MC Moelis Initiating

www.jpmorganmarkets.com

North America Equity Research12 May 2014

Moelis & Company (MC;MC US)

FYE Dec 2013A 2014E 2015E 2016EEPS ($)Q1 (Mar) 0.01 0.37A 0.38 0.40Q2 (Jun) 0.24 0.26 0.30 0.30Q3 (Sep) 0.17 0.37 0.40 0.43Q4 (Dec) 0.39 0.56 0.68 0.74FY 0.80 1.56 1.77 1.88

Source: Company data, Bloomberg, J.P. Morgan estimates.

Company DataPrice ($) 27.55Date Of Price 09 May 1452-week Range ($) 28.14-25.75Market Cap ($ mn) 1,497.80Fiscal Year End DecShares O/S (mn) 54Price Target ($) 31.00Price Target End Date 31-Dec-14

Moelis

Initiation

OverweightMC, MC US

Initiating Coverage with an Overweight RatingPrice: $27.55

Price Target: $31.00

Brokers, Asset Managers & Exchanges

Kenneth B. Worthington, CFA AC

(1-212) 622-6613

[email protected]

Bloomberg JPMA WORTHINGTON <GO>

J.P. Morgan Securities LLC

See page 24 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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We are recommending Moelis with an Overweight rating and 12/2014 price target of $31. As a leading investment banking boutique, we believe Moelis is positioned to take advantage of an improving M&A environment, one in which boutiques are gaining market share as companies seek multiple advisors. Moelis has a unique compensation structure that we feel better promotes internal growth and reduces the potential that Moelis will stagnate and peak, as have many other boutiques historically. We see earnings growth near term being driven by the seasoning of its MDs and its expansion into new sectors and geographies.

M&A environment recovering. The M&A environment has been slowly recovering since its recent trough in 2009. Total global deal value recovered to $2.5tn in 2013 compared with 2009’s level of $2.3tn, but it still remains well below the peak of $4.6tn reached in 2007. Activity levels so far in 2014 areamongst the strongest since 1995, which we view as a particular benefit to the boutiques, which have been gaining deal market share, and to Moelis particularly given its M&A focus with no trading or fixed income businesses.

Boutiques gaining market share. Boutiques are gaining meaningful market share of M&A fees. These share gains are being driven by both increased use of multiple advisors on deals and by a greater absolute use of boutiques given the recent negative press associated with larger banks. Boutiques now account for ~22% of advisory deal value, up from ~18% in 2009 and ~ 9% in 2000.

Moelis developing a culture of sustainable growth. Moelis has an innovative compensation structure of restricted compensation as well as clawbacks on cash awards. Bankers have access to unvested cash, but the potential to have to repaythat award encourages retention and MD focus on junior banker development. The banking team is cross-trained and collaborative across disciplines, sectors and geography, enabling greater efficiency and productivity.

Relative valuation attractive; well positioned to earn a premium. We value Moelis at 17.5x our 2015 EPS estimate, a discount to its boutique peers due to its more limited operations as a public company and lower-than-peer projected growth. However, we believe earnings forecasts for Moelis are more conservative than peers’ and that as the differences are reconciled, projections for Moelis will rise and valuation will expand. Our 12/2014 price target is $31.

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Kenneth B. Worthington, CFA(1-212) [email protected]

Table of ContentsInvestment Thesis ....................................................................3

Risks to Rating and Price Target ............................................4

Company Description ..............................................................5

Moelis Business Overview ......................................................5

Financial Outlook ...................................................................20

Valuation .................................................................................20

Model .......................................................................................21

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Investment Thesis

Moelis Participates in the Growing M&A Marketplace

We view the M&A business as attractive, as it generates high returns on equity and has stable margins. The business generates high revenues with a minimum amount of capital and number of employees. Barriers to success are high given that it’s a highly relationship-driven business. We expect it will be an increasingly valuable business as bigger banks seek less capital-intensive sources of revenue given the increased regulatory costs impacting the trading and fixed income businesses.

Data shows that global M&A activity levels are still down meaningfully compared to pre credit crisis levels, offering potentially meaningful revenue upside. Activity levels as measured by deal value completed were $2.4tn in 2013, well below peak levels achieved in 2007. As a percent of GDP, M&A deal value is 17.4% today versus over 30% in past peaks and the 23% average over the past two decades. Deal activity has been improving, with activity levels growing steadily since their recent trough in 2009. In fact, 2014 has been one of the strongest starts to a year since 1995, which we believe bodes well for the near- and long-term M&A outlook.

Unlike other banks and most boutiques, Moelis is a pure-play on M&A. Given the asset management outlook is more uncertain with choppy markets, the exchange outlook is poor with falling volumes, and the banking outlook is challenged by higher capital requirements, we believe an investment based on the growing M&A market would be well placed.

Boutiques Are Taking Market Share

There has been a bigger shift of activity levels to the boutiques over the past 13 years (2000-2013). Corporate boards of directors are increasingly seeking the independent advice presented by the boutiques. We see this in the uptick of deals utilizing more than one advisor, a number that is up 50% over the last 10 years. Boutiques were involved in ~39% of M&A transactions in 2013, up from ~27% a decade before. Given the continued demand for multiple advisors and the migration of bankers from the bulge bracket to boutiques, we see boutiques continuing to gain share.

Moelis Has Developed a Culture for Success, Driving Up Production per Banker

We believe Moelis has developed a culture that distinguishes it from its larger and smaller peers, one that permits it to grow earnings quicker than peers over time. The focus point of the differentiation is compensation and Moelis’s ability and willingness to use compensation to influence banker and MD behavior.

Moelis offers restricted stock and options like many other investment banks. What is different, however, is that Moelis also has a clawback provision for its cash compensation, which is calculated off a single global bonus pool that doesn’t segment based on region, product or sector.

The nature of the bonus pool and clawback provision increases the level of influence that Moelis’s management has on banker/MD behavior – it goes beyond tying pay toproduction. Compensation arrangements increase the incentives for senior bankers to train junior personnel, developing talent for the longer-term success of Moelis. It’s

Moelis & Co. (MC)

Overweight

Moelis 2013 Revenue Mix

Source: Company reports.

Industry (Avg) Mix(5yr avg based on rank value

Source: Company reports.

Cnsmr, Retail &

Rest., 11%

Fin. Inst & Gov't, 18%

Industrials, 21%

Tech, Media,

Telecom,

28%

Energy & Power, 4%

RE, Gmbl., Lodg.,& Leisure,

12%

Healthcare, 6%

Cnsmr, Retail &

Rest., 12%Fin. Inst &

Gov't, 15%

Industrials, 19%Tech, Media,

Telecom, 18%

Energy & Power, 19%

RE, Gmbl.,

Lodg.,& Leisure, 9%

Healthcare, 9%

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the sharing of relationships and contacts as well as sector and banking knowledge that helps drive better production out of the junior bankers over time.

Earnings Upside Comes from Expansion into New Geographies and Sectors

Earnings upside should result from the seasoning of the new MDs. Productivity typically increases over time for MDs, which for Moelis has gone from an average of $4mn in year 1 to $8mn by year 5. Having hired 200 junior bankers over the last three years, and having brought on and promoted over 20 MDs over the last two years, we see opportunity for upside. We model that productivity per banker/yearwill rise from $5mn in 2013 to $6.4mn in 2016. This leads to projected revenue increases over that time of $135mn on productivity alone.

Valuation – Moelis Comes at a Discount, Offering Potential Upside vs Peers

As a new publicly traded company, we believe investors are valuing Moelis at a discount to peers while they determine the aggressiveness/conservativeness of revenue/expense guidance. If the company’s compensation structure can drive higher and more effective growth than expected over the interim, allowing the firm to grow through the levels at which other boutiques over time have gotten capped. Then we expect Moelis to go from trading at a discount to trading at a premium to peers. Moelis currently trades at ~15.5x our 2015 EPS estimate of $1.77, a 3.4x discount to the peer average. While growth projections are lower for Moelis than its peers, we think conservative guidance (and therefore estimates) is the root cause. If the M&A environment continues to improve, then Moelis could exceed estimates and experience multiple expansion. We value Moelis at 17.5x our 2015 EPS estimate, a small discount to where the peer group is trading. This brings us to a December 2014 price target of $31, representing upside of ~13% from its current stock price.

Risks to Rating and Price Target

Reputational Risk

We see brand as particularly important to Moelis’s business, especially given Moelis’s smaller size and more limited operational history. Were the brand to get damaged, it could impair the perception of Moelis being able to offer unconflicted advice, potentially meaningfully driving down its activity, earnings and valuation.

Product Conflicts

Boutiques have been winning market share based on their ability to offer less conflicted advice, which we think reflects its smaller size and focus on the M&A advisory. Should the need for other products such as financing play a greater role in adviser selection, boutiques could suffer losses in market share.

Market Risk

Given Moelis’s exposure to market conditions, an adverse M&A environment could have a negative impact on earnings, as it doesn’t have the diversification of many of its peers. As such, it could be subject to more downside risk.

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Key Man Risk

A departure by Ken Moelis, the founder and CEO of Moelis & Co., from Moelis could impair the firm’s reputation, its ability to attract bankers and clients, and thus hinder the company’s ability to grow and prosper.

Company Description

Moelis & Company is a leading global independent investment bank that provides innovative strategic and financial advice to a diverse client base, including corporations, governments and financial sponsors. Moelis advises clients across all major industry sectors and offers strategic solutions that include but are not limited to mergers and acquisitions, restructuring and recapitalization, as well as corporate finance. Moelis employs over 300 advisory professionals, which includes 80+ Managing Directors in 15 offices around the globe who have advised on over $1 trillion of transactions since the company’s inceptions in 2007. The company became publicly traded in April 2014, and J.P. Morgan acted as a passive advisor.

Moelis Business Overview

Moelis & Co. is one of the leading independent investment banks, offering advisory services across all major industry sectors to global corporations, governments, and financial sponsors. As part of its advisory practice, Moelis has one of the toprestructuring businesses. The firm was ranked No.1 global restructuring advisor in 2009 and has placed 12th overall in the US M&A business.

Moelis’s Operations Are Broad in Sector and Geography

Moelis participates in all major industries, where it offers traditional M&A advisory services in the Consumer, Retail & Restaurants, Financial Institutions, Financial Sponsors, General Industrials, Healthcare, Natural Resources, Real Estate, Gaming, Lodging & Leisure and Technology, Media & Telecommunications sectors. The company fully integrates these sectors within its M&A, Recapitalization & Restructuring, Capital Markets, and Financial Institutions advisory franchises.

Moelis seems to be best known for its work within the General Industries, Media, FIG and Gaming & Lodging sectors, where its senior bankers have a long history of expertise and established client relationships. Moelis offers a full suite of advisory services (as do its peers), but the holistic approach to providing advisory solutions with integrated capabilities seems differentiated to us and has helped the company win mandates in some of the biggest advisory deals over the last few years, including the €30bn+ sale of Natixis’s derivative portfolio. Other notable transactions include the $29.6bn American Airline Chapter 11 bankruptcy and the following $17bn merger with US Airways, where Moelis demonstrated its integrated advisory capabilities by working on both the restructuring /bankruptcy as well as the merger.

On the following page, in Table 1, we highlight some of Moelis’ biggest deals.

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Table 1: Moelis's Top Cross-Border Deals Demonstrate its Global Footprint and Diverse Industry Expertise

Source: Company data.

Part of Moelis’s success has been driven by its resources outside the US and its ability to participate in cross-border transactions, which, as seen above, include many of the larger transactions by deal size. Moelis has made significant investments in expanding its global advisory footprint and currently advises clients in six regions (North America, South America, Europe, Middle East, APAC, and China) where it operates out of 15 offices.

Not surprisingly, Moelis has its biggest presence in North America, where it has sixoffices, but sees greater advisory opportunities and attractive industry sectors in Europe and Asia Pacific, where the company is looking to expand its presence. South America/LATAM is another strategically important location for Moelis. With a lot of advisory potential, especially within the commodities, utilities and energy sectors, Moelis sees budding opportunities for its business there and has already initiated efforts to establish a presence in the region.

Figure 1: Moelis’s Global Footprint (No. of Offices)%


Client Deal Size Transaction

Anheuser Busch $61.2bn $61.2 billion sale to InBev SA

Yahoo $44.6bn $44.6 billion unsolicited proposal from Microsoft Corporation

Natixis €30bn €30 billion sale of most of its complex credit derivative portfolio

Omnicom Group $35.1bn $35.1 billion merger with Publicis Groupe SA*

American Airlines $46.6bn

$29.6 billion Chapter 11 Reorganization;

$17.0 billion merger with US Airways Group, Inc.

Heinz $28bn $28 billion sale to Berkshire Hathaway Inc. and 3G Capital, Inc.

Hilton $26.5bn $26.5 billion sale to The Blackstone Group L.P.

Gov't of Dubai $24.9bn $24.9 billion restructuring of Dubai World Corporation

Geographies

North America (6)

40%

South America (1)6%

Europe (3)20%

Middle East (1)7%

Asia & Australia (3)

20%

Mainland China (1)7%

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Despite a Competitive Landscape, Moelis Continues to Take Share and Grow

Given Moelis’s position as one of the fastest growing independent banks, both regionally and internationally, the firm’s competitors include large bulge-bracket investment banks as well as boutique peers like Greenhill, Evercore, and Lazard. Moelis’s principal businesses are strategic advisory (M&A) and restructuring/recapitalizations. By its nature, restructuring is inherently a cyclical business and was a meaningful source of revenue for Moelis during and immediately after the financial crisis, with the company being ranked as the No.1 global restructuring advisor in 2009. Moelis’s biggest revenue driver, however, continues to be its M&A services segment, which has grown meaningfully in recent years, with the company rankingas the no.12 US M&A advisor since 2007, growing to generate ~4% M&A market share most recently in 2013.

M&A Environment Is Attractive and Growing/Recovering

We view M&A as an attractive business with high ROEs – as high as 46% for some peers such as Lazard. Given the increasing capital intensity for fixed income and derivative businesses, we think the advisory business, with its more consistent but still attractive margins in the 30% range, will become increasingly valuable to the more regulated bulge bracket brokers, and thus the standalone companies should earn a higher valuation over time.

M&A Business Slowly Recovers from the Financial Crisis, with Meaningful Upside Back to the Prior Volume Peak in 2007

M&A activity has been slowly recovering since the end of the financial crisis in early 2009. The number of M&A transactions has increased over the last five years, and we have witnessed an upward trend in deal volumes since the more recent trough in 2009. We also point out that M&A activity is having one of the best starts to the year in the US, with ~$650bn announced through April 30. Over the last two decades, only 2000 and 2007 started more strongly.

Below, in Figure 2, we show M&A global deal value over the last nearly two decades. In Figure 3, we show the recovery in the number of transactions each year,both within and outside the US. We note that while deal value and transaction activity levels are off trough levels, we see meaningful opportunity to get back to the peak levels experienced in 2000 and 1997.

Figure 2: M&A ($ Deal Value in mm) Has Shown Modest Increase over the Last 5 years

Source: J.P. Morgan estimates, Dealogic.

Figure 3: Total M&A Activity Globally (# of Transactions); M&A Transactions Have Peaked since 2009


Figures 2 and 3 support our view that activity levels and therefore Moelis’s earnings remain well below their potential based on industry activity levels seen both at peak and at more normal levels. Figure 4 on the following page highlights M&A deal

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value as a percent of 1-year trailing GDP, which is still well below the highs of 1999-2000 and 2006- 2007. All of this points to the assessment that deal value is still in the earlier stages of a cyclical recovery, with meaningfully more room for greater activity levels.

Figure 4: M&A Deal Value as a % of the 1-yr Trailing GDP, Shows that There Is Still a Lot of Room for an M&A Recovery Back to Previous Highs

Source, J.P. Morgan estimates, Dealogic Bloomberg.

Figure 5: Total M&A Deal Value ($) as a % of ECM Deal Value ($). M&A Activity in Remains Depressed vs. ECM Activity

Source, J.P. Morgan estimates, Dealogic.

Figure 6: Total M&A Deal Value ($) as % of DCM (Corp Bond) Deal Value ($). M&A Activity Remains Depressed vs. DCM (Cop. Bond) Activity


Based on current revenue at Moelis, were activity levels to return to peak levels and remain there for a year, we estimate Moelis’s revenue could grow 70%-80%, which could lead to an incremental $1.10 of EPS in 2015.

Continued Activity in Recapitalization and Restructuring Market

We believe the restructuring business could also experience growth from current levels as more frothy credit dynamics season. The amount of leverage, including floating rate instruments, that companies have taken on in recent years could becomethe catalyst for a more consistent recapitalization and restructuring market in the coming years. As interest rates rise, credit markets could become more difficult to access, even with an improving macroeconomic environment, increasing the need for restructuring and recapitalization services. While restructuring has often been countercyclical to traditional M&A, we see the potential for both Advisory and Restructuring to potentially be strong at the same time.

Both 2012 and 2013 represented record years of leveraged finance issuance in the U.S., as companies took advantage of historically low borrowing costs to leverage their capital structures. We believe Moelis is well positioned to assist companies

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through its holistic approach to providing solutions to clients in both robust and challenging economic environments.

The Restructuring Business Provides a Strong Ballast to the Traditional Advisory Business

The M&A business is particularly rewarding in periods of high deal activity, but is typically cushioned in cycle downturns from strength in the restructuring business. In times of economic uncertainty and weaker M&A activity, bankers often offer other investment banking services like recapitalization and restructuring to companies undergoing bankruptcy or which are in financial distress.

Moelis has done a good job in building out its restructuring business, in our view. While the restructuring franchise has just a handful of truly dedicated bankers with particularly focused technical expertise, Moelis has cross trained advisory bankers in restructuring. According to data provided by Moelis, 2012 and 2013 represented twoof the biggest years of leverage finance issuance as companies took advantage of lower borrowing costs to finance their capital expenditures. The fact that many companies have taken on additional leverage in recent years due to historically low interests rates provides some indication that activity will continue (as interest rates rise or credit become tighter) in restructuring for Moelis over the next few years.

Boutiques Are Well Positioned within M&A Market –Continue to Gain Share

Independent investment banks/boutiques have taken advantage of the dislocated financial markets over the recent years to gain M&A advisory market share, whichwe believe is a result of continued turmoil and structural struggles at the lager (bulge bracket) banks, which have faced regulatory scrutiny and a shrinking cost structure.This is particularly true of European banks, which have continued to disclose layoffs in the wake of the financial crisis in 2008.

Below, in Figure 7, we show that the boutiques are participating in an ever-increasing percentage of M&A deal value, according to Dealogic.

Figure 7: Boutiques Taking M&A Market Share – Shown Below as Boutique (Deal $) as % of Total M&A (Deal $); Boutique Activity Has Increased, Driving Investment Banking Revenues Higher


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Corporate Management Teams and Boards of Directors Increasingly Seeking Boutique Advisors

The dynamics and the nature of advisory services sought by clients have been increasingly shifting to what can be perceived as more independent advice. In this search for flexibility, clients’ corporate boards have been hiring boutiques with specialized expertise to work alongside the larger banks, and are increasingly hiring the boutiques instead of and in addition to the bulge bracket firms. No longer do we typically see one advisor on transactions, but rather two, three, four or five advisors participating and ultimately sharing the advisory fees. Clients are increasingly interested in obtaining broad-based advice that enables them to build relationships with different advisors and utilize these partnerships for future business needs. Having this flexibility not only helps clients’ corporate boards hire boutiques with specialized expertise to work alongside the larger banks, and are increasingly hiring the boutiques instead of the bulge bracket firms.

Hiring multiple advisors and allocating work to different advisors working on a single transaction has given boutiques a greater foothold within higher-end deals (high profile/larger $ size) that in the past were serviced by a few top bulge bracket firms. Running leaner teams with extensive M&A advisory expertise has given boutiques an arguably slight edge/competitive advantage in pure M&A advisory over the larger banks, some of which have struggled to retain top talent and support continuity of relationships and services. Generally speaking, the ability of boutique firms to hire and then deploy well-rounded seasoned bankers has enabled them to operate leaner and more efficient teams that still deliver high caliber services toclients.

Figure 8: The Number of Deals with More than One Target Advisor Has Doubled Since 2000


Larger Banks Suffer Operational, Regulatory and Financial Challenges,Resulting in Banker Turnover

Sweeping changes in the regulatory landscape in the aftermath of the financial crisis have made it easier for boutiques like Moelis to hire bankers from larger banking competitors. Bulge bracket firms face heightened operational and regulatory challenges that have resulted in lower compensation. Larger capital requirements andresulting profitability challenges in non-banking businesses have made larger banks more reliant on growing profits in their advisory revenues to offset rising capital costs elsewhere, and lower compensation has become an industry-wide phenomenon.

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% of M&A Deals with >1 Target Advisor(s) out of Total # of M&A Deals

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With banker compensation impacted by the successes and failures of other departments within larger, diversified financial organizations, and with pressure to cross-sell financial products, Moelis has had an easier time recruiting and retainingMDs.

Moelis Growing Fast Within the Boutique Segment

Moelis has experienced robust revenue growth over the last six years, driven by a very strong restructuring franchise and a growing M&A business. Moelis has generated a revenue CAGR of 45%, bringing on a healthy mix of new M&A and restructuring mandates by increasing headcount and expanding its advisory practice internationally.

When comparing Moelis’s activity levels to those of other boutiques, we see the company has been winning market share, having grown to ~5% of the advisory market at the end of 2013. Below, in Figure 9, we show Moelis’s mix of Advisory and Restructuring revenue. It is apparent here that Moelis has a meaningful franchise in both disciplines.

Figure 9: Strategic Advisory Has Shown Higher Revenue Distribution Over the Last Three Years, Whereas Restructuring (more cyclical businesses) Was Greater in 2009 -2010


In Figure 10, we show Moelis’s growth as a function of the increase in its MD headcount.

Figure 10: US and International MD Headcount Has Increased Every Year Since 2008; Larger Growth Has Occurred in R.O.W. Over the Last 3 Years, Where MD Headcount Grew to 23 in 2013


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In Figure 11, which follows, we see that Moelis is adding MDs (now largely through internal promotions) at a more rapid pace than at its leading boutique competitors. We believe Moelis is well positioned to grow more quickly than other boutique peers given its smaller size and its more rapidly expanding base of producing MDs. Here,we note that Moelis has been growing MDs at a 35% CAGR compared with peer growth between 0% and 15% annually

Figure 11: Moelis Is Showing Robust MD/SMD Headcount Growth Compared to Peers over 5 Yrs


Geographic Expansion Helps Drive Earnings Growth

Moelis has shown particular strength in multiple sectors (particularly in TMT and FIG), and that has enabled the company to compete for some of the most prestigious advisory mandates. Although the company provides banking services in the major industrial sectors, it has significant room to further build out its banking base by expanding into new areas.

One of the leading sectors for Moelis is Tech, Media and Telecom, where it generated 28% of its deal value vs. the industry average of 18%. Other big sectors for Moelis include Healthcare, FIG and Industrials, in which it has an above-industry-average presence.

Moelis believes the greatest opportunities lie in the energy sector, where it has a smaller presence at just 4% of deal value vs. the industry average of 18%. To drive an increased presence in Energy, Moelis has expanded into Brazil, has a number of initiatives in Asia and has an Australian JV that should all help drive a bigger presence for Moelis. Other areas of growth potential include the Canadian energy/materials markets as well as the industrials market in Germany.

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Moelis MD Headcount 5 -Yr CGAR: 35%

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Figure 12: Moelis’s Sector Diversification


Figure 13: Industry Diversification by Sector


Interestingly, Moelis has indicated that other banks have pulled back resources overseas, leaving more opportunities for Moelis to win market share abroad. There have been press reports about some of the larger banks like Barclays and RBS takingsteps over the last 18 months to further cut and/or scale back their global banking operations. The sovereign debt crisis in Europe, along with political tensions in EMEA, have forced the European banking sector to downsize operations in order torein in costs and increase capital buffers. The impacts of the latter provides smaller firms like Moelis an opportunity to further penetrate and acquire greater share of the European advisory market.

Moelis Business Model Designed for Sustainable Growth

We believe Moelis’s operating positioning and strategy can allow for sustainable growth. Many other boutiques are challenged to grow beyond a certain size, with the limiting factor usually revolving around the capacity of the founder/producer. However, we see Moelis having built an advisory business that is developing its growth internally and is aggressively using compensation to drive the right incentives and structure to sustain such growth. Furthermore, as the company’s more newly promoted and hired bankers season, we expect to see more meaningful revenue growth. Longer term, we see the potential for Moelis to grow a business that has elements of meaningful breadth by both region and by sector.

Moelis’s Flat Hierarchy Creates the Building Blocks for Sustainable Growth

Moelis operates on the premise of a “flat” corporate structure that integrates the full suite of advisory capabilities across its 15 office locations around the world. From senior MDs down to junior bankers, Moeils’s employees’ success is a product of lowinformation barriers, knowledge sharing, and implementation of best practices. These instances promote partnership, passion, and hard work that enable Moelis to deliver innovative solutions that help the company differentiate itself from its competitors.

A Strategy to Develop Bankers Rather than Hire from the OutsideMoelis has created a culture that develops its personnel, with the intention of growing more from within over time rather hiring existing prominent senior bankers.

Successful development of banking talent is a function of senior bankers willing to spend time and resources to share ideas and contacts to help develop the more junior

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bankers. An example is Moelis’s mentorship program, designed to give juniorbankers an opportunity to receive coaching (formal and informal) from their senior counterparts. This type of an investment in intellectual capital is an invaluable measuring stick for the young talent employed at Moelis. The company firmly believes this practice will harvest new talent and help the firm grow organically.

Bankers with a Variety of Skills Improves the Chances to Win Deals, but also Improves EfficiencyThe flat corporate structure also complements the “fluid” nature of Moelis’s business. Moelis’s flat structure enables it to bring together different parts of the organization to deliver different services to its advisory customers. Its bankers are cross-trained in mergers and restructuring and are thus able to better interpret and offer more complete advice. While other firms have dedicated restructuring efforts that can bring their expertise to advisory client both on demand and proactively, Moelis’s bankers can provide advice in an integrated manner with advisory services, offering the potential for additional business wins.

The most relevant recent example of success here is the December 2013 Chapter 11 reorganization of American Airlines and its subsequent merger with US Airways. Here, the bankers were able both to effectively navigate the bankruptcy and reorganization process, which flowed into a merger with US Air. While this transaction could have been advised by any number of firms with both strong advisory and restructuring capabilities, Moelis was able to effectively advise American in part because of the restructuring experience of its advisory bankers.

The cross-expertise of Moelis’s bankers in both advisory and restructuring leads, we believe, to a more efficient and resilient business model across the cycle. Directly,having more expertise in restructuring leads to greater counter-cyclicality of earnings, with more resources involved in advisory during stronger economic cyclesand restructuring during the weaker parts of the cycle. Indirectly, there is a greater chance Moelis can retain its people through the banking boom and bust cycles with greater banker productivity. Such efficiency has been seen for years amongst the junior banking ranks with flexibility across sectors, but the ability for senior bankers to provide advisory work across mergers and restructuring in a broad base is differentiated.

Growth by Expanding its Producing Base of Banking Managing Directors

Moelis has been driving revenue growth and growth potential by building its base of Managing Directors. While we see more of the growth over time coming from its development of banking talent internally, as the firm has grown, it has both hired from the outside and developed from within. As these MDs further season, there is meaningful upside for productivity improvements, potentially driving solid earnings growth.

15



Figure 14: Moelis’s MD Headcount Has a 6-yr CAGR of 28%


Moelis Embraces Growth by Heavily Investing in Intellectual CapitalMoelis has aggressively expanded its base of Managing Directors over the last fiveyears, as it has broadened its business both within and outside the US. The expansion has come in the form of external hires as well in internal promotions.

Through 2013, Moelis has generated 22 MD-level internal promotions, which represents about 25% of its current MD base and growing. While there are benefitsof using a binary approach in growing the MD base – promoting from within and hiring externally – management recognizes that developing internally is far less costly over time than hiring top-notch talent, which often absorbs disproportional deal economics. The push to promote from within is supported by the company’s innovative compensation structure that incentivizes the development and retention of bankers. It also is pushing compensation that tops what many of its peers are paying for the top performers. The company has made serious on-campus investments by targeting undergraduate and graduate students. Moelis’s recruiting pitch is focused around a “generalist approach,” where new joiners are given the opportunity to obtain a high level of experience with a degree of flexibility in terms of sector coverage. Since 2007, Moelis has hired over 200 junior bankers/analysts from campuses, demonstrating that its brand has quickly gained recognition and that young talent is being drawn in.

Hiring Experienced Bankers Represents the Majority of MD Pool – Getting the Best Fit for Future Moelis GrowthMoelis has built its base of bankers by hiring those with the desire to work in a smaller firm with fewer conflicts of interest and less variability than has become inherent within a bigger organization. Compensation helps, with higher compensation levels for the biggest producers that are ultimately more directly tied to the performance of the banker than with other areas of a larger financial institution such as the trading or sales arms of large banks.

Moelis had been particularly active hiring from UBS (particularly in its earlier days), where most of its senior management team had once worked. The advantage of hiring seasoned bankers is their ability to leverage relationships to become meaningful producers relatively quickly. Using the latter in conjunction with growing talent internally has maximized Moelis’s current opportunities and also planted essential seeds for future growth.

19

40

58

7680

86

0

1020

30

4050

6070

80

90100

2008 2009 2010 2011 2012 2013

Total MDs

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Revenue Growth Opportunities Grow as Younger Producers SeasonWe believe there is earnings upside as banker productivity improves. Moelis’s MDs generated on average $5.0mn of revenue in 2013, up from $4mn in 2011. This is a meaningful improvement but is still well short of peers such as Evercore and Lazard, whose MDs are generating $8mn-$12mn per MD.

As Moelis’s bankers season, their productivity should improve. We estimate thatrevenue per managing director has nearly doubled from their first year after joining Moelis to their third year. As more bankers season and productivity rises, revenue should also experience solid growth. In Figure 15 below, we see the increase in MD productivity since 2011, rising from $4mn per MD to what we expect will be $5.5mn in 2014.

Figure 15: Moelis Revenue per MD, Increasing Since 2011; Productivity per MD Is on the Rise with 4-Year CAGR of 12%$

Source: J.P. Morgan estimates, Company data.

In Figures 17 and 18, below, we show productivity per MD at other boutique investment banks. We believe it is challenging to compare MD production at different firms given the differing views on what characterizes a Managing Director, but it does show that the productivity is high at both Lazard and Evercore. It alsoshows that there is the potential for meaningful upside at Moelis as its senior producers season. Were Moelis’s existing bankers able to generate the same productivity as Evercore bankers, we estimate Moelis would generate incremental EPS of $1.10 and nearly $3.00 in 2015.

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2011 2012 2013 2014EMoelis Revenue per MD

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Figure 17: Lazard Revenue per MD

000s


Figure 18: Evercore Revenue per SMD

000s


International Expansion – Moelis Has Been Successful, but OpportunitiesRemain Robust for Further Expansion

Management recognizes that a strong international presence offers important advantages for the company and its global M&A brand. Having a presence within a particular international market enables the firm to generate new business and quickly respond to the changes in advisory demand in the nearby or surrounding markets.Fewer banks have effective cross-border capabilities, allowing Moelis to better differentiate itself.

Moelis’s international expansion began in 2008 with the opening of its London office, which was followed by an office opening in Sydney in 2009, Dubai in 2010, Hong Kong and Beijing in 2011, Frankfurt, Paris and Mumbai in 2012 and Brazil in 2014. In this relatively short time, Moelis was able to lay the ground work and establish hubs for its advisory operations in many of the major cities around theworld. In light of the geographic expansion, Moelis has targeted highly productive and accretive MDs to head its international offices, with the goal of building out sector teams then going after new business.

Selective expansion into new markets is an ongoing process that is continuously evaluated and assessed by management. Some of the regions where Moelis has expressed near-term expansion interest include Canada, where there’s a large mining and energy sector – an area in which Moelis has expertise and desire to further expand. Expansion into South America, and into Brazil in particular (just announced), provides a strategic footprint in the Latam markets, where Moelis hopes to further its infrastructure and energy sector expertise. Lastly, the company sees Germany as an attractive area for industrials – a growing sector in Europe that would help the company expand its M&A offering across the greater European Union and EMEA markets.

Moelis’s Compensation Structure Key to Affecting Banker Behavior and Longer-Term Growth

Moelis employs a unique discretionary compensation model that we believe is one of the differentiating factors leading to the past successes of the firm and what will ultimately drive the company to outperform peers. Moelis’s compensation structure

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000

$10,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Lazard Revenue per MD

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Evercore Revenue per SMD

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utilizes a global rather than regional revenue pool for compensation distribution,which enables Moelis to pay not only on banker production, but also on other criteria to which management attributes high value. These attributes include collaboration, global partnerships and training, which we feel translates into higher retention rates, broader-based employee productivity and greater earnings growth over time.

Moelis Compensation System – The StructureMoelis employs a discretionary payout model driven by various performance/evaluation criteria. The compensation process entails frequent sit-downs (typically every six months) with management. These reviews drive transparency, which management feels is an effective way to manage banker expectations and banker behavior.

The compensation structure is formulated off equity and cash payouts – no different than most investment banks. However, what is different is that there is a material clawback for cash compensation. Here, any cash bonus paid to an MD who ends up leaving within a 12-month period is required to be paid back in full to Moelis, with clawback step-downs occurring as the vesting process continues over the subsequent 12 months. The clawback is based on non-compete clauses in MD contracts that are triggered when Moelis employees leave for competitors. Other compensation awards are largely RSUs that are designed to reward and retain talented employees, whichMoelis believes are essential to the company’s long-term growth and overall success.

Moelis has built in some flexibility in its comp structure by providing a mix of equity and cash bonuses. The proportion varies from banker to banker depending on milestones, goals as well as the circumstances of each individual employee. Equitypayouts are one of the compensation features that enable Moelis to incentivize itsemployees and align banker interests with the equity holders.

Table 2: Moelis’s Cash Bonus Vesting Schedule

%

Source:, Company data.

Moelis Compensation Structure – Developing and Promoting Internal TalentMoelis has instituted an approach to employee development and a complementary compensation structure geared towards not only attracting talented bankers from outside of Moelis, but also fostering/incentivizing promotions from within to further employee continuity (lowering attrition rates). This model has enabled Moelis to grow organically and expand its advisory expertise internationally.

Moelis’s Employee Development program is built on a partnership premise that is designed to build and foster talent from within through informal and formal mentorships as well as firm-supported collaboration across industry sectors and geographies irrespective of titles and rank.

Departure Timeline (from

start date)

% of Annual Cash Bonus

Required to be Repaid

<12mo 100%

12mo-15mo 75%

15mo-18mo 50%

18mo-21mo 25%

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For this development program to work, it needs buy-in from the senior bankers in the firm to share their contacts, promote junior banker relationships and forest junior banker growth. These are sometimes low priority for senior bankers, but given the discretion and leverage Ken Moelis and management have in determining compensation, they influence behavior by rewarding those who contribute to building the culture and developing junior bankers. Given the clawback on cash earnings, the possibility of having compensation withheld for 1-2 years while the past bonus vests becomes a very powerful motivator.

A flatter compensation structure ties production more to pay across the pool of bankers, allowing Moelis to retain and develop internal talent more successfully. This is in contrast to larger firms with contracts for most of the senior bankers, resulting in less compensation for the juniors. Moelis’s compensation structureincreases the chances that not only do more junior bankers grow to become senior bankers over time, but also that both the junior and senior bankers are retained, allowing Moelis to get a better return on its banker investment.

Moelis Compensation Structure – Promoting the Fluid Business ModelWe believe Moelis is well positioned to execute on multiple fronts within its flourishing advisory business. We’re branding this as the “Fluid Business Model,”which we think ultimately allows for greater efficiency from both a personnel perspective as well as from a client-service perspective. Ultimately, it would appear that the Fluid Business Model drives more business for Moelis.

By implementing a “fluid” business model, Moelis’s bankers are able to more easily cross over from different advisory projects that could range from traditional M&A to more specialized risk solutions or restructurings. With advisory projects cyclical, the cross-training of bankers in both advisory and restructuring, for example, allows broader servicing of the customer. Furthermore, it allows for greater efficiency for the investment bank, with bankers better able to toggle between various services rather than succumbing to the boom and bust cycles of the advisory business.

Management expects that it has a more collaborative culture, given the more distributive revenue structure across bankers, sectors and geographies. Overall, Moelis prides itself on the fact that its senior bankers (i.e., MDs) are multifaceted professionals who are capable of executing on technical matters as well as strategically engaging clients and bringing in new business. Management estimates that out of roughly 80+ global MDs, nearly all are providing both advisory and restructuring services to their clients.

Moelis’s Compensation Structure – Retaining the Banker, and Getting Compensation When They LeaveFrom management’s point of view, one of the most appealing features of the compensation structure is that it essentially discourages bankers from leaving before they are fully vested. Employee contracts contain clauses that permit management to defer large portions of awarded compensation, which makes it financially difficult for bankers to pursue external opportunities. The fact that competitors would have to make up the unvested portion of the bonus makes Moelis’s employees more expensive to hire than their counterparts at other banks. This structure helps Moelis combat poaching and permits the company to make greater investments in its people without worrying about recouping losses related to the exodus of intellectual capital.

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But when they do leave, Moelis gets a big check, helping to ease the loss of high producing bankers.

Financial Outlook

We are modeling EPS of $1.56 in 2013, $1.77 in 2014 and $1.88 in 2015. Our revenue is generated on a production level per banking MD, which we have rising from $5.0mn/MD in 2013 to $5.7mn in 2014, $6.1mn in 2015, and $6.4mn in 2016. We have the base of MDs growing from 86 in 2013 to 89 in 2014, 93 in 2015 and 97 in 2016. We expect margins to remain ~28%, and model a corporate tax rate of 40%. We model shares outstanding of 55.3mn shares.

Valuation

As a new publicly traded company, we feel Moelis we believe investors are valuing MC at a discount to peers while they determine the aggressiveness/conservativeness of revenue/expense guidance. If we are right that the compensation structure can drive higher and more effective growth over the intermediate term, and allow the firm to grow through the levels at which other boutiques over time have gotten capped, then we think Moelis could go from trading at a discount to trading at a premium to peers. Moelis trades at 15.6x our 2015 EPS estimate of $1.77, a ~3x discount to peers. While growth projections are lower for Moelis than for peers, we think conservative Moelis guidance is the root cause. If the M&A environment continues to improve, then Moelis could exceed estimates at a time when its valuation could rise, offering investors a much higher stock price. We value Moelis at 17.5x our 2015 EPS estimate, a slight discount to where the peer group is trading due to lower projected growth based on what we view as conservative expectations. This brings us to a December 2014 price target of $31, representing upside of ~12.5% from its current stock price.

Table 3: Comparables for Evercore, Greenhill and Lazard

Source: J.P. Morgan estimates for Moelis, Bloomberg for all other estimates.

Price JPM Market

Company Name Ticker 5/9/14 Rating Cap. FY2012 FY2013 FY2014E FY2015E FY2013 FY2014E FY2015E

Moelis & Co. MC $26.73 OW $1,496 $0.42 $0.80 $1.56 $1.77 34.4x 17.7x 15.6x

Evercore Partners Inc. EVR $55.38 NA $2,215 $1.78 $2.25 $2.44 $3.13 24.4x 22.5x 17.6x

Greenhill GHL $51.07 NA $1,424 $1.38 $1.55 $1.60 $2.25 32.5x 31.5x 22.4x

Lazard LAZ $49.36 NA $6,329 $1.44 $2.01 $2.76 $3.24 24.3x 17.7x 15.1x

Average 27.1x 23.9x 18.4x

EPS Estimate Price to EPS:

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Models

Table 44: Moelis & Co.’s Earnings Model

Source: Company reports and J.P. Morgan estimates.

2012 2013 2014E 2015E 2016E 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14E 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 4Q15E 1Q16E 2Q16E 3Q16E 4Q16E

Adj. Diluted EPS 0.42$ 0.80$ 1.56$ 1.77$ 1.88$ (0.01)$ 0.06$ 0.06$ 0.31$ 0.01$ 0.24$ 0.17$ 0.39$ 0.37$ 0.26$ 0.37$ 0.56$ 0.38$ 0.30$ 0.40$ 0.68$ 0.40$ 0.30$ 0.43$ 0.74$

Revenues

Revenue 385,900 411,300 496,167 556,737 610,215 65,700 93,800 100,100 126,300 59,800 98,500 98,700 154,300 114,517 92,400 122,375 166,875 125,006 104,052 137,765 189,914 137,122 114,084 150,977 208,033

Total Revenue 385,900 411,300 496,167 556,737 610,215 65,700 93,800 100,100 126,300 59,800 98,500 98,700 154,300 114,517 92,400 122,375 166,875 125,006 104,052 137,765 189,914 137,122 114,084 150,977 208,033

Expenses

Compensation Expense

Salary - - 71,622 95,531 99,085 - 23,562 23,863 24,197 23,751 23,932 24,109 23,739 24,682 24,528 24,911 24,964

Benefits, Payroll Tax - - 13,225 23,691 25,972 - 4,158 4,895 4,172 8,750 4,682 5,511 4,748 9,599 5,134 6,039 5,201

Salary, Benefits, Payroll Tax - 105,663 84,847 119,222 125,057 - 27,720 28,758 28,369 32,501 28,614 29,619 28,487 34,281 29,662 30,950 30,165

Cash Incentive Expense Accrual 100,888 138,478 154,140 - 14,784 30,986 55,117 28,751 22,892 36,508 50,327 31,538 25,669 40,764 56,169

Incentive Equity Expense (Excluding Acceleration) 47,692 72,376 79,328 - 15,708 15,297 16,688 16,251 13,527 17,909 24,689 17,826 14,831 19,627 27,044

Adjustment for 2014 Acceleration Expense (29,325) (24,720) (13,320) - (9,775) (9,775) (9,775) (6,180) (6,180) (6,180) (6,180) (3,330) (3,330) (3,330) (3,330)

Incentive Expense (Pre- Acceleration and Pre IPO Grants) - 159,281 119,255 186,133 220,148 - 20,717 36,508 62,030 38,822 30,238 48,237 68,836 46,034 37,170 57,061 79,883

Pre-IPO Equity Expense - - 11,825 8,285 8,285 - 7,400 2,225 2,200 2,071 2,071 2,071 2,071 2,071 2,071 2,071 2,071

GAAP Total Compensation Expense 275,000 265,000 276,019 313,641 353,490 49,600 70,800 75,600 79,000 43,600 58,400 65,000 98,000 60,092 55,837 67,491 92,599 73,395 60,924 79,928 99,394 82,386 68,903 90,082 112,119

% of Revenue 71.3% 64.4% 56% 56% 58% 75.5% 75.5% 75.5% 62.5% 72.9% 59.3% 65.9% 63.5% 52% 60% 55% 55% 59% 59% 58% 52% 60% 60% 60% 54%

Pre-IPO Backout - - 11,825 8,285 8,285 - - - - - - - - - 7,400 2,225 2,200 2,071 2,071 2,071 2,071 2,071 2,071 2,071 2,071

Adjusted Compensation Expense 275,000 265,000 264,194 305,356 345,205 49,600 70,800 75,600 79,000 43,600 58,400 65,000 98,000 60,092 48,437 65,266 90,399 71,323 58,853 77,856 97,323 80,314 66,832 88,011 110,048

% of Revenue 71.3% 64.4% 53% 55% 57% 75.5% 75.5% 75.5% 62.5% 72.9% 59.3% 65.9% 63.5% 52% 52% 53% 54% 57% 57% 57% 51% 59% 59% 58% 53%

Awarded Total Compensation Expense 269,838 257,752 292,355 334,042 366,129 59,549 56,364 74,649 101,794 75,003 62,431 82,659 113,948 82,273 68,450 90,586 124,820

% of Revenue 69.9% 62.7% 59% 60% 60% 0% 61% 61% 61% 60% 60% 60% 60% 60% 60% 60% 60%

Non- Compenation Expense 72,800 76,300 92,106 96,334 102,429 17,000 16,900 17,800 21,100 17,000 17,400 19,200 22,700 20,141 20,790 24,475 26,700 20,001 19,250 24,798 32,285 21,940 21,106 26,098 33,285

Total Adj. Operating Expense (adj for IPO Awards) 347,800 341,300 356,300 401,689 447,633 66,600 87,700 93,400 100,100 60,600 75,800 84,200 120,700 80,233 69,227 89,741 117,099 91,324 78,102 102,654 129,609 102,254 87,937 114,109 143,333

Income

Adjusted Operating Income (adj for IPO awards) 38,100 70,000 139,867 155,047 162,582 -900 6,100 6,700 26,200 (800) 22,700 14,500 33,600 34,284 23,173 32,634 49,776 33,681 25,950 35,111 60,306 34,868 26,147 36,867 64,700

Adj. Operating Margin (% of Net Revenues) 9.87% 17.02% 28.19% 27.85% 26.64% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 25.08% 26.67% 29.83% 26.94% 24.94% 25.49% 31.75% 25.43% 22.92% 24.42% 31.10%

Income from Australia JV (Income (loss) from equity method invest.) (600) 3,600 3,540 8,205 10,380 0 -900 -1,200 1,500 1,400 -600 1,700 1,100 (1,220) 1,150 1,530 2,080 1,815 1,540 2,040 2,810 2,300 1,950 2,580 3,550

Other Expenses 300 (800) 19 - - -100 100 100 200 100 0 -1,100 200 19 - - - - - - - - - - -

Adj Income Before Income Taxes 37,800 72,800 143,426 163,252 172,962 -1,000 5,300 5,600 27,900 700 22,100 15,100 34,900 33,083 24,323 34,164 51,856 35,496 27,490 37,151 63,116 37,168 28,097 39,447 68,250

Corporate Tax (15,120) (29,120) (57,370) (65,301) (69,184) 400 (2,120) (2,240) (11,160) (280) (8,840) (6,040) (13,960) (13,233) (9,729) (13,665) (20,743) (14,198) (10,996) (14,860) (25,246) (14,867) (11,239) (15,779) (27,300)

Tax Rate % 40% 40% 40% 40% 40% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%

Net Income Adj for Corporate Taxes 22,680 43,680 86,056 97,951 103,778 (600) 3,180 3,360 16,740 420 13,260 9,060 20,940 19,850 14,594 20,498 31,114 21,298 16,494 22,290 37,869 22,301 16,858 23,668 40,950

Number of Shares (in 000s)

Diluted 54,366 54,366 55,098 55,341 55,341 54,366 54,366 54,366 54,366 54,366 54,366 54,366 54,366 54,366 55,341 55,341 55,341 55,341 55,341 55,341 55,341 55,341 55,341 55,341 55,341

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Table 5: Moelis & Co.’s Balance Sheet


Balance Sheet

(Dollars in thousands)

Period 2012 2013

Assets

Cash And Cash Equivalents $26,331 $153,943

Investments At Fair Value 139,138 68,141

Total Cash (Excluding Restricted Cash) $165,469 $222,084

Restricted Cash 160,066 149,873

Total Cash (Including Restricted Cash) $325,535 $371,957

Receivables:

Accounts Receivable $37,541 $28,784

Interest And Dividends Receivable 351 39

Other Receivables 9,299 6,520

Total Receivables $47,191 $35,343

Deferred Compensation $6,314 $3,495

Investment In Equity-Method 10,371 12,481

Equipment And Leasehold Improvements 5,786 5,156

Intangible Assets 211 42

Deferred Tax Asset 1,682 1,315

Prepaid Expenses And Other Assets 3,570 13,674

Total Assets $400,660 $443,463

Liabilities And Capital

Compensation Payable $120,204 $103,928

Accounts Payable And Accrued Expenses 8,842 14,262

Deferred Revenue 2,649 6,838

Other Liabilities 6,045 8,466

Total Liabilities $137,740 $133,494

Equity

Total Equity $262,920 $309,969

Total liabilities and equity $400,660 $443,463

check - -

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Moelis: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E FY16E Income Statement - Quarterly 1Q14A 2Q14E 3Q14E 4Q14E

Trading revenues - - - - Trading revenues - - - -Total revenue - - - - Total revenue - - - -

Compensation (265) (276) (314) (353) Compensation (60)A (56) (67) (93)Non-compensation expense - - - - Non-compensation expense - - - -

Operating income 70 140 155 163 Operating income 34A 23 33 50Other income / (expense) (1) 0 0 0 Other income / (expense) 0A 0 0 0

Pretax income 73 143 163 173 Pretax income 33A 24 34 52Income taxes (29) (57) (65) (69) Income taxes (13)A (10) (14) (21)

Net income - GAAP 44 86 98 104 Net income - GAAP 20A 15 20 31

Net income - recurring 44 86 98 104 Net income - recurring 20A 15 20 31Diluted shares outstanding 54 55 55 55 Diluted shares outstanding 54A 55 55 55

EPS - operating 0.80 1.56 1.77 1.88 EPS - operating 0.37A 0.26 0.37 0.56EPS - GAAP 0.80 1.56 1.77 1.88 EPS - GAAP 0.37A 0.26 0.37 0.56

Balance Sheet and Cash Flow Data FY13A FY14E FY15E FY16E Ratio Analysis FY13A FY14E FY15E FY16E

Cash and cash equivalents 154 - - - Revenue growth - - - -Current assets 407 - - - EPS growth 92.6% 94.4% 13.3% 5.9%

Total assets 443 - - -

Tax rate 40.0% 40.0% 40.0% 40.0%Total debt - - - - Net income margin - - - -

Total liabilities 133 - - -Preferred stockholders' equity - - - - Return on equity (ROE) 15.2% 55.5% - -

Common stockholders' equity 310 - - - Dividends - - - -Dividend payout ratio - - - -

Net income - - - -

D&A - - - -Capex - - - -

Free cash flow - - - -FCF / share - - - -


Note: $ in millions (except per-share data).Fiscal year ends Dec

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Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Moelis within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Moelis.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Moelis.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Moelis.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Moelis.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if

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May14

May14

Moelis (MC, MC US) Price Chart

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

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applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.

Coverage Universe: Worthington, Kenneth B: Apollo Global Management (APO), BM&F Bovespa (BVMF3.SA), BlackRock (BLK), CBOE Holdings (CBOE), CME Group Inc. (CME), Charles Schwab (SCHW), Eaton Vance Corp (EV), Evercore Partners Inc. (EVR), FXCM (FXCM), Federated Investors, Inc. (FII), Franklin Resources (BEN), Invesco Ltd. (IVZ), Investment Technology Group (ITG), Janus Capital Group (JNS), KCG Holdings (KCG), LPL Financial Holdings Inc. (LPLA), Manning & Napier (MN), Nasdaq OMX (NDAQ), Oaktree Capital Group, LLC (OAK), Och-Ziff Capital Management (OZM), Pzena Investment Management (PZN), T. Rowe Price Group, Inc (TROW), The Carlyle Group (CG), The Intercontinental Exchange (ICE)

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2014

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 11%IB clients* 58% 49% 40%

JPMS Equity Research Coverage 45% 48% 7%IB clients* 78% 67% 60%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected].

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

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intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised April 5, 2014.

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MC Moelis Initiating