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Text: I am Jessica Doran, Chief Financial Officer.
If you do not have a copy, it can be obtained in the Investor Relations section on our website at www.
Please note that we do not undertake to update such information to reflect the impact of circumstances or events going forward.
In addition, please be advised that due to prohibitions on selective disclosures we do not as a matter of policy disclose material that is not public information on our conference call.
Last quarter, my remarks centered on the extreme volatility on the market during March that has only happened once before during the Great Depression.
Here we are three months later and volatility has moderated and optimism has returned.
During the second quarter, the S&P 500 continued to rise on the growing dominance of the FANG stocks which now represent almost 13% of the index's market cap and 4.3% of the 500 companies earnings.
Well we have generally outperformed the markets from the bottom, we still lag behind the indices over longer periods of time raising age old questions.
Is value investing broken?
If value was supposed to protect on the downside, why does it appear to be so much more volatile?
Given these questions, we wrote a white paper this quarter with these two hypotheses.
First, while recent extreme volatility has made value investing look bad today, long-term investors should match their investment horizon which -- with the period over which they measure volatility.
It just seems illogical to us to compare long-term returns with monthly volatility, which is what most every investor does.
And the second, value investing looks bad today, because the endpoint is so distorted.
The idea, that's something has changed that makes value investing different than in the past is not defensible.
The practice of value investing is simply to take advantage of undervaluation created by investors emotional overreaction to recent events.
We believe there are opportunities to exploit these valuation anomalies without taking excessive risk.
Our study showed that while value strategies tend to have higher short-term volatility than the market, our long-term returns are actually less volatile than the markets.
Further, while strategies long-term track record is commonly used to measure manager skills, it has notable flawless.
In particular, return data are highly influenced by their starting and ending points.
Once a manager has run a consistent investment process for many years, we can look at the average experience over time periods and remove the vagaries of starting and ending points.
15 months ago our focus value strategy posted the best absolute 10 year performance record in its history.
While our most recent 10 year history is more representative of our long-term average.
Meanwhile, the S&P 500s most recent 10 year record is substantially above it's average and appears to be anomalously high.
When we calculate a sharp ratio using our recent performance record and our higher short-term volatility, our investment skill appears questionable versus the S&P 500.
However, when we do the same calculation using average 10 year returns and the volatility of those 10 year returns, we see a completely different picture which one actually represents our true investment skill after 25 years of deep value investing.
Just a word about our business.
We finished the quarter with approximately $400 million in net outflows.
Those two for us are notoriously bumpy.
For the previous 12 months, we had net positive flows of approximately $300 million.
And for the last three calendar years we had positive net flows.
We attribute this milestone win to our new clients acknowledgment that we will not deviate from our value discipline, and that such commitment is necessary to achieve long-term investment success.
We reported diluted earnings of $0.13 per share for the second quarter compared to zero last quarter and $0.18 per share for the second quarter of last year.
Revenues were $30.1 million for the quarter and operating income was $11 million.
Our operating margin was 36.4% this quarter, increasing from 32.1% last quarter and decreasing from 46.4% in the second quarter of last year.
Taking a closer look at our assets under management.
We ended the quarter at $31.5 billion, up 17.5% from last quarter, which ended at $26.8 billion and down 15.5% from the second quarter of last year which ended at $37.3 billion.
The increase in assets under management from last quarter, was driven by market appreciation including the impact of foreign exchange of $5.1 billion, partially offset by net outflows of $0.4 billion.
The decrease from the second quarter of last year reflects $6.1 billion in market depreciation, including the impact of foreign exchange, partially offset by net inflows of $0.3 billion.
At June 30, 2020, our assets under management consisted of $13 billion in separately managed accounts.
$16.4 billion in sub-advised accounts and $2.1 million in our Pzena Funds.
Compared to last quarter, assets under management across all channels increased with separately managed account assets reflecting $2 billion in market appreciation and foreign exchange impact and $0.2 billion in net inflows.
Sub-advised account assets reflecting $2.8 billion in market appreciation and foreign exchange impact, partially offset by $0.7 billion in net outflows.
And assets in Pzena Funds being $0.3 billion in market appreciation and $0.1 billion in net inflows.
Average assets under management for the second quarter of 2020 were $29.8 billion, a decrease of 15.8% from last quarter and a decrease of 19.7% from the second quarter of last year.
Revenues decreased 13.1% from last quarter and 20.4% from the second quarter of last year.
The decreases from last quarter and the second quarter of last year primarily reflects the decrease in average assets under management.
During the quarter, we did not recognize any performance fees, similar to last quarter and compared to $0.3 million recognized in the second quarter of last year.
Our weighted average fee rate was 40.4 basis points for the quarter, compared to 39.1 basis points last quarter and 40.8 basis points for the second quarter of last year.
Asset mix and the impact of swings in performance fees and fulcrum fees are all contributors to changes in our overall weighted average fee rate.
Our weighted average fee rate for separately managed accounts was 55.2 basis points for the quarter, compared to 52.6 basis points last quarter and 54.5 basis points for the second quarter of last year.
The increase from the first quarter of 2020 reflects the addition of assets to strategies that typically carry higher fee rates.
Our weighted average fee rate for sub-advised accounts was 26 basis points for the quarter, compared to 26.6 basis points for last quarter and 28.7 basis points for the second quarter of last year.
The weighted average fee rate for the quarter reflects the reduction in the base fees of certain accounts related to the fulcrum fee arrangements of one client relationship.
These fee arrangements require a reduction in the base fee if the investment strategy underperforms its relevant benchmark or allows for a performance fee if the strategy outperforms that benchmark.
During each of the second and first quarters of 2020, we recognized $1 million reduction in base fees related to these accounts, compared to a $0.5 million reduction in base fees during the second quarter of last year.
These fees are calculated quarterly and compare relative performance over a three-year measurement period.
To the extent the three-year performance record of this account fluctuates relative to its relevant benchmark, the amount of base fees recognized may vary.
Our weighted average fee rate for Pzena Funds was 65.9 basis points for the quarter, increasing from 62.5 basis points last quarter and decreasing from 69.4 basis points for the second quarter of last year.
The increase from the first quarter of 2020 reflects inflows into funds that generally carry higher fee rates.
The decrease from the second quarter of 2019 reflects an increase in fund expense cap reimbursements which are presented net against revenue.
Looking at operating expenses, our compensation and benefits expense was $15.6 million for the quarter, decreasing from $19.1 million last quarter and from $16 million for the second quarter of last year.
The decrease from the first quarter reflects the absence of the cost of employee departures and expenses associated with tax payments and the company's employee profit sharing and savings plan, which generally do not recur during the year.
The decrease from the second quarter of 2019 reflects the decrease in the bonus accrual.
G&A expenses were $3.6 million for the second quarter of 2020, compared to $4.4 million last quarter and $4.3 million for the second quarter of last year.
The decrease from last quarter and the second quarter of last year primarily reflects the reduction in travel costs and professional fees.
Other income was $3.2 million for the quarter, driven primarily by the performance of our investments.
The effective rate for our unincorporated and other business taxes was 4.1% this quarter compared to 29.9% last quarter and 4.3% in the second quarter of last year.
We expect the effective rate associated with the unincorporated and other business taxes of our operating company to be between 3% and 5% on an ongoing basis.
Our effective tax rate for our corporate income taxes ex-UBT and other business taxes was 26.6% this quarter, compared to our effective tax rate of 100% last quarter and 23.8% for the second quarter of last year.
We expect this rate to be between 23% and 25% on an ongoing basis.
The allocation to the nonpublic members of our operating company was approximately 77.7% of the operating company's net income for the second quarter of 2020, compared to 74.5% both last quarter and in the second quarter of last year.
The variance in these percentages is the result of changes in our ownership interest in the operating company.
During the quarter, through our stock buyback program, we repurchased and retired approximately 266,000 shares of Class A common stock for $1.4 million.
At June 30, there was approximately $11.2 million remaining in the repurchase program.
At quarter end, our financial position remains strong with $33.1 million in cash and cash equivalents as well as $7.3 million in short-term investments.
We declared a $0.03 per share quarterly dividend last night.
We'd now be happy to take any questions.

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q2 gaap earnings per share $0.13.
q2 revenue fell 20 percent to $30.1 million.

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