Ken Moelis defends dual-class structure

Ken Moelis has defended his right to keep near total control of Moelis & Co, the investment bank he founded in 2007, on the day that it became a public company.

The veteran banker had come under fire in the run up to Wednesday’s initial public offering, with investor groups and analysts questioning his decision to adopt a dual-class structure that gives him control of 96.6 per cent of the vote in Moelis’s shares.

The issue had served to highlight a wider debate in the US about shareholder rights and the creep of executive control in public companies. But Mr Moelis hit back on Wednesday, arguing that it was fear of an activist investor that caused him to choose the structure.

“I didn’t think it was fair to ask investors or my partners at the firm to work somewhere where an activist could take a position in the stock and destroy our continuity,” he told the Financial Times.

Activist hedge funds, which use share positions to lobby companies to change, sometimes drastically, are a rising force in corporate America. Mr Moelis knows well the sapping effect an activist can have on a chief executive’s ability to do their job: the investment bank he founded has worked both sides of the battle.

“If I had put the vote out and an activist had shown up in the stock and attempted to fight me, I don’t think we’d get any business while it was going on. We have the winning culture on Wall Street. I don’t want an activist, or anyone else to come in and change that,” the 55-year old said.

On its first day of trading, Moelis overcame a tough start, that had seen it raise a slightly worse than expected $163m, with its share price climbing 6 per cent before settling back to end the day 4.6 per cent higher at $26.15.

Mr Moelis said turbulence in the public markets had caused some last-minute nerves but added that the issue of delaying the initial public offering had never been openly discussed. Global equity markets have been under pressure during the past two weeks, causing a number of companies to pull back from stock market debuts.

In spite of the positive first day trading, some investors said they were concerned by Moelis’ so-called key man risk – the impact on the investment bank were Mr Moelis to depart. The issue is one common to advisory banks, where the success, or lack thereof, can depend on the presence of a few experienced rainmakers.

“I try not to die – it has been an effective strategy thus far,” Mr Moelis said. “We are a great firm and I think it would be just fine without me around, although I’d like to think the stock would go down a bit if I went under a bus.”