Q4 2021 Lazard Ltd Earnings Call
Good morning, and welcome to the third full year and fourth quarter 'twenty 'twenty. One earnings Conference calls. This call is being recorded currently all participants are in listen only mode. Following their remarks, we will conduct a question answer session and instructions will be provided at that time.
Speaker 1: Good morning and welcome to the Zartful Year and for you.
If you should require assistance during the call. Please press the star key followed by the zero on your Touchtone phone.
At this time I would like to turn the conference over to Alexandra Deignan, Who's our head of Investor Relations and corporate sustainability. Please go ahead.
Good morning, and welcome to Lazard earnings calls.
In the fourth quarter of 2021, I'm Alexandra Deignan, the company's head of Investor Relations and corporate sustainability.
In addition to today's audio comments, we have posted our earnings release, and an investor presentation, which you can access on our website.
<unk> of this call will also be available on our website later today.
Before we begin let me remind you that we may make forward looking statements about our business performance.
There are important factors that could cause our actual results level of activity performance or achievements to differ materially from those expressed or implied by 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.
<unk> assumes no responsibility for the accuracy or completeness.
No duty to update these forward looking statements.
This 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.
During our call today are Kenneth Jacobs, <unk>, Chairman, and Chief Executive Officer, and Evan Russo Chief Financial Officer, and then we will start with a discussion of an overview of our financial results and then Ken will provide his perspective on the outlook for our business. After that we will open the call to questions now.
Now I'll turn the call over to Evan.
Good morning today, we reported record results for the fourth quarter and full year of 2021 and achievement, reflecting strong performance across our businesses.
Speaker 2: Good morning. Today we reported record results for the fourth quarter and full year of 2021, and achievement reflecting strong performance across our business.
Speaker 3: Full year operating revenue was a record $3.1 billion, up 24% year-over-year. This included record quarterly revenue in the fourth quarter of $968 million, up 14% from the prior year.
Your operating revenue was a record $3 1 billion.
Up 24% year over year.
This included record quarterly revenue in the fourth quarter of $968 million up 14% from the prior year.
We generated record earnings, reflecting the operating leverage in our business model.
Speaker 4: We generated record earnings reflecting the operating leverage in our business model.
Speaker 5: For the year, adjusted net income increased 40% to $5.04 per share.
For the year adjusted net income increased 40% to $5 <unk> per share.
Speaker 6: In the fourth quarter, adjusted net income increased 16% year over year to $1.92 per share.
In the fourth quarter, adjusted net income increased 16% year over year to $1 92 per share.
Speaker 7: These results underscore the strength and range of the Luzard franchise.
These results underscore the strength and range of the Lazard franchise.
Our global platform incorporates diverse revenue streams have significant scale innovative client solutions and growth opportunities in which we continue to invest.
Speaker 8: Our global platform incorporates diverse revenue streams of significant scale, innovative client solutions, and growth opportunities in which we continue to invest. In financial advice,
In financial Advisory record annual revenue.
Speaker 9: Of $1.8 billion was 27% higher than the prior year. This included a record fourth quarter of $608 million, which was 20% higher than the prior fourth quarter.
One 8 billion was 27% higher than the prior year. This included a record fourth quarter of $608 million, which was 20% higher than the prior fourth quarter.
Speaker 10: Our advisory results reflected strong M&A completions in the Americas and in Europe , as well as increased private markets and capital raising assignments.
Our advisory results reflected strong M&A completions in the Americas and in Europe , as well as increased private market and capital raising assignments.
Speaker 11: Our revenue from transactions involving financial sponsors nearly doubled in 2021 as we continue to enhance our coverage of the private equity market.
Our revenue from transactions involving financial sponsors nearly doubled in 2021.
We continued to enhance our coverage of the private equity marketplace.
Speaker 12: Our private capital advisory business had its strongest year ever, advising financial sponsors globally on fundraising and on innovative secondary market solutions.
Our private capital advisory business had its strongest year ever advising financial sponsors globally on fundraising and an innovative secondary market solutions.
Speaker 13: Our capital markets advisory business remained highly active, advising clients on financing, capital structure, and stakeholder strategy.
Our capital markets Advisory business remained highly active advising clients on financing.
Total structure and stakeholder strategy.
And our restructuring and sovereign advisory franchises continued to advise corporations and governments on select assignments around the world.
Speaker 14: and our restructuring and sovereign advisory franchises continued to advise corporations and governments on select assignments around the world.
Entering 2022, our financial advisory business continues with strong momentum and activity levels remain elevated across the globe.
Speaker 15: Entering 2022, our financial advisory business continues with strong momentum and activity levels remain elevated across the globe.
Our asset management business also generated record operating revenue for the fourth quarter and full year of 2021.
Speaker 16: Our asset management business also generated record operating revenue for the fourth quarter and full year 2021.
Speaker 17: Annual revenue of $1.3 billion increased 20% over the prior year.
Annual revenue of $1 3 billion increased 20% over the prior year.
Speaker 18: Management fees for 2021 increased 15% over the prior year, and incentives fees more than doubled, reaching a record $120 million. Incentives were driven by strong performance in a number of our small cap equities, fixed income, and alternative strategy.
Management fees for 2021 increased 15% over the prior year and incentive fees more than doubled reaching a record $120 million incentive fees were driven by strong performance in a number of our small cap equities fixed income and alternative strategies.
Speaker 19: Average assets under management in the fourth quarter achieved a record high of $274 billion. 11% higher than a year ago.
Average assets under management in the fourth quarter achieved a record high of $274 billion.
11% higher than a year ago.
Speaker 20: Our AUM ended the year at $274 billion, up 6% on an annual basis, and marginally higher on a sequential basis from the third quarter.
Our AUM ended the year at 274 billion up 6% on an annual basis and marginally higher on a sequential basis from the third quarter.
Speaker 21: The sequential change was driven by market appreciation of $9.9 billion, partially offset by far an exchange depreciation of $2.0 billion and net outflows of $6.7 billion.
The sequential change was driven by market appreciation of $9 9 billion partially.
Offset by foreign exchange depreciation of 2.1 billion and net outflows of $6 7 billion.
The quarters net outflows were primarily from our equities platform, partly offset by net inflows in alternatives and global fixed income strategies.
Speaker 22: The quarters net outflows were primarily from our equity platform, partly offset by net inflows in alternatives and global fixed income strategy.
Gross inflows in the quarter continued to reflect demand across our platforms.
Speaker 23: Crows in flows in the quarter continue to reflect demand across our plants.
Speaker 24: Over the course of 2021, we had approximately $1 billion of net inflows into newer strategies, such as our digital health and our global convertible investment grade portfolio.
Over the course of 2021, we had approximately $1 billion of net inflows into newer strategies, such as our digital health and our global convertible investment grade portfolios.
On a macro level, we saw some derisking at year end as investors rebalanced their strategic asset allocation amid rising inflation and the potential for higher interest rates.
Speaker 25: On a macro level, we saw some de-risking at year end as investors rebalanced their strategic asset allocations, amid rising inflation and the potential for higher interest.
Speaker 26: On a preliminary basis, as of January 31, AUM decreased to approximately $259 billion.
On a preliminary basis as of January 31, AUM decreased to approximately 259 billion.
Speaker 27: driven primarily by market depreciation of $9.2 billion or an exchange depreciation of $1.4 billion and net outflows of $4 billion.
Driven primarily by market depreciation of $9 2 billion.
Foreign exchange depreciation of $1 4 billion.
And net outflows of $4 billion.
The year is off to a volatile start in the equity markets with major indices down 5% to 10% across the board.
Speaker 28: The year is off to a volatile start in the equity market, with major indices down 5 to 10% across the board. While volatility may remain elevated, we are encouraged by early signs of market rotation from speculative growth to quality and value, a shift that would favor our style of fundamental research-driven active management.
While volatility may remain elevated we are encouraged by early signs of a market rotation from speculative growth to quality and value of shifts that would favor our style of fundamental research driven active management.
Speaker 29: This trend has already had a positive impact on performance across a number of our strategies.
This trend has already had a positive impact on performance across a number of our strategies.
Following our strong results in 2021, we continue to invest for growth across our businesses.
Speaker 30: Following our strong results in 2021, we continue to invest for growth across our business.
In financial Advisory, we have increased our pace of external hiring with more than 20, new managing directors and senior advisors joining us in 2021.
Speaker 31: In financial advisory, we have increased our pace of external hiring with more than 20 new managing directors and senior advisors joining us in 2021.
Speaker 32: In November , we also formed a strategic alliance with independence-point advisors, a new women-owned investment bank with an impressive team of seasoned professionals.
November we also formed a strategic alliance with independence pointed advisors, a new women owned investment bank with an impressive team of seasoned professionals.
We expect our partnership with IPA to be a strong complement to our advisory business.
We expect our partnership with IPA to be a strong complement to our advisory business.
This month, financial advisory expects to name 21 new managing directors in its annual promotion process. More than half began their careers here as interns, analysts, or associates.
This month financial advisory expects to name 21, new managing directors and its annual promotion process more than half began their careers here as in turns analysts or associates.
Our ability to develop talent organically remains a powerful competitive strength.
Our ability to develop talent organically remains a powerful competitive strengths.
In asset management, we continue to build the business through investment in people technology and distribution as well as the development of new products and the scaling up of existing platforms.
In asset management, we continue to build the business through investment in people, technology and distribution, as well as the development of new products and the scaling up of existing plants.
In 2021, we introduced five new strategies for clients across our traditional and alternative platforms, including funds focused on sustainability.
In 2021, we introduced five new strategies for clients across our traditional and alternative platforms, including funds focused on sustainability, energy transition, and inflation protection.
Energy transition and inflation protection.
Asset management expects to named nine new managing directors and its annual in its annual promotion process and has been bolstering resources on its investment teams sustainability research and global marketing and distribution network.
Asset Management expects to name nine new managing directors in its annual promotion process and has been bolstering resources on its investment teams, sustainability research, and global marketing and distribution networks.
We continue to see substantial opportunities to recruit talented investment teams adding strategies that are complementary to our existing platforms.
We continue to see substantial opportunities to recruit talented investment teams, adding strategies that are complementary to our existing platforms.
We are also enhancing our thought leadership in areas, where we can provide data driven insights for our clients in November we launched the Lazard climate Center, which we expect will add value to both our advisory and asset management businesses.
We are also enhancing our thought leadership in areas where we can provide data-driven insights for our clients. In November , we launched the Lazard Climate Center, which we expect will add value to both our advisory and asset management businesses.
Turning to expenses.
Our compensation ratio for 2021 on an adjusted basis was 58.5% compared to 59.5% in 2020.
Our compensation ratio for 2021 on an adjusted basis was 58, 5% compared to 59, 5% in 2020.
On an awarded basis, the ratio was 58.8% compared to 59.8% in 2020.
On an awarded basis the ratio was 58, 8% compared to 59, 8% in 2020.
Adjusted non-compensation expense for the year rose 9%, which reflected a partial return to normalized level of travel and business development costs, and investments in technology and recruiting across our business.
Adjusted non compensation expense for the year rose, 9%, which reflected a partial return to normalized level of travel and business development costs and investments in technology and recruiting across our businesses.
For the full year 2021, our non compensation ratio was 15%.
For the full year, 2021, our non-compensation ratio was 15%.
Our effective tax rate for 2021 was 23, 9% compared to 22% a year ago.
Our effective tax rate for 2021 was 23.9% compared to 20.2% a year ago.
For 2022, we expect an annual effective tax rate in the mid-20% range.
For 2022 we expect an annual effective tax rate in the mid 20% range.
Yeah.
Regarding capital allocation, our business continues to generate significant free cash flow, which supports our goal of returning excess capital to our shareholders.
Regarding capital allocation, our business continues to generate significant pre-cash flow, which supports our goal of returning excess capital to our shareholders.
We have been consistent in returning capital through our quarterly common dividend. And yesterday, we declared our quarterly dividend a 47 cents per share.
We have been consistent in returning capital through our quarterly common dividend and yesterday, we declared a quarterly dividend of 47 per share.
We continued our share repurchase program in 2021 more than offsetting dilution from year end equity grants.
We continued our Sherry Purchase Program in 2021, more than offsetting dilution from year-end equity grants.
We repurchased the total of 9.1 million shares during the year, which included 2.7 million shares in the fourth quarter.
We repurchased a total of $9 1 million shares during the year, which included $2 7 million shares in the fourth quarter.
As a result, our fourth quarter diluted weighted average share count declined by two and a half million shares from the prior year to $113 3 million shares.
As a result, our fourth quarter diluted weighted average share count declined by 2.5 million shares from the prior year to 113.3 million shares.
We expect to continue our share repurchase program utilizing our cash flow from operations.
We expect to continue our Sherry Purchase Program utilizing our cash flow from operations.
Yesterday, our board of directors authorized additional share repurchases of up to $300 million, bringing our total outstanding share repurchase authorization to $431 million.
Yesterday, our board of directors authorized additional share repurchases of up to $300 million, bringing.
Bringing our total outstanding share repurchase authorization to $431 million.
<unk> financial position remains strong with ample liquidity and balance sheet flexibility.
The Zard's financial position remains strong, with ample liquidity and balance sheet flexibility.
As of December 31st, our cash and cash equivalents were approximately $1.5 billion. Ken will now provide for-
As of December 31, our cash and cash equivalents were approximately $1 5 billion.
Ken will now provide perspective on our outlook.
Thank you, Evan. The global macroeconomic environment continues to have solid fundamentals, despite growing risks that are contributing to market volatility.
Thank you Evan the global macro the macro economic environment continues to have solid fundamentals. Despite growing risks that are contributing to market volatility. These include inflationary pressures U S fed policy transition, new geopolitical tensions and uncertainty about the direction of COVID-19.
These include inflationary pressures, US-PED policy transition, new geopolitical tensions, and uncertainty about the direction of COVID-19.
Still, US economic growth remains vigorous and the strong recovery appears likely to continue.
Still U S economic growth remains vigorous and the strong recovery appears likely to continue this year in Europe , GDP and earnings are expected to reach above average growth.
In Europe , GDP and earnings are expected to reach above average growth.
The M&A environment continues to be robust and we are starting the year with an unprecedented level of advisory activity.
The M&A environment continues to be robust, and we are starting the year with an unprecedented level of advisory activity. The force is driving transactions.
The forces driving transactions globally remain in place technology.
Technology driven disruption continues to be a catalyst for M&A across
Technology, driven disruption continues to be a catalyst for M&A across industries.
The energy transition is rapidly becoming a top strategic focus across sectors. A massive amount of private capital is being put to work alongside strategic capital with a potential to continue driving M&A activity. And financing remains widely available at low rates. We are well positioned in this environment with the most sophisticated strategic advisory capabilities coupled with deeply established presence in local markets, reinforced with expertise exchanges with local industries through global sectors and
Energy transition is rapidly becoming a top strategic focus across sectors, a massive amount of private capital is being put to work alongside strategic capital with a potential to continue driving M&A activity and financing remains widely available at low rates, we are well positioned in this environment with the most fish.
Kt strategic advisory capabilities, coupled with deeply established presence in local markets reinforced with expertise from global sector and specialty teams.
In asset management, we continue to see demand across our platforms, including growing interest in our sustainable and customized solutions investors need for income and return continues to drive demand for risk assets, including equities and corporate and emerging market debt as well as alternative investments markets are discounting high valuations.
In asset management, we continue to see demand across our platforms, including growing interest in our sustainable and customized
Investors need for income and return continues to drive demand for risk assets, including equities, and corporate, and emerging market debt, as well as alternative investments. Markets are discounting high-valueations of speculative stocks with early signs of rotation from growth to quality and value.
Of speculative stocks with early signs of a rotation from growth to quality and value.
In addition, institutional investors continue to seek sources of differentiated alpha, including ESG, Fematic, and Alternative Strategies, areas that played our strengths in deep fundamental
In addition, institutional investors continue to seek sources of differentiated alpha, including ESG thematic and alternative strategies areas that play to our strengths and deep fundamental research.
We see substantial opportunities for growth across our businesses and we continue to invest in our people, capabilities and technology infrastructure to enhance our competitive edge.
We see substantial opportunities for growth across our businesses and we continue to invest in our people capabilities and technology infrastructure to enhance our competitive edge is our record results in 2021 underscored the strength of our diversified business model, our global platform and our deep culture of client service in closing I want to thank all our.
The ZARDS record results in 2021 underscore the strength of a diversified business model or global platform in our deep culture of client service. In closing, I wanna thank all our ZARDS colleagues once again for their extraordinary commitment and productivity during the pandemic. Thanks to their efforts, we are serving our clients
Lazard colleagues once again for their extraordinary commitment and productivity during the pandemic. Thanks to their efforts, we are serving our clients with creativity outstanding advice and solutions and we are building value for all our stakeholders. The past two years, improving without a doubt that our people are the source of Lazard is enduring strength and resilience, let's open.
past two years have proven without a doubt that our people are the source of lizards enduring strength and resilience. Now let's open the call.
The call to questions.
Thank you if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure to meet function on your telephone is switched off to allow your signal to reach our equipment again that is star one to ask a question.
We can now take our first question from Stephen Ju backup with Wolfe Research. Please go ahead.
Hi, good morning.
So Ken, I figured it might be helpful just giving you, you always provide some contacts around like, nuances that we're seeing or hearing in terms of just like CEO confidence levels, valuation, financing, how that's impacting willingness on the part of some corporates to transact and I was hoping you could just provide some contacts around like what you're seeing across the different geographies across those three different variants.
Hi, Stephen so.
I figured it might be helpful. Just given your you always provide some context around like a nuance is that where you're seeing or hearing in terms of just like CEO confidence levels values.
<unk> financing.
That's impacting willingness on the part of some corporates to transact I was hoping you could just provide some.
Context around like what you are seeing across the different geographies across those three different variables.
Great, happy to do that. So let's start just on geographies.
Great happy to do that so let's start just on geographies.
We continue to see a lot of activity in the United States. What was particularly gratifying was the pick up activity last year in Europe . And we saw a strength across the financial advisory platform in both Europe and the US on the street.
We continue to see a lot of activity in the United States, what was particularly gratifying was the pick up in activity, Yes last year in Europe , and we saw strength across the financial advisory platform in both Europe and the U S. On the strategic advisory side I mean, both businesses were up about the same amount and that was great Europe had.
advisory side and he both businesses were up about the same amount and that was great your up had a record year for us I mean really the best year we've had and the best year ever but certainly the best year since the crisis so that was really
A record year for us I mean really the best year, we've had the best year ever, but certainly the best year since the crisis. So that was really gratifying.
In terms of the market as a whole, look, I generally point to three factors, financing, valuation, CO-confident, or board and CO-confidence, and then I look at some of the catalysts driving the market.
In terms of the market as a whole look I generally point to three factors financing valuation Seo com paperboard in CEO confidence and then I look at some of the and then we look at some of the catalyst driving the market. So on financing clearly, we're seeing a change in rate environment, but.
So on financing, clearly we're seeing a change in rate environment, but rates are still historically low. My guess is, as a result of that, we'll see some compression in PEs. Probably a lot just coming from the fact that stocks price stay the same and earnings go up and so you get a compression in PEs. I think that's likely to happen. We've already seen some of that in the market today.
Rates are still historically low my guess is as a result of that we will see some compression in <unk>, probably a lot just coming from the fact that stock price stay the same and earnings go up and so you get a compression in piece I think that's that's likely to happen we've already seen some of that in the market today.
On the valuation side, again, if you don't see big changes in valuation, then the market probably is okay where you see big changes in valuation. It takes a little time for buyers and sellers to reset, but so far it's okay on that. And then in terms of CEO board confidence, look, the key issue that is in people's minds is probably around inflation and also geopolitical risks.
On the valuation side again, if you don't see big changes in valuation in the market probably is okay, where do you see big changes in valuation it takes a little time for.
Buyers and sellers to reset, but so far it's okay on that and then in terms of CEO aboard confidence look the key issue that is in People's minds is probably around inflation and also geopolitical risks on the inflation side of things I think so far most companies have had a lot of success.
On the inflation side of things, I think so far most companies have had a lot of success.
In pushing through price increases and you've seen that in most companies earnings.
In pushing through price increases and you've seen that in the in most in most companies earnings.
And so consequently, I don't think there's that much concern around that from an M&A perspective. I think from an operating perspective, Pi chain inflation is going to continue to be.
And so consequently, I don't think there's that much concern around that from an M&A perspective, I think from an operating perspective supply chain inflation is going to continue to be top of mind for a lot of people until we see some.
top of mind for a lot of people until we see some better numbers or some settling on that but i think from an m in a perspective i don't think it's disruptive at this moment uh... geopolitics i mean looked at anyone's guess and anything that creates a discount newty in financing market
Better numbers or some settling on that but I think from an M&A perspective, I don't think it's disruptive at this moment GOP.
So youll politics, I mean look that's anyone's guess and anything that creates a discontinuity in the financing markets or creates creates sort of an uncertainty about the environment as it will have an impact.
or create sort of an uncertainty about the environment. It will have an impact for a period of time on M&A. That's just the way our business works. But for the moment, things are pretty constructive here and in Europe . And as I said, we're seeing an unprecedented level of activity in our business.
For a period of time on M&A, that's just the way our business works, but for the moment things are pretty constructive here and in Europe , and as I said, we're seeing an unprecedented level of activity in our in our business as far as catalysts are concerned we continue to believe that this whole, enabling technology is driving a lot of acquisition activity that's across every sector.
As far as catalysts are concerned, you know, we continue to believe that this whole enabling technology is writing a lot of acquisition activity that's across every sector.
The energy transition is increasingly an important factor in strategic decisions and that's only going to become more so we believe in the future. And then this enormous flow of money into alternatives, I think people are very focused on private equity, but I think the area that is really transformative at the moment is around infrastructure. And you can just see that in some of our announcements in the fourth quarter. I think that's going to continue into the future.
The energy transition is increasingly an important factor in strategic decisions and that's only going to become more so we believe in the future and then theres enormous flow of money into alternatives. I think people are very focused on private equity, but I think the area that is really transformative its moment just around infrastructure.
And you can just see that in some of our announcements in the fourth quarter I think that's going to continue into the future. So those are kind of the factors I think it's a pretty constructive environment for M&A I think the one one headwind is in the United States on antitrust I think the really bigger deals are going to be challenge. That's something that people have spoken about I don't think any reason to expect.
So those are kind of the factors. I think it's a pretty constructive environment for M&A. I think the one headwind is in the United States on Anitrust. I think the really bigger deals are going to be challenged. That's something that people have spoken about. I don't like any reason to expect that to ease until you actually see some companies challenging some of these.
That to ease until you actually see some companies challenging some of these.
challenging some of the government moves in court, but I think for the moment, the place that's been the sweet spot for us and for everyone has been in the kind of one to 10 to 20 billion dollar deals that are not really big, consolidating deals with lots of overlap and lots of challenges on NITrust. So that's kind of the environment, I think.
Challenging some of the government moves in court, but I think for the moment the place that's been the sweet spot for us and for everyone who has been in the kind of one to $10 billion to $20 billion deals that are not really big consolidating deals with lots of overlap and lots of challenges and antitrust. So that's kind of the environment I think.
Thanks for all that perspective Ken and just for my follow up I wanted to dig into the flow out look a little bit Just recognizing this past year was certainly challenging in terms of flow trends
Thanks for all that perspective, Ken and just for my follow up I wanted to dig into the flow outlook, a little bit just recognizing this past year was certainly challenging in terms of flow trends. It sounds like so those pressures have persisted to start the year in 2022 at the same time you guys do typically have oh.
Sounds like some of those pressures have persisted to start the year in 2022. At the same time, you guys do typically have, or I should say you have a stronger value band, particularly in EM, and you noted that that style is certainly starting to come back into favor. I was hoping you can give some perspective on what you guys are seeing in the RFP backlog, whether there's any indication that, not necessarily that you're going to see positive flows, but just that the second derivative on flows is starting to improve.
So you have a stronger value bank, particularly in <unk> and you noted that that style is certainly starting to come back into favor I was hoping you can give some perspective on what you guys are seeing in the RFP backlog, whether there is any indication that not necessarily that you're going to see positive flows. But this is the second derivative on flows is starting to improve.
and how should we be thinking about all of that in the context of the Firae Tirectory, which is also come under pressure.
How should we be thinking about all of that in the context of the fee rate trajectory, which has also come under pressure in recent years.
Sure, so let's start. Look, this was a tough fourth quarter on net flows and a tough start to the year on net flows. You know, when you have, I think in this environment, if you've got underperforming strategies, underperforming markets, that's a tough combination. And I think in some respects, that's what we've been dealing with with some of these flows, right?
Sure. So let's start look this was a tough fourth quarter on net flows in a tough start to the euro net flows.
I think in this environment, if you've got underperforming strategies underperforming markets. That's a tough combination and I think in some respects that's what we've been dealing with with some of these flows right now.
I think generally speaking, the shift in macro environment if it persists, I think will be favorable to our product mix. You know, basically a move away from speculative growth.
I think generally speaking the macro the shifting macro environment. If it persists I think will be favorable to <unk>.
Our product mix.
Basically a move away from speculative growth to quality and value is something that probably plays to our strengths. We have to see that continue and really take hold I think also the relative valuations of the European markets and in markets outside of the United States relative to the U S. Also creates some opportunity and if we sell.
to quality and value is something that probably plays to our strengths. We have to see that continue and really take hold. I think also the relative valuations of the European markets and market outside of the United States relative to the US also create some opportunity. And if we see a shift of investor focus into those markets that plays to our strengths as well.
If we see a shift of investor focus into those markets that plays to our strengths as well.
In terms of fees, a lot of that depends on the product mix. Obviously, we had a lot of pain around one particular product over the last couple of years. Where actually, performance has improved pretty dramatically over the course of the last...
In terms of fees a lot of that depends on the product mix up obviously, we had a lot of.
Pain around one particular product over the last couple of years, where actually performance has improved pretty dramatically over the course of the last.
Urusso so hopefully that that baits them
A year or so so hopefully that that abate some but it's.
But it's a pressure to environment on the East, which I think everybody's feeling. I mean, what we're kind of...
It's pressured environment piece, which I think everybody is feeling I mean, what we're kind of optimistic about is a lot of the new product that we've introduced we have a lot of.
Optimistic about is a lot of the new product that we've introduced. We have a lot of new, I think it was five strategies we introduced this year.
I think it was five strategies, we introduced this year.
And so we're becoming, you know, there's a lot to look forward to, but at the same time.
And so we're becoming theres a theres a lot to a lot to look forward to but at the same time.
This isn't in easy fourth quarter or first quarter for us, or first month so far. Thanks for the call, RK.
This is not this isn't an easy fourth quarter or first quarter for us or first month so far.
Thanks for the color and then I'll hop back in the queue.
Great. Thank you Steven.
We can now take our next question from.
Morgan Stanley . Please go ahead.
Hi, good morning.
I know it's a little early to ask about the corporation and B-Tex margin in 2022. I mean, as you went through earlier, there's a lot of.
Good morning.
I know it's.
And then early to ask about the comp ratio and pretax margin in 2022.
You went through earlier Theres a lot of.
you know puts in decks in the M&A environment you are So you know maybe just a big picture question on how we should think about it because you were able to drive down your Compratio in 2021 just given the strong revenue environment
Puts and takes in the M&A environment.
So maybe just a big picture question on how we should think about it because you were able to drive down your comp ratio in 2021, just given the strong revenue environment.
But at the same time, we're investing in the business for the long run. There have been a fair amount of hires as we went through 2021.
At the same time, we are investing in the business for the long run they have been a fair amount of hires as we went through 2021.
and it sort of looks like that's going to continue. So how should we think about the cooperation in 22 on the different revenue environment?
And it sort of it looks like that's going to continue so.
How should we think about the comp ratio and 22 on the different revenue environments and maybe as we go through this cycle is a normal range for the comp ratio is still in the mid to high fifty's or given the investments you're making could edge up as the revenue environment normalizes.
And maybe as we go through this cycle, is the normal range for the compressor still in the mid to high 50s, or given the investment you're making, could it add up as the revenue environment normalizes?
Hey man on seven let me start with that so I think as you pointed out. It's early I mean, it's too early in 2022 to be talking about comp ratio at this point in time, but I think you hit most of the puts and takes there.
Hey, man, on seven. Let me start with that. So yeah, I think as you point out, it's early. I mean, early in 2022 to be talking about compression at this point in time. But I think you hit most of the puts and takes there. You know, we're starting in a good place. And as you say, a lot of that is driven by revenue.
We're starting in a good place and as you say a lot of that is driven by revenue and so as Ken mentioned earlier on this call like were starting from a good position we have good momentum in the businesses and I think that puts us in a good state to kind of start the year off to think about it that said, we are continuing to focus on bringing in and expanding.
And so as Ken mentioned earlier in this call, we're starting from a good position. We have good momentum in the businesses. And I think that puts us in a good state to kind of start the year off to think about it. That said, we are continuing to focus on bringing in an expanding the level of talent, expanding our external hires.
The level of talent and expanding our external hires you've seen us do a lot of that over the last 12 months and I would expect us to continue that in the coming year as well. We think this is a very interesting environment for lazard to be taking on and expanding our senior levels of talent and we want to be able to make those investments for the future. So look we generally start.
We've seen us do a lot of that over the last 12 months, and I'd expect us to continue that in the coming year as well. We think this is a very interesting environment for Lazar to be taking on and expanding our senior levels of talent, and we want to be able to make those investments for the future.
So look, we generally start the year assuming we're going to start at around the previous year's levels. And then we adjust as we see the dynamics of the business and then as the investments continue to develop. Long term through the cycle, as you've seen, look with revenue growth, we tend to grow compensation at a slower rate than we grow our revenue growth. That's generally an upward trending revenue growth environment.
The year, assuming we're going to start at around the previous year's levels and then we adjust as we see the dynamics of the business and then as the investments continue to develop long term through the cycle as <unk> seen with revenue growth, we tend to grow compensation at a slower rate than we grow our revenue growth that's generally an upward trending revenue.
Growth environments, that's always held for us and I think we would see that through the cycle. We are in a heavier investment period right now which is why we've said, we're probably going to trend towards the higher end of our historical ranges and look that assumes you know natural revenue growth continues over the coming years, if we get big movements up or down in revenue, obviously will have to.
That's always held for us and I think we would see that through the cycle. We are in a heavier investment period right now, which is why we've said we're probably going to trend towards the higher end of our historical ranges. And look, that assumes, you know, natural revenue growth continues over the coming years. If we get big movements up or down in revenue, obviously we'll have to take a look at that and see where that is.
Take a look at that and see where that leads us.
Got it and maybe just to follow up on your comments on sponsor activity in both U S and Europe .
Got it and maybe just to follow up on your comments on sponsor activity in both US and Europe .
I know you've seen a near doubling of activity is.
you know you've seen a near doubling of activity is is more is there more white space in the u.s. that you can tackle as you move through twenty twenty two and you know how do you see sponsor activity tracking in in Europe just given uh... that were already things in redhikes in the u.k.a. and uh... you know we we could get multiple redhikes here in the u.s. that might impact some cross-border activity
Is there more white space in the U S that you can tackle as you move through 2022, and how do you see sponsor activity tracking in Europe just given.
We're already seeing some rate hikes in the U K and we could get multiple rate hikes here in the U S. So that might impact some cross border activity.
Okay. So on the sponsor side I think again the key thing on the sponsor side as a mix of valuation is again going back to what I said before if you see.
Okay, so on the sponsor side, I think, again, the key thing on the sponsor side is the mix of valuation, and again, going back to what I said before, if you see earnings increasing even though, you know, stock prices seem, you see some PE compression, that wouldn't be a surprise. If you see valuations fall off, that becomes a little bit more tricky.
Earnings increasing.
Even though stock seem youll see some fee compression that wouldn't be a surprise.
If you see valuations fall off that becomes a little bit more tricky.
Just in terms of studying virus and cellar's expectations, but so far I think it's a pre stable environment there The key to know for sponsors is continuity in financing as long as there is financing available
Just in terms of setting buyers' and sellers' expectations, but so far I think it's a pretty stable environment. There the keto for sponsors whose continuity and financing as long as there is financing available.
and markets were open rates while they're going up for still at historically low levels, particularly real rates.
Markets were open rates, while theyre going up are still at historically low levels, particularly real rates and so consequently, this is still a pretty attractive environment to put put money to work and we really haven't seen any real slowdown.
And so consequently, this is still a pretty attractive environment to put money to work. And we really haven't seen any real slowdown in the sponsor activity in Europe . There's still a lot of white space left for us in the United States on the sponsor's side. And we continue where we see the opportunity to invest and build there.
In the sponsor activity in Europe , there is still a lot of white space left for us in the United States on the sponsor side and we continue where we see the opportunity to invest and build there.
Great. Thank you.
We can now take our next question from Richard Ramsden with Goldman Sachs. Please go ahead.
Hey, good morning, guys. No, I was hoping you could do a date. Hey, good morning. I was hoping you could just update us on how you see the environment for restructuring evolving over this year. Do you think it's going to recover from the depressed levels that we saw in 2021? Or do we actually have to see default rates increase before the revenue picture in that business changes in a meaningful way? Thanks.
Okay. Good.
Morning, guys I was hoping you could have richer data.
Good morning, I was hoping you could just update us on how you see the environment for restructuring evolving over this year, where do you think it's going to recover from the depressed levels that we saw in 2021 or do we actually have to see default rates increase before the revenue picture in that business changes in a meaningful way. Thanks a lot.
So clearly, the end of 2021, there was a real drop off in, I guess, through 2021, there was a real drop off in restructuring activity, which, at least on the advisory side for us, we way more than offset with...
So clearly 2000 at the end of 2021, there was a real drop off in <unk> I guess through 2021, there was a real drop off in restructuring activity.
At least on the advisory side for US, we have way more than offset with.
the financial with the strategic advisory business, which is really good. I think going into 2022, we're starting to see some signs of pickup and restructuring. I think it's a little early to call it a shift in market. It could be just anomaly of a few deals, but it does feel a little bit more, it's more busy right now than it has been in the last several months or so. So it's early. I think this is a question which I'd be in a better position to answer at the end of the first quarter.
The financials.
With the strategic advisory business, which is really good.
Think going into 2022, we're starting to see some signs of pickup in restructuring I think it's a little early to call. It a shift in market. It could be just anomaly of a few deals.
But it does feel a little bit more it's more busy right now than it has been in the last several months or so so it's early I think it's I think this is a question, which I'd be in a better position to answer at the end of the first quarter.
Okay, and then as a follow up I mean can I think you were pretty early in identifying ESG as a driver for activity is it predominantly energy transition that is impacting or is it broader than that and is it an opportunity predominantly in M&A or restructuring will both thanks a lot.
And then as a follow-up, I mean, can I think you were pretty early in identifying ESG as a driver for activity? Is it predominantly energy transition, that it's impacting or is it broader than that? And is it an opportunity predominantly an M&A or restructuring or both?
Great question. So.
Great question so.
For it's multifaceted I mean first we haven't we have I think one of the best if not the best shareholder advisory capability around ESG, so conversations with companies around the shifts in their shareholder base and the impact that has on ultimately attracting investors in valuation is a particular store.
It's multifaceted. I mean, first, we have, I think, one of the best of not the best shareholder advisory capability around ESG. So conversations with companies around the shifts in their shareholder base and the impact that has on ultimately attracting investors in valuation is a particular strain for us and continues to be something that we're building.
For us and continues to be something that we're building.
The second is, I think companies themselves are actually across a range of industries increasingly sensitive to the kinds of investments they have to make to be able to be competitive in a world where we're essentially heading to a zero-carbon world over time. And so that's happening. And you can see this in activity across a range of sectors.
The second is I think companies themselves are actually across a range of industries increasingly sensitive to the kinds of investments they have to make to be able to be <unk>.
<unk> in a world, where we're essentially heading to zero carbon world over time, and so that is happening and you can see this in activity across a range of sectors and then third the.
And then third, the amount of investment that's taking place.
The amount of investment that's taking place.
in big capital projects, in energy transition that is funded by infrastructure, I think is gonna be a really meaningful contributor to our business going forward. And that's just an area where I think we're gonna see a lot more activity in the future.
The big capital projects in the energy transition that is that is funded by infrastructure I think is going to be a really meaningful contributor to our business going forward and Thats, just an area, where I think we're going to see a lot more activity in the future.
Okay. Thank you very much.
We can now take our next question from Brennan Hawken with UBS. Please go ahead.
Sure.
Good morning, thank you for taking my question. I wanted to follow up on some of Steven's questions around asset management. So it seemed like some of your comments were a little bit more on the com. And so I wanted to confirm that that's the case, that's more outlook based and not anything that you're actually seeing tangibly within the activities of...
Good morning. Thank you for taking my question I wanted to follow up on some of the Stephens questions around asset management. So.
It can it seemed like some of your comments.
We're a little bit more on the come.
And so I wanted to confirm that that's the case that that's more outlook based and not anything that you are actually seeing tangibly within the activities of the client base. So far I guess, that's the case given january's tough flow picture, but just wanted to confirm and then can you size.
client base so far. I guess that's the case given January's tough flow picture, but just wanted to confirm. And then can you say
Emerging markets. This is something that's been within the asset management business. It's it's been larger for you all but I also understand it's been shrinking as other businesses grow and it's a source of outflows. So what's the size of the business in asset management for you and how do you expect that is going to perform if we can.
Emerging markets, this is something that's been within the Asset Management business. It's been larger for you all, but I also understand it's been...
shrinking as other businesses grow and it's a source of outflow so what's the size of the in-business in asset management for you and how do you expect that's going to perform if we continue to see the dollar strengthen with policy rates in the video
Continue to see the dollar strengthen with policy rates moving up.
Okay, so let me take a couple parts of the question that have Evan touch on the EM franchise. So...
Okay, Let me take a couple of parts of the question then given.
Touch on the enfranchise.
So.
I would say that as far as outlook is concerned, a lot, you know, we're, what's happening in the market is potentially quite attractive for our franchise that is just given a shift away from speculative growth towards value, towards quality, something that plays to our strength. As I said before, to the extent that you start to see flows into Europe and back into the emerging markets that also is of great benefit to us. I think what I can.
I would say that as far as outlook is concerned.
<unk>.
We are.
What's happening in the market is potentially.
Quite attractive for our franchise that has just given a shift away from speculative grow towards value towards quality something that plays to our strength and as I said before to the extent that you start to see.
<unk> into.
Into Europe and back into the emerging markets had also is of great benefit to us.
I think what I can say is.
There are a lot more discussions right now in areas that there have been no discussions around that and that's gratifying, but a lot of it is, as you said, that's in the future, as opposed to in January . In terms of the EM franchise, the good news is that the performance in the core product has really improved over the course of the last year and is significantly outperforming any of its benchmarks and that's really, I think, stabilized the business right now. Yeah, so...
There were a lot more discussions right now in areas that there've been no discussions around that.
And Thats gratifying, but a lot of it is as you said that's in the future as opposed to in January .
In terms of the <unk> franchise.
The good news is is that the performance in the core product has really improved over the course of the last year and is significantly outperforming any of its benchmarks and and that's really I think stabilize the business right now.
Yes.
You've mentioned Brennan.
Emerging markets part of our platform has been becoming a smaller portion of the overall size of the AUM base over the last several years. So at one point I think I don't have the numbers in front of me, but I think we were north of 25% of our AUM was in the asset managed within the emerging markets two platforms between equity and debt.
Emerging markets part of our platform.
has been becoming a smaller portion of the overall size of the AUM base over the last several years. At one point, I think
I don't know the numbers in front me, but I think we were north of 25% of our AUM was in the asset management, was in the emerging markets, two platforms between equity and debt. Today that's roughly around 16% of our AUM. So it's becoming a smaller portion of our total business. Still represent the significant size of our assets.
That's roughly around 16% of our AUM. So it's becoming a smaller portion of our total business still represents a significant size of our assets and.
and can grow very, very quickly. And hopefully it does. As Ken mentioned, we have positive performance. And as investors send them in turns, you can continue to see very quick moves back into that asset class because we still believe that most institutional investors are under index to that asset class and that part of their portfolio. That said, when they decide to move, that'll be a positive for us. But as of now, it's becoming a smaller part of our business. And I think that's, you'll start to see, as Ken said, with the positive performance, we have to see that have a smaller impact on the flow picture and also the impact on its basis points on average to the firm over.
And can grow very very quickly and hopefully it does as Ken mentioned, we had positive performance and as Investor sentiment turns you can continue to see very quick moves back into that asset class because we still believe that most institutional investors are under indexed to that asset class and that that part of their portfolio that said when they decided to move that'll be it.
Positive for us, but as of now it's becoming a smaller part of our business and I think thats youll start to see as Ken said with the positive performance. We have seem to have a smaller impact on the flow picture and also the impact on its basis points on average to the firm over over the coming year.
Okay, thanks for all that color, really appreciate it. And then when we're thinking about MD head count, I apologize if I missed this, but where was MD head count at year end? I know you flagged that you expected, that you said you expect net.
Okay. Thanks for all that color really appreciate it.
Then when we're thinking about MD head count I apologize if I missed this but where it was MD head count at year end I know you flagged that you expect I think you said you expect net.
to add net nine NMDs to the promotion process. But where did we stand at year end? Did you hit your 10 to 15% net ad target for the year? And I believe that was a game. Annual pace you wanted to keep up for a few years. So how are you thinking about that goal into 2022, given the environment and the recruiting picture? Thanks.
To add net.
<unk> nine <unk> through the promotion process, but where do we stand at year end did you hit your 10% to 15% net add target for the year and I believe that was a.
Annual pace you wanted to keep up for a few years. So how are you thinking about that go into 2022, given the environment and the recruiting picture. Thanks.
So I don't know where the nine number came from books. So we announced that we were having 21 promotes we expect 'twenty one promotes in our in our financial advisory business, including those 'twenty. One promotes we're gonna be approximately 200, MTS and our financial advisory business.
I don't know where the nine number came from, so we announced that we're having 21 promotes. We expect 21 promotes in our financial advisory business, including those 21 promotes. We're going to be approximately 200 MDs in our financial advisory business as of the end of January when we start to count those promotes into our number. The year end was obviously around about 180, a little less, about 179 with the MD count at the end of the year. So a little bit less than our target of 10 to 15 per year. We, some of the hires that we made over the course of the last few months have really gotten into the count just yet, and including the higher level of promotions we've got going on there. I think we still feel good about that outlook, which is.
As of as of the end of January when we start to count those promotes into a number at the yearend was obviously around about 180, a little less than 179 with the MD count at the end of the year, so a little bit less than our target of 10 to 15 per year.
Some of the hires that we made over the course of the last few months haven't really gotten into the account just yet and including the higher level of promotions. We've got going on there I think we still feel good about that outlook, which is 10% to 15 sort of net MD growth per year and that sort of a longer term trend. It's not like a one year thing. It's just sort of how we think we can grow the business over the net.
which is 10 to 15 sort of net MD growth per year. And that's sort of a longer term trend. It's not like a one year thing. It's just sort of how we think we can grow the business over the next several.
Several years.
Was there some turnover around year end? Because I think you guys were at 182 in the third quarter. So did there was a little bit of turn there that caused some of the dip?
Was there was there some turnover around year end because I think you guys were at 182 in the third quarter. So was there a little bit of churn there that the cause.
yeah i mean if we have we have some people leaving the firm we have some retirement throughout the year um... that just take place at different parts of the year even if we knew about them earlier in the years i think some of them hit in uh... late q3 and early q4 more towards year-end so we had a couple of folks that uh... executed on their retirement strategies uh... towards the end of the years that primates of the difference
Yeah, I mean look we have we have some people, leaving the firm we had some retirements throughout the year.
Take place at different parts of the year, even if we knew about them earlier in the year. So I think some of them hit in late Q3, and early Q4 more towards year end. So we had a couple of folks that executed on their retirement strategies towards the end of the year. So that probably makes up the difference between the 183 number. The 179 were relaxed I mean, it's a fluid number it constantly changes.
the 183 number and the 179 where we're left. So I mean, it's a fluid number, it constantly changes and moves around, but look, net growth for us. Again, we're targeting 10 to 15 over the several years, and you can see we're just doing a lot of, a lot of hires and frankly, very excited about the level of the internal promotes that we made this year.
It moves around but look net net growth for US again, we're targeting 10% to 15 over the several years and you can see we're just doing a lot of.
A lot of hires and frankly very excited about the level of the internal promotes that we made this year I mean, it's probably one of our largest classes, we've ever promoted and really really high quality younger people sort of onto the platform, which I think sets us up really really well as we think out the next three or four years, we just have a much larger base off of.
one of our largest classes we've ever promoted and really, really high quality younger people sort of onto the platform, which I think sets us up really, really well as we think out the next three or four years, we just have a much larger base of our younger MDs really starting to hit their stride over the next couple of years. And so we're having a littleumen broader, this is happening at several for sure. So we're having a littleumen broader, this is happening at several for sure.
Our younger MD is really starting to hit their stride over the next couple of years.
Thanks for all that color.
Yes.
And we can now take our next question from Michael Brown of VW. Please go ahead.
Hi, Michael.
Hey, good morning, guys.
So just to follow up on the flow question, so obviously the flows that accelerated in recent month, the outflow is there. And it does sound like your outlook commentary is cautious about the mystic there. As I think about the Ascending Business and in recent years, you've made some strides and kind of diversifying the AUM mix there.
So just to follow up on the flow question.
So obviously the flows have accelerated in recent months the outflows there.
And it does sound like your outlook commentary is cautiously optimistic there.
As I think about the asset management business in recent years, you've made some strides in kind of diversifying the AUR.
Mix there.
But what I want to ask is how you're thinking about inorganic growth here to maybe accelerate that trend and add to the AUM areas that are seeing better flow trends overall, such as...
But what I wanted to ask is how are you thinking about inorganic growth here to maybe accelerate that trend and add to that.
And the areas that are seeing better flow trends overall sectors.
The alternative asset class.
Okay, so two points on that. One is, I think you've seen a steady flow of what I take lift-ins. You know, you know, at a...
Okay. So two points on that one is I think <unk> seen a steady flow of what I'd say lifting.
Taking on teams for no goodwill that come onto our platform and.
Taking on teams for no good will that come onto our platform and we provide an ability for those businesses to develop and grow. That's been something we've done basically one-of-quarter, more or less for the last, I'd say, almost two years or so at this point. And I think we have a very deep pipeline of opportunities going forward. That's a great opportunity to add really good teams and very importantly, additional capabilities to the ZARA that can be leveraged across our platform.
We provide the ability for those businesses to develop and grow that's been something we've done basically one a quarter more or less for the last I would say almost two years or so at this point and I think we have a very deep pipeline of opportunities going forward, that's a great opportunity to add.
Really good teams and very importantly, additional capabilities to lazard that can be leveraged across our platform.
And then Nevis to say the asset management world is in ferment and There's a lot of activity and a lot of things going on and we're We're always we're looking at a lot of different things
And then needless to say the asset management World is in prevent and.
There is a lot of activity and a lot of things going on and we're.
We always were looking at a lot of different things I mean, it will be very disciplined about it but where we have where we see an opportunity for something that could add to our franchise, we'll we'll look very carefully.
will be very disciplined about it, but where we see an opportunity for something that could add to our franchise, we'll look very...
Okay, thanks, Ken. And then just on capover turn, you mentioned being increased in the share, share by back authorization there.
Okay. Thanks, Ken and then just on capital return.
You mentioned the increase in the share.
Share buyback authorization there.
In 2021, you guys, I guess, have overachieved on your target there, right? You offset more than offset the dilution and the share count was able to come down.
In 2021, you guys.
Yes.
Overachieve on your target there Ray you offset more than offset the dilution in the share count was able to come down when.
When you think about 2022, is that the tends to the right way to think about it here or is it still that you know, just kind of target offsetting elution?
When you think about 2022 is that does that potentially the right way to think about it here or is it still that kind of target offsetting dilution and then if.
you know if there's an opportunity to be more optimistic you'll do so but too hard to say at this point
If there is an opportunity to be more optimistic you'll do sell but.
Too hard to say at this point.
Yeah, look, I think you're correct. We walked back nine million shares last year, which more than offset our year end compensation shares that we were issued.
Yeah look I think Youre correct, we bought back 9 million shares last year, which more than offset our year end compensation shares that were issued.
We continue to buy through the year. When we had the opportunity, I wanted to put some of our excess cash work, Mike, as we normally do through the year, we kind of take a look at our cash positions and decide if we have excess cash we put that to work. And we've been really tilting towards sharey purchases when we don't have a need for the capital in our business.
We continue to buy through the year.
When we had the opportunity I wanted to put some of our excess cash to work Mike as we normally do through the year and we kind of take a look at our cash positions and decide if we have excess shares excess cash we put that to work and we've been really tilting towards share repurchases. When we don't have a need for the capital in our business, but from time to time you know there is capital that we need in the business for <unk>.
But from time to time, you know, there's capital that we need in the business. We're continuing to grow some of the areas of our business that need a little bit of capital, such as putting more money to work in our seed portfolio and other things that we want to invest in to create opportunities on new funds in the future. That was probably a bigger area that we started to spend some time and money in towards the end of last year. We'll probably do a little bit more into this year as well. So yeah, it's a little bit of opportunistic. We're going to, our target is to buy back at least the amount we need for year end.
To grow us some of the areas of our business that need a little bit of capital such as putting more money to work in our seed portfolio and other things that we want to invest in to create opportunities on new funds in the future of that was probably a bigger area that we started to spend some time and money and towards the end of last year, we'll probably do a little bit more into this year as well so yes.
It's a little bit opportunistic we're going to our target is to buy back at least the amount we need for year end.
Year end compensation dilution.
your end compensation dilution. And then as we've done over the past several years, just continue to put the excess to work in in Sherry Purchases when it becomes available.
And then as we've done over the past several years just continue to put the excess to work and share repurchases. When it becomes available. So I would expect us to continue to make progress on the share count over the coming years.
So I would expect us to continue to make progress on the share count of the coming years. Okay, great. Thanks, Evan. Thanks for your questions.
Okay, great. Thanks, Kevin Thanks for taking my questions.
Great.
We can now take our next question from Devin Ryan of JMP Securities. Please go ahead, Hey, Devin.
Hey, good morning, how are you guys.
Yes.
First question just wanted to come back to some of the comments on investments into people and first of all good to see.
First question, just want to come back to some of the comments on investments into people. And first off, good to see the deferrals not change much despite the really strong revenues. So you should set up well for next year. But as we think about just investments into recruiting and some of the success you guys have seen over the past couple of years, I mean, it looks like you have...
The deferrals not changed much despite the really strong revenue. So you should set up well for next year.
But as we think about just the investments into recruiting and some of the success you guys have seen over the past couple of years I mean, it looks like you have more bankers ramping on the platform than you've had in a while in terms of people who've been on the platform for less than two years and so what I'm trying to think about is the productivity potential you had a very strong.
Productivity per managing director this year.
As we look forward do you have a number of new promotes so that maybe pulls it down a bit on the flip side you have a lot of bankers that are.
that are probably not at their full potential, but you've added over the past few years here. So, if you're trying to think about some of the puts and takes there and where productivity can go here from here. Yeah, Devon, I think you hit it right. And I think we touched on it a little earlier that ultimately with the higher level of promotes that we've got coming into the system this year, we certainly brought on a lot more senior talent in the last 12 months or so than we have in the previous years before that. So, there are a lot of what I'm saying.
Youre, probably not at their full potential.
Over the past few years here. So just trying to think about some of the puts and takes there and where productivity could go here from here.
I'm gonna go here.
Yeah, Devon, I think you hit it right. And I think we touched on it a little earlier that ultimately with the higher level of promote.
Yes, Devin I think you hit it right and I think we touched on it a little earlier that ultimately with the higher level of promotes that we've got coming into the system. This year. We certainly have brought on a lot of a lot more senior talent in the last 12 months or so than we have in the previous years before that so there are a lot of what I'd call newer.
that we've got coming into the system this year. We certainly brought on a lot more senior talent in the last 12 months or so than we have in the previous years before that. So there are a lot of what I call newer senior people here at the firm that are not really out there full potentially as you know it takes. Sometimes you know 18 months, you could take up to 36 months depending on the space.
Sure.
Senior people here at the firm that are not really at their full potential as you know it takes sometimes 18 months you could take up to 36 months, depending on the space for people to truly hit their stride in terms of revenue generation here at the firm and depending on where they are establishing themselves either within existing markets or trying to build out new.
to truly hit their stride in terms of revenue generation here at the firm, depending on where they're.
establishing themselves either with an existing market or trying to build out new markets for us sometimes it could take a little bit longer. But yeah, we are certainly have a lot more opportunity within the MD base that we have today to continue to see that ramp over the coming year. And our hope is, we
For us sometimes it could take a little bit longer but yes. We are certainly have a lot more opportunity within the MD base that we have today to continue to see that ramp over the coming year and our hope is as.
As Ken mentioned, we're putting a lot of these people in areas of white space in areas, a bigger opportunity. We're starting to focus on places, where we see the puck going some portland's and to think about where the bigger areas of opportunity are in our business and so hopefully over time, we're going to generate even excess up above that.
Ken mentioned, we're putting a lot of these people in areas of white space and areas of bigger opportunity. We're starting to focus on places where we see the pup going.
some of our lens and to think about where the bigger areas of opportunity are in our business. And so hopefully over time we're going to generate even X-
Okay terrific.
Okay, terrific. And then just looking at the, call it non-MNA businesses, whether it's shareholder advisory or capital structure advisory. Those arts made big investments and kind of, I think, differentiated your footprint relative to some others in the industry. And so those.
And then just looking at the call it non M&A businesses, whether it's shareholder advisory or capital structure Advisory Mozart's made big investments in kind of I think differentiated your footprint relative to some others in the industry and so those contribution seem to become bigger and bigger can you maybe just talk a little bit.
contributions seem to become bigger and bigger. Can you maybe just talk a little bit about how you're thinking about the opportunity in these non-MNA businesses? I know they kind of interconnect with MNA advisory. But are those fee pools for the industry growing faster than the MNA and kind of where you feel like you are from a market share perspective and opportunity to continue to push those higher?
About how youre thinking about the opportunity in these non M&A businesses I know they kind of interconnect with M&A advisory, but are those fee pools.
The industry growing faster than your M&A.
Where do you feel like you are.
From a market share perspective, and opportunity to continue to push those higher.
So let me touch on that. So some of these efforts are complimentary to the M&A and don't necessarily have it in independent people. Some do have independent people. So it depends a lot on what we're doing. As an example, PCA is a business where we put a lot of resource behind and continue to put a lot of resource behind. That's an independent people that's grown rapidly. We've kind of really been one of the...
So.
Let me touch on that so some of these efforts are complementary to the M&A and don't necessarily have it independent people. Some do have independent people. So it depends a lot on what we're doing as an example, PCA is a business we've put a lot of resource behind and continue to put a lot of resource behind that's an independent people thats grown rapidly.
Lee.
We've kind of.
Really been one of the.
Developers of the secondary market, secondary transactions, the continuation funds.
Developers of the secondary market secondary transactions to continuation funds in a regular way Fundraisings I mean, that's been a business where is growing great fee pool growing people, particularly with the growth of secondary funds.
or regular-weight fund raising. I mean, that's been a business where is growing, great fee pool, growing fee pool, particularly with the growth of secondary funds, and an area where we continue to see opportunity for people. The energy transition broadly is an area of enormous opportunity as the firm right now. We're seeing a lot of activity on the part of infrastructure funds there, both in the things that they have historically invested in around renewables and solar.
And an area, where we continue to see opportunity to put people. The energy transition broadly is an area of enormous opportunity at the firm right now we're seeing a lot of activity on the part of infrastructure funds. They are both in the things that they have historically invested in around renewables and solar solar wind renewables, but we're also seeing it in.
solar wind renewables, but we're also seeing it in green-piled opportunities, like a transaction which is underway around green hydrogen and something.
In Greenfield opportunities like a transaction, where we're which is underway around green hydrogen and something that we're raising financing around so that's pretty exciting for us and we think theres a lot more around the energy transition that is building some of the other businesses the shareholder advisory the.
So that's pretty exciting for us. And we think there's a lot more around the energy transition that is building. Some of the other businesses, the shareholder advisory, the ESG, the activism businesses, they are either independent key streams in some cases like activism, increasingly we see opportunities for that. In some of the shareholder advisory ESG areas, particularly around IPO advisory and such, but others are just complimentary to the strategic advisory gift decline.
ESG activities and businesses they are either independent fee streams in some cases like activism increasingly we see opportunities for that.
The shareholder advisory ESG areas, particularly around IPO advisory and such but others are just complementary to the strategic advice, we give to clients.
And really differentiating for us.
Okay terrific.
Okay, terrific. I can just kind of close a loop on that. So, as these businesses, some of which are complimentary to the customer to keep your advisory and M&A advisory, how should we think about the fee per transaction over time? Have you been able to generate more fees as maybe you're adding more resources to specific deals and you can work on a transaction from many different angles? Or yeah, actually we think about kind of the trajectory from kind of where maybe we've come from to where we are today to maybe work. It still continue to go even on the specific kind of M&A M&A.
Kind of close the loop on that so.
These businesses some of which are complementary to the advisory and M&A advisory how should we think about the fee per transaction over time, you have you been able to generate more fees as maybe youre, adding more resources to specific deals and you can work on a transaction for many different angles are.
How should we think about kind of the trajectory from kind of where maybe we've come from to where we are today and maybe where it can still continue to go even on the specific kind of M&A M&A side.
Look I think the key statistic for US this year was transactions per partner.
Look, I think the key statistic for us this year was transactions per partner. Really went up pretty.
Went up pretty significantly or per MD, I guess is the way to think about it went up pretty significantly and thats something we track very closely.
or per MD I guess is the way to think about it. When I'm pretty significantly, and that's something we track very...
and that obviously is a great addition to productivity and to returns.
And that obviously.
Obviously is a great addition to productivity and to returns.
Okay, Alright, great I'll leave it there thank you.
Thank you.
We can now take our next question from Jim Mitchell of Seaport Global. Please go ahead.
Hey, good morning, maybe just a quick follow up on on Devins question, maybe a different way.
Hey, good morning. Maybe just a quick follow up on Devon's question, maybe a different way. You know, if you mentioned unprecedented activity to start the year.
If you have mentioned unprecedented activity to start the year I guess, if you look at publicly available data on M&A. It doesn't feel like it's been any particularly super strong start. So is this a comment I guess on some of those non M&A activity that has been very strong or is it more engagement letters things like that or is it or is it backwards.
I guess if you look at publicly available data on M&A, it doesn't feel like it's been any particularly super strong start. So is this a comment? I guess on some of this non-M&A activity that has been very strong, or is it more engagement letters, things like that, or is it backwards looking looking at the pipeline? Just maybe flush out a little bit, the unprecedented activity comment, and where you're seeing that strength so far this year.
Looking at the pipeline, just maybe flush out a little bit the unprecedented activity comment and where youre seeing that strength. So far this year.
Yes, Jim I think the comment about unprecedented activity I mean, that's just what we're seeing I mean from our perspective around the globe. Our bankers are as busy as we've seen them. They have as Ken mentioned, just lots of transactions per MD everyone's working on.
Jim, I think the comment about unprecedented level of activity, I mean, that's just what we're seeing. I mean, from our perspective around the globe, our bankers are...
As busy as we've seen them, they have, as Ken mentioned, just lots of transactions, RMD, everyone's working on.
And you know what we we we see as you know coming into the year It's just one of the strongest we've ever seen ourselves coming into a new year So a little bit of it's probably just more us than it is the market itself I don't think it was a comment on the market more comment on how we're performing and what we're seeing in the out sort of the
And what we see as coming into the year. It's just one of the strongest we've ever seen ourselves coming into a new year. So a little bit of it's probably just more us than it is the market itself I don't think it was a comment on the market the more comment on how we're performing and what we're seeing in the out.
the output from our bankers around the globe. And this is more of a global situation than it is just a specific market or a specific region. It's really broad base, we're just seeing activity levels continue to grind higher as we got through 2021 and into the end of the year. And I think that sets us up nice.
The output from our bankers around the globe and this is more of a global situation than it is just a specific market or specific.
Region, It's really broad based we're just seeing activity levels continue to grind higher as we got through 2021 and into the end of the year and I think that sets us up nicely for 2022.
No, sure. Maybe I've been just a follow up on non-coms and how you're thinking about that in 22. Obviously saw a pretty nice step up in T&A and marketing. How do we think about some of those puts and takes in 22?
Sure maybe even just a follow up on non comps and how youre thinking about that in.
In 'twenty two we obviously saw a pretty nice step up in <unk>.
DNA in marketing how do we think about some of those puts and takes in 'twenty two.
Yeah, so look, I think you have to, when you think about non-comp, you got to break it down into three buckets, right? Which essentially is three buckets these days. There's the six component of our non-compensation. I think that is like leases and other things, which are standard from year to year. Let's call that about maybe half of our non-compensation expense is sort of fixed. That will naturally grow with inflation. Maybe it's inflation plus a point or two. That's naturally how it's grown over the past few years.
Yes, So look I think when you think about non comp you got to break it down into three buckets right.
Essentially has three buckets these days.
Fixed component of our non compensation I think of that as like leases and other things, which are just standard from year to year, let's call that about maybe half of our non compensation expenses sort of fix that will naturally grow with inflation, maybe its inflation plus a point or two that's naturally how it's grown over the past few years and you've got about 30 or so percent of our existing non.
Then you get about 30 or so percent of our existing non-compensation expense is really driven by activity levels. So higher levels of AUM.
Compensation expense is really driven by activity levels, so higher levels of more business activity just more circulation of people more client entertainment and other events that we've got going on and just other forms of activity level type non compensation expenses that we generate through the year and the third bucket, which has been important.
For us, it's really what I call the strategic bucket, it's areas, where we're investing in non compensation for something thats, not particularly to a specific quarter, but really I was thinking out over the coming year or to think about that as sort of technology investments that we're making that really arent tied to the business activity level, but it's really things that we are strategically thinking.
but it's really things that we're strategically thinking about how to position or firm not only for this year but for the coming years ahead. In addition, you saw this year recruiting expenses were higher, not surprisingly given the amount of discussion we've had here about some of the senior level recruiting we've taken on. That recruiting expense flows through non-cop. Again, that's not a current year type variable type expense. It's a long-term strategic expense that runs through the non-cop line. Those are the three components. I expect that we'll see the same sort of structure as we get into next year. With regard to one variable, as you mentioned, which is travel and entertainment, which we continued to see through 2021, we saw it continue to grow into the end of the year. So Q4 for us was our highest certainly of the last two years, the highest quarter of travel and entertainment. It probably reached for us approximately 50% of where we were on pre-COVID-19. We had a lot of travel and entertainment going on outside the US during that period of time. Certainly there was a lot of teeny expense that came through in Q4.
About how to position our firm not only for this year, but for the coming years ahead. In addition, you saw this year recruiting expenses were higher not surprisingly given the amount of discussion we've had here about some of the senior level recruiting we've taken on that recruiting expense flows through non comp again thats not a current year type of variable type expense. It's a.
Long term strategic expense that runs through the non comp line. So those are the three components I expect that we will see the same sort of structure as we get into next year with regard to the one variable as you mentioned, which is travel and entertainment, which we continue to see through 2021, we saw it continue to grow into the end of the year.
continued to see uh... through 2021 we saw it continue to grow into the end of the year so q for for us was one of our was our highest certainly of the last two years the highest quarter of travel and entertainment it probably reached for us approximately fifty percent where we were pre-COVID levels which may be a surprise to some folks
So Q4 for US was one of them was our highest certainly over the last two years, the highest quarter of travel and entertainment. It probably reached for US approximately 50% of where we were on pre COVID-19 levels, which may be a surprise to some folks.
uh... but we had a lot of a lot of travel entertainment going on uh... outside the u.s. during that period of time certainly a lot of uh... latini expense that came through in q4 so we started to see a little bit of that uh... return to normal i don't expect that uh... you know to to grow back to the free COVID-19 levels on a per person basis we still believe that
But we had a lot of a lot of travel and entertainment going on outside the U S. During that period of time, certainly with a lot of lot of TNT expense that came through in Q4. So we started to see a little bit of that a return to normal I don't expect that.
To grow back to the pre COVID-19 levels on a per person basis, we still believe that.
The efficiencies that we learned and we earned frankly through the pandemic are going to stay with us and both sides of our business. After we come out into more normalized environment, just because the bar is now higher the bar is higher for travel and the bar is higher for the time and the efficiency that all of our professionals have learned so I still think we're going to Max out I think our current view.
The efficiencies that we learned and we earned, frankly, through the pandemic are going to stay with us in both sides of our business.
uh... after we we come out into more normalize environment just because the bar is now higher the bars higher for travel the bars higher for the time in the efficiency that all of our professionals have learned so i still think we're gonna max out i think our current view is still in the of seventy seventy five percent of pre-COVID
Still 70% to 75% of pre COVID-19 levels on a per person basis for <unk>, but we're starting to see a little bit of ramp I mean, it's not anywhere near it was pre COVID-19 , yet, but its still starting to go up so that's probably the wildcard for 2022, hopefully with continued level of business activity and as we get more into a normalized environment.
on a per person basis for T&E. But we're starting to see a little bit of ramp. I mean, it's not anywhere near it was pre-COVID yet, but it's still starting to go up. So that's probably the wildcard for 2022, hopefully with...
continue level of business activity and as we get more to a normalized environment and hopefully everybody feels that for important events we're still getting out there on the road seeing clients and getting that client demand where we'll continue to see that grow probably a faster rate than we saw last year.
And hopefully everybody feels that for important events, we're still getting out there on the road seeing clients and getting that client demand will continue to see that grow probably at a faster rate than we saw last year.
Okay. Thanks, Kevin.
Well now take our next question from Jeff Harte with Piper Sandler. Please go ahead.
Hey, Jeff.
Hey, you all right, guys. Nice quarter. A couple for me, when we're looking at asset management, and center fees have been really strong over the last couple of years. Should we think of that as being driven by a mixed shift towards more incentive fee-friendly strategies? Or is there maybe something else going on, like a shift from kind of standard fee agreements toward incentive fee, more heavy agreements, kind of an existing strategy?
Hey, good morning, guys nice quarter.
Couple for me when we're looking at asset management incentive fees have been really strong over the last couple of years should.
Should we think of that is being driven by a mix shift towards more incentive.
Fee friendly strategies or is there maybe something else going on like a shift from kind of standard fee agreements toward incentive fee more heavy agreements kind of an existing strategies.
Yeah.
I would say mostly has to do with performance in strategies where in phanopheasic list mostly. And I'd say a little bit of shift in fee agreements, but I think the predominant part of this is just really strong performance in the strategies where we have some really nice and phanopheas available.
I would say mostly has to do with.
Performance in strategies, where incentive fees exist, mostly and I would say a little bit of shifting.
Our fee agreements, but I think the predominant part of this is just a really strong performance in the strategies, where we have some really nice incentive fees available.
Okay, and when we think about Europe , the momentum continues which is good.
And when we think about Europe , the momentum continues, which is good. How are you thinking about Europe from a long term to kind of medium term potentialized? I guess I'm ultimately asking, do you think Europe can regain its pre-global financial crisis, share of global M&A activity levels?
How are you thinking about Europe from a long term to kind of medium term potential lies here I guess I'm ultimately asking do you think Europe can regain its pre global financial crisis.
Share of global M&A activity levels.
I'm not sure it goes back to where it was in 2006-2007, that is pretty close to the US levels, but we're above now our best years pre-crisis, which is great.
I'm not sure it goes back to where it was in 262 O seven that is pretty close towards the U S levels, but we're above now our best years pre crisis, which is great. It's taken a while but we got there well above it now.
taken a while, but we got there. Well above it now. And I think there's still a lot of room for growth in Europe , both in terms of recovery of market and also for us. I think the two things that stand out in Europe are number one. The level of financial sponsor activity is high, but there's still room for even more. And I think we're very well positioned to capitalize on that. We had a great year in the Spanish sponsored universe across Europe last year.
And I think there's still a lot of room for growth in Europe . Both in terms of recovery of market and also for US I think the two things that stand out in Europe are number one the level of financial sponsor activity is high but theres still room for even more.
And I think we're very well positioned to capitalize on that we had a great year in <unk>.
The substantial sponsor universe across Europe last year.
And then second is I think that the investments around energy transition are probably more advanced in Europe than they are in the U.S. and I think we're very well positioned around that as well. If you look at the kind of the field sheet that we have, you can see
And then second is I think that the investments around energy transition.
Are probably even more advanced or more advanced in Europe than they are in the U S and I think we're very well positioned around that as well. If you look at the kind of deal sheet that we have.
Can see see that in the renewable space and the energy and then many of the energy technologies.
see that in the renewable space and the energy trends and then in some of many of the energy technology.
We have a really great position. And in the other area where we've done very well in Europe is in infrastructure, particularly in the telecom space.
We have a really great position and then the other area, where we've done very well in Europe as in infra.
Infrastructure, particularly in the telecom space.
Building out fiber and that's another strong place for us in the U S right now.
Okay give me given a record a record quarter I've got to ask were there any meaningful revenues pulled forward into <unk> from closings in first Q.
Okay, give it a record quarter. I've got to ask, where are any media flow revenues pulled forward into 4Q from closings and first Q?
No nothing material at this stage I mean, Jeff as you know in every every quarter now you probably have a couple of transactions that closed right. After the quarter end that you pulled into the previous quarter, but you have a couple of the approval to the previous quarter and some of the pull into this quarter. So it's sort of regular way at this point there is nothing nothing significant to call out.
now that nothing material to stage i mean japan as you know in every every quarter now you probably have a couple of transactions that close right after quarter and that you pull into the previous quarter but you know you have couple that for the previous quarter and from the point of the court or so it's sort of regular way at this point there's nothing uh... nothing significant call out okay thank you
Okay. Thank you.
Great.
This now concludes Lazard earnings conference call.
Thank you.
Yes.
Uh huh.
Yeah.
[music].
Yeah.
[music].
Yeah.
...
Okay.
Okay.
Okay.
Yeah.
I.
Yeah.
Yes.
Hum.
[music].