Lazard - Earnings Call - Q2 2020
July 31, 2020
Transcript
Devin Ryan (Analyst)
Good morning and welcome to Lazard's Second Quarter And First Half 2020 Earnings Conference Call. This call is being recorded. Currently, 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. If anyone should require assistance during the call, please press the star key followed by the zero on your touch-tone phone. At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations. Please go ahead.
Alexandra Deignan (Head of Investor Relations)
Good morning. Thank you, Anita. Welcome to Lazard's earnings call for the second quarter and first half of 2020. I'm Alexandra Deignan, the company's Head of Investor Relations. In addition to today's audio comments, we've posted our earnings release and investor presentation, which you can access on our website. 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 and performance. There are important factors that could cause our actual results, level of activity, performance, or achievement 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.
Lazard 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 of 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's Chairman and Chief Executive Officer, and Evan Russo, Chief Financial Officer. They will provide opening remarks, and then we will open the call to questions. I'll now turn the call over to Ken.
Kenneth Jacobs (Chairman and CEO)
Thank you, Ali. Good morning. Our second quarter and first half results reflect steady operating performance across our business in an uncertain environment. Financial advisory results for the second quarter highlighted the breadth of our advisory services. As we expected, the pace of M&A completions and announcements declined in line with the market. However, strategic discussions with clients are increasingly constructive, especially in Europe as countries ease their lockdown restrictions. A strong quarter of restructuring and capital markets advisory largely offset slower M&A activity as we serve clients with immediate liquidity issues caused by the pandemic's economic shock. We advised on a number of the largest assignments in the U.S. energy and retail sectors. We have also completed the successful restructuring of PG&E, the largest utility bankruptcy in U.S. history. For the first half of the year, Lazard was the global leader in announced restructuring assignments by dollar volume.
We are serving clients with expertise built over decades and through cycles in capital structure, capital raising, debt negotiations, restructuring, and exchange offers, all supported by our global platform and industry sector teams. Our sovereign advisory practice has also seen a significant increase in activity. We are advising countries in Latin America, Africa, and the Middle East on debt restructuring, and we continue to advise governments and developed economies on programs to support the private sector. In asset management, our platforms benefited from the rebound in global capital markets during the second quarter. Our assets under management increased 11% from the first quarter. While we experienced net outflows for the quarter, gross inflows were strong. Our quantitative strategies continued to gain traction, as did our convertible and international equity strategies.
We continue to invest in the growth of asset management through the development and scaling up of new and existing platforms. Recently, we announced the launch of U.S. and global sustainable equity strategies, which are receiving strong demand. Our sustainable equity strategies are built on the foundation of our long-standing efforts in ESG integration, where we have a unique sector-based approach to materiality assessment. We see significant opportunity for Lazard in this space and are committed to further deepening of our ESG research capabilities and investment solutions for clients. Before I turn the call over to Evan, I want to comment on the evolution of Lazard's day-to-day operations during the pandemic. At the time of our last earnings call, virtually all of our people were working from home in response to the global health crisis.
Since then, many of our employees have returned to the office with guidelines to maintain social distancing. We have adapted quickly to a hybrid environment with a number of our people in the office and others at home. A silver lining to this experience has been the improvements in efficiencies, internal communications, and other positive cultural changes that might otherwise have taken years to accomplish. As we move forward, we are taking steps to ensure that we lock in these improvements for the benefit of all our stakeholders. Once again, I want to thank our people for their resiliency and commitment to upholding Lazard's standards of excellence even in the most challenging conditions. Evan will now provide more color on our second quarter and first half results, then I will comment on our outlook.
Evan Russo (CFO)
Thank you, Ken. Our second quarter results reflect the breadth and diversity of our business in a challenging market environment. Financial advisory's second quarter operating revenue of $293 million was down 11% from last year but was about even with the first quarter of this year. As we expected, M&A revenue decreased compared to last year's second quarter. However, restructuring revenue increased sharply based on new activity and the closing of several large assignments. Asset management operating revenue of $245 million declined 9% from this year's first quarter, reflecting lower average assets under management in the second quarter following the broad market sell-off in the first quarter. Average AUM for the second quarter was $208 billion, 6% lower than the first quarter of this year and 12% lower than a year ago. We finished the second quarter with AUM at $215 billion, 11% higher than the start of the quarter.
The increase was primarily driven by market appreciation and positive foreign exchange movement with $6 billion of net outflows. The quarter's net outflows were driven primarily by emerging markets and multi-regional equities. These were partly offset by net inflows in our global and multi-regional fixed income strategies. As of July 29, our AUM was approximately $224 billion, reflecting market appreciation of $6.5 billion during the month, positive foreign exchange movement of $4.3 billion, and net outflows of approximately $1 billion. Looking ahead across our franchise, in financial advisory, we continue to expect a subdued third quarter based on the pause in M&A activity during the first half of the year, with more normalized levels of activity expected in the fourth quarter and into 2021.
In asset management, we are seeing a high level of investor interest and winning significant mandates across our multi-regional, global, and emerging markets platforms, and we are seeing demand for both our quantitative and fundamental products across our platforms. Turning to expenses, in the second quarter, we accrued compensation expense at a 60% adjusted compensation ratio compared to 57.5% in the second quarter of last year. Our full-year compensation expectations will develop through the year based on revenues and business mix. Non-compensation expenses of $100 million were 22% lower than the same period last year, primarily reflecting lower travel and business development costs. Our adjusted non-compensation ratio for the second quarter was 18.3% compared to 20.3% in the second quarter of last year. Our effective tax rate in the second quarter, as adjusted, was 23.9%. Our effective tax rate for the first half of the year was 26.3%.
We expect an annual effective tax rate for this year in the low to mid 20% range. In regards to capital allocation, our business continues to generate significant free cash flow, which supports our objective of returning capital to shareholders. In the second quarter, we returned $53 million of capital to investors, primarily through dividends. This week, we declared a quarterly dividend on our common stock of $0.47 per share. Lazard's financial position remains strong with ample liquidity and balance sheet flexibility. As of June 30, our cash and cash equivalents were $897 million, up from $793 million at the start of the quarter. Ken will now conclude our remarks.
Kenneth Jacobs (Chairman and CEO)
Thank you, Evan. I'll provide some perspective on our outlook, and then we'll open the call to questions. The global macroeconomic environment has improved since our last earnings call but remains uncertain. Central Bank interventions have helped to stabilize capital markets. Fiscal measures in the U.S. and Europe have partly offset an unprecedented drop in aggregate demand. However, the shape and pace of the recovery depend in large part on the course of the pandemic and on additional governmental stimulus, which remains unpredictable. In financial advisory, we expect to see increasing M&A activity as the year progresses. Client dialogues are improving in both the U.S. and Europe. We also expect to see increased restructuring activity in Europe as central banks and governments scale back their economic support programs. In asset management, central bank support has helped stabilize asset prices, but volatility is likely to remain elevated.
We expect that the massive dislocations in markets and dispersion of returns resulting from the pandemic should create stronger demand for active management. This, combined with stronger investor emphasis on sustainability, positions us well for the long term. Regardless of the pace of economic recovery, Lazard is well positioned to weather this period of uncertainty with a diversified business model, a global client base, and unrivaled expertise in strategic advisory, restructuring, and asset management solutions. Our business model is highly cash-generative and has proven its strength and resilience across numerous business cycles. We remain focused on serving our clients well while we manage the firm for profitable growth and shareholder value over the long term. Now, let's open the call to questions. Thank you.
Devin Ryan (Analyst)
Thank you, sir. If you would like to ask a question, please signal by pressing Star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Again, press Star one to ask a question. We'll take our first question from Devin Ryan from JMP Securities. Please go ahead.
Hey, great. Thanks. Good morning, everyone.
Kenneth Jacobs (Chairman and CEO)
Hey, good morning, Dev.
Devin Ryan (Analyst)
Good morning. Maybe start with a question just on the restructuring strength. You have seen, obviously, a very strong ramp in deals, and we can track some of that from the outside. Trying to get a little bit better sense from kind of a sizing and timing perspective and how you guys are thinking about the opportunity there. If we look back, you used to provide some of the detail around the revenues. I think the prior high was about $375 million back in 2009. From the outside, it does seem like you are tracking ahead of that. I would just love to get some more perspective around kind of how you are thinking about the upside case or just even what you are seeing in that business today.
Just from a timing perspective, the view of it does take longer to close restructuring typically, but we are seeing, I think, some deals closing this year. Just trying to think about the glide path between 2020 and 2021.
Kenneth Jacobs (Chairman and CEO)
Sure. Why don't I give you the overall themes in the restructuring and have Evan talk a little bit about the scale and timing of some of the closings, okay? Look, first, our franchise in restructuring is really quite powerful. It's been through several cycles. It integrates not only a very, I mean, I think, market-leading team in restructuring, but it also is able to draw from the rest of the firm, both the industry groups and geographies, to complement activities in the restructuring group. That's been one of the secrets to our success and our ability to ramp up in this area over the course of time.
In terms of this cycle, we saw very strong activity in the first part of this year, largely driven by companies which already were facing challenged liquidity positions in balance sheets prior to the pandemic that were accelerated by the pandemic. There is a bit of a lull right now, but our sense is that given the withdrawal of some of the stimulus activities, the unevenness of the recovery, particularly in the U.S. because of the breadth of the pandemic in the South and West and now into the Midwest, and the likely pullback on some economic activity that was generated in those states when they reopened, we are likely to see a pickup into the fall and winter this year. Overall, the activity levels, we think, are going to be historic in that regard and probably continue through next year.
Evan, you want to just go into some of the more detail there?
Evan Russo (CFO)
Sure. Happy to, Devin. When we think about the restructuring sort of pipeline out for the rest of the year, as we said, we had a very strong Q2. Some of that was closings for restructurings we were working on from the beginning of the year that closed in the second quarter of this year. I think the significant activity that we picked up new mandates towards the end of Q1 into Q2 really play out over the course of the next three quarters. It is really Q3, Q4, and then Q1 of next year. I think that is generally the timeline that you would have to look at. I would say predominantly, you would probably have a bigger skew towards Q4 than Q3 in that business at this point in time. This is all very, very fluid. These transactions, as you alluded to, can move very, very quickly.
In many cases, they've moved faster even through the bankruptcy processes than one might have done historically. Timing is a little bit different, I think, this time around than it was last time around. You're seeing active restructuring assignments close quickly in the context of liability management and other types of financing solutions that are going on. The sort of bankruptcy longer-term restructuring cycle, some of them are going a little bit quicker, some of them will go a little bit slower. I think you're going to see it play out over the next two to three quarters. I think every transaction is kind of different. There isn't much of the same. I'd say in terms of the scale and the size, I think, as you talked about, the last, as Ken mentioned, this could be a very big cycle.
I mean, we're in the early phases of knowing how that's going to play out. I think we certainly have a very strong belief in the business right now. It's certainly what we saw in the level of activity that started at the end of Q1 into Q2 of this year. As we've said, for our business, historically, restructuring revenues as a percentage of the total financial advisory could range anywhere from 10%-40+% in some of the real deep recession and heavy type of restructuring scenarios. I think we're certainly gearing more, at least this year, and a little too early to know for next year, but certainly it looks like it could build into that sort of higher end of those ranges for the next year, year and a half.
Devin Ryan (Analyst)
Terrific, colleagues. Thank you, guys. Just to follow up, digging a little bit more on some of the M&A commentary. Really, the question is around just the tone and what you guys are seeing. I appreciate there's a lot of uncertainty, so it's hard to be maybe completely confident of what the future holds here. We've been hearing a little bit of a different commentary across earnings calls here this season where I think some companies are maybe a little bit more cautious. Some are feeling better. It does seem like firms with global platforms and maybe they're levered to some of the larger companies seem to have a little bit more positive outlook than U.S. middle markets or smaller deals.
I'm curious the outlook and how you would frame kind of maybe between whether it's global, Europe, U.S., kind of large transactions, small transactions, financial sponsors, just a little bit more flavor there because it does feel like we're hearing maybe some different outlooks from companies.
Kenneth Jacobs (Chairman and CEO)
Sure. First, I mean, there are a lot of crosswinds here and inconsistencies across geographies, industries, size of transactions. As you said, it's a little hard to get a grip on an overall trend here. That said, it feels to us like dialogues have clearly picked up from the end of the first quarter. The dialogues are more constructive, meaning that there's more likelihood of activity taking place. Financing for deals has improved, particularly for sponsored deals. It's not anywhere back to where it was, but there is financing that's becoming more available, and some of the terms are actually resembling more like what we've seen in the past. Clearly, the sectors that are going to be most active in our judgment are the ones that have been least affected by the pandemic directly.
Technology, biopharma as examples, are least affected, may even benefit to some extent from conditions associated with the pandemic. In those sectors, we've seen dialogue pick up. The sectors that have been most impacted: travel, leisure, retail, not much M&A dialogue. My guess is, as the year progresses, we may see a little distressed M&A dialogue there, but typical dialogue, no. Sponsor activity, sell-side activity, I should qualify and call it sell-side activity, which is usually one thing we look at to measure whether the market's picking up. On the smaller, mid-sized transactions, it's starting to feel a little bit better for us in both Europe and in the U.S. In Europe, it's a little bit more across the board. It's not segmented into one sector, but that also reflects a little bit more of the consistency in terms of the opening on the continent in particular.
In the U.S., it seems like sell-sides, which had been postponed at the time of the pandemic, particularly in the sectors I described earlier, seem to have restarted. Some of those are even nearing conclusion. There seems to be a—not I wouldn't say an enormous number, but a group of transactions starting up now that are starting from scratch. Overall, there are a lot of crosswinds. It's complicated, but it seems more constructive than it was a quarter ago. On the larger transactions, intermittent again, but I think, again, it will probably be more segmented in the industries which have been less impacted by the pandemic.
Devin Ryan (Analyst)
Okay. Terrific. Thanks for taking my questions. I'll hop back in the queue.
Operator (participant)
Thank you. We'll take one next question from Brennan Hawken from UBS. Please go ahead.
Brennan Hawken (Analyst)
Good morning. Thanks for taking my questions. I'd actually like to follow up on some of those comments from Devin's question. Ken, you gave a little color on some of the differences between the Europe and the U.S. in the small deal market. When we look at the broad market, which is much more impacted by big deals, we've seen—and I think you made some reference to it in your opening remarks in the call, Ken—less bad trends on announcements, right? I mean, the M&A market is definitely down and soft. Pardon me. It looks like Europe is hanging in better. Can you please talk about what you're seeing there, what sort of early trends you're seeing, how sustainable you think that divergence might be, and how we should think about it in the medium term based on what you're seeing so far?
Kenneth Jacobs (Chairman and CEO)
Sure. Look, this is early. As I said earlier, it's hard to generalize trends from a couple of weeks, months of activity here. Generally speaking, the outlook in Europe feels a little bit more consistent to us at the moment than the U.S. Continental Europe, in particular, has just done a better job of dealing with the pandemic and coming out of confinement than the U.S. has. The recovery from coming out of the pandemic has not been interrupted the way it has been in the U.S. As a result of that, if you're sitting there as a CEO or in a boardroom, you have a little bit better ability, at least within Europe, to be able to predict. You may feel a little bit more confidence about your ability to predict economic conditions going forward. That said, there's still a lot of uncertainty everywhere.
That's probably the incremental difference. I think economically, again, while both Europe and the U.S. have been hit very hard by the pandemic and the confinement, Europe is experiencing lower levels of unemployment. For the most part, workers, consumers came out of the confinement with their savings relatively intact. The ability to spark economic activity after that was greater. In the U.S., we have a different picture because of unemployment, and we also have a different picture because of the unevenness of the pandemic across the U.S. As a result of that, we think there's going to be a more uneven economic activity as we go into the fall and perhaps the winter. Again, you can't declare a victory anywhere right now. You could easily backslide in Europe like we've seen happen in parts of Asia.
As far as deal activity is concerned, a lot of deal activity just comes down to three fundamental factors. I mean, as we say, equity valuations, which are rich but inconsistent again in technology and biopharma. Things have gotten expensive. In other parts of the economy, you have not seen that kind of rebound. On financing conditions, improving for deals. Obviously, financing conditions for companies seeking longer-term financing for their own businesses has been quite good because of the central bank interventions. The deal market is improving, but not anywhere back to where they were before. With regard to what we call confidence, which is a key factor there, it really comes down to your ability to have some confidence with the economic outlook.
It does not have to be great, but you have to have some degree of confidence about what is going to happen and some sense of narrowness around what the potential outcomes could be. That is still a challenge in some industries. In others, it has improved. I think where you see it improved or in economies or environments where it has improved, you are going to see a pickup in deal activity.
Brennan Hawken (Analyst)
Okay. Thanks for all that, Ken. Really appreciate it. For my follow-up, I'd ask, we've seen the French government put on a dividend restriction for companies. Does that have an impact on your subsidiary dividending up to the parent, or is that restriction just for public shareholders? If it is a restriction, do you think it's going to have any impact, or is it manageable?
Kenneth Jacobs (Chairman and CEO)
It has no impact on us.
Brennan Hawken (Analyst)
Thank you. That's simple enough.
Operator (participant)
Thank you. Now we take our next question from Gautam Savant from Credit Suisse. Please go ahead.
Gautam Savant (Analyst)
Hey, good morning. I wanted to know how has the economic backdrop and pressure on M&A revenues impacted competition in the marketplace for talent? Are you seeing additional opportunities to recruit senior bankers, and are there any specific industries that you're focused on?
Kenneth Jacobs (Chairman and CEO)
I think actually second quarter was a pretty good quarter for us for hiring. I think we added, if I'm not mistaken, either five or six hires during that quarter. It's too early to tell. I think that was just those were things that either were opportunistic at that moment in time and things that we had in the works. It's too early to tell. Usually, you don't have a real feel for what's going to happen with the market for talent until you get closer to year-end or after year-end. I think we're, frankly speaking, given the ups and downs of this market, I think everybody's pretty far away from that at the moment.
I would expect that when we do get to year-end, depending on relative performance of different firms, big firms, little firms, you'll start to get a much better feel for that move in talent.
Gautam Savant (Analyst)
Thank you.
Operator (participant)
Thank you. Now we take our next question from Jeff Hart from Piper Sandler. Please go ahead.
Evan Russo (CFO)
Hi, Jeff.
Jeff Hart (Analyst)
Hey, good morning, guys. A couple for me. One, on the kind of capital markets advisory, can you remind us how big a business that is for you guys and give us some kind of indication of how strong the quarter was in that business? I guess I'm kind of thinking of it from the perspective of it was a really good quarter for public debt and equity underwriting. Did that kind of flow over into capital markets advisory?
Kenneth Jacobs (Chairman and CEO)
Evan, you want to take that?
Evan Russo (CFO)
Yeah, sure. Look, capital markets advisory, we put it all together. It's sort of one advisory business, as you say. We don't call out the specific components. The reason for that has to do with the fact that capital markets advisory, in many cases, can be linked to restructuring type work. It can be linked to regular M&A type work and others. This was a quarter where we were helping lots of companies think about their financing strategy, think about their financial strategy in conjunction with their strategic activity or strategic ambitions, as well as helping them with liquidity, in many cases, as part of a restructuring mandate or in thinking about it in the context of overall capital structure advisory.
It's a hard sort of thing to pinpoint, but certainly, there was a lot of activity relating to advising companies this quarter around their financing needs and the ability for them to take advantage of what was, certainly, on a global basis, very active underwriting, very active capital markets primary issuance across all different types of products. A lot of our time is spent with clients on those things. I would say it's not, we do not break it out specifically because it's really part of so many different types of discussions that we're having in so many different types of situations.
Jeff Hart (Analyst)
Okay. In a work-from-home kind of travel restriction environment, how is kind of a lack of face-to-face activity impacting the ability, I'm thinking more strategic advisory, to move from conversations to actual announcements? Kind of in general, but I'd be interested in North America versus outside of North America, if there's any differences.
Kenneth Jacobs (Chairman and CEO)
Sure. What is kind of interesting is, on the continent, for the most part, activity or behavior is back to where it was prior to the confinement. That is, people are largely back in the office. Meetings are taking place in person in a lot of geographies. That is first. In the U.S. and U.K., for the most part, people are still in confinement, and most activity is still conducted over video. At least in our case, almost everything is conducted over video. To just give an indication, we have not had an enormous amount of M&A activity in the market, not only us, but the market as a whole since the pandemic unfolded. You have seen deals take place. We have processes underway which are effectively virtual.
We expect that that will become, not maybe completely normal, but it may become the new normal for the better part of the next year or so. What was kind of intriguing to us was we were actually kind of skeptical about the ability to undertake these vast restructurings, which are, in fact, quite complex, both in terms of the pressure around time, number of people that are involved, due diligence, the court proceedings when they get into court. These went along without a hitch using video. I expect that people will adjust. I mean, there may be things which are more difficult to do this way, but there seems to be an adjustment taking place.
Jeff Hart (Analyst)
Okay. Finally, with the nearly 7% common dividend yield, we get asked a lot about the sustainability of that dividend. Looking at cash on balance sheet and operating cash flows, I mean, they remain quite strong. That kind of sits on the outside. I mean, how bad of an environment would we have to get into realistically before you'd expect maybe the dividend payments to come into question?
Kenneth Jacobs (Chairman and CEO)
Evan?
Evan Russo (CFO)
Yeah, sure. As you say, look, we have a significant, I think our cash build this quarter was fairly significant, a little over $100 million from the end of last quarter. We're sitting with approximately $900 million of cash at quarter end. As you're right, I think from a cash perspective, from a balance sheet perspective, I think we're pretty strong at this point in time. As we said last quarter, dividend is an important part of our capital management strategy, consistent with our capital management policy to return all of our excess cash to shareholders, which I think we expect to continue to do. Of course, we're going to be mindful of the environment and the volatility and the uncertainty and our forward outlook for the business. Currently, I think we're very comfortable with the dividend as we announced this week.
Jeff Hart (Analyst)
Okay. Thank you.
Operator (participant)
Thank you. Now take our next question from Richard Ramsden from Goldman Sachs. Please go ahead.
Richard Ramsden (Managing Director)
Hi. Good morning, everyone. I just wanted to ask a little bit about the non-comp expenses and the non-comp ratio. Obviously, appreciate T&E is probably down to close to zero. In your opening comments, you talked about the fact that you do think that some of these improvements in terms of people working more efficiently and working from home may stick. Can you just talk a little bit about how you think that could feed through into long-term improvements in the non-comp ratio over time, or is it too soon to conclude on that?
Kenneth Jacobs (Chairman and CEO)
Sure. Evan, why don't you take that since you spent 20 seconds on it?
Evan Russo (CFO)
Yeah, sure. Yeah. I mean, look, it's a great question. I would say you're probably more right in the way you captured it at the end, which is it's a little bit too soon to know the longer-term impact. In the short term, as you say correctly, travel this quarter was practically at a standstill. There was a significant benefit in this quarter relating to travel and entertainment. That comes through in our marketing and business development line items, you can see, which led to a pretty low non-comp in this quarter. For the second half of the year, as Ken was describing earlier with regards to picking up of activity levels, we expect to see some continued marketing and business development improvement, and so a little bit higher on that line item as we continue to get more towards normalized levels.
I think that's probably going to be more skewed to Q4 than Q3, as you can imagine, given we're a month in and still have the uncertainty in the environment that we're living in and still pretty lower levels relative to where we've been historically. With regards to the longer term, I think, look, as we should do, is we're trying to figure out how we take the best of what we learned from the pandemic and all the ability to use technology, the ability to change the patterns of behavior with clients, the ability to interact more efficiently with clients in different ways to potentially have a lower impact on our non-comp over a longer period of time.
I think it's a little bit early, but we hope to sort of take forward those learnings that we have from today and bring it with us as we define sort of the post-COVID world. I think there's going to be more to come on that discussion in the coming quarters.
Richard Ramsden (Managing Director)
Okay. Thanks. As a follow-up, can you just talk a little bit about financial sponsor activity, how that's evolved over the course of the quarter, and how active you think that could be as we head into the second half of the year in terms of a driver of activity?
Kenneth Jacobs (Chairman and CEO)
Sure. Clearly, the activity level in financial sponsors is improving as the year progresses. As the financing markets improve for deals and for those kind of sponsor deals, we should see an improvement in activity there as the year progresses. Frankly, the area that we're really intrigued by is public to privates right now. There just seems to be an increasing likelihood that we're going to see a pickup of activity there, both in the U.S. and in the U.K. That is something we're keeping an eye on.
Richard Ramsden (Managing Director)
Okay. Thanks very much.
Operator (participant)
Thank you. Now we take our next question from Manan Gosalia from Morgan Stanley. Please go ahead.
Manan Gosalia (Analyst)
Hi. Good morning. I was wondering, can you talk a little bit about the conversations you're having on deals that were already in the pipeline coming into this downturn? What percentages of completions in the second quarter were related to deals that were already in the pipeline pre-COVID? I was curious for the deals that were already in your pipeline that have been put on hold. Can you talk a little bit about how engaged your clients are? Are they pushing to get something done as soon as people can travel a little bit and we get some more certainty in the environment? Basically, I'm just trying to assess how much of a cold spring effect you could have on deal closings once the environment changes.
Kenneth Jacobs (Chairman and CEO)
Sure. Look, second quarter, any activity that closed in the second quarter was probably all related to things that started last year. Very new things happened that quickly in the M&A side. Restructuring, actually, is a little different in that regard and such. Right now, what we're seeing is a combination of two things. One is, and it's not across the board, I wouldn't—and again, I say there are a lot of, as I've said consistently here, there are a lot of crosswinds. There are a number of processes which were postponed with the onset of the pandemic that have started again, and we would expect to reach completion now. That's a function really, first, of the financing markets, again, opening up, and also of people becoming a little more confident with the outlook. I wouldn't say completely confident, but a little more confident.
It is going to be centered on industries which have had less impact from the pandemic. Second, which is, I think, somewhat encouraging, there have been new processes that have started over the course of the last several weeks that were not envisioned pre-pandemic. I mean, these are literally new assignments that are picking up and starting right now. What is going to be interesting to see is, do these conversations accelerate? The pace at which new conversations begin. I do not think I am as worried about the virtual due diligence as much as I am about just the potential for dispersion of outcomes on the economy. It is more around the certainty or the ability to project or predict what the outlook is going to be for your business or for your industry that is going to drive conversations here.
Less has to do with whether you're going to be actually able to travel or rely on a virtual conversation here. I really think it's the substance of one's confidence in the outlook.
Manan Gosalia (Analyst)
Got it. On the asset management side, last quarter, you mentioned that you were surprised by the level of RFP activity that you're seeing. You also said earlier on the call that you're seeing some strong growth in flows. Can you talk a little bit about how you think that should impact net flows for the rest of the year?
Kenneth Jacobs (Chairman and CEO)
Look, it's a little unpredictable in the institutional side because of the actual funding of mandates. The level of unfunded mandates right now is running very high on a historical basis for us. That's encouraging. When exactly they fund is a little bit less certain. The demand, particularly for some of our newer products in the sustainable area, is encouraging, as well as in the quant and some of the global products. Overall, it feels pretty constructive. We still have some pressure on the EM product in terms of outflows, which has been with us for some period of time here. On the other side of it, there seems to be an increasing demand for a lot of the things that we've got to offer right now.
Manan Gosalia (Analyst)
Great. Thank you.
Devin Ryan (Analyst)
It appears that I have no further questions at this time. This now concludes the Lazard conference call. Thank you.
