Jefferies Financial Group (NYSE:JEF) used its Investor Day to emphasize the scale it has achieved in investment banking and capital markets, its plans to increase operating leverage and its expectation that asset management results will become more consistent following a planned Hildene transaction.
Chief Executive Officer Rich Handler said the firm has reached “critical mass” as a global investment bank, citing its geographic reach, client relationships and expanded capabilities. He said Jefferies intends to continue investing in people and technology while bringing a greater share of revenue growth to the bottom line.
Core businesses drive revenue and profit growth
Larson said Jefferies generated $8.5 billion in net revenue, more than $935 million in net earnings and a 13.1% return on tangible equity over the trailing 12 months. Investment banking and capital markets accounted for more than 90% of current revenue, reflecting the firm’s strategy of prioritizing client-driven businesses while reducing exposure to legacy merchant banking assets.
Since 2023, revenue in the Investment Banking and Capital Markets segment increased 74% to $7.8 billion, while pretax profit rose more than 150% to about $1.3 billion, Larson said. The segment’s pretax margin increased from 11% to more than 16%.
The company said it is beginning to see operating leverage from previous investments in infrastructure, technology and personnel. Adjusted non-compensation expenses in the segment increased 37% since 2023, compared with a 75% increase in adjusted net revenue. Larson said Jefferies’ adjusted non-compensation ratio declined to 24% from 30% over that period.
President Brian Friedman said the firm expects further compensation leverage as the pace of broad-based senior hiring subsides. He said Jefferies has largely completed the investment-banking recruitment cycle that expanded the platform, though it will continue targeted hiring.
Investment banking targets top-five standing
Andrea Lee, co-head of global investment banking, said Jefferies has 376 investment-banking managing directors operating in more than 60 countries through offices in 24 countries. The firm ranks sixth globally in overall investment banking, fifth in global M&A and sixth in global equity capital markets, according to the presentation.
Raphael Bejarano, global head of investment banking and capital markets, said Jefferies’ transformation from a predominantly U.S. middle-market firm has been supported by recruitment, international expansion and partnerships with SMBC and MassMutual. He said the company ranks fifth globally in advisory and ECM based on publicly reported GAAP revenue.
John Miller, global head of investment banking and capital markets, outlined several areas of market-share gains:
- Jefferies ranked second in private-equity sell-side assignments below $1 billion in enterprise value, with a 7.5% share.
- In large-cap private-equity M&A transactions above $1 billion, the firm rose to third place from eighth in 2019, with a 7.4% share.
- In large-cap corporate M&A, Jefferies rose to eighth from 18th since 2019.
- In global ECM, the firm held a 5.3% share and ranked sixth, compared with eighth place and a 2.6% share in 2019.
Jefferies also said it expects to launch its Japanese equities joint venture with SMBC Nikko in January 2027. Pete Forlenza, global head of equities, said the combined business will seek to build a leading Japanese equities platform by combining SMBC Nikko’s domestic presence with Jefferies’ global distribution, research and trading technology.
Asset management transition and technology initiatives
Jefferies said it is simplifying its asset-management operations around Hildene, Jefferies Credit Partners and revenue-share interests in alternative managers. Nick Daraviras, co-head of asset management, said Jefferies expects to complete its acquisition of a 50% interest in Hildene, alongside Hildene’s acquisition of SILAC, following the regulatory process.
The company plans to invest $340 million of new capital in the Hildene-SILAC transaction, funded through reductions in the Leucadia Asset Management portfolio. Daraviras said Hildene manages more than $18 billion and that Jefferies expects the business mix to produce more consistent and predictable earnings. Jefferies Credit Partners manages roughly $20 billion and raised $3.5 billion of new capital through its team, he said.
Larson also described expanding uses of artificial intelligence across the company. He said all approximately 1,900 investment-banking professionals have access to an AI operating system, while cybersecurity tools using AI have reduced mean time to resolution for incidents by more than 30%.
During the question-and-answer session, management said it expects only modest balance-sheet growth, principally to support prime brokerage, and does not intend for leverage ratios to change meaningfully. Handler said the company sees potential to reach a mid-teens return on tangible equity, while cautioning that management was not making a formal promise.
About Jefferies Financial Group (NYSE:JEF)
Jefferies Financial Group Inc (NYSE:JEF) is a diversified financial services company that operates primarily through its investment banking and capital markets subsidiary, Jefferies LLC. The company provides advisory services for mergers and acquisitions, restructuring and other corporate transactions, along with equity and debt underwriting, securities sales and trading, research, and prime brokerage services.
Jefferies also manages and invests capital through asset management and merchant banking activities.
