PJT Partners Inc.

and welcome to the PJT Partners Second Quarter 2023 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sharon Pearson, Head of Investor Relations. Please go ahead, ma'am. Thank you very much.

Good morning and welcome to the PJT Partners Second Quarter 2023 Earnings Conference Call. I'm Sharon Pearson, Head of Investor Relations at PJT Partners. Joining me today is Paul Taubman, our Chairman and Chief Executive Officer, and Helen Mates, our Chief Financial Officer. Before I turn the call over to Paul, I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that these factors are described in the risk factors section contained in PJT Partners 2022 Form 10-K, which is available on our website at pjtpartners.com. I want to remind you that the company assumes no duty to update any forward-looking statements and that the presentation we make today contains non-GAAP financial measures which we believe are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued this morning, which is also available on our website. And with that, I'll turn the call over to Paul.

Thank you, Sharon. Good morning, everyone, and thank you for joining us. As our results indicate, our firm delivered stellar revenue performance for the three- and six-month periods, notwithstanding a very challenging backdrop. Second quarter revenue of $346 million was up 49% year over year and is the highest in our firm's history. This record-setting result was driven by extraordinary performance in our restructuring business combined with strong relative performance in strategic advisory. For the six months, firm-wide revenues increased 14% to $546 million, compared to the prior year. While the market tone has improved significantly from three months ago, M&A announcements remain at anemic levels, with annualized deal volumes tracking to levels that haven't been this low in more than a decade. Even though our strategic advisory performance has been hampered by the lackluster M&A environment, there is a silver lining. This subdued M&A backdrop has enabled us to considerably step up the pace of senior hiring. We've always talked about the difficulties in hiring during periods of frenetic M&A activity. So it is not a coincidence that the spike up in our talent investments has occurred during a very significant two-year downturn in overall M&A. While it has stepped up investment at the lows of market activity, is pressuring our near-term pre-tax margins, it is consistent with our focus on creating sustainable long-term value for our shareholders. We are confident that this investment will prove to be highly accretive over time. After Helen takes you through our financial results, I will review our business performance, recruiting activity, and outlook in greater detail. Ellen?

Thank you, Paul. Good morning. Beginning with revenues. Total revenues for the second quarter were $346 million, a record quarter of 49% year-over-year. As Paul mentioned, the growth in revenues was driven by strong performance in restructuring. Strategic advisory revenues were up modestly year-over-year, while PJT Park Hill revenues were meaningfully lower compared to year-ago levels. For the six months into June 30, total revenues were $546 million, a record first half, up 14% year-over-year. A significant increase in restructuring revenues more than offset a decline in PJT Park Hill revenues, with strategic advisory revenues essentially flat compared to year-ago levels. Turning to expenses. Consistent with prior quarters, we presented the expenses with certain non-gap adjustments, which are more fully described in our 8K. First, adjusted compensation expense. We accrued adjusted compensation expense at 69.5% of revenues for the first half of the year. This ratio represents our current expectation for the full year 2023. We accrued compensation expense at 71.2% in the second quarter in order to bring our six-month accrual to 69.5%. There are a number of factors driving the increase in the compensation ratio. As Paul mentioned, the current operating environment has presented us with the opportunity to make significant investments in senior talent this year, primarily in strategic advisory, with almost all of our senior level hires joining us in the second half of the year. In addition, our cumulative investment in recent years to build out our strategic advisory franchise is against the backdrop of a decline in strategic advisory revenues last year and an expectation for a further decline this year. Turning to adjusted non-compensation expense. Total adjusted non-compensation expense was $44 million for the second quarter, up $7 million year-over-year, and $81 million for the first half, up $9 million year-over-year. As a percentage of revenues, 12.8% in the second quarter and 14.8% in the first half. Total adjusted non-compensation expense grew 12% in the first half of the year compared to the same period last year. We view the six-month growth rate to be more indicative of the growth rate for the full year, with full-year increases driven by higher professional fees, higher occupancy costs, as well as increased costs related to travel and entertainment. Turning to adjusted pre-tax income. We reported adjusted pre-tax income of $56 million for the second quarter and $86 million for the first six months. Our pre-tax margin of 16% for the second quarter compared to 21.1% for the same period last year, and 15.7% for the first six months compared to 22% for the same period last year. The provision for taxes, as with prior quarters, we presented our results as if all partnership units had been converted to shares and that all of our income was taxed at a corporate tax rate. Our effective tax rate for the first half of 2023 was 26.7%, and we expect this to be our effective tax rate for the full year. Earnings per share are adjusted if converted earnings were $0.99 per share for the second quarter and $1.52 per share for the first six months. On the share count for the quarter, our weighted average share count was 41 million shares, During the second quarter, we repurchased the equivalent of approximately 737,000 shares, primarily through open market repurchases. Our repurchases in the first six months total approximately 1.9 million shares, including the exchange of partnership units for cash. On the balance sheet, we ended the quarter with $226 million in cash, cash equivalents and short-term investments, and $313 million in networking capital. and we have no funded debt outstanding. And finally, the board has approved a dividend of 25 cents per share. The dividend will be paid on September 20th, 2023 to Class A common shareholders of record as of September 6th. And I'll turn back to Paul.

Thank you, Helen. Beginning with restructuring. Our second quarter restructuring revenues were our highest ever as we benefited from a significant number of transaction closings. For the first six months of the year, our global restructuring business remained a market leader, ranking number one in announced and completed transactions in both the US and globally. We expanded our market share as we advised on a greater number of high value added liability management engagements. We continue to invest in our team and in our coverage footprint to better capitalize on opportunities with both sponsors and corporates, as well as capital providers across geographies. As with strategic advisory, restructuring revenues can fluctuate considerably quarter to quarter, given the uneven pace at which transactions complete. While we do not expect to achieve a repeat of our second quarter restructuring results anytime soon, this restructuring cycle has legs. and we expect our level of activity to remain elevated for some time to come. Even though improving capital markets are likely to provide companies with greater access to capital, the cost of such capital will continue to be a headwind for highly leveraged companies given the magnitude of recent rate hikes. This, combined with disruptions resulting from technological innovation and changing consumer preferences is likely to pressure an increasing number of companies across a broad array of industries. As a result, we expect default rates to move considerably higher from here. Turning to PJT Park Hill. The fundraising environment for alternative investments remains extremely challenging. Even though public market valuations have improved substantially in recent months, the record level of capital raised for alternative investing, coupled with the paucity of recent capital returns to LPs, has resulted in a significant overhang for investors. Until the rebound in market valuations translates into meaningfully higher return of capital to LPs, the fundraising environment is likely to remain challenged. Given this difficult backdrop, PJT Park Hill revenues were down significantly in the second quarter. While we expect second half performance to be materially better than first half performance, we expect full year revenues in PJT Park Hill to be down significantly as well. Turning to strategic advisory. Revenues in our strategic advisory business rose modestly in the quarter relative to year-ago levels and were essentially flat for the six-month period compared to the prior year. This contrasts favorably with overall year-to-date global M&A activity, which declined significantly year over year. Despite the low levels of M&A activity year-to-date, the headwinds that have dampened M&A activity have begun to die down. It remains a matter of when, not if, the market backdrop begins to spark a resurgence in M&A. We are seeing an improvement in the quality and quantity of our strategic dialogues, and our mandate count has grown steadily throughout the year. Notwithstanding this higher level of strategic engagement, we remain cautious given the challenges in converting mandates into announced and then completed deals, coupled with the continued elongation of deal-making timeframes. We continue to expect our full-year strategic advisory revenues to be below 2022 levels. Now let me talk about talent. Midway through the year, we've already surpassed last year's number of partners and managing directors hired. These bankers who have and will join our firm are in areas such as technology, industrials, infrastructure, consumer, and healthcare. We intend to recruit actively for the balance of the year and are having promising discussions with a number of potential new partners. Given all of this, we fully expect 2023 to be our most consequential hiring year ever. Looking ahead, our firm remains well positioned to navigate what is still a challenging environment on both an absolute and relative basis. The potential for a number of sizable revenue events to slip into 2024, coupled with a difficult macro environment, makes us somewhat cautious. Our current expectation is for second half revenues to be below last year's second half levels, even though our full year 2023 revenues should be above last year's revenues. We are highly confident in our future growth prospects. We remain steadfast in our commitment to enhance the value of our franchise through targeted investment, which spans our capabilities broadens our coverage footprint, furthers our geographic reach, deepens our client relationship, and enhances our brand recognition.

We will now take your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, you may press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. And we'll take our first question from Devin Ryan with JMP Securities. Your line is now open. Please go ahead.

Great. Good morning, everyone. Good morning. Good morning, Devin.

Hey, so I guess maybe just start on strategic advisory. Appreciate some of the more near-term commentary on revenue, but just thinking about kind of the pipeline and maybe some green shoots that are forming here. I think going back to last quarter, you talked about the mandate count growing appreciably from the start of the year, and I think it was down about 10% year-over-year as of the time of the last call. And then you had mentioned discernible uptick in April. So we're, you know, I think two and a half months from that time period. So, you know, I know the revenues take time to kind of build and deals take time to close. But just in terms of what's happening beneath the surface, can you give a little more flavor for some of that improvement you just mentioned here and kind of the pace that you're seeing and maybe how that compares to where we were even two and a half months ago? Thanks.

Sure. So a couple of things. One is what has been different about this downturn than other downturns is the strategic dialogue and the desire to transact. The will has never wavered. And that's different than in the past. I think it's been more about actionability. And we've talked about this. There's been a whole host of issues. There's regulatory uncertainty and overhang. You have volatility in asset prices and difficulty sort of aligning buyers and sellers. You have difficulty getting access to significant quantum of capital for many transactions, and the cost of that capital has continued to move higher, which has put transactions increasingly out of reach. And then just fundamentally, there's just been an unease and a lack of confidence in executability. And companies, willingness to investigate sales or divestitures in a highly uncertain world means you prep and you get ready, but you're not yet ready to pull the trigger. All of that and almost every level is far improved today than it was a month ago or three months ago and certainly from the beginning of the year. We're seeing it in our strategic engagement and our strategic dialogues. Our mandate count continues to move higher. It's higher than it was a year ago, but more to the point, the quality and the near-term actionability is far improved today than it was even three months ago. Having said that, until the transaction levels really start to flow, this could get pushed a little bit further, and I'm cautious about calling the absolute bottom and when we start to see a rush to transaction activity levels. But it's clear that it's building. And as I said, it's simply a matter of when, not if. And we feel really good about how we're going to be positioned as the world begins to return to a more normal cadence of transaction dealmaking.

Okay, terrific. Thanks, Paul. Just to follow up here, normalized margins obviously come up frequently, and comp is going to be the biggest swing factor there. I think I know the answer here, but we'd love to just get your thoughts on parsing through the comp ratio. If we were to maybe think about something close to 60% as maybe a comp ratio in a more normal revenue environment, And, you know, PKT being a more mature platform in the future, maybe that's where we get to or something even slightly better than that. We're roughly 100,000 basis points above that, at least, you know, through the first half of this year. And so just love to maybe see if we can get some flavor around how much of that delta that we're seeing this year is a function of growth investment that you're talking about and the record recruiting environment and just investing in talent versus, you know, How much is a function of the environment needing to normalize here? Just, you know, trying to think of orders of magnitude of kind of each piece because those are the two big drivers.

Yeah. Look, you can never perfectly match investment and the moment when you can deploy that investment to get immediate return. And if you try and spend your life just matching timing, you'll end up with no investments. or you'll end up with poor investment at the wrong time in the cycle. So we've always been very clear that a lot of our growth is going to be driven by the fact that this platform attracts best-in-class talent and that we have so much white space and we're going to continue to grow. At the same time, we have to be mindful of the macro environment. And in 2020 and 2021, our ability to recruit the candidates, the talent that we wanted at our firm was severely impaired for two reasons. One was we had the COVID meltdown and everyone went to work remotely. And that is not the environment in which people would be making career moves where we could really vet candidates and where they could see the magic of our platform. And in 2021, when we had this rapid melt up, The friction cost of leaving an existing platform to come join our firm and sit out most of 2021, that was a huge headwind. And what we did not do was we didn't just push ahead trying to replicate prior hiring trends. And what we didn't do was to chase individuals that didn't meet our criteria. So as a result, we were tracking below trend lines. in 20 and 21. And as we said consistently, this is more of an environment that works for us. And we're seeing, you know, the quantum and the quality of the candidate is the best that we have seen in our eight-year history. But the reality is that part of what is creating that is the fact that the switching cost, the friction cost, is at arguably an eight-year low because of the low levels of M&A activity. So we're not able to fully match it up. And if you have two years of significant investment coupled with two years of a significant contraction in M&A activity and M&A revenues, no matter how well you perform relative to the peers, if you're just simply down less in strategic advisory than others, for two years running, and if the revenues are going lower, and if the investment is going higher, you have this mismatch. And as soon as that normalizes, and I suspect that that is mostly driven by the macro environment, and when we're in a more constructive environment, and when the investment that's been put on the field and is about to be put on the field has a little bit of time, we should get this back to where investment and return are more appropriately matched.

Okay. Thanks, Paul. Maybe I'll just ask one more that's interrelated to that about growth investment. So you have 67 strategic advisory partners as of second quarter. I think just over 20% of that had been on the platform for less than two years, and that percentage should be growing from here just based on the comments on partner recruiting. So just Is it fair to think about roughly 20%, 25% of the partners are not fully mature and fully contributing, so there's a coiled spring related to that? Or would you say it's a higher number just in terms of how you guys are building the platform and the network effects that come when you add an incremental resource into a group? Just trying to think about, again, how much investment has gone into the system that's not fully getting its full return at this point.

I think there's a very large part of it. I think our desires and our ambitions and where we're confident our productivity levels get to versus where they are today, they're just in fundamentally different places. And it's very hard to look at any one piece in isolation. If you have significant investment in an M&A market that hasn't been this slow, more than a decade it almost doesn't matter who you put on the platform it's very difficult to get immediate returns because you have to operate in the macro environment as to whether or not your clients are transacting that is a big headwind that is number one number two is as you properly pointed out there is a network effect if you're building out a vertical I've often said this that the return may not come from the first senior hire or the second but it's the third that completes the ring of the first, the second, and the third. So until you complete those rings, and if you think about it, we're building out in product capabilities, in geographical presence, and in deep domain expertise, and all of that, the network effect starts to really pick up. And then the third is that as the firm continues to be associated with the largest, most complicated, most consequential transactions, the level of incoming. And firms and companies that want to talk to us, want to invite us to present our capabilities, all of that, so it all is interrelated. And it's very hard to talk about how to apportion it to any one point, but I would say it's the firm maturing, it's the capabilities of the firm continuing to grow, It's the talent that continues to join and get integrated. It's a more constructive environment. And the reality is the investment we made over two years compared to the market environment, we made the investment because of the market environment. But if you make that investment in a restrained market environment, you're going to have the margin pressure. But I don't think it should persist either terribly long, and I think this is much less about the mathematics of how long it takes someone to mature on the platform. This is just simply when we get to a more constructive M&A market, and all this investment's been on the platform an appropriate amount of time, we'd expect to see meaningfully different productivity levels.

Got it. Okay. Very clear. Really appreciate it. Thanks so much. Thank you, Devin.

We'll move to our next question from James Yarrow with Goldman Sachs. Your line is now open. Please go ahead.

Good morning, and thanks for taking my questions. Maybe we could just start with the timing of the M&A recovery. You've obviously talked about things improving, but maybe you could just get your views on whether you think we can feasibly get back to the 2021 run rate of activity within the next couple of years. And then as part of that, whether the sponsor business will return to its recent high level of transactions that we saw over the past few years.

Well, 2021 was, you know, a peak. And I don't know if it necessarily returns to 2021. And I think you also have to look at 2021 in the context of, you know, the shutdown in 2020 and an extraordinary year. you know, infusion into the monetary system to turn the cost of capital to near zero. So that wouldn't be what I'm assuming. We're certainly not building our firm with the assumption that that's what we need to get to the next level. I'm just simply looking for a return to what I would call the normal cadence of dealmaking, which could still be meaningfully below 2021 levels, but dramatically improve from where it is today. Sponsors. I've always said this. The sponsor community is integral to M&A dealmaking. It's just that sponsors won't take over the world. That's all. Those two things can coincide. And right now, for a variety of reasons, sponsors have been dramatically below trend. And part of what we're feeling is when sponsor activity was so far above trend, meaning their traditional contribution to the M&A cycle, and all of a sudden it nearly shuts down, that deceleration has a meaningful effect on transactions. And most of that is related to availability of funding, cost of funding, and being able to marry those two with seller expectations. And increasingly, as we get to a new equilibrium on cost of capital and as security prices better reflect the new reality on cost of capital, one of those hurdles is clearly going to be cleared. Then the next issue is going to be whether or not sponsors are comfortable drawing lots of capital from their LPs. And just to bring it back to the Park Hill conversation, capital markets continue to open up we're starting to see a much more constructive IPO market equity deals that have been priced have been well received markets have moved appreciably you can start to get dividend recapitalization trades you can start be able to get companies public if you can start to get that lubrication going then I believe there'll be much more comfort and confidence on the part of the private equity firms to make significant investments. And I just think that in a business model that they have, you can't be out of the transaction marketplace indefinitely. There has been a very long lull, and we're starting to see everyone kind of get back to it. I just don't think it's immediately going to return to 2021 levels. But that's not what we're assuming. That's not what we're planning. But there's no doubt that this market is starting to align. And the strategic desires and the financial incentives to transact has never left. And therefore, if we get a more hospitable set of factors that align, then I think you can see a meaningful spike up in M&A activity. The only reason we're cautious is It hasn't yet happened, and when it starts to happen, when you get from active discussions to announcements to closings, when it actually starts to hit the P&L, that's what makes us cautious. As far as the rebound in the M&A market, we're quite confident that it's close.

That's incredibly helpful. I think it would be really interesting to get your perspective on just the competitiveness of the hiring market today. You know, the bulge bracket is clearly pulled back, but at the same time you and a number of your independent advisor peers have talked about this being the best hiring backdrop really since 2008. And then just related to that, when you talk about your 69.5% comp ratio year-to-date, does that factor in the hires that we should expect through the back half of the year?

The answer to that is absolutely. So this is our best estimate for the full year, taking into account everything. Our expectations for our financial performance, the number of hires, the cost of those hires, that's everything factored in. That is our best available judgment as to the full year compensation accrual. And as far as the competition, look, it's always, we operate in a competitive marketplace. Everything is competitive. It's competitive to attract the best talent. It's competitive to attract the best clients. When you have an assignment, it's competitive to be able to secure an asset. Everything is about competition. So we don't mind the competition because we believe that what we offer and the way our firm has been constructed and the culture and the success we've had to date and the amount of white space, all of those things, are competitive advantages. And when we do talk to candidates, we increasingly find that it's pretty much, do they stay where they are? Where do they want to make a move? And if they want to make a move, they are quite aligned to join our firm. And a lot of this is, is it the right time? And to tie it back to my earlier comment, when the world is melting up, and all of your clients are active, that typically is not the right time to leave your prior firm and go on the beach for six months. And everyone wants to talk about why is this the best time for hiring, and they talk about is the cost lower. They talk about is it because some of the big banks are struggling. They talk about the fact that other firms are doing reduction in force. I don't think it's any of that as it relates to our hiring. it's getting the switching costs down. And right now, we have a highly desirable platform where there's great interest. And because of the lull in the marketplace, it's enabled us to capitalize on that to our advantage.

Thank you so much for the color. Absolutely. Thank you, James.

We'll move to our next question from Stephen Schubach with Wolf Research. The floor is yours.

Hey, good morning, Paul. Good morning.

How are you?

And good morning, Helen and team. Wanted to just start off with a question around antitrust. With the new guidelines from the DOJ released just the other week, wanted to get a sense as to whether those guidelines are having any impact on M&A dialogues, how it could potentially disrupt appetite from both strategics as well as sponsors.

Look, it's clearly concerning. I don't think it has changed dialogue, but I think it really raises the bar significantly on transactions. And like everything else, for the right deal, for the right economics, the right strategic fit, and if the company can withstand an elongated process, you've seen it already. Companies are prepared to sort of move forward. But if you're looking at a whole host of other factors and you're not sure about the integration, if you're not sure about valuation and cost of financing, and if you're not sure about how your shareholders are going to receive a transaction, then those guidelines can be quite quite dispositive and they can cause companies to back away. So I think we're still trying to figure all this out. I think there are a number of cases still to be tried and we're gonna see where the FTC goes with all of this, but I certainly have a watchful eye on all of this. Having said that, I think you can still have a very robust rebound in M&A activity even if you have much more vigorous antitrust enforcement and much stricter interpretation of what is and is not anti-competitive. So I think there's no doubt that it's an important thing to watch. I'm not sure at the end of the day where this all leads, but I do think that at the end of the day, we'll know the new guide rails and we'll figure out how to work within those confines. But certainly not helpful to overall M&A activity, which is another reason why I don't think we're necessarily going back to 2021 levels anytime soon, but I don't think we need to to have a very healthy marketplace.

No, all fair points. And at the risk of beating a dead horse here, I am going to ask a follow-up on recruitment. The one aspect, Paul, that I'm struggling to reconcile, and this is actually more of like an industry-level question, your bulge bracket peers collectively have been hinting at better M&A indicators, signs of green shoots, and yet it's tough to reconcile that messaging with the favorable recruitment backdrop. Just curious why we haven't seen better talent retention in your mind at some of the bulge brackets.

And for how long do you expect this more favorable recruiting environment to persist?

Look, I've said for a long time, I think there is a long-term trend from large, diversified financial institutions to more focused advisory firms. And you see that more and more clients want to move and work with smaller firms. that are more focused, where they see more alignment and they see higher, more consistent levels of talent. That is a trend that started a long time ago that is going to continue. But the reality is it doesn't just work on a straight line. There are always inter-seeding factors which either accelerate some of that pace or they tamp it down. But over time, I think that's where the direction of travel is. And part of it is that smaller advisory-focused firms have laid out the case over what is now more than a decade that this business model has real traction with clients. And this is where clients want to move. And if you're a banker and you're at a large firm and you see that your client is likely to do as much, arguably, more business with you if you were on an advisory-focused platform only, that has to influence the direction of travel longer term. Now, there's always an intervening factor. And in a world where everyone is transactions galore and you've got a large book of business and that's not the time to leave the field to play for a considerable period of time, That's just going to cause people to pretty much remain in place. When people remain in place, that is a benefit to an incumbent. That is a headwind to an insurgent like our firm. When COVID happens and everyone is just focused on the health crisis and making sure everyone stays safe and we're trying to come together as a community, that's not the time where all of a sudden recruiting ramps up. So I just think you need to get rid of of the back and forth and there are always going to be large firms that are capitalizing and feasting off of other large firms and vice versa so in the world of large integrated diversified financial institutions there's always going to be a direction of travel within that ecosystem but if you look more broadly about big firms to smaller firms I think that the direction of travel is slow and steady and And we don't need that many. When you look at what we're trying to build and how many individuals we're looking to add to our platform versus the size of the overall financial services industry, we're not talking about our hiring being a very large component of that enormous pool. But if we get the right people and the right culture carriers and the right expertise, we can take what we're building and just take it to another level. complete step up. So I don't spend as much time focused on the macro trends. Almost every conversation I have is a micro conversation. What's this individual doing at their current firm? What's blocking them from being the best banker they can be? Are they being mentored? Are they being trained? Are they being given responsibility? Are they working at a firm where they're being asked to sort of quote-unquote, sell lots of different products, or can they focus on advisory? Are they obsessed with league tables and market share? Or can they be more relationship-oriented? It's much more of a micro-conversation than talking about what's going on in the macro. And I also want to be very clear, some of the largest diversified financial institutions have extraordinary track records. They're incredible firms, and they can continue to coexist in this ecosystem with firms like ours.

Helpful caller, Paul. Thanks for taking my questions.

Absolutely. Thank you.

Our next question comes from Jim Mitchell with Seaport Global Securities. Please go ahead.

Hey, good morning. Maybe just, good morning. Maybe on the Park Hill business, it seems like the outlook has deteriorated a little bit over the last three months, and we can obviously see the placements revenue and activity, but maybe you could broaden that to the other verticals that we can't really see, whether it's secondary or other pieces of that business. What's driving a little bit of the worsening outlook, and how do you think about the whole thing, some of those individual pieces going forward?

Yeah, look, I think this is much more a transitory phenomenon, which is when all of a sudden you have LPs that are not making new allocations are overcommitted. It just means that funding and fundraising gets pushed out. It means fundraising that doesn't get pushed out takes longer to close. And it means that instead of exceeding your aspirational targets in terms of quantum of dollars, you're more likely to fall short or just hit the number as opposed to getting past it. And what we're seeing in this more difficult environment is nothing that we didn't expect at the beginning of the year other than more things have gotten pushed from 2023 into 2024. And therefore, we kind of have this air pocket because if you're dealing with a certain cadence between the time you get the mandate and the time you complete a transaction, and then all of a sudden in the midst of this, for the reasons we've talked about consistently, those processes get elongated. It means the number of closings in 2023 just keep getting pushed out. But I'm quite confident we'll get to a very different place. It may be over the next six to 12 months, but we'll get back to a more normal cadence and a more normal level of activity. Within all of this, I would say that probably the brightest spot of all continues to be the whole phenomenon of continuation funds and secondary transactions because those transactions are designed to address some of the liquidity needs of LPs, either LP stake sales or they are GPs trying to facilitate liquidity for their LPs. So that continues to be a very robust Business model, we've had success, but that vertical alone cannot carry the back if the primary fundraising is challenged.

Okay, great. That's helpful. And then maybe just getting back to the comp ratio, appreciate the long-term and near-term. I don't know if there's a way you can help us think about the intermediate term. If a lot of the new hires are joining in the back half, perhaps really productivity is more of a 24 event, and then you have the timing and the revenue of that. Is this something where we – not that you're going to give me a number, but just thinking about the comp ratio and next year in a recovering advisory environment, can we get – can you get operating leverage there in an improving environment next year, or is that more of a 25-type event?

I think what you're seeing here is you're seeing the cumulative investment and declining revenues in strategic advisory because how much the overall market activity has contracted. I don't expect the investment to slow anytime soon, meaning I have every expectation that this will continue into 2024. What I do expect is that the business climate and activity levels to start to pick up appreciably. So really, it's what's your crystal ball on when that activity picks up and when that translates not just into announced activity, a closed activity. So my hope is that that starts in 2024.

Okay, great. Thanks. Absolutely. Thank you, Jim.

That was our final question. We will now turn back to Paul Taubman for his closing remarks.

Well, once again, I want to thank everyone for their time and their interest in our company. We very much look forward to these conversations, and we will Be back in three months to report third quarter results. So have a wonderful end of summer and speak to you then.