Morgan Stanley (NYSE:MS) Q4 2019 Earnings Conference Call - Final Transcript

Jan 16, 2020 • 08:30 am ET

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Morgan Stanley (NYSE:MS) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Analyst
Operator

Thank you. [Operator Instructions] Our first question comes from Glenn Schorr with Evercore ISI. Your line is now open.

Analyst
Glenn Schorr

Hi, thanks very much. Just curious, within your two-year objectives, what -- particularly on the ROTCE, what capital return assumptions are incorporated into that? Is that steady state now or any changes from what we've seen in the last couple of years?

Executive
James P. Gorman

Well, again, just from a tactic -- technical standpoint, since we haven't seen the new proposals which we think are forthcoming, it's sort of hard to say what the future return profile looks like, other than it will be consistent with we've done prior until we have more information.

Analyst
Glenn Schorr

Okay. Fair enough. On the gain in that Investment Management, I guess, IPO out of a private equity fund, I'm assuming there's a standard lockup and illiquidity discount. Can you tell us what that company is so we can track it, so we don't have surprise ups and downs every quarter?

Executive
James P. Gorman

I'll give you some more information on that, but first I'd clarify. There is no illiquidity discount there. The company is public and it's marked to the stock price on a daily basis. And you mentioned, it is in the Asia, one of our Asia PE funds. It was an investment we've made more than six years ago or the fund made more than six years ago into a China consumer products company. The company has been quite successful and grown quite nicely, and it went public in the fourth quarter on the Hong Kong exchange. And the IPO has performed quite nicely.

To give you some sort of context around the round numbers, the investment that we made was less than $50 million and the current investment value is approximately $2 billion. So, we have not only the carried interest, we also have a small LP investment in the fund. And so the ownership and carry is going to be fluctuating until we have the underlying investment monetized. So as of today, we're comfortably above the preferred return threshold in that fund. But as I said before, it's an unrealized gain. So, we'll have more volatility if there is volatility in the stock price.

So just to sum up, given the size and given that it's public, we would expect a little bit more volatility in that investment line in IM. And we would also expect corresponding volatility in the IM compensation line as the investment team has about half of the carry typically.

Analyst
Operator

Thank you. Our next question comes from Christian Bolu with Autonomous. Your line is now open.

Analyst
Christian Bolu

Good morning. Maybe a question on Wealth Management. I believe you made -- you recently made some changes to the comp grid that should be beneficial to Wealth Management margins certainly next year. I think the longer -- the question is longer term. Can you keep pulling the comp lever? I guess, as I look at the industry, and what's happened over the last decade, whether it's in a