
period.
3-Year TSR Modifier
Relative TSR Position
Modifier*
25th percentile and below
0.8
50th percentile
1.0
75th percentile and above
1.2
*
The relative TSR and resulting modifier will be interpolated between the 25th percentile and below and the 75th percentile. The relative TSR
position will be calculated using the following formula where N is the total number of companies in the Index including the Company and R is the
Company’s ranking compared to the Index: N-R/N-1.
CDIG Profits Interest Awards
In March 2022, a new plan called the Cowen Digital Holdings 2022 Equity Unit Incentive Plan (the “Cowen Digital Plan”) was established to
incentivize management and other personnel who make a substantial contribution to the success of Cowen Digital, the Company’s digital assets business, and
to tie a portion of their compensation to the success of the digital assets business. The Cowen Digital Plan allows issuance of up to 2,000,000 non-voting
units in Cowen Digital (“Class B units”). The remaining capital of Cowen Digital consists of 8,000,000 voting units in Cowen Digital (“Class A units”),
which are currently all owned by the Company.
18
As of March 1, 2022, an aggregate of 1,487,500 Class B units have been issued to employees of the Company who are working on the Cowen Digital
business, including a portion to each of the named executive officers. The Class B units are treated for tax purposes as profits interests. Each award of
Class B units is subject to time-based and performance-based vesting conditions. For awards granted in March 2022, 50% of each award (the time-based
portion) vests gradually over five years (subject to acceleration upon a sale or IPO of Cowen Digital) and the remaining 50% (the performance-based
portion) will vest only if the recipient continues employment until a sale or IPO of Cowen Digital. Even if vested, Class B units will not be entitled to
distributions unless and until a profit distribution hurdle has been met. For awards granted in March 2022, the hurdle is $100 million, which means that the
Company must receive distributions from Cowen Digital of at least $100 million before the Class B units share in any distributions. After the hurdle is
reached, Class B units share in distributions on a pro-rata basis with other units (Class A and Class B).
Mr. Solomon received 200,000 Class B units and Messrs. Lasota, Holmes and Littman each received 100,000 Class B units as a component of their 2021
long-term performance-based compensation. The fair value of time- based Class B units is determined based on the fair market value of Cowen Digital and
consolidated subsidiaries. The fair market value of Cowen Digital and consolidated subsidiaries is calculated utilizing recent transactions, discounted cash
flows, and market multiples. The Class B units are then valued using a standard Black Scholes options pricing model. The primary input in determining the
fair market value as of March 1, 2022 was recent/pending transactions in Cowen Digital’s underlying investments. Mr. Solomon’s Class B units were given a
fair value of $440,000 and the Class B units awarded to each of Messrs. Lasota, Holmes and Littman were given a fair value of $220,000. Due to the
uncertainty related to payouts under the Cowen Digital Plan, the Company will not recognize expense related to the performance-based portion of the
Class B unit awards until there is a probability of payout. The time-based portion of the Class B unit awards are expensed over the five-year period of service
required to vest.
FREQUENCY OF SAY-ON-PAY VOTE
Consistent with the preference expressed by our stockholders at our 2017 Annual Meeting of Stockholders, the Board decided that the Company will
include an advisory vote to approve the compensation of our named executive officers in our proxy materials every year until the next required advisory vote
to approve the frequency of an advisory vote on executive compensation, which will occur no later than our 2023 annual meeting.
Setting Compensation
The Compensation Committee is responsible for approving the compensation paid to our named executive officers as well as certain other highly
compensated employees. In making compensation determinations, the Compensation Committee reviews information presented to them by the Company’s
management, compensation peer group information and the recommendations of an independent compensation consultant engaged by the Compensation
Committee. The Compensation Committee also reviews our compensation-to-revenue ratio on a quarterly basis and may adjust the targeted compensation-to-
revenue ratio in order to maintain the Company’s compensation philosophy of aligning the interests of our named executive officers and our stockholders.
Involvement of Executive Officers
Mr. Solomon, our Chief Executive Officer, in consultation with our Chief Financial Officer, our General Counsel, our Chief Operating Officer and
employees in our Human Resources department, assists the Compensation Committee in making compensation determinations. These individuals prepare
information that is provided to, and reviewed by, the Compensation Committee and the Chief Executive Officer makes recommendations to the
Compensation Committee for their consideration. Such information and recommendations include, among other things, recommendations for the percentage
of the Company’s Economic Operating Income that should be allocated to the management committee compensation pool, the compensation that should be
received by the named executive officers (other than himself) and certain other highly compensated employees; financial information regarding the Company
that should be reviewed in connection with compensation decisions; the firms to be included in a compensation peer group; and the evaluation and
compensation process to be followed by the Compensation Committee. Our Chief Executive Officer is often invited to participate in Compensation
Committee meetings; however, he recuses himself from all discussions regarding his own compensation.
Compensation Consultants
The Compensation Committee exercised its sole authority pursuant to its charter to directly engage Pay Governance LLC. Pay Governance LLC was
retained by the Compensation Committee to provide advice, analysis, and assessment of alternatives related to the amount and form of executive
compensation. Pay Governance LLC prepared certain Compensation Committee presentation materials (including the peer group data described below)
during December 2021 and early 2022 at the request of the Compensation Committee. The Compensation Committee meets with Pay Governance LLC from
time to time without management present.
19
The Compensation Committee engaged Johnson Associates in December 2021 to provide advice and analysis related to the Cowen Digital Plan and the
profit interests awarded to certain employees, including our named executive officers.
The Compensation Committee has assessed the independence of Pay Governance LLC and Johnson Associates pursuant to SEC and NASDAQ
rules and concluded that no conflict of interest exists that would prevent Pay Governance LLC from independently representing the Compensation
Committee. The Compensation Committee reviewed and was satisfied with Pay Governance LLC’s policies and procedures to prevent or mitigate conflicts
of interest and that there were no business or personal relationships between members of the Compensation Committee and the individuals at Pay
Governance LLC supporting the Compensation Committee.
Compensation Peer Group
The Compensation Committee, with the assistance of its independent compensation consultant, annually identifies a compensation peer group of firms
with which we compete for executive talent. Our peer group includes investment banks with revenues and market capitalizations similar to ours as well as
companies with significant asset management operations. In making compensation decisions for 2021, our Compensation Committee reviewed compensation
information for similarly titled individuals at comparable companies gathered from public filings made in 2021 related to 2020 annual compensation and
from subscriptions for other market data. At the request of the Compensation Committee, Pay Governance LLC provides the Compensation Committee with
compensation data from other firms of similar size. For 2021, Pay Governance provided the Compensation Committee with peer group compensation data of
B. Riley Financial, Evercore Partners Inc., Greenhill & Co., Inc., Houlihan Lokey, Inc., Jefferies Group, Lazard Ltd., Moelis & Company, Oppenheimer &
Co. Inc., Perella Weinberg Partners, PJT Partners Inc., Piper Sandler Companies, Raymond James Financial, and Stifel Financial Corp. The Compensation
Committee believes that information regarding pay practices at comparable companies is useful in two respects. First, as discussed above, we recognize that
our pay practices must be competitive in our marketplace. By understanding the compensation practices and levels of the Company’s peer group, we enhance
our ability to attract and retain highly skilled and motivated executives, which is fundamental to the Company’s success. Second, this data is one of the many
factors the Compensation Committee considers in assessing the reasonableness of compensation. Accordingly, the Compensation Committee reviewed trends
among these peer firms and considered this data when determining our named executive officers’ 2021 annual bonuses and other compensation, but did not
utilize the peer firm compensation as a sole benchmark for determining executive compensation.
RELATIONSHIP OF COMPENSATION POLICIES AND PRACTICES TO RISK MANAGEMENT
The Board has discussed whether our compensation policies are reasonably likely to have a material adverse effect on our results. The Board noted that,
consistent with our performance-based model, many of our employees receive a significant portion of their compensation through discretionary
compensation tied to their individual or business unit performance, or a combination thereof. The Board noted that a lower portion of the Company’s
revenues are derived from proprietary trading businesses and that a significant portion of many employees’ compensation is provided in the form of deferred
compensation that vests over time, which has the effect of tying the individual employee’s long-term financial interest to the firm’s overall success. The
Board believes that this helps mitigate the risks inherent in our business.
The Board noted that our risk management team continuously monitors our various business groups, the level of risk they are taking and the efficacy of
potential risk mitigation strategies. Senior management also monitors risk and the Board is provided with data relating to risk at each of its regularly
scheduled meetings. The Head of Risk meets regularly with the Board to present his views and to respond to questions. For these reasons, the Board believes
that our overall compensation policies and practices are not likely to have a material adverse effect on us.
CLAWBACK POLICY
In March 2015, the Company adopted a clawback policy that allows the Company to recover incentive compensation from any executive officer if that
executive officer engages in intentional misconduct that caused or contributed to a restatement of the Company’s financial results. In the event of a
restatement, a committee consisting of the non-management members of the Board (the “Independent Director Committee”) will review the performance-
based compensation and annual bonus compensation paid in the form of both cash and equity under the Company’s equity and incentive plans to any such
executive (the “Awarded Compensation”). If the Independent Director Committee determines, in good faith, that the amount of such performance-based
compensation or annual bonus actually paid or awarded to any such executive officer would have been a lower amount had it been calculated based on such
restated financial statements (the “Actual Compensation”) then the Independent Director Committee shall, subject to certain exceptions, seek to recover for
the benefit of the Company the after-tax portion of the difference between the Awarded Compensation and the Actual Compensation.
20
EXECUTIVE OFFICER STOCK OWNERSHIP GUIDELINES
The Company adopted stock ownership guidelines on March 18, 2015 that require the Company’s executive officers to hold Company stock or RSUs
within the later of the adoption of the policy or five years of being designated as an executive officer. All named executive officers are in compliance with
the stock ownership guidelines, which are set forth below.
Chief Executive Officer
8× Base Salary
$
8,000,000
Other Executive Officers
3× Base Salary
$
2,100,000
ANTI-HEDGING POLICY
In order to support alignment between the interests of stockholders and employees, the Company maintains an anti-hedging policy that prohibits the
“short sale” of Company securities. The policy prohibits employees from trading in options, warrants, puts and calls or similar instruments on Company
securities. We allow directors and executive officers to hold up to 50% of their Company stock in a margin account. During 2021, all named executive
officers were in compliance with this policy.
PERQUISITES
In 2021, the Company provided certain perquisites, including reimbursement of group term life and long-term disability insurance and tax and financial
planning expenses to certain members of senior management, including Messrs. Solomon, Lasota and Littman. Beginning in 2022, the Company will no
longer pay tax and financial planning expenses for members of senior management.
EMPLOYMENT AGREEMENTS
Each of our named executive officers is party to an employment agreement with the Company. The Compensation Committee views the employment
agreements as an important tool in achieving our compensation objective of recruiting and retaining talented employees and a strong management team. The
severance and change-in-control arrangements provided by the employment agreements are intended to retain our named executive officers and to provide
consideration for certain restrictive covenants that apply following a termination of employment. None of our named executive officers have minimum
guaranteed bonuses in their employment agreements.
TAX AND ACCOUNTING IMPACT AND POLICY
The financial and income tax consequences to the Company of individual executive compensation elements are important considerations for the
Compensation Committee when analyzing the overall design and mix of compensation. The Compensation Committee seeks to balance an effective
compensation package for our named executive officers with an appropriate impact on reported earnings and other financial measures.
In designing our compensation and benefit programs, we review and consider the accounting implications of our decisions, including the accounting
treatment of amounts awarded or paid to our executives.
21
In general, Section 162(m) of the Code generally denies a publicly held corporation a deduction for federal income purposes for compensation in excess
of $1 million per year paid to certain “covered employees.” As in prior years, the Compensation Committee will continue to take into account the tax and
accounting implications (including with respect to the expected lack of deductibility under the revised Section 162(m)) when making compensation
decisions, but reserves its right to make compensation decisions based on other factors as well if the Compensation Committee determines it is in its best
interests to do so. The Compensation Committee may, from time to time, design programs that are intended to further our success, including by enabling us
to continue to attract, retain, reward and motivate highly-qualified executives that may not be deductible as a result of the limitations on deductibility under
Section 162(m).
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and has recommended to the
Board the inclusion of the Compensation Discussion and Analysis in the Form 10-K and in the definitive proxy statement for our 2022 Annual Meeting of
Stockholders.
Compensation Committee of the Board of Directors of Cowen Inc.
Brett H. Barth, Chair
Lawrence E. Leibowitz
Margaret L. Poster
Douglas A. Rediker
22
Summary Compensation Table
The following table sets forth compensation information for our named executive officers in 2021.
Name & Principal Position
Year
Salary
($)
Bonus
($)(1)
Stock
Awards
($)(2)
All Other
Compensation
($)
Total
($)
Jeffrey M. Solomon
2021
1,000,000 16,000,000 8,383,130
3,176,410(3) 28,559,540
Chief Executive Officer
2020
1,000,000 13,000,000 3,157,115
1,833,388
18,990,503
2019
950,000
1,300,000 3,588,250
1,640,563
7,478,814
Stephen A. Lasota
2021
700,000
4,613,000
595,292
384,635(3)
6,292,927
Chief Financial Officer
2020
700,000
4,847,295
899,110
373,870
6,820,275
2019
700,000
1,212,500
854,236
353,358
3,120,094
John Holmes
2021
700,000
5,056,000
595,292
405,860(3)
6,757,152
Chief Operating Officer
2020
700,000
5,347,295
927,220
386,842(3)
7,361,357
2019
700,000
927,220
926,630
361,137
3,235,267
Owen S. Littman
2021
700,000
4,613,000
595,292
389,075(3)
6,299,141
General Counsel and Secretary
2020
700,000
4,847,295
899,110
366,686
6,818,910
2019
700,000
1,212,500
890,424
351,955
3,154,879
(1)
The amounts in this column reflect cash bonuses paid to the named executive officers in 2022 from the bonus pool established in respect of
performance during the 2021 year.
2)
The entries in the stock awards column reflect the aggregate grant date value of the RSU and PSA awards granted in 2021 in connection with 2020
performance in accordance with FASB ASC 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions.
The value of the PSA awards reflects the grant date value of the awards based on the target level of performance, which is less than the maximum
possible value. The grant date value of the PSA awards assuming that the highest level of the applicable performance conditions will be achieved is
$4,603,130 for Mr. Solomon and $1,190,584 for Messrs. Lasota, Holmes and Littman, respectively. For information on the valuation assumptions
with respect to awards made, refer to the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements
included in its Form 10-K for the year ended December 31, 2021, as filed with the SEC.
(3)
Other compensation includes:
Other Compensation ($)
Jeffrey M.
Solomon
Stephen A.
Lasota
John
Holmes
Owen S.
Littman
Vested Deferred Cash Awards
3,052,196
354,410
382,436
365,897
Dividend Equivalents
70,722
23.029
23,424
23,178
Tax and Financial Planning
53,492
7,195
—
1,774
23
GRANTS OF PLAN BASED AWARDS
The following table provides information regarding grants of compensation-related, plan based awards made to the named executive officers during fiscal
year 2021. These awards are also included in the Summary Compensation Table above.
Estimated Future Payouts Under
Equity Incentive Plan Awards(1)
Grant Date
Corporate
Action Date
Threshold
(#)
Target
(#)
Maximum
(#)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(2)
Grant Date Fair Value of
Stock Awards
($)(3)
Jeffrey M. Solomon
2/17/2021
2/4/2021
—
—
175,717
6,081,565
2/17/2021
2/4/2021
33,250
66,500
133,000
—
2,301,565
Stephen A. Lasota
2/17/2021
2/4/2021
8,600
17,200
34,400
19,490
595,292
John Holmes
2/17/2021
2/4/2021
8,600
17,200
34,400
21,099
595,292
Owen S. Littman
2/17/2021
2/4/2021
8,600
17,200
34,400
19,490
595,292
(1)
The amounts reported in these columns represent Performance RSUs that are scheduled to vest on December 31, 2023 based on the attainment of
AROE targets, subject to the named executive officer’s continued employment through the applicable vesting date. These columns represent the
number of Performance RSUs that vest at threshold achievement, target achievement and maximum achievement of the performance metrics
applicable to such awards. At or below the threshold performance level, no shares will be paid out. At the maximum performance level, payout in
excess of 120% will be settled in cash.
(2)
RSUs will vest with respect to 25% on December 1, 2021, 25% on December 1, 2022, 25% on December 1, 2023 and 25% on December 1, 2024.
(3)
The entries in the “Grant Date Fair Value of Stock Awards” column reflect the aggregate grant date fair value of the awards granted in 2021
computed in accordance with FASB ASC 718, disregarding for this purpose the estimate of forfeitures related to service based vesting conditions.
The value of the PSA awards reflects the grant date value of the awards based on the target level of performance, which is less than the maximum
possible value. The grant date value of the PSA awards assuming that the highest level of the applicable performance conditions will be achieved is
$4,603,130 for Mr. Solomon and $1,190,584 for Messrs. Lasota, Holmes and Littman, respectively. For information on the valuation assumptions
with respect to awards made, refer to the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements
included in its Form 10-K for the year ended December 31, 2021, as filed with the SEC.
NARRATIVE DISCLOSURE RELATING TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
Employment Agreements
In January 2020, the Company entered into amended and restated employment agreements with Messrs. Solomon, Holmes, Lasota and Littman (the
“Employment Agreements”). The Employment Agreements provide for the following material terms:
●
An initial term that expired December 31, 2020. Following the expiration of the initial term, the terms of the agreements automatically extend for
successive one-year terms, unless either party elects not to extend the term.
●
A minimum annual base salary of $1,000,000 for Mr. Solomon and $700,000 for Messrs. Holmes, Lasota, and Littman. Each named executive officer is
also eligible to receive an annual performance-based bonus as determined by the Compensation Committee. The Employment Agreements provide that
the Company may pay all or a portion of any annual bonus in the form of restricted securities, other stock or security-based awards, deferred cash, or
other deferred compensation. The Employment Agreements do not provide for a minimum annual bonus.
●
Pursuant to Mr. Solomon’s Employment Agreement, if Mr. Solomon’s employment is terminated by the Company without Cause or Mr. Solomon
resigns for Good Reason (as such terms are defined in the Solomon Agreement) prior to, in connection with or following a Change in Control (as
described in the Solomon Agreement), then subject to Mr. Solomon executing and not revoking a release of claims, he will be entitled to a lump sum
severance payment equal to two and one-half times the sum of (x) Mr. Solomon’s base salary on the date of termination plus (y) the average of the
highest annual bonuses paid to Mr. Solomon in two of the three calendar years preceding his date of termination, except that the foregoing severance
amount will not be less than $3,250,000 or greater than $5,000,000 if Mr. Solomon’s termination occurs prior to a Change in Control (such payments
will continue to be subject to the existing Internal Revenue Code Section 280G “modified cutback” provisions).
24
●
If Mr. Solomon elects to transition to Senior Advisor status upon reaching age 55, the terms of Mr. Solomon’s service as a Senior Advisor will be
governed by the Senior Advisor Agreement. In particular, Mr. Solomon’s service as a Senior Advisor will continue until the earliest of (i) 15 days
following Mr. Solomon’s written notice that he is terminating as a Senior Advisor, (ii) the second anniversary of the date he commences Senior Advisor
status, (iii) the date of Mr. Solomon’s death or disability and (iv) the date Mr. Solomon is terminated by the Company for Cause. In consideration for
providing Senior Advisor services, Mr. Solomon will receive a base salary at an annualized rate of $150,000 and will be entitled to secretarial and
administrative support. Mr. Solomon will also be entitled to receive certain additional benefits while a Senior Advisor, including office space (or, at the
Company’s election, payment of up to $60,000 per year for office space), financial planning services at the Company’s expense and continued payment
by the Company of life insurance premiums.
●
Pursuant to the Executive Agreements with Messrs. Holmes, Lasota and Littman (collectively, the “Executive Agreements”), if the executive’s
employment is terminated by the Company without Cause or the executive resigns for Good Reason (each as described in the Executive Agreements)
prior to a Change in Control (as described in the Executive Agreements), the executive will receive a lump sum cash payment equal to one and one-half
times the sum of (x) the executive’s base salary in effect at the end of the calendar year immediately preceding termination plus (y) the average of the
highest annual bonuses paid to the executive in two of the three calendar years preceding his date of termination (such sum, the “Severance Amount”),
except that the foregoing severance amount will not be greater than $1,500,000. Pursuant to the Executive Agreements, if the executive’s employment is
terminated by the Company without Cause or the executive resigns for Good Reason in connection with or following a Change in Control, the executive
will receive a lump sum cash payment equal to two and one-half times the Severance Amount, which lump sum will not be subject to a cap. The
Executive Agreements require the executives to execute and not revoke a release of claims as a condition to receiving severance payments (such
payments will continue to be subject to the existing Internal Revenue Code Section 280G “modified cutback” provisions).
●
In the event that the executive retires after attaining age 57.5 (or age 55, in the case of Mr. Solomon) and provides the Company with at least 90 days’
advance notice, all outstanding equity awards and unvested deferred compensation then held by the executive will continue to vest in accordance with
their terms as if the executive had continued to be an active employee of the Company, provided he does not engage in competitive activity at any time
prior to the applicable vesting date and refrains from interfering with the Company’s employees and customers for 12 months following his retirement.
Messrs. Holmes, Lasota and Solomon have reached the Executive Agreement retirement age.
●
Customary confidentiality and invention assignment covenants, as well as an indefinite mutual non-disparagement covenant. In addition, these
executives have agreed not to compete with, or solicit customers or employees of, the Company during the term of the employment agreement and for a
period of 180 days for Mr. Solomon and 120 days for Messrs. Holmes, Lasota and Littman.
2020 Equity Incentive Plan
Effective as of June 22, 2020, the Company adopted the 2020 Equity Incentive Plan which provided for the issuance of 3,000,000 Shares of Class A
common stock. The 2020 Equity Incentive Plan was amended in June 2021 to increase the amount of Class A common stock available for issuance under the
2020 Equity Incentive Plan by 2,000,000 shares (the “2020 Plan”).
25
The 2020 Plan reserved 5,000,000 shares of Class A common stock for delivery to participants and their beneficiaries under the 2020 Plan, subject to
adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off, or
other similar change in capitalization or event. Shares delivered under the 2020 Plan may be either treasury shares or newly issued shares. For purposes of
determining the remaining ordinary shares available for grant under the 2020 Plan, if any shares subject to an award are forfeited, cancelled, exchanged, or
surrendered, or if an award terminates or expires without a distribution of shares, those shares will again be available for issuance under the 2020 Plan.
However, shares of stock that are exchanged by a grantee or withheld by us as full or partial payment in connection with any award under the 2020 Plan, as
well as any shares of stock exchanged by a grantee or withheld by us to satisfy the tax withholding obligations related to any award under the 2020 Plan, will
not be available for subsequent awards under the 2020 Plan.
The 2020 Plan provides that generally, unless otherwise determined by the Compensation Committee or as set forth in an award or employment
agreement, in the event of a change in control (as defined in the 2020 Plan), all outstanding awards shall become fully vested and exercisable and all
restrictions, forfeiture conditions or deferral periods on any outstanding awards shall immediately lapse, and payment under any awards shall become due.
The Compensation Committee has determined that all awards to our named executive officers under the 2020 Plan will vest on a double-trigger basis in the
event of a change in control.
26
OUTSTANDING EQUITY AWARDS AT 2021 FISCAL YEAR END
The following table contains certain information regarding equity awards held by the named executive officers as of December 31, 2021.
Stock Awards
Number of Shares
that Have Not
Vested (#)
Market Value of
Shares that Have
Not Vested ($)(1)
Equity Incentive
Plan Awards:
Number of
Unearned Units That
Have Not Vested (#)
Equity Incentive
Plan Awards:
Market Value of
Unearned Units That
Have Not Vested
($)(1)
Jeffrey M. Solomon
2019 RSU Award(2)
80,435
2,903,704
—
—
2019 PSA Award(3)
—
—
28,000
1,010,800
2020 RSU Award(4)
97,449
3,517,909
—
—
2020 PSA Award(5)
—
—
27,000
974,700
2021 RSU Award(6)
131,788
—
—
4,757,547
2021 PSA Award(7)
—
—
33,250
1,200,325
Stephen A. Lasota
2018 Incentive Award(8)
8,993
324,647
—
—
2019 RSU Award(2)
9,413
339,809
—
—
2019 PSA Award(3)
—
—
17,500
631,750
2020 RSU Award(4)
14,618
527,710
—
—
2020 PSA Award(5)
—
—
17,000
613,700
2021 PSA Award(7)
—
—
8,600
310,460
John Holmes
2018 Incentive Award(8)
17,986
649,295
—
—
2019 RSU Award(2)
11,543
416,702
—
—
2019 PSA Award(3)
—
—
17,500
631,750
2020 RSU Award(4)
15,825
571,283
—
—
2020 PSA Award(5)
—
—
17,000
613,700
2021 PSA Award(7)
—
—
8,600
310,460
Owen S. Littman
2018 Incentive Award(8)
8,993
324,647
—
—
2019 RSU Award(2)
10,476
378,184
—
—
2019 PSA Award(3)
—
—
17,500
631,750
2020 RSU Award(4)
14,618
527,710
—
—
2020 PSA Award(5)
—
—
17,000
613,700
2021 PSA Award(7)
—
—
8,600
310,460
(1)
The values in the column are based on the $36.10 closing price of our Class A common stock on the NASDAQ Global Select Market on December 31,
2021.
(2)
RSUs awarded on February 20, 2019 vest with respect to 12.5% on September 1, 2019, 12.5% on May 15, 2020, 25% in May 15, 2021, 25% on
May 15, 2022 and 25% on May 15, 2023.
(3)
PSAs awarded on April 1, 2019 will, to the extent earned, vest on December 31, 2021. These PSAs are scheduled to vest based on the attainment of
AROCE target for the applicable performance period, subject to the named executive officer’s continued employment through the applicable vesting
date. In accordance with SEC rules, the number of unearned PSAs is reported in the “Equity Incentive Plan Awards: Market Value of Unearned Units
That Have Not Vested” column based on achieving threshold performance goals (i.e., 50% of target).
(4)
RSUs awarded on February 19, 2020 vest with respect to RSUs will vest with respect to 12.5% on December 1, 2020, 12.5% on September 1, 2021,
25% on September 1, 2022, 25% on September 1, 2023 and 25% on September 1, 2024.
(5)
PSAs awarded on July 1, 2020 will, to the extent earned, vest on December 31, 2022. These PSAs are scheduled to vest based on the attainment of
AROCE target for the applicable performance period, subject to the named executive officer’s continued employment through the applicable vesting
date. In accordance with SEC rules, the number of unearned PSAs is reported in the “Equity Incentive Plan Awards: Market Value of Unearned Units
That Have Not Vested” column based on achieving threshold performance goals (i.e., 50% of target).
(6)
RSUs awarded on February 17, 2021 vest with respect to RSUs will vest with respect to 25% on December 1, 2021, 25% on December 1, 2022, 25%
on December 1, 2023 and 25% on December 1, 2024.
(7)
PSAs awarded on February 17, 2021 will, to the extent earned, vest on December 31, 2023. These PSAs are scheduled to vest based on the attainment
of AROCE target for the applicable performance period, subject to the named executive officer’s continued employment through the applicable vesting
date. In accordance with SEC rules, the number of unearned PSAs is reported in the “Equity Incentive Plan Awards: Market Value of Unearned Units
That Have Not Vested” column based on achieving threshold performance goals (i.e., 50% of target).
(8)
RSUs awarded on March 29, 2018 will vest on March 10, 2022.
27
OPTION EXERCISES AND STOCK VESTED
The following table sets forth certain information concerning stock vested during the year ended December 31, 2021. No stock options were exercised
by any of the named executive officers in 2021.
Name
Number of Shares
Acquired on Vesting
Value Realized on
Vesting ($)(1)
Jeffrey M. Solomon
202,391
7,100,633
Stephen A. Lasota
73,973
2,332,098
John Holmes
75,239
2,383,275
Owen S. Littman
74,506
2,354,095
(1)
The value realized upon vesting of the stock awards is based on the $42.17 closing sale price of our Class A common stock on March 10, 2021, the
$41.27 closing sale price of our Class A common stock on May 15, 2021, the $40.39 closing sale price of our Class A common stock on June 1,
2021, the $36.44 closing sale price of our Class A common stock on September 1, 2021 and the $35.12 closing sale price of our Class A common
stock on December 1, 2021, the applicable vesting dates of the awards.
28
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Pursuant to the employment agreements with our named executive officers, upon certain terminations of employment or a change in control of the
Company, our named executive officers are entitled to certain payments of compensation and benefits as described above under “Narrative Disclosure
Relating to Summary Compensation Table and Grants of Plan-Based Awards Table — Employment Agreements.” The table below reflects the amount of
compensation and benefits that would have been payable to each named executive officer in the event that the named executive officer had experienced the
following events as of December 31, 2021: (i) a termination for cause or resignation, or voluntary termination, (ii) involuntary termination, (iii) an
involuntary termination that occurs in connection with a change in control, (iv) termination by reason of an executive’s death, or (v) termination by reason of
an executive’s disability.
Triggering Events
Name
Type of Payment
Voluntary
Termination
($)
Involuntary
Termination
($)
Involuntary
Termination in
Connection with a
Change in
Control(4)(5)
($)
Death
($)
Disability
($)
Jeffrey M. Solomon
Cash Severance(1)
— 28,035,271
40,685,251 22,936,125 22,936,125
Equity Acceleration(2)
— 14,364,984
14,364,984 14,364,984 14,364,984
Total
— 42,400,255
55,050,235 37,301,109 37,301,109
Stephen A. Lasota
Cash Severance(3)
—
5,818,455
9,731,952
4,318,455
4,318,455
Equity Acceleration(2)
—
2,748,076
2,748,076
2,748,076
2,748,076
Total
—
8,566,531
12,480,028
7,066,531
7,066,531
John Holmes
Cash Severance(3)
—
6,177.378
10,377.375
4,677.378
4,677.378
Equity Acceleration(2)
—
3,193,189
3,193,189
3,193,189
3,193,189
Total
—
9,370,567
13,570,564
7,870,567
7,870,567
Owen S. Littman
Cash Severance(3)
—
5,849,283
9,749,281
4,349,283
4,349,283
Equity Acceleration(2)
—
2,786,451
2,786,451
2,786,451
2,786,451
Total
—
8,635,734
12,535,732
7,135,734
7,135,734
(1)
Includes the value of a cash payment equal to the sum of (i) the average of Mr. Solomon’s 2019 and 2020 annual bonuses (the highest annual
bonuses paid to Mr. Solomon in two of the three calendar years), comprised of cash bonus, deferred cash and deferred equity ($15,274,980), (ii) two
and one-half times the sum of Mr. Solomon’s 2019 base salary ($950,000) and the average of Mr. Solomon’s 2019 and 2020 annual bonuses (subject
to a $3.25 million minimum and a $5 million limit), (iii) a cash payment equal to 24 months of COBRA premiums, and (iv) the value of acceleration
of unvested deferred cash compensation ($7,661,145, including interest accrued through December 31, 2020), which is payable to Mr. Solomon
pursuant to the terms of his employment agreement.. In connection with an involuntary termination following a change in control, the $5 million
cash limit would not apply to the Cash Severance payment. Had Mr. Solomon experienced a termination by reason of death or disability, he would
have been entitled to a cash payment equal to the sum of the amounts described under clauses (i), (iii), and (iv) above.
(2)
Includes the value of acceleration of all unvested shares of restricted stock and all performance share and PSA awards, based on a price of $36.10 per
share, which was the closing price of our Class A common stock on the NASDAQ Global Select Market on December 31, 2021. Pursuant to their
employment agreements and the applicable award agreements, the executives are entitled to immediate vesting of outstanding equity awards upon an
involuntary termination or a termination by reason of death or disability, except for the PSAs granted in April 2019, June 2020 and February 2021,
which will, upon an involuntary termination, remain outstanding until the completion of the applicable performance period without regard to the
continued service requirement and will vest based on the actual level of the attainment of the applicable performance goals. For reporting purposes,
target level performance was assumed. In addition, pursuant to the terms of the applicable award agreements, unvested equity awards will vest in the
event that a change in control occurs and, following such change in control, the executive’s compensation or job responsibilities are reduced
materially or the equity securities of the Company cease to trade on a national securities exchange, except for the PSAs granted in April 2019 and
June 2020, which will vest based on the target level of the applicable performance goals, subject to the named executive officer’s continued
employment through the applicable vesting date.
(3)
Includes the value of a cash payment equal to the sum of (i) the average of the 2019 and 2020 annual bonus comprised of cash bonus, deferred cash
and deferred equity ($3,663,498, $3,949,998 and $3,649,998 ) for Messrs. Lasota, Holmes and Littman, respectively, (ii) one and one-half times the
2020 base salary and the average of the 2019 and 2020 annual bonuses for Messrs. Lasota, Holmes and Littman, respectively (subject to a $1.5
million limit), (iii) a cash payment equal to 24 months of COBRA premiums ($45,581 for Mr. Lasota, $43,754 for Mr. Holmes and $67,410 for
Mr. Littman), and (iv) the value of acceleration of unvested deferred cash compensation ($609,376, $683,626 and $631,876) for each of Mr. Lasota,
Mr. Holmes and Mr. Littman, respectively, including interest accrued through December 31, 2021), which is payable to Messrs. Lasota, Holmes and
Littman pursuant to the terms of their employment agreements. Had Mr. Lasota, Mr. Holmes or Mr. Littman experienced a termination by reason of
death or disability, each executive would have been entitled to a cash payment equal to the sum of the amounts described under clauses (i), (iii), and
(iv) above.
29
(4)
Includes the value of the same cash severance payments that would have been payable to Messrs. Lasota, Holmes and Littman in connection with an
involuntary termination of employment (as described above), except that the applicable multiplier for the 2020 base salary and the average of the
2019 and 2020 annual bonuses for Messrs. Lasota, Holmes and Littman, respectively will be two and one-half times instead of one and one-half
times and will not be subject to the $1.5 million limit. Pursuant to their employment agreements, Messrs. Lasota, Holmes and Littman will be
entitled to receive this enhanced cash severance payment in the event of an involuntary termination of employment in connection with or following a
change in control. In addition, pursuant to the terms of the applicable award agreements, each executive’s unvested deferred cash compensation will
vest in the event that a change in control occurs and, following such change in control, the executive’s compensation or job responsibilities are
reduced materially or the equity securities of the Company cease to trade on a national securities exchange.
(5)
Under the employment agreements with Messrs. Solomon, Lasota, Holmes and Littman, severance payable following a change in control would have
been subject to a so-called “modified golden parachute cutback” provision pursuant to which “excess parachute payments” would be reduced to the
extent such reduction would result in greater after-tax benefits. The amounts disclosed above represent the full amounts payable, without application
of any cutback.
PAY RATIO
Pursuant to Item 402(u) of Regulation S-K, presented below is the ratio of annual total compensation of Mr. Solomon, our Chief Executive Officer as of
December 31, 2021, to the median annual total compensation of all our employees (excluding our Chief Executive Officer).
To determine the median annual total compensation of all our employees (excluding our Chief Executive Officer), a median employee was identified
from the population of our 1,542 employees as of December 31, 2021. We did not include independent contractors in our determination.
In order to identify our median employee, we ranked each of our employees (other than our Chief Executive Officer) based on 2021 awarded
compensation. For this purpose, 2021 awarded compensation was composed of each employee’s (i) salary earned during 2021, (ii) annual cash bonus paid in
respect of 2021 performance, (iii) deferred cash awards granted in respect of 2021 performance and (iv) and RSUs granted in respect of 2021 performance.
In determining 2021 awarded compensation, we did not apply any cost-of-living adjustments or annualize any partial-year compensation.
Once we identified the median employee, we determined that individual’s annual total compensation in accordance with the requirements for
determining total compensation in the Summary Compensation Table.
The 2021 annual total compensation for Mr. Solomon, our Chief Executive Officer, as reported in the Summary Compensation Table in this proxy
statement, was $28,559,540. The 2021 annual total compensation for our median employee, determined in accordance with the requirements for determining
total compensation in the Summary Compensation Table, was $215,000. The ratio of our Chief Executive Officer’s annual total compensation to the annual
total compensation of our median employee for 2021 is 133 to 1. We believe that this ratio represents a reasonable estimate calculated in a manner consistent
with Item 402(u).
The information disclosed in this section was developed and is provided solely to comply with specific, new legal requirements. We do not use this
information in managing our Company. We do not believe this information provides stockholders with a useful mechanism for evaluating our management’s
effectiveness, operating results, or business prospects, nor for comparing our company with any other company in any meaningful respect.
30
COMPENSATION PROGRAM FOR NON-EMPLOYEE DIRECTORS FOR 2021
Director Compensation Table
The following table sets forth compensation information for our non-employee directors for the year ended December 31, 2021.
Director
Fees Earned
Paid in Cash
($)
Stock
Awards
($)(1)
All Other
Compensation
($)(2)
Total
Brett H. Barth(3)
162,500
162,500
5,921
330,921
Katherine E. Dietze
142,500
142,500
—
285,000
Gregg A. Gonsalves
125,000
125,000
—
250,000
Steven Kotler
135,000
135,000
—
270,000
Lawrence E. Leibowitz
62,500
187,500
—
250,000
Margaret L. Poster
125,000
125,000
2,193
252,193
Douglas A. Rediker(3)
—
250,000
—
250,000
(1) Represents the aggregate grant date fair value calculated in accordance with generally accepted accounting principles, disregarding for this purpose the
estimate of forfeitures related to service-based vesting conditions. For information on the valuation assumptions with respect to awards made, refer to
the Company’s Share-Based Compensation and Employee Ownership Plans Note in its financial statements included in its Form 10-K for the year
ended December 31, 2021, as filed with the SEC on March 1, 2022. As of December 31, 2021, all outstanding stock awards held by our directors are
fully vested.
(2) Represents dividend equivalents paid on delivered RSUs.
(3) In 2021, Mr. Rediker elected to receive 100% of his director compensation in RSUs. Please see “Narrative Disclosure Relating to Director
Compensation Table” below for additional information regarding non-employee director compensation in 2021.
Narrative Disclosure Relating to Director Compensation Table
In 2021, each of our non-employee directors received annual compensation of $250,000. Mr. Barth, the Company’s Lead Director, received additional
compensation of $50,000. Ms. Dietze, the Chair of the Audit Committee received additional compensation of $35,000 per annum. Mr. Barth, the Chair of the
Compensation Committee, received additional compensation of $25,000 per annum, and Mr. Kotler, the Chair of the Nominating and Corporate Governance
Committee received additional compensation of $20,000 per annum. For 2021, a minimum of 50% of a director’s compensation was paid in the form of
RSUs. In addition, each director was entitled to elect to receive any amount in excess of 50% of 2021 compensation in the form of RSUs. The RSUs were
valued using the volume-weighted average price for the 30-day period prior to our 2021 annual meeting of stockholders. RSUs are vested and not subject to
forfeiture; however, except in the event of death, the underlying shares of Class A common stock will not be delivered to the holder for at least one year from
the date of grant. Beginning in 2021, cash dividend equivalent payments are converted to additional RSUs and will be delivered to each director upon the
delivery of the underlying shares of Class A common stock. These equity awards are intended to further align the interests of our directors with those of our
stockholders. Directors who also are employed as executive officers of the Company receive no additional compensation for their service as a director.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised entirely of non-employee directors, none of whom has ever been an officer or employee of the Company
and none of whom had any related person transaction involving the Company. None of our executive officers (1) served as a member of the board of
directors or compensation committee of any other entity that had one or more of its executive officers serving as a member of our Compensation Committee
or (2) served as a member of the compensation committee of any other entity that had one or more of its executive officers serving as a member of our Board
during 2021.
31
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Beneficial Ownership of Directors, Nominees and Executive Officers
The following table shows how many shares of our Class A common stock were beneficially owned as of April 29, 2022, by each of our directors and
named executive officers and by all of our directors and named executive officers as a group. Unless otherwise noted, the stockholders listed in the table have
sole voting and investment power with respect to the shares owned by them.
Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Percent of
Class
Brett H. Barth
95,789(1)
*
Katherine E. Dietze
12,007(2)
*
Gregg A. Gonsalves
—(3)
*
Lorence Kim
30,000
*
Steven Kotler
2,500(4)
*
Lawrence E. Leibowitz
8,000(5)
*
Margaret L. Poster
13,547(6)
*
Douglas A. Rediker
—(7)
*
Jeffrey M. Solomon
619,194
2.25%
John Holmes
210,312
*
Stephen A. Lasota
248,665
*
Owen S. Littman
195,837(8)
*
All directors and executive officers as a group (12 persons)
1,435,851
5.22%
*
corresponds to less than 1% of Cowen Inc. Class A common stock,
(1) The amount presented does not include 4,121 fully-vested RSUs that will be delivered to Mr. Barth upon the one-year anniversary of the grant date.
(2) The amount presented does not include 67,602 fully-vested RSUs that will be delivered to Ms. Dietze upon her retirement from the Board.
(3) The amount presented does not include 10,480 fully-vested RSUs that will be delivered to Mr. Gonsalves upon the three-year anniversary of the grant
date.
(4) The amount presented does not include 64,749 fully-vested RSUs that will be delivered to Mr. Kotler upon his retirement from the Board.
(5) The amount presented does not include the 34,323 fully-vested RSUs that will be delivered to Mr. Leibowitz upon his retirement from the Board.
(6) The amount presented does not include 3,170 fully-vested RSUs that will be delivered to Ms. Poster upon the three-year anniversary of the grant date.
(7) The amount presented does not include 62,007 fully-vested RSUs that will be delivered to Mr. Rediker upon his retirement from the Board.
(8) Includes 275 shares held in custodial accounts on behalf of Mr. Littman’s children.
32
Beneficial Owners of More than Five Percent of Our Class A Common Stock
Based on filings made under Section 13(d) and Section 13(g) of the Securities Exchange Act of 1934, as of April 29, 2022, the persons known by us to
be beneficial owners of more than 5% of our Class A common stock were as follows:
Name and Address of Beneficial Owner
Amount and
Nature of
Beneficial Ownership
Percent of
Class
BlackRock, Inc.(1)
55 East 52nd Street
New York, NY 10055
2,656,131
9.66%
The Vanguard Group(2)
100 Vanguard Boulevard
Malvern, PA 19355
1,665,334
6.06%
Azora Capital L.P.(3)
3350 Virginia Street, Suite 219
Coconut Grove, FL 33133
1,497,441
5.45%
(1) This information is based on a Schedule 13G filed with SEC on February 3, 2022 by BlackRock, Inc. Blackrock reported that it has sole voting power as
to 2,493,395 and sole dispositive power as to 2,656,131 shares. The beneficial ownership indicated above represents the aggregate beneficial ownership
of BlackRock, Inc., and its subsidiaries, BlackRock Life Limited, Aperio Group, LLC, BlackRock (Netherlands) B.V., BlackRock Advisors, LLC,
BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Japan Co., Ltd, BlackRock Asset
Management Schweiz AG, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Fund Managers Ltd., BlackRock
Institutional Trust Company, N.A., BlackRock Investment Management, LLC, BlackRock Investment Management (Australia) Limited and BlackRock
Investment Management (UK) Limited.
(2) This information is based on a Schedule 13G filed with the SEC on February 9, 2022 by The Vanguard Group (“Vanguard”). Vanguard reported that it
has shared voting power as to 28,381 shares, sole dispositive power as to 1,615,975 shares and shared dispositive power of 49,369 shares.
(3) This information is based on a Schedule 13G filed with the SEC on February 14, 2022 by Azora Capital L.P., Azora Capital GP LLC and Ravi Chopra
(“Azora”). Azora reported that it has shared voting and dispositive power as to 1,456,873 shares.
33
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors to file initial reports of ownership of our securities
and reports of changes in ownership of our securities with the Securities and Exchange Commission.
Based on a review of copies of such reports and on written representations from our executive officers and directors, we believe that all
Section 16(a) filing and disclosure requirements applicable to our executive officers and directors for 2021 have been satisfied.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes, as of December 31, 2021, the number of shares of our common stock to be issued upon exercise of outstanding options
granted under our 2020 Equity and Incentive Plan, the weighted-average exercise price of such options, and the number of shares remaining available for
future issuance under the plans for all awards as of December 31, 2021.
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and
Rights
Number of
Securities
Remaining Available
for Future Issuance
Under the Equity
Compensation Plan
(Excluding Shares in
First Column)
Equity compensation plans approved by security holders
---
----
2,496,084
Equity compensation plans not approved by security holders
None
N/A
None
(1) This number is based on the 28,207,533 shares authorized for issuance under the Company’s Equity and Incentive Plans as of December 31, 2021. As of
March 31, 2022, we had 594,054 shares remaining under the equity plans, which exclude shares reserved for issuance based on certain performance
criteria in existing agreements.
Item 13. Certain Relationships and Related Transactions and Director Independence
Director Independence
Under applicable Nasdaq Stock Market Rules, a director will only qualify as an “independent director” if, in the opinion of our Board, that person does
not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our Corporate Governance Guidelines require that a majority of the Board be composed of directors who meet the independence criteria establish by
NASDAQ Stock Market, Inc. Marketplace Rules. Under applicable NASDAQ Stock Market rules, a director will only qualify as an “independent director”
if, in the opinion of our Board, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. In making its determination, the Board considers all relevant facts and circumstances, both with respect to the director and with
respect to any persons or organizations with which the director has an affiliation, including immediate family members.
Our Board has determined that none of Mses. Dietze or Poster nor Messrs. Barth, Gonsalves, Kim, Kotler, Leibowitz or Rediker currently has a
relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is
an “independent director” as defined under Rule 4200(a)(15) of the NASDAQ Stock Market, Inc. Marketplace Rules.
Mr. Solomon cannot be considered an independent director under NASDAQ Stock Market rules because Mr. Solomon currently serves as our Chief
Executive Officer. Therefore, the Board has determined that seven of our eight directors are independent.
34
Related Transactions Involving Our Executive Officers
Side-by-Side Investments
To the extent permissible by applicable law, our executive officers, directors and certain eligible employees, as well as such individuals’ immediate
family members and other investors they refer to us, have historically been permitted to invest their own capital either directly in, or in side-by-side
investments or managed accounts with, our alternative investment management funds and certain proprietary investment vehicles established by our broker-
dealer segment. Side-by-side investments are investments in assets substantially similar to the investments of the applicable fund and the managed accounts
are accounts that invest in the asset classes covered by our alternative investment business. Direct investment in managed accounts or side-by-side
investments with, our funds by such individuals are generally made on the same terms and conditions as the investments made by other third party investors
in the funds, except that such investments are subject to discounted management and performance fees.
Employment Arrangements
Kyle Solomon, the brother of Jeffrey M. Solomon, is a Managing Director of Cowen and Company and earned approximately $2,505,054 in 2021,
which amount includes Kyle Solomon’s base salary, cash bonus paid in 2021 relating to 2020 and 2021 performance and approximately $404,034 of deferred
cash awards, RSUs granted in prior years that vested during 2021 and cash dividend equivalent payments.
Review and Approval of Transactions with Related Persons
To minimize actual and perceived conflicts of interests, the Board has adopted a written policy governing transactions in which the Company is a
participant, the aggregate amount involved is reasonably expected to exceed $120,000, and any of the following persons has or may have a direct or indirect
material interest in the transaction: (a) our executive officers, directors (including nominees) and certain other highly compensated employees,
(b) stockholders who own more than 5% of our Class A common stock, and (c) any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-
in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law or person (other than a tenant or employee) sharing the same household of any person
described in (a) or (b) above. These transactions will be considered “related person transactions.”
Unless exempted from such policy as described below, the policy requires that related person transactions must be reported to our General Counsel or
Chief Compliance Officer who will then submit the related person transaction for review by our Audit Committee. The Audit Committee will review all
relevant information available to it and will approve or ratify only those related person transactions that it determines are not inconsistent with the best
interests of the Company. If our General Counsel or Chief Compliance Officer determines that advance approval of a related person transaction is not
practicable under the circumstances, the Audit Committee will review, and, in its discretion, may ratify the related person transaction at its next meeting, or
at the next meeting following the date that the related person transaction comes to the attention of our General Counsel or Chief Compliance Officer.
However, the General Counsel or Chief Compliance Officer may present a related person transaction that arises between Audit Committee meetings to the
Chair of the Audit Committee, who will review and may approve the related person transaction, subject to the Audit Committee’s ratification at its next
meeting.
It is anticipated that any related person transaction previously approved by the Audit Committee or otherwise already existing that is ongoing will be
reviewed annually by the Audit Committee to ensure that such transaction has been conducted in accordance with the previous approval granted by the Audit
Committee, if any, and that all required disclosures regarding the related person transaction are made.
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, the board anticipates it will
determine that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person
transactions for purposes of the policy:
·
interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of
such entity), that is a participant in the transaction, where (a) the related person and all other related persons own in the aggregate less than a 10%
equity interest in such entity, (b) the related person and his or her immediate family members are not involved in the negotiation of the terms of the
transaction and do not receive any special benefits as a result of the transaction, (c) the amount involved in the transaction equals less than the
greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction;
35
·
a transaction with a significant stockholder, or such stockholder’s immediate family members, who has a current Schedule 13G filed with the SEC
with respect to such stockholder’s ownership of our securities; and
·
a transaction that is specifically contemplated by provisions of our charter or bylaws.
The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Compensation Committee in
the manner specified in its charter.
Item 14. Principal Accounting Fees and Services
Independent Registered Public Accounting Firm Fees and Other Matters
The following table presents the aggregate fees billed for services rendered by KPMG LLP, our independent registered public accounting firm for the
fiscal years ended December 31, 2021 and December 31, 2020.
2021
2020
Audit Fees(1)
$
6,221,827 $
5,653,283
Audit-Related Fees(2)
50,156
47,274
Tax Fees(3)
1,096,363
1,143,687
All Other Fees(4)
235,422
86,100
Total
7,603,768
6,930,345
(1) Audit fees reflect audit fees incurred for the Cowen Inc. integrated audit and quarterly reviews as well as the financial statement audits of its
consolidated subsidiaries.
(2) Audit-Related Fees reflect fees for attestation procedures required by local regulations for consolidated subsidiaries.
(3) Tax fees reflect tax compliance and tax advisory services.
(4) All Other Fees relate to due diligence and other non-tax advisory and consulting services.
KPMG LLP also provided services to entities affiliated with Cowen Inc. that were billed directly to those entities and, accordingly, were not included in
the amounts disclosed above. These amounts included $1,470,715 and $1,317,500 for the audits of private equity funds, hedge funds and other fund
structures within the Cowen Investment Management business for the years ended December 31, 2021 and December 31, 2020, respectively.
Auditor Services Pre-Approval Policy
The Audit Committee has adopted an Audit Committee Policy Regarding Outside Auditor Services which includes a pre-approval policy that applies to
services performed for the Company by our independent registered public accounting firm. In accordance with this policy, we may not engage our
independent registered public accounting firm to render any audit or non-audit service unless the service was approved in advance by the Audit Committee
or the engagement is entered into pursuant to the pre-approval policies and procedures described below.
The pre-approval policy delegates to the Chair of the Audit Committee the authority to pre-approve any audit or non-audit services, provided that any
approval by the Chair is reported to the Audit Committee at the Audit Committee’s next regularly scheduled meeting. The Audit Committee may also pre-
approve services that are expected to be provided to the Company by the independent registered public accounting firm during the next 12 months and at
each regularly scheduled meeting of the Audit Committee, management or the independent registered public accounting firm must report to the Audit
Committee each service actually provided to the Company pursuant to the pre-approval.
Our Audit Committee has determined that the provision of the non-audit services described in the table above was compatible with maintaining the
independence of our independent registered public accounting firm. The Audit Committee reviews each non-audit service to be provided and assesses the
impact of the service on the registered public accounting firm’s independence.
36
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)
Documents filed as part of this Annual Report on Form 10-K/A:
3. Exhibits
Exhibits are incorporated herein by reference or are filed with this report as indicated below:
Exhibit No.
Description
31.3
Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.4
Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
37
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COWEN INC.
By: /s/ Jeffrey M. Solomon
Name: Jeffrey M. Solomon
Title: Chief Executive Officer
Dated: May 2, 2022
38
Exhibit 31.3
Certification
I, Jeffrey M. Solomon, certify that:
1.
I have reviewed this Amendment No.1 on Form 10-K/A of Cowen Inc.; and
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
Date: May 2, 2022
/s/ Jeffrey M. Solomon
Name: Jeffrey M. Solomon
Title:
Chief Executive Officer
(principal executive officer)
39
Exhibit 31.4
Certification
I, Stephen A. Lasota, certify that:
1.
I have reviewed this Amendment No.1 on Form 10-K/A of Cowen Inc.; and
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
Date: May 2, 2022
/s/ Stephen A. Lasota
Name: Stephen A. Lasota
Title:
Chief Financial Officer (principal financial officer and principal
accounting officer)
40
Stock Performance
The following graph and table compare the performance of an investment in our common stock with investments
in the S&P 500 Index and the S&P 600 Financials Index over the period of December 31, 2016 through December
31, 2021, the last day of trading in fiscal 2021. Both the graph and the table assume that $100 was invested on
December 30, 2016 and the dividends, if any, were reinvested on the date of payment. The performance shown in
the graph represents past performance and should not be considered indicative of future performance.
12/31/16
12/31/21
Cowen Inc.
$100.00
$238.03
S&P 500
100.00
233.41
S&P 600 Financials
100.00
140.80
$0
$50
$100
$150
$200
$250
$300
12/16 3/17 6/17 9/17 12/17 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 3/21 6/21 9/21 12/21
Cowen Inc.
S&P 500
S&P 600 Financials
CAPABILITIES
INVESTMENT BANKING
MARKETS
RESEARCH
INVESTMENT MANAGEMENT
LOCATIONS
U.S.
ATLANTA
BOSTON
CHICAGO
CLEVELAND
DALLAS
DETROIT
HOUSTON
INDIANAPOLIS
LOS ANGELES
MINNEAPOLIS
NEW YORK
ORLANDO
SAN FRANCISCO
STAMFORD
WASHINGTON, DC
INTERNATIONAL
BELFAST
BERLIN
FRANKFURT
GRAZ
HONG KONG
LEIPZIG
LONDON
LUXEMBOURG
MALTA
MUNICH
TEL AVIV
ZURICH
©2022 COWEN, INC. ALL RIGHTS RESERVED.
COWENRESEARCH
COWEN
COWEN.COM
COWEN INC.