Q2 2019 Earnings Call
This call is being recorded.
At this time all participants are in listen only mode. Following their remarks, we will conduct a question and answer session.
Instructions will be provided at that time, if anyone should require assistance during the call. Please press the star key total fight zero on your Touchtone phone.
At this time I would like to turn the call over to Alexandre Degnan, There's guards head of Investor Relations. Please go ahead.
Good morning, and welcome to use our earnings call for the second quarter and our top 2019.
Exactly the company's head of Investor Relations.
In addition to today's audio comments, we have posted our earnings release, and an investor presentation, which you can access on our website at Www Dot was our dotcom a replay of this call will 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 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 forward looking statements, including but not limited to those factors discussed in the Companys SEC filings, which you can access on our website.
As Ari 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 measure is provided in our earnings release and Investor presentation.
[noise] hosting our call today are kind of Jacobs was arcs, chairman and Chief Executive Officer, and Evan Russo Chief Financial Officer. They will provide opening remarks, and then we will open the call up to questions.
I'll now turn the call over to Ken.
Thank you.
Good morning, our second quarter first half results reflect steady operating performance across our business. Despite a challenging comparisons to last years record.
Great.
We are well positioned for second half of 2019 with momentum in financial advisory and increased average assets under management.
National Advisory revenue for the second quarter reflected a strong level of completions in North America.
Offset by fewer completions in European M&A and restructuring globally.
Our advisory activity gain momentum in the second quarter as our volume of new M&A announcements increased by 14% year over year and by 30% from the first quarter of this year.
This trend has continued in July notably our European activities picked up since the end of June with five announced transactions valued at $5 million in more on the continent and anything.
Our financial advisory practices remain active globally in restructuring, we eat away the advisory roles on large complex global assignments.
Our shareholder advisory practices, many assignments around the world has become an important complement to our M&A advisory work and our sovereign advisory and capital advisory businesses remain active advising governments and corporations on financing strategy and capital raising.
In asset management are you why don't you talk about 11% from the start of the year.
And our average 81 for the second quarter was 237 billion.
Institutional rebalancing and de risking affected our business in the second quarter as we experienced net outflows across our equity platforms. Our fixed income platform to achieve net inflows in the quarter overall relative to performance has been strong this year.
We continue to invest in the growth of asset management and development scaling up of new and existing platforms.
Expansion of our distribution globally.
And opportunistic hires.
In June we announced the acquisition of the U.S. systematic equity team, which is our third edition in the half year to our alternatives platform.
The team bolsters, our growing data science and machine learning artificial intelligence capabilities to support these and other strategic imperatives, we continue to make substantial investments in our firm wide technology and data science platforms. This is a multiyear initiative, which itself, which is accelerating our implementation of new capabilities and tools across both asset management and financial advisory to enhance our competitive edge and drive growth.
Thanks to our scale and strong cash flow. We can we can make these investments through business cycles and as we turn returned substantial capital to shareholders and it will now provide color on our second quarter results.
And first half results and I will comment on our outlook.
Thank you Ken.
Financial Advisory second quarter operating revenue of $329 million was down 21% from last year's record level and roughly even with the first quarter of this year.
This reflected strong results in North America, offset by softness in European M&A completion, and lower restructuring revenue globally in the quarter.
[noise] asset management operating revenue of $291 million was down 12% from last year on a sequential basis increased 3% from the first quarter of this year.
[noise], averaging you after the second quarter with $237 billion down 3% from a year ago.
On a sequential basis it increased 4% from the first quarter of this year.
We finished the second quarter with anywhere from a $237 billion about $2 billion higher than the start of the quarter.
This reflected market appreciation and positive foreign exchange movement totaling $7.7 billion offset by net outflows of $5.2 billion.
The outflows were primarily from our emerging markets and global equities platform.
Offset by net inflows in fixed income.
As of July 1980, lack remained at approximately $237 billion, driven primarily by $1.6 billion in market appreciation.
Offset by negative foreign exchange movement of about 900 million and net outflows of 800 million.
Looking ahead across our franchise in financial Advisory we continue to expect the second half 2019 to be stronger than the first half.
Our M&A announcement picks up significantly in the second quarter continued through July notably in Europe , as well as North America.
Asset management relative performance has been strong across our platforms. This year, but we expect to see continued pressure on equity close in the near term largely due to institutional rebalancing and de risking.
Turning to expenses in the second quarter, we continued to accrue compensation at a 57.5% adjusted compensation ratio.
Our full year compensation expectations will develop through the year based on revenues business mix and the pace of hiring.
Non compensation expenses for the second quarter 2019 were 8% higher than the same period last year, our non compensation for the quarter reflects an increase in investments related to our technology platforms.
Regarding taxes, our effective tax rate in the second quarter as adjusted was 28.8%.
Our effective tax rate for the first half of the year was 23.9%.
And we continue to expect an annual effective tax rate for this year in the mid 20% range.
Turning now to capital allocation.
We continue to generate strong cash flow, which support the robust return of capital to our shareholders.
In the second quarter, we returned $217 million, which included $160 million and share repurchases.
For the first half, we returned $603 million, which included $352 million and share repurchases.
During the first half of 2019, we repurchased 9.7 million shares which included 4.5 million shares in the second quarter.
This led to a 10% year over year decline in our second quarter diluted weighted average share count from 130 million to 117 million shares.
At current share price levels, we see significant value and Lazard stock and expect to continue our share repurchase program in the second half of 2019, utilizing our cash flow from operations.
Ken will now conclude our remarks. Thank you Evan I'll provide some perspective on our outlook and then we will open the call to questions overall.
The global macroeconomic environment remains constructive.
The us economy is strong the environment in Europe is stable, although uncertainty around Brexit persists.
Fundamentals for global equity markets are steady and credit conditions remain favorable.
The forces driving strategic strategic activity remain in place technology, driven disruption continues to be a catalyst for M&A across industries and shareholder activism has become a global phenomenon.
Our business our advisory business is well positioned in this environment, the most sophisticated capabilities and deep insight into local markets, we enforced by expertise from global sectors specialty foods the longer term outlook for asset management remains positive as our franchise continues to demonstrate quality innovative products and consistent investment strategies.
Our investment platforms are broadly diversified across asset classes styles and regions with more than 40 strategies each managing over a billion in assets.
We see opportunities for productive growth across our businesses and we continue to invest in our people capabilities and technology infrastructure to enhance our competitive edge.
We remain focused on serving our clients well, while we manage the firm for profitable growth and shareholder value over the long term, let's open the call for questions. Thank you.
Operator.
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 our equipment. That's again star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we take our.
First question from.
Bhavan, Ryan JMP Securities.
Great. Good morning, Kennen, Evan how are you guys.
Oh, yes. Thank you.
I'm well. Thank you I guess first question on just the comments on Europe , just love to get a little more perspective on what's driving.
You know the pick up there, whether it's primarily continental Europe , and then just whether you're thinking about 2020 activity relative to 2019 as a potential for recovery just given the slow low bar that we've seen this year.
So first of all this is really since the end of June this pickup for US I think as I said its a.
Deals over 5 billion over that period of time.
And I think its 13 of our public announcements in July .
And on Europe . So.
So actually.
Significant pickup that said I think it's a little early.
For us to know exactly whats driving it and the sustainability of that but it feels better.
He will generally better I think there's been some pent up demand.
Because of the dramatic fall off in activity over the course of the.
Last 12 or 18 months.
So that he had a mandate continue to believe that the catalyst for activity across the M&A markets.
Is really driven by this technology is for option and my guess is when you Peel the onion on this activity in Europe is probably continues to reflect that trend.
May accelerate a little bit.
We're hopeful that this is going to continue obviously it has a really significant impact on our business in a positive way if it does.
Given the record activity levels in North America this year for us so far.
And it would be good to see Europe contributing.
To that going forward.
And I think you know we'll lose some of this will be reflected hopefully in the second half of 19 results, but I think also part of it.
In 2020, which is a good thing.
Just a follow up on.
[noise], the ena well and they.
I guess that the strong cash flow that will generate over the next couple of years, if we fast forward several years here.
How does that play into the thought process around the sequel conversion just thinking that you will executed the vast majority of that probably two years down the road.
Yes, so that it doesn't let me take that.
On the C Corp question.
Just to talk about the I know well for for a second briefly so but we have as you pointed out a very large beneficial and a well that we have here both in the us as well globally.
And that we expect that to remain for the next several years.
I would say that.
That should run off and will depend on a lot of factors, depending on where the the benefits associated with the revenue increases come from geographically as well as other deductions were going to happen. So it's hard to predict how fast that and well roll off but it's still very very significant as you can see enough in our nose.
You know it takes at least three or four years out before that roll off specifically here in the U.S.
Yes that will play than a lot into our thinking as you know.
That's just one of the cost side of the equation for us.
Well sort of gets in the way of us getting benefits associated with the conversion to a C Corp. In a way that creates a pretty strong negative double taxation for us.
Relative to our very very strong non us income, which will create a credit double taxation effect. There well look I think you know as we also we continue to analyze and review what's going on in the C Corp structure, obviously continue to think about and review all any in any new regulations and guidelines that come out as they get released but the you know what's important to remember is really points out that there are also some other factors for us relative to others, who have taken the C Corp. Route. So what's important remember the significant differences between large and those types of companies one of the biggest benefits that people talk about with regards to a C Corps.
Index ownership.
And you know the others the alternative managers and other PDP that converted to C. Corp has zero index ownership and yeah, No index eligibility and they were hoping to achieve that as part of the process of becoming seek more I think it's important to remember that lazard today already have approximately 19 or 20% of their shareholders. In index ownership are made up of index ownership were included in major index. The indexes Russell the Crs T. and left another Dow Jones S&P other indexes. So no. There there was a significant differences to us on the benefit side. It's also important to remember, but you know specifically we look at it we're going to continue to analyze it as we go.
As the as the animals roll off the equations could change, but the near term we have to we have to continue to Washington, do what makes sense and do it make economic sense in the best interests of our long term shareholders.
Yeah understood. Thank you very much guys.
[noise].
We'll take our next question from Steven Chubak from Wolfe Research. Please go ahead.
Hi, good morning.
So I wanted to start off.
So I wanted to start off first with a question on some of the Noncomp commentary on it sounds like we got something incremental there Ken. So appreciate some of your insights in terms of the efforts to build out to enhance capabilities on the asset management side improve your platform I was just hoping to gain some better understanding in terms of the level of Noncomp inflation, we should expect in the second half and in the coming years, how will these investments actually drive tangible benefits in terms of revenue growth and efficiency I just wanted to try and assess.
What sort of benefit you guys could see from those incremental investments that you're making.
Okay.
If you take the cost part of this is sure absolutely. So yes, so non comp in the quarter of $120 million the midpoint that off a bit from from last year's level. As we said the increase reflects the elevated investment spending that we've been talking about over the past few quarters, specifically in particularly in our technology space as well as some other occupancy and other professional fees a lot of them relate in new teams that were bringing on the platform. So as we said we expect to see the noncomp matter adopted level.
At the elevated levels for the remainder of the year really for the next few quarters as some of the newer technology projects roll on and they start getting amortized.
Okay in terms of some of the benefits and kind of break them into a few areas the first or.
Tools is just help us on a day to day basis to our business better than.
We've done in the past and allow us to communicate collaborate much better I mean this is table Stakes for me just have to do this so these are tools like symphony in slack in Boston.
And and also the investments in our ERP system. These are the kinds of things, which I think to the effective as a modern enterprise you just have to have.
And so so thats kind of table Stakes basic investment.
In 90.
The second is.
Creating efficiencies in our business. This is the trading platform consolidation and asset management.
As an example, again some of the ERP investments that we've made and then third is new capabilities and this is the one which I think is the piece that is potentially the most exciting.
In terms of.
Our business. If you think of the asset management business fundamentally is a prediction business you're trying to predict.
What is going to happen to a particular security over time relative to some objective function that the performance relative to the S&P or some other index globally.
And predict and the tools for the prediction business are fundamentally changing and shifting and Thats really basically what all of the efforts around data science and machine learning and artificial intelligence are all about is effectively trying to improve the tools around prediction and much of what we're doing in certain some of what we're doing in terms of our technology investments is really to prepare ourselves for that new world.
That new world can exist in many different ways. One way is that it just gives you the tools, we'll give you better insight that or ability to predict.
And that will help our long only fundamental managers and frankly, it will help our bankers because the advisory business is fundamentally a prediction business as well be trying to predict events and what the outcome of those events are going to be and how stocks are going to perform and how companies are going to behave stock prices are going to behave and so on and so forth. So.
Investing in some capabilities that allow us to take advantage of these tools. We think is going to create competitive edge in competitive advantage and thats basically whats going on and then finally.
Platforms themselves.
Allow us to do things, particularly in on the asset management side in terms of bringing in teams with these capabilities that we otherwise wouldn't be able to do we've done three of those lift outs this year.
Over the course of the last year symbiotic Alpha the XY set team that we brought in in February and the systematic equity team, we just announced a couple of weeks ago and we've got more in the pipeline and then it also allows us to take many of the capabilities that we gain from those.
Acquisitions and apply them across asset management, and the advisory business and that we think is going to create engine our business going forward.
Thanks for all that color, Ken and just a follow up for me on the asset management trends I was hoping to get a little bit better insight in terms of what drove some of the recent acceleration in outflows. It sounds like the relative performance that you guys are generating is okay, but the outflows appear to persist in July I know historically, you've experienced less volatility inflows just given your institutional bat. So wanted to get some better insight in terms of what you're hearing from clients and maybe how long they institutional rebalancing that you cited could persist.
Sure Kevin you want to.
Sure. So in the in the quarter, we talked about net outflows and across the emerging market platform offset against net inflows predominately in our fixed income in our listed infrastructure business I would say the platform as we've talked about in the past and then we saw net outflows in this quarter specifically related to the value part of our EPM platform as we talked about value is out of favor relative to growth the quality the values that under pressure for a while and outside of our outside of valuing. The end platform continues to do great and as he mentioned importantly performance across the platform has actually done quite well this year.
With the above benchmarks really across the platform and I would say really across the asset management business.
Three quarters of our strategies from their largest strategies on a one year basis are above their benchmark I think the performance has done really well I think as we as we pointed out some DM is really just shipped from value some de risking rebalancing.
Great very helpful color and just one final one for me just on balance sheet leverage it's nice to see that commitment to repurchasing shares at these levels. You noted should continue into the second half.
You've also increase our leverage somewhat to support that increase repurchase activity I was hoping you could speak to what levels of leverage are currently comfortable operating with and what sort of constraints liquidity or other we should be mindful of as you execute on that buyback plan.
Sure. So as you mentioned look we took out some additional leverage over the last six months to sort of right size the capital structure relative to the size of the business I think we feel pretty good about where we are on a leverage basis from a capital structure basis today.
And with the amount of leverage we've taken out and as you said, we've used that for share repurchases pretty pretty heavily over the last couple of quarters and we expect ongoing to continue share repurchases out of the the cash flow of the business and as you remember we also changed our tilt away from special dividends into more share repurchases last year and at these price levels. We certainly would expect to see that continue.
Great. Thanks for taking my questions.
Thank you.
We take our next question from Richard Branson from Goldman Sachs. Please go ahead.
Hi, good morning, guys.
Richard I thought would be helpful for you guys to touch a little bit on.
How will the change in rate structures globally.
Have changed your outlook for some of the different businesses, obviously, there's been a significant change over the last three months in the U.S., but expectations of change globally does it in any way impact your thinking about activity in any of your businesses in the second half of the year.
Okay. So.
On the advisory side, what I'd say is.
In the U.S. has started in the us.
Economy remains reasonably strong on the outlook, perhaps has softened a little bit.
But activity, but generally speaking it's reasonably strong.
Consumer confidence is high unemployment is at all time lows credit conditions are quite robust at the moment.
And so.
The kind of unusual facilitators that M&A, which is.
Equity valuations credit conditions in CEO confidence.
No equity conditions, it's a little more mixed because you've got perhaps some concerns around economy, but at the same time stock prices. The stock market is reasonably strong. So it's it's okay on credit conditions, it's fine if not find even robust.
And CEO confidence generally is held up.
You've got obviously some concerns around the trends around globalization and trades, but on the flip side of that as I mentioned earlier is catalyst around.
Technology.
It is.
Really a driver of M&A activity broadly in Europe .
The cutting of rates and the liquidity conditions continue ensure very attractive credit conditions.
And with regard to M&A again same trends around disruption Seo continent, probably more stable now perhaps was over the last 12 or 18 months, that's something to keep an eye on.
So generally speaking Europe it needs feels like a couldn't quite say to trend for five weeks that it feels a little bit better from an M&A perspective than it has.
One of the key drivers also of our business has been.
The activity around shareholder activism, where I think we carved out a very strong position for ourselves in the U.S. and I think an extremely strong position for ourselves now in Europe as well.
And then turning to the asset.
Asset management side I'd say.
The bottom line is that these very very low interest rates negative interest rates just create enormous demand for risky assets and over time that should help our asset management business relative.
To others, perhaps.
And I think that positions us well going forward in that particular business.
The key question is what what the fed or DCB may be seen as the economy globally that the markets are seeing today or that we're not seeing.
That could have a negative impact on activity levels, but at the moment it still feels pretty good.
Okay, and then perhaps as a follow up as we get closer to the US presidential election, do you think that could have an accelerating impact on activity just given the uncertainty or you think it's a push.
Hi.
I think it's too early to know a lot of it will depend on how the election unfolds itself with the economic conditions are like at that moment, but those moments in time how markets adjust.
Today I'll give you the markets always are telling you everything we know about the elections right now this isn't the issue of the markets.
That could change over the course of the next year, but appetite.
10 markets tend to see through these events.
Pretty well.
Okay. Thanks very much.
We take our next question from Mike <unk> from Bank of America. Please go ahead.
Hey, good morning.
The first question I have is just on hey.
First question is on the restructuring business.
I think you had mentioned it was a little bit lighter in the quarter, but just thinking about this over a longer period of time.
Hi, How's that business performing relative to kind of when energy.
It was more active it is it has a business spend been reasonably consistent.
As a falling off a little bit thanks.
A lot.
Since if you look we're not at the same levels of activity that we were doing the restructuring in the energy business I guess really of 15 to 16.
But.
Unusually strong M&A market, we continue to have reasonably active restructuring pipeline in business levels I mean, it's in this cycle.
The restructuring business has been operating at a higher level than any previous cycle.
He is a strong relatively obviously this has been a very strong economic environment.
And the.
And strong credit conditions and again I go back to this point on technology disruption.
It just as that has been a driver of activity in the.
M&A World I think it also has been and continued driver at least have a steady level of activity daily in the restructuring World. I mean, you could argue technology was the driver of the shale Revolution and probably some of the.
Overcapacity that drove the turned down in 2015, and 16 and I think you could argue that technology is obviously behind what's happening.
To the retail sector, and we're going to continue to see that spread to some other sectors I think over time, So I think we're going to see.
A higher than what we have been used to level of activity and strong bar in strong credit condition markets and I suspect that if credit conditions change that business will have.
Very strong period of activity following that.
Yes, the only thing I would also have Mike that we call out restructuring, we're really talking about completions in this quarter relative to last year in the first half of last year, we had a.
Really really strong first half restructuring specifically in the second quarter, we had a lot of completions that happened in that in that quarter. So it's really more of a relative basis to Q2 of last year.
When we say that the restructuring certainly not at the trough levels, one might expect as Ken said.
Given the availability of capital the availability of credit.
And valuations around the world and so they are really the soaps situations happening across lots of different sectors.
We're very excited about the recent pickup in in new client New mandates. We received just in the last quarter. Obviously, it will take some time to play out but they are really selected over lots of different sectors is really left the theme than there used to be but as Ken said a lot of it is technology, driven sometimes two or three derivatives away from that.
Driving that that transaction I think the real the real question is one that we continue to see it. If this is at a higher point than the lower trough that you might expect at this point in the cycle when the cycle turns that could be much more significant activity.
Right, Yeah that does make sense.
And then just one clarification point on share repurchases.
Are you planning to use kind of your free cash flow.
For purchases.
Going forward because the share price is kind of at a such a low.
Level I think you still had been paying that especially at the end of the year. Thanks.
Yes, So look I mean look as you said right, we tilted last year to a lower special for sort of more balance that out with a little bit more share repurchases.
Given the attractiveness of the stock I think too early to tell we'll figure that out as we get towards year end figure out what the excess cash we have and we're been generating and.
We'll know then.
How to how to think about and how to balance those two but obviously we are leaning more toward share repurchases. As you can see the significant amount of shares we've been buying back very aggressively over the last three quarters.
Some of that from our recent notes transaction, but it's really pulling cash from around the system to take advantage of the attractive prices.
Yep, Okay. Thank you.
We'll take our next question from Brennan Hawken from you'll be yes. Please go ahead.
Hi, Good morning, Evan and Ken Thanks for taking the question. One first just to start off sort of cleanup and I apologize. If you touched on this work where there any pull forwards from July into Twoq advisory revenue.
Yeah, So hey, Brian .
Yeah, we don't disclose the pull forward, but not really material for us I would say look there's always a couple of transactions that closed post quarter end I think we're getting back into that routine where you know in every quarter, you're pulling forward some in the previous quarter.
You are asking me there were a handful of larger transactions that certainly closed in the beginning of this quarter you can see them, so probably a little bit larger than usual for us, but again not material in the Grand scheme is kind of becoming more regular way.
And then I think Evan in your comments you flagged some risks due to rebalancing institutional clients rebalancing as such in the asset management business can you maybe help.
The us with the magnitude that you expect there is this something that you think is going to be a.
A potential near term risk here with three Q or is this something that you are already starting to see happen given we just passed midyear. So July is already there just yet.
Helping us to kind of think about that at least for the near term for modeling purposes could be helpful.
Yeah look you know a hard too hard to predict where what pace as if it were just pointing out trends that we've seen in Q2 and really since the end of Q2. Some couple of larger accounts thinking about the de risking pension plans and others that are fully funded you're seeing some of that go on constantly the corporate pension plans that are getting close to fully funded status or taking that risk down so you're seeing a little bit about rebalancing I think we'd expect that to continue as a.
For those same reasons if markets remain strong our hard to know I think we're seeing some of that in the in the flows that we've seen quarter to date as well as in the second quarter.
Great. Thanks for taking my questions.
Thank you we'll take our next question.
From Michael Brown from K B W.
Hi, good morning.
Hi, Michael.
Yes.
That's great to hear the a recent pickup of activity in Europe .
I was just wondering if you could kind of give a little color about some of the other trends.
Cross border activity has been really weak this year and so kind of what your expectations there.
Expect it to remain weak and then on the financial sponsor side of the business I mean, what high valuations call only kind of what are your what are your expectations for the outlook on the financial sponsor side of the business to.
Okay Cross border activity.
I think has been weak for some time now I wouldn't be so I would be.
Surprised if we see an enormous pickup in that activity at least coming from outside the United States.
Yes, and that is in part driven by the.
Proceed politics of doing big visible deals in the U.S. by non us companies at the moment I think unfortunately, that's the world we're living in.
Uh huh.
That said I think regional activity as I said.
It's more robustly feels more robust.
Five or six weeks does not make a trend.
In Europe , right now and so that that.
Should continue if you believe the factors I talked in another words of credit availability the technology disruption.
The pent up demand those are those are all positive catalyst for activity.
In Europe , and I think the activity levels in the us for all the reasons you talked about before should continue.
And then.
The second question you had was on sponsors.
Uh huh.
Hello.
From our for our business, we were well we are we were significantly under index to sponsors and that's an area of I think a lot of opportunity for growth for us.
Particularly in North America.
And something that we think is going to continue there's just an enormous amount of capital that is flowing into the sponsor arena.
And that capital has to be deployed.
Is getting deployed it has been deployed pretty aggressively over the course of the last couple of years.
We expect that will continue.
To be the case going forward because once you have the capital is a private equity investor you have time frame side when it's in.
There are expectations that you're going to deploy it.
Credit conditions remain very favorable for the sponsor universe and so thats also a catalyst for deals.
Pricing, obviously, a little more challenging is pretty high because of the equity markets, but at the same time I think some of the return expectations of some of the longer term investors in that business not necessary to private equity firms themselves, but the people putting the money into the business mix.
Gone down a little bit in part because the alternative with regard to what you can do with your capital.
Just given the credit conditions and very very low interest rates make this still relatively very attractive. So the trends I think in the sponsor business are going to be powerful.
Going forward and represents a really significant opportunity for us.
Okay. Thank you Ken.
Thank you we take our next question from Jeff Harte from Sandler O'neill. Please go ahead.
Hey, good morning, guys.
Hey, Jeff So we're getting we're getting the message of a expectation about second stronger half an advisory we can see it the visible pipeline kind of rebounding as well.
Oh, but kind of your optimism there to what extent is it things you know were going to happen you know kind of things in the pipeline versus dependence on kind of a continuation of kind of the improved announcements in the second half.
Yeah look I think it's a combination of all the things we're seeing I mean look we as Ken said, we've seen a pickup in announcement certainly larger transactions.
Bunch of those will hit this year hopefully in some of them may actually slip to 2020, but we're seeing more dialog more conversations generally and just given a lot of the smaller transactions as the flow of things, we're seeing coming through the pipeline continues that's giving us more optimism that the second half looks great. Obviously, you can see the the pipeline of announced transactions has gone up of late as well.
So you can track that so I think it's certainly momentum is building in the business you know a lot of it as Ken said related somewhat to Europe as well. So it's really a broader than just the U.S., we're starting to see some pickup not giving us some optimism, but the first half was also a little weaker because of the weakness in Europe and the weak as a restructuring. So I think we're we're we're therefore being a little we feel more optimistic about the second half.
Okay, just as we think about revenues being better in the second half how should we think about comp expense leverage kind of against that I mean, you averaged two or 359 million a quarter or the first half Saab.
I, just think of that as kind of a dollar floor and to the extent revenues picked up how much leverage is there.
Yeah look I think it's a little early it's really a little early to figure out where the final year end compensation is going to come as you know, we we accrued at 57 at present on the comp side. So far this year, we think the sort of the right level, where we are in the business with our expectation for the full year, but it's going to depend a lot based on.
Some of the somehow the revenues come in the back half of the year when actually closes in the year and also some of the additional investments we're making.
You know as you know and we're focused on workers comp and the appropriate measure we do a bottoms up at the end of the year to figure out what the right level of comps should be.
But you know we think where we are is is good but it's too early to tell yet we'll know more probably in the next quarter.
Okay and finally on this advantage that when we're looking at incentive fees what products are those typically tied to for you I'm just trying to get a feel that there's specific markets or benchmarks, we should kind of be tracking outside to get a feel of how incentive fees may come out.
Yes. So this quarter I mean, we had a few quarters with the lower incentive fees this quarter and sympathies ticked up a bit or relating somewhat too.
Some incentive fees in our private equity business.
You know, there's not 15% of our funds have incentive fee components to it over the last few quarters, we haven't seen much from the incentive fee basis. When we haven't the near the high watermarks are and some of the the levels to achieve that yet.
We're feeling better about being near the high Watermarks, obviously, it's too early to tell as you know, we generally see a bigger push up in incentive fees in Q4, I think this quarter, which was a little bit more related to some of the private equity investment.
Okay. Thank you.
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This now concludes dilutes our conference call.
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