Q3 2020 Lazard Ltd Earnings Call
Good morning, welcome to Lazard third quarter and nine months Twentytwenty earnings Conference call. This call is being recorded.
Currently all participants are in a listen only mode. Following their remarks, we will conduct a question and answer session instructions will be provided at that time.
Anyone should require assistance during the call. Please press the star key followed by the zero on your Touchtone phone out.
At this time I will turn the call over to Alexandra Deignan. Besides head of Investor Relations. Please go ahead.
Thank you Holly good morning, and welcome to Lazard <unk> earnings call for the third quarter and first nine months of 2020, I'm Alexandra Deignan, the company's head of Investor Relations.
In addition to today's audio comments, we posted our earnings release and Investor presentation, which you can access on our website at www Dot Dot dot com a replay of this call will also be available on our website later today.
Well, we'd be before we begin let me remind you that we may make forward looking statements about our business and performance. 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, including but not limited to those factors discussed in the Companys SEC filings, which are.
You can access on our website Lazard assumes no responsibility for the accuracy or completeness of these forward looking statements and assumes no duty to update these forward looking statements.
Todays discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and Investor presentation.
Okay on call today are kind of Jacobs, Lazard, Chairman and Chief Executive Officer, and Evan Russo Chief Financial Officer. They will provide opening remarks, and then we will open the call to question I will now turn the call over to Ken <unk>.
Turning to our third quarter results reflected strong performance across our businesses as financial advisory and asset management bookings momentum or financial advisory results underscored the benefits of our diversified advisory platform, our strategic M&A activity accelerating even as our restructuring work continued at a robust pace.
In the third quarter was arts global announced M&A volume increased 64% year over year compared to the markets increasing 38% over the first nine months, our volume rose, 5%, even as the markets volume declined 24%.
Our strong and established footprint in Europe helped drive the games as our European M&A announcements rose significantly in the third quarter, our preeminent global restructuring practice had a strong third quarter as we continue to be engaged in a wide range of complex assignments for both debtors and creditors year to date Lazard is number one in the league tables for both and.
Downstream and completed restructurings.
Our sovereign advisory practice is also seeing increased activity as we work with governments to restructure our debt and strengthened balance sheet and the third quarter, we completed restructurings for both Argentina, and Ecuador, and we continued to gain assignments from countries facing unprecedented financial challenges.
We continue to see growth opportunities across our advisory businesses year to date International Advisory we brought on 12, new managing directors globally. This includes last week's recruitment of a London based team with expertise that complements our capital markets and shareholder advisory practices.
Our asset management business benefited from strengthening global markets in the third quarter with average assets under management, increasing 8% sequentially from last quarter. Gross flows continued to be strong and we achieved net inflows into August and September net inflows and continued this month, reflecting demand across our platforms. We are investing in.
It is where we see high growth potential, including strategies focused on sustainability and yesterday quantitative investing and alternative Anthematic strategies. We recently announced the addition of the medic teams to our global and emerging markets platforms and a long short credit team on our alternatives platform, we continue to see new strategies and launch funds to mute.
Investor demand. We're also seeing an increase in solutions oriented mandates as we serve more clients with customized strategies.
Firm wide our results underscore the strength of our diversified business model global platform and a deep culture of claims service our clients are doing with unprecedented challenges and uncertainties caused by the ongoing pandemic and we're providing with expert advice and innovative solutions and will now provide more color on our financial results, then I'll province at our outlook.
Thank you Ken as our third quarter operating revenue of $569 million was our strongest quarter of the year as both of our businesses gained momentum.
Financial Advisory third quarter operating revenue of $307 million was 1% higher than last year on increased M&A and restructuring activity, reflecting an acceleration in the business.
This quarter's M&A revenue, including the announcement fees and completion fees for several transactions that were announced and closed during the quarter.
Restructuring revenue reflected the continued high level of activity in our global practice.
Asset management operating revenue of $261 million was 8% lower than last year, reflecting lower average assets under management as well as the impact from product mix shift as flows trended towards quantitative and fixed income strategies.
Average anywhere from the third quarter with $226 billion, 8% higher than the second quarter of this year and 3% lower than a year ago.
We finished the third quarter with a $228 billion, 6% higher than the start of the quarter. The increase was primarily driven by market appreciation of nine and a half billion dollars.
Positive foreign exchange movement of $3.7 billion with net outflows of $2.2 billion.
The quarter's net outflows were driven primarily by local and emerging market equity strategies, we achieved net inflows across our fixed income platform as well as in our global and multi regional equity platforms.
As of October 23rd our AOL with approximately $234 billion, reflecting market appreciation of $4.7 billion. During the month positive foreign exchange movements of $1.2 billion and net inflows of approximately $2.6 billion.
Looking ahead across our franchise and financial advisory increasing M&A announcements at high levels of activity across our advisory practices position us well going into 2021.
In asset management, we continue to win significant mandates across our multi regional and global platforms. We are seeing demand for both our quantitative and fundamental products across our platforms as well as growing demand for our sustainable and customized solutions.
Turning to expenses in the third quarter, we accrued compensation expense at a 60% adjusted compensation ratio in line with our accruals year to date non.
Non compensation expense of $103 million was 18% lower than the same period last year, primarily reflecting a continuation of lower travel and business development costs.
Our adjusted non compensation ratio for the third quarter was 18.1% compared to 21.3% in the third quarter of last year.
Our adjusted effective tax rate in the third quarter was 27.9% for the first nine months it was 26.9%.
We expect an annual effective tax rate for this year and the low to mid 20% range.
Regarding capital allocation, our business continues to generate significant free cash flow, which supports our goal of returning excess capital to shareholders.
Throughout the year, we have been consistent in returning capital to our quarterly common dividend in the third quarter, we returned $50 million of capital to shareholders yesterday, we declared a quarterly dividend on our common stock of 47 cents per share.
As our financial position remains strong with ample liquidity and balance sheet flexibility.
As of September Thirtyth, our cash and cash equivalents were $1.1 billion.
Ken will now conclude our remarks. Thank you Evan will provide some perspective on our outlook and then we'll open the call to questions. The global macro macroeconomic outlook continues to be uncertain, the shape and pace of economic recovery will depend in large part of the course of the pandemic impact on local economies and ongoing government responses.
Nonetheless, corporate strategic activity is growing and capital markets have been resilient our conversations with clients are constructive and we are cautiously optimistic that the momentum in both our businesses will continue.
In financial Advisory the economic impact of the pandemic continues to drive disruption unevenly across sectors, well capitalized companies are seeing opportunities to strengthen their competitive advantages through strategic activity private equity sponsors are increasingly active as both buyers and sellers financially challenged companies are looking to divest assets or restructure.
Sure and there is reason to expect restructuring activity to pick up in 2021.
In asset management, we see evidence that dislocations in markets and the dispersion of returns, resulting from the pandemic are creating stronger demand for active management. This combined with investors desire for customized solutions.
And sustainable portfolios should continue to drive demand for our services.
Lazard is well positioned in this environment with a diversified business model, our global client base and unrivaled expertise and M&A strategic advisory restructuring and asset management solutions, we remain focused on serving our clients well, while we manage the firm for profitable growth and shareholder value over the long term now, let's open the call to questions.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach of equipment.
Again Thats star one.
Yeah.
We will now take our first question from Richard Robinson from Goldman Sachs. Please go ahead. Your line is open.
Hey, good morning, guys. So perhaps.
Perhaps we can discuss that a little bit with what you've seen in your M&A market I know, if we look at the aggregate it hasn't.
He is what we've seen we use.
Can you talk about why you think thats the case and whether you see anything on the horizon that could change that and then perhaps as a follow on Ross.
Shutdowns across Europe is co good rates increase.
That will have a material impact on the existing pipelines.
Looking to close those deals.
Okay. Two parts of the question first Europe, obviously, the us has seen it.
Quicker acceleration of large deal activity over the course of the last couple of months or so, but there's been a steady.
Pace of what I'd describe as medium sized transactions in Europe really since June or July we haven't seen the very large tracts as many of the very large transactions as we've seen it in the us, but it's been a spending steady based activity at least for us.
During this period of time.
As far as the closings are concerned I guess theres two different parts to that the first is I think all of us have adapted well to the.
More restricted environment deals are being done effectively virtually and have been in the us largely since.
Today activity picked up and the same for Europe. So he ability to complete deals because people are in confinement.
We don't see that much of a change as a result of that there may be some complexity around some of the government approvals if actually people arent going into government offices to get these approvals, but so far we haven't seen much impact from that.
In terms of deal activity look as CEO, the the differential impact on economies.
Finally as impact on deals, but again one of the features of this environment is that most of the deal activity. We've seen to date has been driven by the fact that.
The companies that are engaging this activity are able to have a little bit better ability to.
But I'd say have confidence in their predictive predictions about the future and thats gotten them confident in terms of their ability to.
Both price and manage transactions.
That's where you've seen a lot of the activity technology Biopharma area.
Areas, where you have companies that are that are winning because of the environment because of technology I guess I should add that probably financial services. Those are areas, where we've seen a pickup by the activity that probably doesn't change.
Too much with the closings I think where the closings are going to have an impact is on companies that have kind of pushed out financing.
Or while they are waiting for their business models are pushed the financings in place, but their business models.
Or the recovery of their business models are being pushed out because of the.
Second waves or.
Well wait to the pandemic.
Those businesses are going to have a harder time, and that's where we're likely to see a pickup in restructuring activity and we're already seeing that in Europe right now.
Okay, and then perhaps as a follow up could you talk a little bit more about the restructuring business I think I'm right in saying that if we go back and look at the last crisis restructuring was around 30% of your advisory revenues, what what do you think.
The peak this time could be in terms of contribution to advisory and based on the pipeline. When do you think restructuring revenues will peak.
Well Thats a great question, because a lot of it has to do with what happens with M&A activity, because obviously to the extent that there is little M&A activity restructuring is going to be a much bigger proportion of financial advisory revenues and to the extent that M&A activity accelerates its going to be as a percent lower but in terms of absolute terms may be higher than it was in the last cycle.
What we're seeing right now what we see what we've seen so far is a.
Hi level of restructuring into in the first part of this year driven by companies that were already.
In difficulty prior to the pandemic those companies the restructuring or.
These companies accelerated with the onset of the pandemic.
They were they had a difficult time getting additional financing their business models were immediately challenged by the restructuring oil and gas retail being two great examples of that.
And that was the first rate wave of restructuring activity, we saw a slew of companies that were highly leveraged.
With business models were a little bit recent more resilient at that point get.
Debt financing in the first stage of the of the crisis.
Through the liquidity of the market to some extent from governments, both here and in Europe.
The crisis is probably gone on longer than that financing will last and the business models have been recovered that is likely going to be the second wave of restructuring and we're starting to see that.
Pickup in Europe, right now, we didnt see much in the first wave in Europe, but we're starting to see those companies start to have a need to restructure now and with the lack of stimulus in the us the depth of the pandemic knowing the U.S., we're likely to see a pickup in activity in the separate waving use. So this is a restructuring.
Michael where the restructuring levels in absolute terms for the first part of this year a bit high.
And our guess is we'll continue to be at that level through the end of this year. That's the the roll off of the first set of restructurings and then the real question is do we see a second wave of activity, which I think we're beginning to it we're beginning to see the first wave in Europe now.
We would expect to start seeing the second wave of activity in the US This fall into the winter absent some kind of a strong recovery.
And or another round of very strong stimulus, but in any event probably picks up and then the unusual feature of this environment, where we have a high level of restructuring activity is the acceleration of M&A activity at least for our business. We've seen we saw a real acceleration in the third quarter, it announcements and closings.
And we expect that that likely continues into the fourth quarter or the early part of next year and then we'll see what happens.
Okay. Thank you very much that's very helpful.
We will now move to our next question from Michael Brown from Keefe Bruyette <unk> Woods. Please go ahead. Your line is open.
Great. Thank you.
So.
Just wanted to start with.
Consistent with the inflows I just want to confirm and did you say the inflows was <unk> point $6 billion.
Yes, that's correct.
Point 6 billion.
As of the end of last week for the month of October.
Okay, Great and where are you kind of seeing or is it going to trying to get a sense of.
Where you're seeing some of the strength flow side in any.
Any color as to how some of those.
Mandates that you won how those are starting to flow in is that what's kind of driving the net inflows that you're that you're referencing and is a potential for that to continue.
During the quarter.
Sure so I'm not going to be critical about the end of last quarter. We started to see significant activity, we called out that we have.
Significant backlog of unfunded mandates that we have won through our business spread across really the entire platform and you started to see that come across in August and September the monthly flows which were both positive bras and continuing into October where we have even more accelerated net inflows as of a week ago.
For the month of October So you get the continuation of the theme that we started to see at the end of last quarter. As we were building that unfunded pipeline I'd say that the continuation has continued it for us really.
Over that period of time, and it's really spread out across.
Slew of area. There's no one specific no one specific area that we started to see if we had net inflows this quarter as we called out in our international strategic.
Net net flows positive as well as in our Kwan and of course in our global converts business as well so.
All areas that are performing well and seeing significant flow traction, but its really broader than that I mean, it's across all of the areas across all of our platforms. I mean, it's really very much spread apart and that's what gives us a little more confidence because it's not just one mandate one large mandate or one specific strategy doing while it's been pretty broad based on a lot of different areas.
Okay great.
Just wanted to.
Talk about the comp ratio so it looks like you're running at 60% year to date.
I guess, one is that kind of a fair expectation for for the year and then as we move into 21 it operates.
Hopefully, it's better right either.
The revenue picture and so again to that assumption is it possible to kind of move back to your target range.
55% to 59% would you please your target or through the cycle.
And I guess that is that still your target range I guess at what point would it be possible to kind of drift back to something like 55%.
On comp ratio is that is that still a feasible target just given your revenue mix for the competitive landscape and just trying to understand if that's still a fair way to think about your business.
Longer term through the cycle.
Thanks.
Sure. So let's start with the first part of the question Mike So.
Third quarter, we accrued compensation at 60%, that's where we've been accruing all year, but thats, our best estimate for the year, but obviously, we'll continue to develop as we see the final revenues and sort of what hits at the end of this year. So it's obviously very revenue driven there's also a lot of factors as you know that go into the fall.
Final comp number obviously the business mix for us the geographical mix of our business the marketplace for talent.
Do a bottoms up and we always said to bottoms up at year end on that a lot of components that could move that around but 50% is our best estimate at this point in time.
Obviously important to remember.
As we always point out were a firm's intellectual capital. Our people are the critical part critical assets of our firm and our growth is built on hiring and retaining top talent. So as we've always done we're going to continue to focus on incentivizing, our top performers and well continuously thinking about balancing how we balance short term and long term outlooks for the second part of your question.
When I think about the sort of longer term we.
We have been managed with this plan for a fairly long time, Brian.
Almost the last 10 years and in the range that we've set out of the mid to high Fiftys.
55% to 60% area, where we've been accruing compensation awarded basis during that period of time I think look what will drive that next year is going to first and foremost as it always is the pace of revenues and so as revenues grow.
You get some revenue growth in the business the natural growth in the business Thats going to help us to remain in that range, where we've always been yes, I think we're still fairly comfortable with the steady state business comfortable being in that range. Obviously, a lot of factors that changed out the biggest historically has always been the pace and level of investments that we're making in the business and as we continue to win to think about.
Where we see opportunities for bigger growth longer term and the investments we want to make there that could have an impact on our compensation line, but the steady state part of our business.
Given where we've been I think we're comfortable with that range you said when do we get to the lower part of the range. We were there just a couple of years ago I mean during periods of stronger revenue. So I think we've proven that when strong revenue Colm, we are able to trade at the bottom part of that range weak revenue is going to trade at higher part of that range, but weve always sort of manage that whole process with a disciplined but of course both.
Staying on incentivizing, our talent and making sure that we can we can continue to invest in the business and focus on the growth of the business over the long term.
Okay, Great I appreciate all the color.
We will now move to our next question from Devin Ryan from JMP Securities. Please go ahead. Your line is open.
Hi, Devin good morning, everyone.
Morning.
First question here just on the M&A recovery really what I'm trying to get your views.
The drivers behind it.
Kind of what you guys.
Or seeing or thinking and it really.
Just feels like such a quick income strong snap back, which I also think just speaks to how important strategic right.
Right now to assist the speed of roles continues to pick up and so I appreciate.
Macro risks here and we have the election next week. So there's obviously things could temporarily disrupt activity.
Feels like it's hard right now to hold back M&A, just given how critical it is and kind of some strategic conversations I'd just love to get some thoughts from you guys around what's really driving activity does that feel like a reasonable Easter this year.
Yes, no I think that's a great question and secure thesis is right.
Traditionally we look at M&A activity is a function of three factors financing equity market valuations and.
Our CEO and board confidence and then usually there are a couple of longer term catalysts under pinning that activity and it remains the same for us.
Today financing is.
Widely available at historically low rates.
Equity valuations have been in some sectors kind of rich others not but.
But generally speaking the cheapness of the financings offsets some of the valuation considerations in many instances.
And then importantly, with regard to CEO and board confidence increasingly in industries, where you see.
Large levels are high levels of activity those happen to be industries, where boards and Ceos have a better ability to have confidence in their predictions about the future and so they are engaging in more activity. You don't have to initially be optimistic but you have to have some confidence in your in your predictions.
And that's and that those industries, but technology biopharma.
Increasingly financial services.
Some of the energy sectors.
And such.
Then there are other areas.
I'd say your energy sectors, and then there are other issues, where the stress on the economy is forcing the activity that tends to be areas, where there is real pressure on businesses.
Where you're seeing some activity the catalyst for all this as best we can tell are probably to fill a major catalyst is just that all the trends that were in place prior to the pandemic or being accelerated.
The industries, which were better.
So to come out of the pandemic in a strong position technology Biopharma, you're seeing a lot of activity there compass.
Companies, which have stronger market position stronger balance sheets, probably are ahead of their competitors in implementing some of the technological change that's going on into their business models are also are also taking advantage of those positions to improve their visits are strategically through deals and weaker companies are having are finding that theres increasing pressure.
To deal with many of the challenges in their business through.
Portfolio adjustments and and frankly in many cases restructurings.
And then there's a smaller trend, but an important one at least as far as the fourth quarter is concerned.
She is there's some acceleration around activity around selling businesses in anticipation and perhaps of some changes in tax.
Tax codes, if theres a change in administration. So I think we're going to see some pickup in activity in the fourth quarter alone around that as well know whether that persist into next year, our rates remains to be seen but I think the first kind of list is with us for quite some time.
Okay. Thanks, I appreciate the color and then maybe just a quick follow up for Evan just on.
The expense structure.
With that kind of more holistically.
As.
We kind of get back into maybe a more normal business backdrop here and.
Appreciate some of the on the non compensation side. Some of the expenses are kind of moving targets and travel will likely pick back up but I'm curious how you think about or would suggest kind of framing for us kind of modeling out just given that.
Travel remain lower in the near term and then.
Back to something that's more normal is there still some overall cost expense.
Depreciation just given that you guys arent things through the pandemic around the expense base or they're just going to be expenses that maybe don't come back and pull horse.
Yes for them and so as we said in the quarter.
Our non comp expenses were down approximately $22 million in the quarter and a significant part of that related to the market and marketing and business development expense with specifically a big chunk of that being travel and entertainment is a $14 million of up to 22 was really related or around that number around for travel. So look I think.
It's broader than just travel I think we've been focused on thinking.
Thinking about expenses this year given the decline in revenues weve been thinking about what kind of projects and other expenditures that we had this year, making sure that we're making the right decisions in the context of the environment of course. Some of this is offset by some cobot related expenses that we have in our offices cleaning PB in technology in some other area.
So I think it's still a moving target as to how that plays out I think I'd say over time and what we saw in the third quarter.
Relative to the second quarter as we started to see a little bit more in the travel side, a little bit more on the marketing and business development I mean, it's still slow, but it's coming starting to come back a little bit higher than we had seen but certainly nowhere near where we were in the 2019, but it's going to depend on the sort of the pace of the sort of normalization of the environment.
We saw in Europe, and Asia Pac region for US earlier in the third quarter when those businesses, we're going back to the office and a little more accelerated pace client activity and client interactions tenant activity declines traction was it a more a more normalized level, we started to see some pick up in those expenses, but ultimately look I think.
Long term, we would expect there to be some residual effects and benefits of learning to live in this sort of remote and virtual world, but it's going to depend on the region is going to dependent clients. Ultimately clients are getting more comfortable and have become more comfortable executing in this environment. So theres definitely should be some efficiencies exactly how that plays out.
Pace, it's going to depend but it's important to remember as well that look we're a face to face.
Sort of business right. It's based phase is critical in creating in creative deal environment. During complex negotiations and certainly relationship building. So I would expect it to come back probably not to the level that we're at a 19.
That quickly, but I expect that did have some residual benefit going out a couple of years as we think about it and then look outside of that there's all the longer term implications on on real estate and other areas, where as we move into a more flexible working environment, which is what we did was order are sort of thinking through and how to work with our.
Employees to figure out what is best not only for our employees also for our clients sort of balancing the two I would think thats going to take several years to really see through in the non comp expenses and I think over time, if you sort of thinking out. The next couple of two to four years I think we can see the paradigm moving towards a more flexible working environment and therefore, the need and type of space.
The redesign re imagining the space, we have kind of changed exactly what that means in terms of expense change I think it's a little too early it's TBD. We're in the early phases of thinking about this strategically, but I think as we've said before I think long term, we want to take the best of what we've learned in this environment and figure out how to apply that and bring it forward with us as we sort of.
After the future post pandemic world.
[music].
Okay. Thanks.
Thank you for all that color I will leave it there. Thank you guys.
Okay.
We will now move to our next question from Brennan Hawken from yes. Please.
Please go ahead your line is open.
Hi, good morning and revenue.
Good morning, Thanks for taking my question.
First just a cleanup you guys gave some great color on M&A and restructuring, but were there any pull forward revenues from October in the Threeq number.
Yes.
The majority of it is really relating to the business mix right. So moving from some of the higher fee categories, such as emerging markets being a smaller percentage of our portfolio relative to quantum fixed income and some other areas, which are lower the general strategies and so that that really is the reason for the decline.
That the.
The majority of that decline look there's always some deep pressure in our business as we always know we continue to innovate which is the most important thing we can do in our business coming up with new products launching new teams and new strategies across the platform I think going forward I think it's a reasonable sort of assumption to start using its going to move around as it has let's go up and down a little bit based on that business.
Mix going forward, but ultimately at the fair I don't have anything strange in that number of specifically this quarter.
Okay.
Thanks for that and then and then.
In the asset management business.
Consolidation remains of theme.
Let's see.
Steady drumbeat of act not only activity, but pressure some some some activists indications from you know C. E OS of large diversified financial services firms looking to add scale to their businesses.
You know you all are a reasonable size in that business, but but not huge so.
How are you thinking about where do we could go either way I could see you guys using asset management and the excess capital that you generate in your business to go out and pursue more aggressively bolt on transactions given depression businesses under in the back that smaller firms really.
Are are struggling more than ever and need to partner with a firm that has good distribution capabilities and and and the like and then on the other end you know of course, they're strategic alternatives as a seller how are you all thinking about balancing those two right now.
<unk> and how are you thinking about executing on that environment going forward from here at least in the medium term.
Sure Great question look it's a fascinating environment, it's probably a consequence of all the changes that have taken place around asset management over the last several years and <unk>, if people and firms and companies and people are reacting to that now from our standpoint, we have a great franchise a great day.
This that we've been investing and historically and we see an enormous opportunity to continue to invest for the business now just in this quarter alone as an example, which I think is really a reflection of what this environment is like right. Now we brought on three new teams coherence capital, which is a credit team bottom.
<unk>, which is a medic team that a couple of minutes are emerging market franchise, an additional health strategy that a couple of minutes our global kinetic platform. So that's just an illustration of the opportunity set that's out there and there's many more behind that we've been pretty active over that over the last.
Several months ago, although it's accelerating right now and it just reflects the fact that as you said there were a lot of challenges for smaller and medium sized platforms given the pressures around compliance the pressures around cyber the pressures around scaling to sell product the gatekeepers to become more sophisticated for products, so having a a more.
Just to get it platform or a more global platform to be able to distribute through becomes quite attractive and that creates a lot of opportunities.
For us in that landscape, you know I think that we're gonna be very thoughtful about the kinds of bolt on larger transactions. We have to make sure that you know if we do something it's adding to the value of the firm and it also has to be something which we think is a healthy business. It's hard to fix businesses that are broken in asset management.
And and finally, the larger consolidations look you know those sort of things, which S. A S. A sort of shareholder value, we always have to consider for both our businesses and but at the same time you know, we're very comfortable with this fixture businesses and and the two platforms to that.
Great. Thanks for all that expensive car.
We will now take our next question from Gosh I'm someone to come Credit Suisse. Please go ahead your line or something.
Oh good morning, I just wanted to follow up on that last question Uhm on your alternatives platform are you seeing additional demand for firms to join that platform and what is the outlook to be able to bring on I guess firms there and to help improve the fee right with those friends coming on.
That's exactly what I was talking about it the less and the last question, we're seeing Ah increased opportunity to bring on purpose onto that platform. As I said, we brought on three this quarter alone I think we've done five or six in the last few your total.
And you know <unk>.
<unk> will continue to see more activity there it look it's.
There's a lot of disarray in that market right now and that you know, it's an opportunity for us, but you have to sift through and make sure that the strategies were bringing honor ones that we can be successful with it's nice if they come with some assets, which increasingly we've been able to do to make the the economics more attractive, but we're seeing an increase.
Blow there and that's something we're very focused on.
Thank you and just as my follow up on these southern advisory business can you talk to how demand is picking up in different regions. There and how are you position to continue winning business and how does that help drive for the business in the different regions.
Well I mean, it's it's obviously been a a very strong platform who has already started he continues to be today.
I think it's easy to say that we have the leading plan for them in the world in this area and were involved in virtually all of the major assignments that are taking place in the market today, It's an area where you know unfortunately, the pandemic is having a disproportionately effect on many of the developing countries.
Around the world, which is putting pressure on their economies and and as a result of that pressure on their balance sheets of these countries and that's gonna drive increasing restructuring in the future and I think that's an area where were highly focused and have a highly experienced team and should continue to do reasonably well.
Overtime.
Yeah.
Thank you.
[noise] [noise] take our next question from season Toback. Some Woof research. Please go ahead, you're lying is open.
David Hi gods.
It's Brendan O'brien, an interest you then hold on okay.
So you guys already touched on this a bit earlier, but Europe has obviously been about a month or two out of the U S. In terms of Covid cases, and Lockdowns Uhm I'll have dialogues sort of change and T. As in boardrooms in Europe over the last month. Those cases are gonna pick back up in Lockdown has become more and then.
And what is their the appetite for deals get done or announced like is there not had it back in July.
I'm not sure that much has changed over the course of the last month in terms of dialogue with a C E O as in Europe.
The you know the dialogues continue apace deal activity through the last month has been consistent we didn't we haven't seen the very sharp drop off that we saw in March and April in fact in a couple of markets. We've seen some acceleration over the course of the last month or so I think it.
It remains to be seen what happens over the next couple of months as the lockdown. So I've gotten more severe in a couple of countries. So we can keeping an eye on that.
You know the cross border activity I think has hasn't been as robust cross border Trans Atlantic that also obviously from China hasn't been this robot to it has been in the past I think a lot of that and get across the border into the U. S has been probably dominated has been impacted by elections and political climates in the U S and obviously.
Tensions between China in the U S is probably limited a lot of that deal activity as well, but in the European midsize, which is a lot of those financial sponsor activity in the sectors that are referred to earlier you continue to see a reasonable amount of activity in Europe right now.
Alright, I have sort of another call you just mentioned attached garage change and things of that nature, I guess <unk>, what would be the impact of sort of a higher one minimum tax write in the U S. You guys obviously.
<unk> believes on the way down so it it sort of be a similar not as big of an impact on the way back up and also how much of the private sponsor actually have any detail of sort of pull for it from a potential change in the capital gains taxes. Thank you on the financial sponsor may take that into the tax rate on impact on off so I'll, let them in.
Take financial sponsor activity, there seems to be a pick up in activity around the fourth quarter of trying to get some deals closed prior to your and that seems to have picked up over the last several weeks or so my guess is that's a positive blip, but probably doesn't change the overall die.
Now mix of the financial sponsor market that much because it's such a robust market at the moment 11, you Wanna take the other yeah sure. So yeah I think if you point out I think we would be a beneficiary on a relative basis certainly of a tax reform where U S tax rates goes obviously the.
Devil Gonna be in the details there and we don't really have a lot of information other than sort of a theoretical navy something might happen depending on what happens next week and you know a lot of a lot of in a lot of questions a lot of movies at this point in time, but yeah. I would think there's an overall sort of 60000 foot view I certainly would take the view that.
If you're a tax rates go up we certainly be a relative beneficiary of it give me more courage beneficial structure.
Thank you for taking my questions.
We will now take our next question from Jeff Harsh comes hyper Sandler. Please go ahead to your line is open.
How did you guys couple of cleanups for me as far as the diluted share count I think last quarter. You guys are talking about four K 20, being something close to four Q 19, but it didn't change a whole lot. This corner shall we still be expecting a big increase next quarter.
Yeah, I think it's.
Dressed it up a little bit this quarter, Jeff and I think our expectations would be that we're going to end the year somewhere in the same range. We ended cute for 19. So I think that's still holds today given that we bought back all the dilution we needed for your Incompensation earlier this year and so effectively took a share count down, but ultimately drifting back up.
Through the course of this year to last year's level. So essentially we've kept assure count flat year over here.
Okay, and and that's in management as soon as we're looking at kind of the flow artwork. Despite the obvious month to month volatility I I tend to think of institutional as being more stable directionally kind of historically it took a while for the out for those to work their way through the system now that we've reverted back to inflows.
Again should we expect to kind of a similar persistent it takes a while for the inflows to work their way through.
I'd say the institutional business cause we've always said right, it's a bit lumpy range of you're gonna get some times, where things are going to come in and sometimes where they'll slowed down I think ultimately we were very focused and and seeing a lot of great fun fun pillows for us and win a mandate when that we've had over the last.
Few months that are sort of driving in towards growing are gross influence for the corner grocery blows it'll continue to be strongest corner grocery bills are certainly very very important to us on a quarter to quarter basis. It says that we've got the right product says we've got the right team the portfolio management team. The products are really working their way through so I think this quarter you kinda sore too.
Seems here you had gross inflows, where the input part of the equation going off because some of those unfunded mandates and jump as you point out our gross outflows actually are coming down on a relative basis, you always have some in denouncing. This time I think we benefited on both sides of the curb with stronger growth and clothes and lowering gross outflows at the same time, so I think I think our outlook.
As we've said we continue to be optimistic given what we've seen in the winter we've had winter continuing to get the unfunded pipeline, which remains fairly strong and quite diversified at this point. So I think our products are are selling well in the market. I think clients are are are you know potential clients clients or or certainly eager to put somebody to work and strategies my car or something.
Really seeing the value of active management today in today's market more than they have in the past, but I think that you know all those factors sort of come together.
Same with my hopefully you know, it's a lumpy we can get some potential months and quarters were concerned, but I think we feel we feel pretty good about the business day relative to the last couple of years.
Okay, I feel kind of weird asking they're so close to the end of the recession. If we are but it it still comes out caches building on the balance sheet and the environment outlook is getting quite a bit better and improving at what point do you consider kind of reinstating a more meaningful buyback or potential pivoted increases or something along those lines.
Yeah sure look at any point at Jeff Our cash has been building, we know that happens three year. We crew cash at this point as we start to gear up for US our year end compensation and also for potentially repurchasing shares to offset any dilution, which we normally do at the beginning of the calendar year. So beginning of 2021 look we've been a.
A little bit more prudent in this market to be a little more conservative in this environment, given a little bit of the uncertainty. So we're letting castro a little bit ultimately I think our view is we bought back the number of shares we needed the minimum amount of shares we wanted to offset the dilution. This year. We didn't in Q1, we bought the shares knock when the market sold off.
In Lake you won so we did enough to buy back that we needed for the year. Ultimately I think we're holding onto the remaining the excess cash any future additional repurchases will come from excess cash generation. So it's gonna be depending on the pace and the outlook of the business. So we're gonna keep monitoring it but ultimately it's likely to be limited to the rest of this year, but I would expect Jackson in 2021.
You know if we're heading back to a war normalised environment. If the business continues to strengthen I would expect us to sort of reserved resume our share repurchases at that point in time it in 2021.
Okay. Thank you.
[noise]. That's there are no further questions just now confused can attach conference call.
You may now disconnect.
Yeah.
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