Lazard Inc (LAZ) 2010 Q2 法說會逐字稿

Good morning and welcome to Lazard's second quarter and first half 2010 earnings conference call. This call is being recorded.

At this time, all participants are in a listen-only mode. Following the remarks, we will conduct a question-and-answer session. Instructions will be provided at that time. (Operator Instructions)

At this time, I will turn the call over to Judi Frost Mackey, Lazard's Director of Global Communications. Please go ahead.

Good morning and thank you for joining our conference call to review Lazard's results for the second quarter and first half of 2010. Hosting the call today are Lazard's Chairman and Chief Executive Officer, Kenneth Jacobs; and Chief Financial Officer, Mike Castellano. A replay of this call will be available on our website, Lazard.com, beginning today afer 1 PM.

Today's call may contain forward-looking statements. These statements are based on our current expectations about future events and are subject to known and unknown risks, uncertainties and assumptions.

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. These factors include but are not limited to those discussed in Lazard's filings with the Securities and Exchange Commission including our annual report on Form 10-K, quarterly report on Form 10-Q and current reports on Form 8-K.

Lazard assumes no responsibility for the accuracy or completeness of any of these forward-looking statements. Investors should not rely upon forward-looking statements as predictions of future events. Lazard is under no duty to update any of these forward-looking statements after the date on which they are made.

Today's discussion may also include certain non-GAAP financial measures. A description of these non-GAAP financial measures and their reconciliation to the comparable GAAP measures are contained in our earnings release which has been filed with the SEC in our current report on Form 8-K.

For today's call, we will focus on highlights of our performance. The details of our earnings can be found in our press release issued this morning and in our investor presentation, both of which are posted on our website at Lazard.com. Ken and Mike will be happy to answer your questions following their remarks. I will now turn the call over to our Chairman and Chief Executive Officer, Ken Jacobs.

Thank you, Judi. Good morning, everyone, and thank you for joining our call. Lazard's performance in this quarter and year to date underscores the power of Lazard's advice driven, intellectual capital model in a climate marked by a gradual but uneven economic recovery, aftershocks from the financial crisis and shifting flows of investment capital between developed and developing markets.

Our core operating revenues grew 13% for the second quarter and 36% year to date compared to corresponding periods in 2009. Both the financial advisory and asset management businesses reported record first half revenues.

As discussed at year end, we have maintained a strong cost discipline. Revenues grew at a significantly greater pace than compensation and non-compensation expenses.

Year-to-date core operating revenues grew 36% while overall operating costs excluding special charges grew 20%. Net income before special charges grew from $13 million in the first half of 2009 to $114 million year to date 2010. Net income for the quarter grew 23%.

A few points about our business. In financial advisory, against the backdrop of declining M&A volumes in the US and Europe, our M&A and strategic advisory businesses grew in both geographies.

We've continued to gain share, to build our pipeline, to work on visible and complex advisory assignments and importantly to capture greater wallet share. Our business is balanced equally between Europe and the US and we have significant reach into the developing world providing additional growth to our businesses.

Second, in capital structure advisory, we were involved in some of the most important government and sovereign assignments globally such as advising the US Treasury with respect to General Motors including its potential IPO and providing general financial advice to the Greek government. Our growing profile in this business emphasizes the importance to our clients of getting unconflicted advice when raising capital rather than relying on advice from those firms providing the capital.

Third, we are the clear global leader in restructuring advisory. No one else comes close to our experience, scale and expertise in this area. Asset management continues to be an important part of our business model.

It now represents over 40% of our revenues. Our asset management business reported record first half operating revenue and also had its best quarter and best first half in management fees.

Assets under management have increased 26% over the past year to $123 billion at the end of the quarter. And at a time where outflows have become commonplace for many other asset managers, we had positive net inflows of $5 billion for the first half of 2010 and $2.1 billion of net inflows for the quarter.

Importantly, we're seeing a shift of capital flows and M&A activity from developed to developing markets. In this new environment, companies, government bodies and investors demand independent advice with a geographic reach, deep understanding of capital structure, informed research, knowledge of global economic conditions. Lazard through its financial advisory and asset management businesses is the only global independent firm positioned to meet that need. Mike will now comment in more detail on our results and business activities.

Thank you, Ken. We are pleased to report strong results in both our businesses and continue to be disciplined in managing costs.

This morning we reported net income per share of $0.39 for the second quarter and $0.84 for the first half of 2010, both on a fully exchange basis with record first half operating revenue of $895 million. As you've seen in the release, our core operating business revenue which includes financial advisory and asset management showed an increase of 13% for the second quarter and 36% for the first half of 2010 compared to the same 2009 periods. M&A and strategic advisory operating revenue increased 8% for the second quarter and 27% for the first half compared to an average first half increase of 5% industrywide for completed transactions.

In financial advisory, we continue to advise clients on complex global M&A and other strategic transactions. Our earnings release includes a number of those transactions which were completed during the second quarter.

The release also lists some of the pending, publicly announced M&A transactions which highlight Ken's comments that Lazard alone is positioned to meet the demand for independent strategic advice with a global platform. Examples of those publicly announced pending transactions include our advising Qwest on its merger with CenturyLink, Coca-Cola Enterprises on its sale of its North American operations to the Coca-Cola Company, Newcrest Mining on its acquisition of LIHIR Gold, SSL International on the recommended cash offer by Reckitt Benckiser, EASF on its acquisition of Cognos, Deutsche Bank's bid for Arriva and Continental Airlines merger of equals with UAL Corp.

Our restructuring activity remains at a relatively high level globally, increasing 17% in the first half of 2010 compared to the same 2009 period due to an increase in completion fees. Restructuring revenue in the quarter decreased 14% compared to the second quarter of 2009 primarily due to a reduction in retainer fees as the number of active assignments declined compared to the second quarter of 2009. Restructuring revenue in the quarter decreased 20% from the first quarter of this year due to a reduction in the retainer fees and a decrease in the value of completed assignments.

As Ken mentioned, our asset management business reported outstanding results yet again. Operating revenues increased 42% for the second quarter and 58% for the first half, achieving record highs in both periods.

Assets under management at the end of the quarter were $123 billion or 26% over the same period 2009. And AUM declined 9% from the end of the first quarter of 2010 primarily impacted by the adverse market and foreign exchange movements.

We are particularly pleased with the trend of achieving net inflows for the past five years. And as Ken mentioned, we had net inflows in the quarter of $2 billion, bringing the year-to-date inflows to $5 billion. Now turning to compensation expense.

We remained focused on containing discretionary spending while continuing to invest in our businesses for future growth. As you saw in the release, the ratio of compensation expense to operating revenue was 60% in the quarter.

More importantly, the ratio was 60.2% for the first half of this year, down from 65.9% for the first half of last year. Operating revenue increased 33% while compensation increased 22%.

This is consistent with our stated objective [of] growing annual compensation expense at a slower rate than the revenues to achieve over the coming cycle compensation levels on average consistent with the targets we established when we went public in 2005. Finally a few highlights regarding our liquidity and capital resources.

During the second quarter we repurchased 687,000 shares of Class A common stock. Our remaining repurchase authorization is $177 million.

We continue to maintain the strong liquidity position with over $1 billion at June 30 and cash, US government and agency securities and marketable equity securities. And as you know, our businesses continue to generate significant cash flow.

We are positioned to capitalize on our ongoing investments and the historically strong position we enjoy in the markets we serve. And we're well positioned as we enter the second half of 2010 with what we believe to be the most powerful model in the industry.

We are now happy to take your questions

(Operator Instructions) Guy Moszkowski, Bank of America-Merrill Lynch.

First question I wanted to ask you was about restructuring and just sort of where we are in the cycle. On some of the previous calls, you discussed the likelihood of a lengthened restructuring cycle given the greater size and complexity of some of the companies that were seeking advice and obviously weakness in the global economy.

In the release you note that while restructuring remains active, the lower size and value of corporate defaults has negatively impacted your revenues. And I'm just wondering could we be seeing early signs of a potential shortening now or wind down of the restructuring cycle? Can you give us some color on what you are seeing and if your views have changed on the cycle?

A couple of observations, first -- comments first is, I think as we said at year end, we thought that this cycle probably peaked sometime midyear last year when the financing markets opened and that we were seeing a slowing of the business in the US since then and in Europe, we continue to see activity proceed. That is the case.

I think there is a clear slowing in North America as the economy starts to recover a little bit and as financing has become more available. So we are working off backlogs faster than we are replacing it at this point.

Europe is probably still a little bit stronger. It's still stronger than the US just given the probably longer cycle of restructuring going on there.

And with regard to the future, I think as the economy improves, we're likely to see restructuring revenues continue to decline. But I think as we said at year end and I think as Mike said in the first quarter, this doesn't feel like the environment we were in in 2003/2004 where there was a cliff when the cycle ended.

Here you sort of -- most of the big restructurings were in tail end of 2008 and 2009 but still there are large segments of the economy which are still having some issues and the area I think we pointed out before is commercial real estate where we are still seeing a fair amount of activity. Mike, do you want to add anything to that?

I think as we had indicated, the number of active assignments has been declining as completions have been occurring, but we have been obtaining new mandates. So really is a question of as this next level -- as you know, there was a lot of debt that's going to be coming due in 2012 and 2013.

What's going to happen with that debt as well. While we see the lowering of a generation of new activity now, we do see that there is a potential out there for a pickup in activity again as we get into sort of sometime in the later part of this year, into next year. But that then has a tail for its revenue for us.

Great, that's a helpful update, thanks. Let me ask you about compensation. Obviously as you pointed out, your comps to revenue ratio is lower than it was in the first half last year and it gave you some operating leverage.

It was also a little bit lower in the second quarter than in the first which is encouraging even though we saw the revenues come down a little bit. I'm just wondering, what are the conditions that might allow you to have a favorable true-up at the end of the year and end up for the year with a comp ratio maybe somewhat below 60%? What would we need to see happen for something like that to occur?

Couple points, Guy. First as we said, if we increase revenues, we're going to increase revenues at a faster rate than comp or conversely, we will grow compensation at a slower rate than our revenue increase and we are committed to that and I think we have demonstrated that to date this year.

That said, so far most of the compensation that has been reported is in accrual because bonuses aren't paid until year end. Year-end compensation is going to be a function again of our performance but importantly also what's going on in the marketplace.

And I think there's some overall trends in the marketplace that are probably favorable to us with regard to compensation. I think what our competitors do will impact our ability to contain compensation and I suspect as I said before that over this cycle, compensation is less likely to rise at the same levels or rates that it did in the last cycle given the constraints on many of our competitors with regard to balance sheet and their ability to take risk.

That's helpful, thanks for that. Final question I have for us is on asset management. As you noted, you had positive net inflows at a pretty good clip which is in contrast to the industry average.

I couldn't help but notice though that your fixed income assets under management -- it's a much smaller part of the business for you -- but that they were down. I was wondering if you could give us a sense for what was going on there and what you are doing strategically to try to bolster that part of your asset management business.

I think the main part of that is the market movement. We do have a fixed income business both in the US and Europe. And in Europe, a lot of it comes out of continental Europe and Germany.

We did see some outflows there. But as you can expect, the sea level on that business is much lower than in the equity side of the business. So the overall impact on us isn't as dramatic. But in fixed income, we did have positive flows in the US.

Okay, great. Thanks very much.

Howard Chen, Credit Suisse.

Ken, on the traditional advisory outlook, you spoke to the uneven market conditions. With all that's going on, I was just hoping you could give us a flavor for what you and the team are hearing from CEOs and Boards who are looking to deploy cash and potentially buy a strategic asset and maybe contrast that with those who are looking to sell their businesses.

Okay, first, on the sell side, let me kind of start there. In that side of the business, we are seeing a pretty significant amount of activity. Our middle market business, Lazard Middle Market is probably more busy now than they've been in years and that's to be expected because I think there is a fair amount of activity being driven by the likely tax changes occurring at year end on capital gains.

And so there's a fair amount of activity in selling assets and particularly in areas where financing is available which is sub a few billion dollars or so. There is a pretty liquid market for these assets right now. So that's a good sign for us and we're pretty well positioned to take advantage of that.

With regard to strategics, I think in the past I've referred to a couple of important themes with regard to how people feel about what drives M&A. It's a mixture of what I describe as optimism, valuation and financing.

And that -- in this economic recovery, those have been somewhat uneven. With regard to optimism or confidence, I think generally speaking compared to a year ago, it's improved. It's been a bit uneven.

There was probably a bit of a blip in the end of April, May. But generally speaking, overall it has improved.

With regard to financing, markets are better, again a little bit of a blip during that same month period, but generally speaking better than they were a year ago. And with regard to valuation, now that earnings are starting to improve and there's a little bit clearer sense that the economy is better than what it was, I think that has helped a bit.

So generally speaking, it's a more favorable environment than it was in the past, but it's still not without issues. I think longer term, the fact that this is going to be a pretty gradual recovery in the developed markets is going to put a greater premium on growing through acquisition and most of the strategics we're dealing with have very, very healthy balance sheets and are looking for ways to deploy capital. So generally speaking, I think the trends are pretty favorable but they're not all that consistent.

Okay, great. Thanks, Ken, and then shifting (multiple speakers)

One more comment on that. The other thing I think I referred to last time was also sort of some of the regulatory/what I would call issues around legislation and how that impacted some industries. And there actually I think the environment is now more favorable.

Because if you go back six to 12 months ago, you had healthcare which was really being impacted by regulatory reform in the US Congress. You had the financial services industry which was going to be subject to financial reform which is -- and then finally, you had climate change kind of winding its way through the House and the Senate.

All three are more or less resolved at this point. Generally speaking, in healthcare once you get through a period of significant reform which we've experienced several times in the past, nothing quite this consequential, but reform in the past, you tend to see a burst of transactions and I suspect we'll see that now as people kind of reposition themselves for the future.

I think in financial services, at least now that the playing field is a little bit more understandable, I think you're likely to see a little bit more activity in that arena as well. Obviously with climate change and the energy bill not taking on the form that people have expected in the past, I think again you're likely to see some moves by people in that area as well. So those three industries alone are probably well over half of M&A activity and all three of them I think were pretty much on hold last year at this time.

Thanks, Ken, that's all very helpful. I guess, switching gears, you're a few months into [your 10 year] but also change in the firm's comp policy. You underwent a restructuring, [high-grading] process.

From what we can see, it doesn't feel like there's any change in market share. But curious from your perspective, what impact after all this have you seen on the franchise? And maybe where are you in terms of hiring needs right now?

I mean first, two quarters don't make a year, but I think we're all pretty pleased with first half of this year. Second, with regard to market position, I think it continues to improve.

I think the thing which is most indicative of our performance on the advisory side is wallet share. And in that regard, I think we have really made some big strides over the course of the last few years or so but particularly in the last year.

And in terms of market position, I think we feel pretty good. The world has somewhat moved in our direction. The premium that people are willing to put on advice is very high at the moment and I think we are seeing that in the developments of our franchise.

On hiring, look, we are continuing to hire but we are doing it at what I would say is a very thoughtful pace. Pay last year was pretty aggressive on the Street.

I think I said that at year end. I don't think that's going to be sustained over this cycle but it was pretty aggressive on the Street. So we're trying to do things in a smart and economic and disciplined way.

Yet at the same time, I think this franchise is able to attract very good people and will continue to attract really good people as time goes on. On the other hand, I don't think we really have any vast holes in our franchise at the moment and therefore we can take advantage of this cycle to get a lot of growth out of our existing platform unlike a lot of our competitors.

Great, thanks. And then finally on my end, the $1 billion plus of liquidity, how do you, Mike, maybe how do you think about that level now and potentially redeploying that?

Well, you know, I think clearly the one thing we look at and I know it has been brought to my attention by a few people is that you've got $1 billion of cash that probably isn't earning a whole heck of a lot of money and you've got $1.2 billion of debt with an average cost of about 7%. I think clearly having the liquidity we had coming through that cycle made a lot of sense at the time.

And what we are now looking at as again as we also generate significant cash is what is the right balance between share repurchase, debt repurchase as well as investment back in the business. And we are constantly looking at that.

I think you saw that we did begin to buy back more stock in the second quarter. That's part of our objective as we stated before to reduce the dilution from the RSU awards as part of compensation and you should expect to see us continue to do that.

But we're also looking for other opportunities whether it's seeding new investments or liftouts of teams for either of the businesses. Those opportunities when they present themselves, we want to be able to really respond to them.

Okay, thanks very much for taking the questions.

Celeste Brown, Morgan Stanley.

The reference to wallet share, does this go back to some of your efforts I think you talked about earlier in the year? You're trying to get paid on the capital structure advisory on the back of M&A. I know you've had some successes sort of independent of M&A but actually getting paid for some of the work that you are doing that you maybe hadn't gotten paid for and haven't gotten paid for in the past?

In part of that -- look, wallet share is just a share of -- is the share of advisory fees as reported by the Street and then what our proportionate share of those are. I think your question on capital structure is spot on.

I mean look, what we found is that increasingly people value not only advice with regard to M&A, but they also are increasingly valuing advice with regard to important and complicated balance sheet issues as well as just general advice when it comes time to do import financing. And we are finding that [not alone] is that reinforced our core M&A franchise but it's also advice that we can get paid for by clients either directly or indirectly by participating in some of the placement or fund-raising activities.

And that is a powerful addition to our portfolio on the financial advisory side of the business. I think we have very deep understanding of balance sheet issues as a result of our restructuring franchise.

It probably -- a deeper bench and a deeper knowledge set than just about anyone else. And applying those skills broadly is something that we see as potentially quite valuable for the franchise.

Do you see any opportunities arising for additional sort of lines of advisory for you with reg reform on the fiduciary side or any other areas?

I would say that there is likely to be a lot of things that come out of regulatory reform that we nor anybody else can predict today. There are two elements of regulatory reform which I think benefit our franchise.

The first is that while not directly in the regulatory reform itself but as a result of the financial crisis, I think there is a greatly heightened sensitivity to mixing advice with the provision of capital. I think that sensitivity is not something that's going to go away very quickly.

And so consequently being able to position ourselves to take advantage of that trend by having such a deep understanding of not only the M&A markets but also of the financing markets is going to be valuable to our franchise. And then second is, I think that generally speaking, regulatory reform is going to lead to the need for more capital, less leverage and less risk on the part of many of our competitors and the way they go about driving revenues. And that is going to constrain I think some of their profitability and it's going to constrain some of their ability to pay their people. And I think overall that probably has a positive impact on Lazard.

Great, thank you.

Lauren Smith, Keith, Bruyette and Woods.

Just one follow-up on the discussion of capital management. You know, I appreciate a lot of options to balance. But in buying back from debt this quarter, what was the thought there?

I mean it seems to me that it was such a nominal amount and it's not due until 2015. So is this just sort of -- should we take this as an indication of perhaps that that's one of the uses of cash that you'll be looking to get more aggressive on in buying back your debt?

I think what we (multiple speakers) go ahead.

Let me take a shot at this. Look, we have got about $1.2 billion of debt, $1 billion plus of cash and the debt cost us 7% and the cash we earned, not much. That's not really optimal from a capital structure standpoint.

So what we need to do is to provide -- to find a balance between buying back shares, not only to offset the dilution from the RSUs, but also because I think it's positive from the standpoint of adding value to the firm at certain prices, obviously. And yet at the same time, I think we're sensitive to our ratings. So we will also probably if the opportunity arises, if we can retire debt at prices which are accretive, we will probably continue to do that as well.

But again, we get the picture that having lots of cash, not earning a lot of money and at the same time paying high -- paying 7% on our debt roughly is not an optimal capital structure. And we are going to do whatever -- what we need to do to improve that.

Okay, thank you, that is helpful. To the extent that you can, clearly it's an issue that lingers. But any updated thoughts on the stock that came off lockup in May and how you all are thinking about that in the coming months?

So in that score, look, there's obviously an overhang associated with the remaining part of the Wasserstein Trust shares as well as the final portion of the IPO shares that achieved liquidity in May. We've got to deal with that and we would like to deal with it this year.

Okay and then just one last one for me. Just in terms of your international financial advisory business, any color you can give us with respect to Asia and how things are progressing there or how you're thinking about that geography over the next 18 or 24 months?

Are you talking about the financial advisory side or the asset management or generally for the firm?

I'm sorry, financial advisory side.

We are positioned in each of these markets. We have businesses in India, Korea, China, Japan, Singapore, Australia. I think that to the extent that there starts to be significant flows out of each of these countries, that is primarily where the M&A fees are going to be generated.

My guess is we'll get our share of those activities. The remarkable thing about the Lazard franchise is that if you look at the breadth of the business both on the financial advisory side and on the asset management side, a significant portion of our activity really is following the flows of money from the developed markets into the developing markets.

And if you look at the transactions that we've announced in the last 12 months, you know, many of those transactions not only mirror where our activities are, but actually also are in places where we don't really have much in the way of financial advisory offices. A good example of that is some of the work we've done in North Africa and Egypt in the telecom industry and such.

So I think the great thing about Lazard is when one thinks of doing something globally, you sort of think Lazard because that's the perspective and that's the nature of the franchise. And then on the asset management side, I think we have this remarkable asset in the emerging markets as a result of the platform that's been built there by Ashish and his team over the last decade or so which has really put us in a position to take advantage of the increasing demand for developing market investments by large institutions not only in the developed world, both here and in Europe.

Great, thanks very much for your thoughts.

Chris Kotowski, Oppenheimer.

You kind of addressed part of my question last time. But I guess, as you said, most of the flows or the most interesting flows are kind of cash from the developed markets going into the developing markets and sort of the better fees are on the sell side than the buy side. And I guess doesn't that basic dynamic lead you to think one needs kind of a more significant buildout within the BRIC countries themselves and that that's where one needs to be investing a lot of money these days?

Look, I think we are pretty well positioned. I mean if you think about it, again our goal here is to move with our clients and to move where the action is and to do it profitably.

The asset management business has given us a very profitable path to the growth in the developing markets to date. And on the financial advisory side, I think compared to any of the other independent platforms, we're further ahead than I think anybody is in terms of developing our reach into these markets.

Again if you look at the announcements for the last 12 months, I think you'll see that between our M&A activities, our sovereign advisory activities, it's a pretty substantial amount of activity in those markets.

And then on the asset management business, I guess the great thing about an equity-oriented business is the fees are good and theoretically the growth should be better over time. The downside is obviously it's more volatile and we saw in down markets like this [then] you lose a bunch of AUM just for market depreciation.

Is that a problem in your mind and that you really need a significant fixed income business? Or is it just that -- is your basic view that hey, over time, the equity business is just a lot more profitable and so we will take the volatility?

Look, I think it would be nice and we would like to add to our fixed income capabilities and to the size of our business but not at the expense of it being a good business and a profitable business. I mean, in the end we are looking for franchise value and we're going to create franchise value by having best-in-class businesses and if we do that, then we're going to be really profitable and that's really what our goal is here.

And then just kind of a nit on page eight of the press release, just in the stockholders equity section, it said there is a negative foreign currency translation adjustment of $51.9 million against total stockholders equity of $431 million. It just seemed like a big number. Is there anything to read into that or was there an explanation for that?

No, we do not -- I think I mentioned this to some of you if not all of you before, we do not hedge our foreign currency exposure for our investments in the overseas assets. So this is strictly a function of the market movements and the FX.

Okay and then finally, the share count creeped up a bit more than I was looking for and when you look at the $139 million average for the quarter, would there be any reason why that would increase between now and year end or is this it?

Well, it will be a function of, you know, getting back to our point about balance sheet management, the share repurchases. As you know for the RSUs, the mechanics of those calculations are a treasury stock method.

And so share price does come into play in that again as you're looking at your question of how much you look at this in the future. But we do have $177 million of share authorization and we mentioned earlier that part of our managing the balance sheet is to take a look at the share price -- share repurchases and so we did begin that again in the second quarter.

Daniel Harris, Goldman Sachs.

I was wondering if you can sort of talk a little bit about the difference that you're seeing on the buy side and CEO or Board confidence in the US versus Europe versus Asia Pac now and how that's changed over the last three months.

Okay, I think generally in the US, it's been pretty consistent with the exception of probably the month of May where I think it became more or less widely recognized in the US that there were some issues in Europe with regards to sovereign debt and the like. That was much more apparent in Europe earlier and had affected CEO confidence pretty substantially in the earlier part of the year.

I think, generally speaking in the US, it's okay. It's back to where was if not a little better compared to that month or so. With regard to Europe, I think there's an improvement over the course of the last month or so as some of the extreme views of the markets have abated. It may not be over yet but I think it's a little bit better.

And with regard to Asia Pac, I think generally speaking, it's been pretty positive with the exception of Japan where I wouldn't say there's optimism, but I would say there is an increasing outlook that there's going to be a need for strategic activity unlike anything that I think we've experienced there for quite some time. And you've seen that in the last couple of months in terms of activities by large Japanese companies in fact.

Is it fair to say then, Ken, that your -- the backlog build is sort of similar to what you're talking about, that America continues to probably get a little bit bigger, Europe a little uneven but maybe improving and Asia just generally improving?

I think that's about right. I think generally speaking, it's hard to characterize any weaker months backlog improvements. But generally speaking, it's favorable at the moment.

Okay, that's helpful. Mike, you guys talked a little bit about the change in the asset management mix. The way we calculate fee caps, it looked like that ticked up and I think you said probably because we lost some of the lower yielding fixed income assets. I mean, is the fee rate now -- is there anything we should be thinking about going into the back half of the year ex the incentive fees?

Yes, I think as -- the simple calculation off of the numbers I think shows it's about 51 basis points at this point. I think that is a function of the fact that part of our strategy has been to focus on the higher return assets if you will as we're looking at both [new and] strategies to seed as well as some marketing of the successful strategies that we have that maybe were undermarketed before.

I think some of the improvement that you see here gets back to one of the questions earlier about fixed income. There is a switch -- there's a shift in mix.

Some of the higher fee assets have held up better from both a market perspective and a flows perspective. With fixed income being down, that's also affected the mix as well.

Is 51 a number to be looking at going forward? I'm hesitant to say a specific number because we all know how those things can change.

But at least for now, that mix has tended to be a little bit more favorable obviously. That being said, we are looking for -- continuing to balance out all of the strategies that we have in the business.

And so it's conceivable that we would also be looking at strategies that would've brought that average basis point spread down but in balance, it would be better for the business. So it's sort of a -- depends upon what that opportunity might be.

We are open to certainly growing the asset management business because we see there's a great value as we have now seen coming through this cycle that having a little more stability in the revenue base provided by that and as you see, asset management revenue now is about 40% of the overall revenue which is just up a tad from where it has been.

Great, that's helpful. And then just sort of saying on the same thing, I think you guys talked a little bit about at different points in the last two years the fact that the backlog of your mandates in asset management were bigger than some of your flows.

I know that we had some volatile markets during the quarter and yet you still put up some decent flow numbers. Is it something that we should be thinking that the industry had some tough flow months here. You guys had a decent quarter or a good quarter, frankly, but there could be some backlog in terms of funding those mandates that may have been won over the last couple of months?

Well we're still I think -- you have a good record of one -- as the performance in a number of products has improved, it's just not been the ones that have only been attracting assets more recently but some of the strategies that we all knew needed to have performance improvement, we've actually seen significant improvement there.

We are being involved and invited into continuously more pitches and because of the performance, we're I think winning more than our fair share. So there is a buildup in the backlog and the funding of that of course we all know will depend upon what the status of the markets are, whether people will be holding up. We did actually see a little bit of a slowdown in funding of mandates as the markets got a little bit disruptive there post this first week in May. But that seems to be improving again.

Devin Ryan, Sandler O'Neill.

Most of my questions have already been asked and answered. Just a couple quick follow-ups here. So just kind of digging a little bit more on inflows in the choppy markets, have you changed anything on the marketing front that could be helping or is it just primarily attributed to the strong relative performance you guys are putting up?

I would say we haven't changed anything on the marketing side in the short term. But as you know, going back a couple of years, part of our strategy had been to expand our client base outside the US, so that you go back a couple of years, 2004 pre-IPO, it was roughly 60% in the US.

Today it's roughly 50-50. So part of our strategic goal over the last couple of years has been to broaden out the base and also to focus on doing a better job of marketing the better performing products.

And as we begin to improve the performance of some of the -- many of the products, that becomes a broader base of products than to have a marketing emphasis on. So I think it's part of more of a longer-term strategy that we're seeing the benefit of rather than anything that we've changed in the last several months.

Okay, got it. And then just on the restructuring business, you gave us some good detail. But can you give us the approximate level of restructuring assignments you are engaged on? I know you've given that number in the past, and just how that compares with prior quarters or recent quarters.

We have got -- this will sound a little bit peculiar in a sense as we've said that some of the activity of new mandates has slowed down. You saw the trend has been going back in history.

The end of the third quarter we had 80 active mandates, the end of the year it was 73 and at the end of the first quarter was down to 63. That has actually trended up a tad and you'll see that on the website presentation that's up there.

It's actually right around 70 active mandates right now. That being said, they are smaller in size than historically when everything sort of melted apart. You have a lot of large transactions. There's more smaller transactions that are in the pipeline.

Just lastly, you gave a little bit of detail on the asset management front, but can you just give us a sense of how much the decline in the euro weighed on results in the quarter?

It actually had a very miniscule impact and again, in terms of comparing to the prior quarters. And just think back, last year we started off the year with a very strong dollar and it gradually weakened throughout the year.

This year we started off in relatively weak dollar and it strengthened. When you look at how it worked therefore within the period, there's not a whole lot of change. It's less than 1% -- or less than 2%.

Douglas Sipkin, Ticonderoga.

Just wanted to drill a little bit down into the financial M&A fees. Sort of based on at least my estimates, I thought it was going to trend a little bit lower and I'm just wondering, is there a higher composition of retainer fees in their versus closed fees versus normal or is it just kind bigger fees coming off of closings?

I think as we tried to highlight in the release, since this question has come up from a number of you, we try to give a little more detail in the release anyway. This quarter because transactions have been getting completed throughout again comparing back to the second quarter of last year, throughout last year and into the first half of this year, the retainer fees have been coming down as again that backlog as I just mentioned (multiple speakers)

He's talking about M&A (multiple speakers) I think the question was (multiple speakers)

Yes, I'm referring to M&A, not restructuring.

I'm sorry. I think, look, on M&A, I don't think there's anything special about the mix between retainers (inaudible) or anything else. I think it's just activity levels.

Okay, thank you.

(Operator Instructions) Ladies and gentlemen, thank you. This now concludes the Lazard conference call.