Q2 2021 Lazard Ltd Earnings Call
Good morning, and welcome to utilize our packing crusher in first half 2021earnings conference call.
This call is being recorded.
Currently all participants are in listen only mode. Following their remarks, we.
A question and answer session.
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At this time I would like to turn the call over to Alexandra taken <unk> head of Investor Relations. Please go ahead.
Good morning, and thank you for joining us today on Lazard earnings call for the second quarter and first half of 2021 on.
Alexandra Deignan, the company's head of Investor Relations and corporate sustainability. In addition to today's audio comments, we've posted our earnings release, and an investor presentation, which you can access on our website a replay of this call.
Also be available on our website later today.
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 company's SEC filings, which you can access on our website.
It assumes no responsibility for the accuracy or completeness of these forward looking statements and assumes no duty to update. These forward looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance a reconciliation.
These non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and Investor presentation.
Hosting our call today are Kenneth Jacobs, Lazard, Chairman and Chief Executive Officer, and Evan Russo Chief Financial Officer, Evan will start the discussion with an overview of our financial results then Ken will provide his perspective on.
<unk> is a cloud business after that we will open up the call to questions I'll now turn the call over to Evan.
Good morning today, we reported record operating revenue for the second quarter and first half of 2021, driven by strong results across the firm.
Second quarter revenue was a record 821 million.
On the hours.
51% from a year ago at first half revenue was a record 1.5 billion.
Up 33% from a year ago.
Revenue for the last 12 months was a record $2.9 billion.
This high performance underscores the strength of our franchise on the breadth and depth.
All of our business.
In financial Advisory record second quarter revenue of $471 million increased 61% from last year's period, reflecting broad based activity across sectors.
Cap and regions.
M&A completions in the second quarter.
Depth pretty substantially in the Americas, Europe and Asia.
As did private equity transactions.
Our advisory revenue reflects a growing percentage of financial sponsor activity.
Our global private capital Advisory franchise also had a strong quarter, serving financial sponsors with new fund raising and innovative secondary.
Secondary market solutions.
Our second quarter restructuring revenue was down from last year's elevated level and we expect lower levels of restructuring to continue in the second half of the year given the strong liquidity across markets.
Our sovereign and capital markets businesses continue to be active advising governments.
<unk>, Inc operations on financing strategy and capital raising.
Overall, our advisory business is experiencing unprecedented activity levels.
Assuming current macroeconomic conditions as we said last quarter, we expect that our financial advisory revenue in the second half of 2021 will be higher.
<unk> and quoted on the first half.
Asset management operating revenue reached an all time high for the quarter and first half of the year with second quarter revenue of $343 million up 40% from a year ago.
This reflected management fees on a larger base of assets under management as well as strong.
On incentive fees, primarily from European equity strategies.
Average AUM for the second quarter reached a record high of 276 billion, 32% higher than a year ago, and 6% higher on a sequential basis.
As of June 30th we reported AUM at quarter.
And record level of $277 billion, 29% higher than last year's period, and 5% higher on a sequential basis.
The increase was primarily driven by market appreciation and positive positive foreign exchange movement with point $8 billion of net outflows.
The quarters.
Net outflows were limited to our equity platform, particularly in emerging markets.
These were partly offset by net inflows in our fixed income and alternatives platforms.
Gross inflows continued to be healthy across our platforms.
As of July 23rd.
AUM.
Increased to approximately $278 billion, driven primarily by market appreciation of 2 and a half million dollars, partly offset by negative foreign exchange movement of $1.3 billion and net outflows of approximately $1 billion.
We continue to see demand for global and international.
Please.
As well as our quantitative and fixed income strategies.
We are investing for growth across the firm in asset management, we continue to invest in people technology, and our distribution effort as well as the development of new and existing funds and the scaling up of our platforms.
<unk> in the second quarter, we launched an investment grade convertible bond fund, our fifth long only strategy and the convertible space an area, where we are gaining significant traction.
In addition.
This week, we announced the senior hire to build and launch an investment strategy focused on sustainable private infrastructure.
Structure, we continue to see substantial opportunities to recruit talented investment teams, adding strategies that are complementary to our existing platforms.
In financial Advisory, we are driving growth with an elevated pace of strategic recruiting.
Year to date, we have made more than a dozen senior hires.
Including several high level senior advisors to increase the firm's breath of revenue sources and connectivity.
Now turning to expenses, even as we invest for growth we are maintaining our cost discipline, our adjusted non compensation ratio for the second quarter was 14.5 per cent compared to 18.
0.3 per cent and last year's second quarter.
Non compensation expenses were 19% higher than the same period last year, reflecting increased business activity over last year's depressed levels.
We continue to accrue compensation expense at a 59, 5% adjusted compensation ratio.
In the second quarter.
Regarding taxes, our adjusted effective tax rate in the second quarter was 25, 2%.
For the first half of the year it was $26.7 per cent.
We continue to expect this year's annual effective tax rate to be in the mid 20 per cent.
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Lazard continues to generate strong cash flow, which supports return of capital to shareholders in the second quarter, we returned $161 million, which included $111 million and share repurchases.
We expect to continue our share repurchase program utilizing our cash.
Cent range from operations.
Our total outstanding share repurchase authorization is now approximately $339 million.
Ken will now provide perspective on our outlook.
Thank you Evan the global macroeconomic environment continues to strengthen and market conditions remained excellent for both of our businesses.
Flow, even as the course of the pandemic remains uncertain business conditions in most of the developed world are normalizing economic recovery continues to be underpinned by unprecedented support from central banks and fiscal policy.
He owes boards and investors look past the short term uncertainties they are increasingly confident.
In the longer term outlook.
Forces driving global strategic activity remain in place.
Knowledge, driven disruption continues to be a catalyst for M&A across industries.
Global push to lower carbon emissions is an emerging catalyst.
The pandemic is driving structural changes in the real economy.
Shareholder activism continues to evolve globally and there is an abundance of private capital being put to work alongside strategic capital and Sparks.
Our advisory business is in high demand in this environment, we are serving clients with the most sophisticated capabilities and deep insights into local markets reinforced by expertise from.
Well sector and specialty teams.
Asset management, we entered the second half of the year with a record level of assets under management.
Low interest rates continue to drive demand for risk assets, including equities and corporate and emerging market debt as well as alternative investments.
Institutional investors continue to seek sources of differentiate.
From global golfer.
Our asset management business is especially well positioned in this environment with a diverse array of innovative strategies and solutions for sophisticated client base, we see significant opportunities for productive growth across our businesses and we continue to invest in people capabilities and technology infrastructure to enhance our enhanced.
She had competitive edge.
We remain focused on serving our clients well, while managing the firm for profitable growth and shareholder value over the long term Lazard as people are returning to the office and meeting clients in person with greater regularity, which is boosting spirits across the firm.
Even if we hope for a continued lifting of quarantines and travel restrictions.
Arkansas, we have proven our ability to serve clients in both fully remote and hybrid environments.
In closing I want to thank all my Lazard colleagues for their perseverance and dedication during these unprecedented times they were serving our clients with outstanding financial advice and solutions and they continue to be remarkably productive they are proving day.
Stricter day out that Lazard is greatest asset is our people now lets open the call to questions.
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We can now take the first question from Devin Ryan of JMP.
Securities.
Hi, good afternoon, everyone.
First question just on Europe, and you know what you guys are seeing there I guess near term and then also kind of the bigger picture, maybe longer term opportunity and I guess, where I'm coming from here is.
If we look at European M&A volume is going to post financial crisis, they dropped by roughly half.
And never really fully recovered and it sounds like you're seeing maybe what feels like a more durable recovery there and we're on the early inning.
<unk> of that or at least that's what it feels like.
And so I'm just kind of curious how you would frame the potential for recovery in Europe, and if there's any quantification that you can provide whether it.
It's productivity of European managing director is relative to north.
Erica or kind of at the level of upside that you think we could see to the extent there is a more sustained.
<unk> recovery there.
So the short answer is yes, we're seeing a significant recovery in Europe.
Right now and across the board, it's not limited to 1 country, where pretty much standard across the board in Europe.
It's a pretty healthy recovery because its not really driven by just a couple of big transactions. There is obviously.
A fair number of reasonable size transactions, but we're seeing an enormous amount of sponsor activity.
Which we which we're playing a significant role in and we're also seeing a fair number of mid size M&A by strategics as well and we think this is going to continue 1 of the key drivers in Europe, which is going to underpin a lot of the activity.
Earlier in the years going forward is going to be the de carbonization, that's going on in the economy generally I think European companies are particularly attuned to this and our repositioning quite quickly too to take advantage of in some cases reposition in other cases, what's going on in the economy, but generally speaking it's.
Pete recovery.
At the core of it is probably the sponsor activity, which is across Europe right now.
Got strong private debt markets, which are which are helping that thrive and this should continue for a while on productivity measures I'd say the fee levels in Europe are still not.
Hello are where they are in the United States, but at the same time I'd say our productivity numbers. You know are looking more and more similar to what we've seen in the U S and that's the first time on a long time.
Yeah, Okay terrific color. Thanks again.
And just a follow up on capital return on capacity and nice to.
See you know healthy buyback in.
In the second quarter it sounds like there.
There's still an appetite.
There I don't know if there's any other frameworks to think about kind of capacity for capital return and preference.
You know between buybacks or even thinking about your specials.
Capital hopefully builds throughout the remainder of the year.
Kevin.
Evan you want to take that of course of course, yes, I would say the the.
To the second part of your question Devin I, we're definitely more focused on share repurchases than we are on the special dividend as we have for the last couple of years the consistency.
We've.
Put more capital to work in share repurchases and as he said look we bought back 2.4 million shares in this quarter. When we were trying to do is sort of spend down the excess cash we sort of hinted to that last quarter that we were going to try to by around $100 million. We spent about $111 million buying back shares this quarter on top of the 2.
9 million shares we bought back in the first quarter. So you know obviously getting getting a lot of share repurchase done earlier in the year. As we said we're going to continue to focus on share repurchases throughout the rest of the year through the excess cash that we're generating on the business probably more leaning towards the Q4 timeframe given the amount we've already bought back this year, but we'll see you know it depends on cash generation and the excess cash.
And when the business on as we always do we will return it back to shareholders.
Yeah, Okay terrific I'll leave it there. Thank you guys.
Great.
We can now take our next question from my non Ghazaliyah from Morgan Stanley.
Okay.
Hi.
Cash flow.
Good morning, Yeah, so clearly.
So on quota hereby by any measure yeah can you give us a little bit more color on you.
You know maybe what drove the advisory revenues this quarter.
We see M&A is firing on all cylinders, but you know how much debt restructuring and.
Capital markets Advisory.
Could be up to the strength this quarter.
Sure. So this was an M&A quarter clearly.
Structuring is off compared to last year and the restructuring climate is more muted than obviously it was at the beginning of the pandemic given the very strong credit conditions, and it's probably going to stay that way.
Over the course.
So the next.
Several quarters, unless we see some weakness in some of the sectors that we're counting on a recovery.
A strong recovery that could be travel leisure et cetera interrupted by the pandemic, but generally speaking. This is an M&A. This has been driven by M&A and I and the rest of the year should as well.
What we're seeing on the M&A.
It is just at least for Lazard. It it's broad based we're seeing it across geographies U S. Europe, we're seeing across the industry groups on virtually every industry group firing and what's particularly gratifying right now is the breadth of the origination at Lazard across the firm. It is you know.
Historically like most places you.
Hey, Mark on a concentration here I've never seen it this brought at Lazard and the whole time I've been here and that's very gratifying and very encouraging I think 1 of the areas, where we've seen a big pick up in activity, which we expect into the future is in sell sides and in coverage of our private equity and that's something which we.
We pivoted to I'd say about a year and a half 2 years ago, and it's really starting to pay off right now.
Great.
Just maybe as a follow up to that.
How is the macro environment factoring into client conversations you know Europe is you know what it is rebounding nicely but.
There's you know heightened concerns around.
Get a lot of variance.
And you know the you asked there.
There there are concerns or on antitrust and neither on the likelihood that tax rates will move up next year.
You know what the level of I guess urgency you're seeing from clients, saying pushing deals through by year end.
Okay. So look.
Each of them have different what I would describe as someone's clientele effects on the antitrust discussion. This is not new this has been hanging over the sophisticated on the part of the market now from.
Several months before the election post election, and obviously getting a lot more public attention now, but there really aren't a lot of.
Surprises about the choices that have been made in terms of antitrust.
Rolls in in this administration and so this this heightened focus is something that I think has been anticipated by many of the larger companies and you can kind of see it in the nature of the deals that have either been interrupted obviously, but the ones that either.
Having taken place or for that matter, even the ones that have taken place probably more of a awareness about a more difficult environment for consolidating very visible very big transactions, that's where the focus is likely to be on the regular way stuff that we're seeing the activity that's really driving the M&A fee pool.
Right now there that's not likely to have this kind of enforcement is not likely to have as much impact there, but look it's something that we all have to pay attention to with regard to the Delta variant. Obviously that's of great concern from a health standpoint globally.
But 1 thing that is increasingly apparent is that all of them.
In the developed world. The major economies are just getting in businesses and people are just getting better and better at adjusting to these.
Interruptions. This is gonna be something we're going to be living with for a long time and I think increasingly businesses are adapting to that they're gonna be parts of industry, I'd say travel leisure entertainment better at more at risk than other parts.
Because of this but that's a concentrated part of the economy I don't think it's going to be as broad based but obviously if you. If we start to see another variant that starts to interrupt the ability of the vaccines to be effective that that's a different that's a different landscape, but for now it's manageable and.
I forgot the third question.
Question, you had there were 3 parts to it.
No no that was it.
We share that.
Thank you.
Good good.
We can now take the next question from Steven <unk> from Wolfe Research.
Hi, good morning.
So Steven.
Okay, and I was just hoping to dig a little bit deeper into some of the comments you made relating to sponsor activity. Some of your competitors are perceived to have more exposure in this area.
I think it's pretty evident based on the backlog trends in some of the deal announcement that you have a really strong sponsor franchise I was hoping you can give some context as.
How you stack up relative to some of your peers and just the broader strength of your relationships with some financial sponsors given how much activity, we're expecting in that space.
Okay. So look I I don't really have a a.
A detailed view of how our peers lineup, there and I'm not really I don't usually like come.
So I'll focus my remarks on us.
First of all we've always had a very strong sponsor business in Europe, that's been an area, where probably our sponsor revenues have historically matched the market revenues and.
Especially the case on the continent, it's strength in recently in the U K and the U S.
Even though we were very early.
Sort of the mid market sponsor universe with our foray our acquisition of Goldsmith asked you about a decade ago. I think we were you know up till about a couple of years ago under index relative to the fee pool there.
And over the last couple of years, we've been pivoting our COO.
Quite a bit of attention and resource to covering that market in the U S and it's really starting to pay off and and that's something which I think.
We'll continue to drive that activity going forward. In addition to that obviously, we have a very strong fund raising group or our private capital Advisory group is is really 1 of the premier groups on the street.
And.
That combined with our focus on private equity that group, which has given us tremendous insight into what's happening in that market and has been really.
Really at the cutting edge and pioneering many of the transactions that are taking place in the secondary market somebody's continuation funds has really given us a boost in this marketplace as.
And thanks for all that color on 10 and for my follow up I just wanted to ask on the stack capital that needs to be deployed about that as a potential tailwind to activity.
Investors are just growing increasingly skeptical that the significant amount of spec fund raising that we've seen is is chasing a dearth of quality targets and was hoping.
The thing that you could just share some of your own perspective on how you see that unfolding and maybe the implications for those facts being used as the vehicle more broadly.
As a way to engage in M&A activity.
Sure so.
The spec market is going to evolve I mean, we've already seen the evolution.
We should have the market over the last several months or so.
Survives, which I think it will there will be you know.
Lot closer.
What I would say scrutiny of it by be by regulators and by market participants, but assuming it continues to evolve and survive, which I expect it will it's going to be.
More institutional in nature. The players that are going to be most successful are going to be the ones with the most sophistication the most resource.
Best ability to do due diligence and such.
And I think that's going to improve both the quality of.
The deals that get done and it will also shift.
Per time, I think the targets I think what we're going to see over time is the shifting targets to be something that looks a little bit more like what's traditionally done in the IPO markets you'll see.
Probably more established companies, you'll probably see corporate carve outs.
You'll probably see this back being used as the vehicle to them.
On a couple of them to come to private companies to merge or a joint venture to get public I mean, I think this is the direction. It's going ahead, if it survives which I think it will and it is proven that they were parts and aspects to the stack process that makes it a great complement to the IPO markets, but it's but it's got to mature a little bit.
Oh, I think that's what's underway right now.
That's great color. Thanks, so much for taking my questions.
Sure.
We can now take the next question from Richard Ramsden of Goldman Sachs.
So good morning, guys. So Ken we've heard from a number of your peers that this is a perfect.
Particularly competitive recruiting environment. So I was hoping that you could show your perspectives on.
The economics of recruiting advisors today on how that's evolved given the presumably the more expensive, but there also are more productive and has any of the dynamics in terms of recruiting advisors changed.
And any way you'll fill process around some of your expansion plans. Thanks a lot.
Sure. So let's break this into 2 parts I think 1 part is on the more junior bankers and the second is on the more senior bankers I'd say that the market for a younger bankers middle level bankers is as competitive as I can ever remember it I mean this is.
Probably not too different from what we all experienced that the goes on.
We're in the business around the time of the dotcom part of it is driven just by the demands of the investment bank of the investment banks.
And how well our people are doing at the moment part of it is that there are just a lot of other opportunities in the economy.
There's probably that are drawing people away from our industry and part of it is just a kind of the reaction to the pandemic being shut in being cut off.
On some of the attachments to firms are less than they used to be so this is a this is a tough environment. Both in terms of getting talent retaining talent.
I guess is that more trains out late to some extent.
Into expense over time are on the more senior front I think it's differentiated between different firms, where we've done so far this year I think it's more than a dozen senior hires.
Many of which haven't yet been announced but we're finding that our platform is actually.
Quite attractive right now and that we're doing it in a way where we think the economics makes sense.
And we see a lot of opportunity to expand right now and we're not having that much difficulty attracting talent now that could change but from the moment, it's pretty good in that regard I can't speak to others experience at the senior level.
But that's been ours.
Okay. Thanks, a lot and then perhaps just as a follow up to that I mean, presumably at this stage. The 59 on a half percent comp accrual you think reflects the pressure that you're seeing in terms of the cost of talent.
And then if you want to take that Yeah look you know as you know Richard.
Comp ratio of 59, 5%.
It's our best estimate and then we have to look at that every quarter and you know, we'll see how things develop as the as the year progresses, but as you know comp decisions for us the big part of that really happens in Q4.
That's really where we have the best the best picture of the way the full year is going to turn out in the full year always depends.
On you know revenue growth offset by the pace of investments as you're saying so as we're continuing to invest significantly into the firm where we're seeing this as a really great opportunity for us.
As Ken was just mentioning and really a terrific opportunity to take advantage of the market.
Marketplace for Lazard and just to bring on an accelerated number of hires on so you know that goes into the figure and.
And we'll see how it turns out.
Okay. Thanks, a lot that's very helpful.
We can now take the next question from Brennan Hawken of UBS.
Good morning, Thanks for taking my questions first.
First just on the advisory side given some.
Those comments about the recruiting environment and whatnot.
Where was the advisory MD head count.
Now or at the end of the quarter and do you have a pipeline on expectation you've added a decent amount of talent are you largely done with the adds for this year or.
Or do you think that there's still more coming.
Evan you want to take that yeah. So we had a 180 on M DS and the financial advisory business at the end of the second corner, obviously, that's up significantly from where we were at year end I think we're about 171 at that point in time and you know as we said at the beginning.
You were targeting 10 to 15 net increases this year, obviously through our through the promotes that we do it's obviously a significant portion of our of our growth that has been in the past years as well as especially this year with our significant promote class into M D as well as the external hires as Ken mentioned, we've been very successful at bringing people on so I think we're you know.
We're on track for that as Ken said, we'll see you know what we will see if we can get there through the end of the year, but we've made significant progress on I think that that's R. R or hope to achieve that and we've we've made some significant progress already by mid year and you know there's a few people that will come and go through the end of the year and obviously theres. Some of the hires that we've been haven't been announced yet haven't really joined yet.
They'll come in as well. So you know we're on track and I think the 10 to 15 number still is our best estimate for the year.
Got it okay. Thank you and then.
I believe can you you flagged that lift out.
In your commentary and this was a big.
On that you had mentioned earlier.
Prior calls.
What's the updated view on the market from lift outs and bolt ons on asset management, we hear a lot about the competition for talent.
On the banking side.
Not as much on the asset management side. So is it as intense there or is that maybe a more.
Okay.
Indians are fertile field so to speak.
To pick up people and capabilities.
We think it's a remarkably attractive time to be doing what we're doing there's obviously been a lot of displacement as a result of the changes in asset management.
Track over the last decade last several years in particular.
I had been passives pressure on price.
Contraction of managers pressure on fees correlation to markets.
And asset classes and so consequently, if you take a look at the landscape of a smaller hedge funds hedge funds with.
Only a.
<unk> $3 billion or less under management asset managers long only asset managers the same way.
It was just hundreds if not thousands of them out.
Out there today.
And we have I think a unique platform.
Out there, where we're neither for Trillium plus asset manager or what we're doing doesn't move the needle.
For smaller asset manager oftentimes they don't have the breadth of distribution capabilities around our I T compliance that are all increasingly necessary to scale your assets, especially to an institutional base. So what we're seeing is a.
<unk>, a great flow of smaller asset managers smaller hedge funds with capabilities oftentimes spoke along in long and short that are potentially attractive to our platform and our goal is to kind of add 1 or so a quarter build a portfolio of these of these.
Our capabilities are.
We'll be able to scale most of them some of them.
But there should be a few that will do very well and that's a source of both growth for us in the future. We can pick these up I think on very reasonable terms.
It's a source of growth for us in the future and also it brings capabilities to the firm that otherwise.
<unk> would take an enormous amount of investment and so it's quite an attractive.
Approach for US right now and we're seeing a great flow and we expect to continue to see that for some time.
Great. Thanks for that color Ken.
Sure.
We can now take the next question from.
Hold fast heart from Piper Sandler.
Hey, good morning, guys a couple on the asset management side I guess first of all.
We continue to see outflows granted the trend has been better but at what point in time do the.
From Joe's outflows kind of turn into inflows and when do you think Oh, you have a feel for when the emerging market kind of equity outflows may may come to a stop.
Oh look if I could pinpoint that if I could tell you that had been wonderful.
Look a couple of things positive in this regard 1 is they are abating.
<unk> the trend has been a little has obviously gotten a little bit better second is performance in a couple of their challenge funds has really improved over the last couple of months has had you know for a lot of value managers. So that this has been a.
On a better time for some of the strategies said some of them.
Outlook or particular strategies that have been under pressure. So hopefully that will abate some of the pressure there and then obviously, it's sort of the law of larger numbers, which at some point. It just becomes less of a contributor to what's going on I mean throughout this period, our gross inflows have been have been robust.
And.
Strategy, you, obviously have a number of strategies, which where you know that we've launched and that are doing well I mean, 1 of the ones that we alluded to in the us.
In the transcript was the or or the earlier remarks was around converts which has done remarkably well for us over the last.
Well years and has been an area of real growth in and there are a bunch of others that are on the pipeline that we hope to to.
So it takes to get the same from.
Okay, and sticking with asset management, and why don't we kind of look at fields up I guess, 2 things 1 that and calculated manner.
From a field from the outside at least ticked up this quarter. After it had been kind of ticking down for a while.
Much to read into that beyond maybe mix and I guess, the second leg of it would be on incentive fees. I mean that was just keep coming in so strongly should we be thinking of that as being a more sustainable higher revenue line as opposed to.
Several good performance the last few quarters are we driving surprisingly good upside.
Kevin you want to take that yeah look on the basis points.
Rates, Jeff I would say the majority of it as it has been for the last couple of years, you know that the largest movement that youre going to see their corner to corner always is driven by.
Joe the business make the asset mix, sometimes the vehicle mix that's going on there so.
As you start to see some of that move around you're going to have that change quarter to quarter over time, but as you said you know I mean, it has the portfolio shifts youre going to see the changes it's sort of an output not an input and so you know we've seen a lot of change over the last couple of years interest.
Our asset mixes as Ken alluded to you know some of our higher fee platforms have come down a little bit relative to some of the things. We've had significant strength answers just quant in fixed income as you've seen the growth. We've had there. So that's just naturally going to change around the basis points with regards to incentive fees are you know I would tell you. It's our third straight quarter, where we've had significant incentive.
Incentive fees I mean, it's it's across a broad range of strategies, but as I said before it is true.
By a couple of European equity portfolios, but they were very very strong this quarter.
[noise] Socratic, it's hard to kind of talk through this and sort of give you an indication of how that's going to turn out from quarter to quarter. The outlook for us really always depends on the market performance.
As you know 20% of our AUM have the potential for incentive fees and so that all different types of strategies that will come into the mix most of them are.
Most of these incentive fees will generally crystallize or potentially get realized in Q2 and Q4 as you know historically, so I'd expect Q3 to be a little bit lighter but won't.
See where market performance goes from the rest of the year and hopefully you know pick up the trend a little bit in Q4, and you know hopefully the portfolio I think it speaks to the performance of a lot of our funds and how well they've done over the last couple of years.
Okay. Thanks, guys.
We can now take the next question.
Question from Jim Mitchell from Seaport Global.
Hey, good morning, maybe.
Maybe just circling back to the investment spend you guys, obviously have a very broad platform, but youre accelerating hiring can you maybe just kind of discuss where you see the most kind of white space for.
For new hires.
You've obviously spent a class a couple of years from financial sponsors, particularly on the U S where else do you see opportunity.
Okay, Let's talk advisory first and then turn a little bit to asset management on the advisory side look the focus is getting the focus has been on.
Areas, where we see where we see.
What I would say is exceptional growth over the next couple of years.
In in either because of the specific industry segment or alternative because of some dynamics around capital flows and such or or to plug a hole in area, where there's a particular weakness in our.
Our franchise, where we need to upgrade or we see an opportunity to upgrade so you know the areas, which in some ways are obvious our financial sponsors obviously things around alternative capital. This is just becoming an increasingly important part of the capital flows in the M&A world and so anything to do with that.
Is going to be an area of interest to us are obviously the sectors, where we're gonna see accelerated growth Biopharma technology, the shift to a carbon free.
Free World, how you play that renewables I mean, these are all areas, where we're seeing exceptional growth business services in particular is an area where there's a lot.
Because it covers a wide range, it's very segmented and such and.
And so having expertise in there is important geographically I think we're pretty balanced and you know there are if we see particular areas, where theres a lot of growth. Yes, we've added capabilities over the last couple of years in some of the emerging growth fund.
Back to areas, where we think there's a lot still a lot of opportunity.
Going forward.
Some of the capabilities that complement our core M&A franchise.
The shareholder advisory business, our ESG advisory I mean, these are all areas that that continue to be interesting growth areas for us.
Turning to asset management. There are you know there are probably 3 or 4 areas, where we've seen opportunities for investment and 1 is expanding our ability to.
Penetrate the more professional part of the retail channel, that's something where we're probably underrepresented relative to the strength of our traditional.
Raising additional platform, that's somewhere where we're doing hiring.
Complementing some of our core strategies, and our quant and traditional strategies and quantum kinetics and adding capabilities in ESG as areas that have been important to us those are all areas of strength and we're just building on that and.
And of course, what I alluded to before about some of the investments in these new platforms through a roll up of some of these smaller hedge funds and asset managers, where there's a lot of opportunity at the moment.
Yeah. So that's a long list so I appreciate that.
Just maybe 1 follow up on your European restructuring I think you.
You had talked about how they had been a little bit lagged on the recovery there might be a little bit of a lag on the restructuring business, but given the capital markets environment. It seems like that's probably not the case. So just how are you thinking about restructuring overall.
You see a second wave at some point everyone has a different opinion or just curious are yours.
Yeah look.
In the near term as long as the macroeconomic environment stays as robust as it is and you have credit conditions staying as strong as they are the restructuring environment is gonna be muted save for a few sectors that are.
Having that have a difficult time recover.
Covering either because of a resurgence in a pandemic and an area that interrupts travel leisure entertainment and.
And such balance sheets are actually quite complicated capital structures are quite complicated. So you know as we start to see a softening in the micro environment in the future. If we see a softening or you see some kind of.
Look on interruption in their credit markets or the markets. Generally then the restructuring activity should pick up pretty significantly and probably pretty steeply because it just the complexity of capital structures, but for the moment I think or at least for the foreseeable next few quarters or so I think the restructuring environment is going to be pretty muted, it's gonna be constant.
Concentrated in areas, where there is.
You know a particular threshold of pain, but that's not going to be a general pick up I mean, the other day to keep an eye on is what happens because of de carbonization to certain industries.
That's something to keep an eye on because I think that's gonna proceed a lot quicker than people expect.
Okay great.
This concludes the question and answer session. Thank you everyone. This concludes the loss on conference calls.
Okay.
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