Q1 2022 Lazard Ltd Earnings Call

Thank you for standing by for the Lazard earnings call.

At this time, we're shutting today's audience and plan to be underway shortly.

Thank you for your patience from please continue to hold.

[music].

Good morning, and welcome to <unk> first quarter 2022 earnings Conference calls. This call is being recorded currently all participants are in a listen only mode.

The remarks, we will conduct a question answer session and instructions will be provided at that time, if anyone should require assistance during the call. Please press the starkey followed by the zero on your Touchtone phone at this time I would like to turn the call over to Alexandra Deignan Lazard.

Massage head of Investor Relations and corporate sustainability. Please go ahead.

Good morning, and welcome to Lazard earnings call for the first quarter of 2022, I'm Alexandra Deignan, the company's head of Investor Relations and corporate sustainability.

In addition to today's audio comments, we've posted our earnings release and Investor presentation, which you can access.

Website, a replay of this call will also be available on our website later.

Let me remind you that we may make forward looking statements about our business and performance. There are important factors that could cause our actual results level of activity performance or achievements to differ.

From those expressed or implied by the forward looking statements, including but not limited to those back.

As discussed in the company's SEC filings.

Access on our website start assumes no responsibility for the accuracy.

These forward looking statements and assumes no.

Yeah.

Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and Investor presentation.

Hosting our call today are Kenneth Jacobs, <unk>, Chairman and Chief Executive Officer.

Chief Financial Officer, and we will start the discussion with an overview of our financial results then Ken will provide his perspective on the outlook for our business. After that we will open the call for questions I'll now turn the call over it.

Good morning today, we reported an 8% increase in operating revenue for the first quarter and strong performance by both our businesses and financial Advisory first quarter revenue of $388 million increased 22% from last year's period, reflecting continued momentum, particularly across Europe .

And North America.

Despite heightened geopolitical risks and concerns about inflation and supply chain challenges our engagement with clients has remained robust and activity remains at historically high levels.

Regarding restructuring we are seeing a continuation of lower levels of deal activity.

We are experiencing an increased level of dialogue with clients.

In asset management operating revenue of $312 million decreased 5% from last year's period, reflecting lower average AUM for the quarter.

As of March 31, we reported AUM at $253 billion, 5% lower than last year's period, and 8% lower on a sequential basis from December 31st.

The decrease was primarily driven by market depreciation of $12 4 billion.

Outflows for the quarter of $6 $5 billion and foreign currency depreciation of $2 1 billion.

Average AUM for the first quarter was $256 billion, 2% lower than a year ago, and 6% lower on a sequential basis.

Since the start of the year, a number of drivers have been impacting market valuations of several asset classes with a consequent impact on our a O N E.

These drivers have included Russia's invasion of Ukraine, surging inflation globally and rising interest rates.

Incentive fees were $25 million, representing the second highest incentive revenue we have reported in a first quarter driven by the strong performance of our funds, including European equities and fixed income as well as Japanese equities.

Gross flows showed strong demand, including in global and multi regional equities we.

We had net inflows in a number of strategies led by emerging markets debt.

And alternatives. Additionally.

Additionally, we continue to see strong demand from our increased focus on distribution in Europe .

As of April 22nd our AUM was $243 billion driven by market depreciation of $5 4 billion foreign.

Range depreciation of $3 $6 billion.

Outflows of approximately $240 million.

We continue to invest for growth across the firm in financial Advisory we are continuing to increase our team of senior talent through internal promotes as well as strategic recruiting.

In asset management, we're growing the business through our investment in people technology and distribution.

This includes focus on strategic investments in recruiting and building out new teams and strategies, such as sustainable private infrastructure and climate action.

Now turning to expenses in the first quarter, we accrued compensation expense at a 58, 5% adjusted compensation ratio consistent with our full year of 2021 ratio.

And compared to 59, 5% in the first quarter of last year.

Okay.

Our adjusted non compensation ratio for the first quarter was 16, 8% compared to 15, 8% in the first quarter of last year, primarily reflecting higher travel and business development expenses as COVID-19 related restrictions began to relax in many parts of the world.

As well as the continued investments in technology.

Regarding taxes, our effective tax rate for the first quarter as adjusted was 25, 4%, which compares to 28, 6% effective tax rate in last year's first quarter.

We currently expect this year's annual effective tax rate to be in the mid 20% range.

We continue to generate strong cash flow, which supports return of capital to shareholders.

In the first quarter, we returned $281 million, including $47 million in dividends and $176 million in share repurchases.

During the first quarter, we bought back $4 7 million shares of our common stock at an average price of $37.26.

These repurchases more than offset potential dilution from our 2020 , one yearend equity compensation.

Our weighted average share count at quarter end was 109 billion shares reflecting a decrease of 6%.

Prior year quarter.

Going forward, we expect to continue to use excess cash flow towards share repurchases.

In addition, yesterday, we declared a quarterly dividend on our common stock of <unk> 47 per share.

Despite the significant market volatility and uncertainty, which impacted global markets in the first quarter. The resiliency of our quarterly results underscores the strength and stability of our model and the continued high performance of our businesses.

Ken will now share his perspective on our performance and outlook.

Thank you Evan the global macroeconomic environment remains unsettled due to a number of factors, including Russia's invasion of Ukraine heightened inflation COVID-19 related lockdowns in China, a rising interest rate environment and supply chain challenges. Despite the volatility markets have experienced since the start of the year, we remain cautious.

<unk> optimistic the oven at the M&A environment continues to be robust and we see sustained activity across the financial advisory business buoyed by three factors while interest rates are clearly rising rates are still historically low which continues to sustain a favorable financing environment in spite of shifts in value.

Patients, we are still seeing healthy deal activity and CEO and board confidence while challenge remains constructive.

There continues to be a number of catalysts for M&A activity globally technology is driving strategic activity across every sector and market cap.

We are observing significant flows into alternatives with investors focused on private equity driving activity for both M&A and capital raising.

The energy transition is an increasingly important factor influencing strategic decisions and one that we believe it's going to increase significantly in the future and lastly, we believe infrastructure is a sector that will be transformative and will emerge as central to M&A and strategic advice, both in the immediate and longer term.

In asset management investors generally derisked during the first quarter of the year looking ahead, we expect to see a greater emphasis on fundamental active investing as a result of rising interest rates as well as volatile and challenging market conditions, our asset management business is well positioned in this environment with a diverse array of innovative strategies solutia.

And as for sophisticated client base as institutional investors continue to seek sources, the differentiated alpha, including ESG and alternative strategies, we expect our active management approach to benefit as.

As announced earlier this month Ashish Brittani it Alex there Alex Stern are retiring at the end of this year after almost 20 and 30 years at the firm respectively. I would like to thank you Ashish and Alex with the enormous contributions he has made to lazard over their careers at the firm.

I'd also like to congratulate Evan on his appointment as CEO of asset management effective June one.

I look forward to working closely with had been in his new role alongside Peter <unk> CEO of <unk> Financial Advisory business, who also joins us on the call today now, let's open 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 that your mute function on your telephone is switched off to allow your seeking to reach our equipment again. Please press star one to ask a question.

We can now take our first question from Devin Ryan of JMP Securities. Please go ahead.

Hey, good morning, everyone. How are you.

Hi, Kevin.

I guess the first question.

Question, Ken Great to hear I think some of the commentary on the on the M&A backdrop and kind of the construct in this year that remains in the market I'm curious we've heard from some of your peers just around the macro pushing out kind of the timing of deals and just maybe slowing the process is kind of both parties want.

More clarity on the macro backdrop I guess, one are you seeing that and then can you differentiate between what you're seeing in Europe , given the strong position you have there versus in the U S as well.

Okay, let's break it into a couple of pieces I mean first is <unk>.

Regulatory versus the M&A environment.

And then the second let's just talk geography U S versus Europe . So on the regulatory front I think generally speaking we're seeing we saw in the first quarter and candidly the second half of last year.

Deals being extended because of regulatory concerns.

We haven't seen interruption in the deals that as things failing that we didn't expect would be challenged but we are seeing timelines extended so that's probably 0.1 and that that has some impact on us I think in the first quarter.

Second is the.

The environment I think there is certainly in the beginning of February and when you have big events in the market. There is a tendency to kind of push things out a little bit to the sell side may not begin, but the day that it was planned.

Someone may take a little longer to finish their due diligence and arrive at a conclusion on the deal I think those are the things you tend to see happen.

In periods of intense volatility, we certainly I think everybody probably got some some inclination or some indication that was happening in the beginning of February I think things come down, but you know big market movements big events tend to have an impact like that.

I would say pleasantly surprised by the both level of completions and announcements in Europe in the first quarter, especially given the volatility.

In terms of activity levels right now still still good in Europe .

And the key thing for us across our pipeline or across our business I should say is to see how it continues to accelerate or continues to build over the course of the next couple of months or so.

All right as I think Kevin said activity levels right now are historically very high and we had quite an acceleration in our business as the year progressed last year and I think that's something we're keeping a careful eye on as the year progresses. This year.

Okay terrific. Thanks, Ken and then just a follow up on that.

The non M&A businesses the areas that are maybe a little bit harder for us to track from the outside.

It feels like or at least it seems like from what we're seeing in the market. You know activism defense has been very active in and Theres, probably a lot to do there. This year in this type of market.

Restructuring, we're hearing some better commentary and particularly on the liability management side, just into a rising rate environment and some of the stress in certain pockets can you maybe talk about just the expectations for some of these areas are the year, maybe that are going to be harder for us to keep track of in the public data.

Okay, So probably touch on three or four of those areas restructuring.

Activity levels haven't appreciably picked up yet, but dialogues have and that's not a surprise as you see interest rates rising credit markets more challenge at least parts of the credit markets more challenged and I think an increasing focus on what's going to happen with earnings in the economy over the course of the next year.

I think youre going to start to see you buy by almost definition, you're going to see dialogues pick up in restructuring and that usually.

It's followed by activity levels picking up but we haven't seen the activity yet, but we have seen the dialogues. So that's part one part two is on shareholder advisory advisory broadly, which really encompasses activism.

Intense level of activity in Europe , right now are probably more campaigns. There then I think we can remember at any other point in time U S continues to be very active in that sector as well.

Third is the our private capital advisory business, which is fundraising for a.

Private capital there I think on the primary side, probably a little more challenging given the number of firms going to market right now and just a little bit of a pause on the part of institutional investors and committing money.

That said on the secondary side, particularly in the area of continuation funds as active as we've ever seen it and I think that probably continues for the foreseeable future, especially in these kind of markets I think that's going to be something that remains quite active.

And then the last piece, which is the smaller piece for us, but growing pretty rapidly is the venture growth banking business. There we're off to a great start in Europe .

And our intention is to expand that globally.

Great.

Great color. Thanks, so much I'll leave it there.

Sure. Thank you.

And we can now take our next question from Brennan Hawken with UBS. Please go ahead.

Good morning, Thank you for taking my questions Kevin Congrats on the the promotion our new gig.

I'm curious to hear what your plans are for the asset management business.

How well you've just been awarded the new role certainly not a stranger to as hard and to the business as our CFO for the past many years and so you know understand it may be early days, but how are you intending.

To keep things similar and in what ways might things be a little bit different under your leadership.

So brennan I'm going to take a little bit of pressure off of Irvine and just.

Have him qualifies answer a bit here because he doesn't officially started the job until June one.

And it's a little unfair to ask his impressions. This early in the job that said Evan why don't you give a couple of moments to.

Brendan and then I promise that at some point when <unk> got his feet on the.

Brown in the job will be back with a much more fulsome presentation to everyone.

Hey, Brendan Thank you.

As Ken mentioned look it's early transition are really not at the beginning of June but I can say you know early impressions, obviously under Ashish leadership, we built a truly tremendous business for providing a truly great foundation for opportunities for growth going forward I'd say over the last couple of months, just spending time more closely with them.

Many of the team members globally, which I've had.

The opportunity to interact with.

Truly stands out the quality of our people the talent, we have within that organization within our asset management business globally and for sure. The intellectual capital that we have across that business interests Super impressive I mean, it's really wonderful business a great Foundation to work for as you say no stranger to the business I've worked closely with Ashish and the leadership team.

And the management team within asset management.

For the past five years in my role as CFO and I'm, certainly looking forward to joining them in and sort of helping to drive the continuation of the success in that business over the over the coming years ahead and I just think it's a great opportunity great platform as you know to continue to build off of especially in this environment with all the changes going on in the industry.

Sure.

10, a unfair questions are kind of my calling card if you haven't done that.

Yeah.

Brendan.

[laughter] sticking with asset management.

So the month to date for a picture certainly seems to be better.

Then the recent quarters is that do you think that's sustainable or is it a bit too early to say that to call. It one way or another and then the core fee rate you know ex performance fees. This quarter showed some improvement after having some pressure in the back.

To finish off last year, what drove that fee rate dynamic and how should we be thinking about it going forward.

Okay, and then you want to take that go ahead.

Yeah sure. So let's start with two parts there start with the flow picture. So as you said look the gross flows as we talked about in February during our call. There you know gross flows have always remained steady for the last.

Several months, what really happened in terms of a net basis was a sort of an expected sort of growth that we saw in the outflow picture around the year end, where we saw larger outflows after asset prices sort of had gone straight out for the past couple of years, and we were expecting to see and as we saw some you know more significant reallocate.

<unk> from certain of our clients and certain clients around the world just rethinking their portfolios rethinking their asset allocation picture, so not surprisingly and we've kind of talked about that in the past two quarters as we sort of expect that to see that at year end and on the monthly picture you can see that in sort of November December January and February and as you saw in March sort of that became a little bit.

More balanced we returned to a sort of a more muted picture and a little bit more balanced between between the gross inflows and gross outflows and as you mentioned the numbers. We just quoted to you today. So far in April looking like a continuation of that trend. So look I would expect it to remain choppy month to month for sure.

We do definitely see significant flows in both directions as you know on the institutional basis that just what happened, but we are seeing.

Difficult interest and a lot of our value and quality strategies as we mentioned in this environment, where there's been more of a tilt more towards fundamental active investing sort of gears more towards our qualities, where our value type investments and certainly the thematic strategies that we've been building out over the last number of years are continuing to see very very significant interest.

So I think that's sort of a picture I'd say on the flows and on the fee rate question in terms of basis points, we ticked higher from Q4, a fee rate average fee rate in the business was up a bit from Q4 that has to do mostly with the business mix of assets that we had this quarter, there's more alternatives are little bit more.

<unk> in the mix of our asset base and that actually takes up the average fee rate and of course, a little bit of the significant portion I'd say of the <unk>.

The larger outflows, we had seen around that year and allocation.

From some lower fee mandates Brennan, and so that sort of offsets and sort of brings up the average fee rate over time on an average basis and so I wouldn't say anything specific in the change is more just a continuation of the business mix evolution of the business at this time and this quarter sort of moving more in our favor and towards their strategies in areas that we've been focusing on a little bit more on the.

A higher fee rate side.

Okay, and certainly based upon the interests that you flagged in the flow commentary around thematic and active and whatnot.

Assuming that that translates into a gross sales for you guys said that also would be supportive of a better fee rate generally I would think is that fair yeah that would be more positive into the mix. Obviously a lot of other things go into that sure accuracy sure, but yes, but yes, if everything moves in that trend yet the business things are obviously tilts towards higher fee strategies.

That's going to lead us to either more stable or increasing fee rate again, we look at the rate as sort of an output not as the right target is an input right. We try to drive the assets and the flows are in all the product lines. We're in it ultimately.

The fee rate will just be an outflow and output of whatever the mix of assets, we have at the time or two.

Totally fair thanks for all the color.

Thank you Brandon.

And we can now take our next question from Stephen <unk> of Wolfe Research. Please go ahead.

Hey, Stephen Hagan.

Hey, Good morning, this is actually Brendan O'brien filling in for Steven.

So.

Let me Oh, the flow outlook I know you said that is coming from where.

Yes.

Outside of the equity platform. This quarter. However that has typically been the driver of your outflows of late with a portion of <unk> associated with that business now hovering at near 10%, we should be getting close to the point, where outflows from that business will become less impactful than maybe we've already gotten there I was wondering if.

Theres a level as a percentage of your AUR in that you'd expect the better for us elsewhere to start overwhelming.

Those outflows there you actually start seeing things.

<unk>.

Yeah.

Sure, let me take that it's Evan.

Look I think this quarter, we continued to see a net outflow situation still related some more to that E. M. Overall yum equity type strategies.

Across the a M platform. So I don't think it's all done just yet.

As we said still chopping, we're starting to see some newer interest in coming back into some of the markets given valuations given sort of the movement that we've seen across the asset allocators. So I think it's early stage when we might start to see that move over time as well and obviously our strategies continue to the performance we talked about in previous quarter.

Our <unk> strategies continue to perform really really well in this environment.

We had expected as well as many of our global and other quant strategies as well, but yeah. It's actually had a great performance Ron over the last year year, and a half and so I think ultimately that that could be a positive driver again in the coming years ahead right now we're still in that sort of a net outflow position, but as you point out.

As a percentage on the equity side as a percentage of total U N certainly a lot smaller today than it was.

Four five years ago or at least hold from 2018, it's probably about half the size in terms of percentage of total AUM, we have and so yeah, a smaller piece.

The business overall, but we're look we're seeing a lot of a lot of great opportunities and a lot of great flows coming in in the areas that I mentioned, you know sort of things focused on value focused on quality focused on informatics and I think that's going to be the areas. We'll see these sort of near term early term areas, we will see positive opportunities.

That's a great color. Thank you and then on.

On the buyback this quarter is obviously quite a bit of capital, which was great to see them and with the strong pipeline that you've discussed tier relatively constructive outlook I was hoping to get some kind of like.

Some color around how we should be thinking about the cadence of buybacks from here just given you still have a substantial amount of cash on the balance sheet.

Where does the valuation is today.

Yeah sure look we bought back as he mentioned a significant number of shares in the first quarter of this year of $4 7 million shares and I would say no that is after the $2 7 million shares we bought back in Q4. So obviously, taking advantage trying to take advantage of the lower share price weakness in the share prices that we've seen over the last four years.

Five months for us, but we're taking advantage of that to more aggressively utilize the cash we had on our balance sheet. You can see the cash came down pretty dramatically from year end part of that is just due to the natural course, we're usually at the lower end of our cash position in Q1. After we pay out year end compensation and some other things, but also because of the excess baidu.

Backs that we've been doing over the last five or six months and we're starting to see that impact here in the weighted average share count.

Below 110 for the first time in over a decade and now sitting around one O nine at the end of the quarter. So you're starting to see that kind of come through in the weighted average share count I think we expect that we're going to continue buying shares with excess free cash flow continuing to policy, we've had and as we generate cash through the year and again as the business strengthens that we get some revenue growth.

<unk>.

And buying back shares and that's been a focus of ours, we certainly tilted our capital management policy towards returning capital through share repurchases and as I said, you can see that in the weighted average share count declined in the first quarter of this year.

Great. Thanks for taking my questions.

And we can now take our next question from James <unk> of Goldman Sachs. Please go ahead.

Hey, good morning, and thanks for taking my questions. Maybe you could just start on the asset management business. You. Obviously saw very strong incentive income this quarter, maybe you could just contextualize for us how you would expect that incentive income to perform given them more turbulent macro backdrop, and just remind us you know around the seasonality around that.

Part of the business as well.

Sure Hey, James I'll take that one as well so look incentive fees in the quarter $25 million certainly a strong quarter for us our first quarter stretch strength. There we had amidst a really turbulent and volatile market environment I think it really points to the performance of a lot of our funds as we mentioned some of that this quarter was driven by Europe .

In equities multi asset fixed income that we had across Europe Japanese equities Quant, just a whole host of our strategies and participating in driving that incentive fees in the quarter and I really do think that reflects you know some really strong performance, we had and he's a turbulent market from you know from a cadence perspective look it's hard to predict especially in these.

Types of volatile markets. It really does depend on the performance of markets as well as the performance of our funds and we have a lots of different various shapes and sizes of the types of things that have incentive fees and so it does move around from quarter to quarter generally what we have seen as you know first quarter there is opportunities for incentive fees Q4.

Is really where we have the largest opportunities for incentive fees you can see that in the incentive fees. We've captured in our fourth quarter for the last several years and then sometimes a little bit in Q2, although I would say given the performance.

Given the market volatility that we've seen in sort of the turn down in so many asset classes in different markets just over the last several weeks I think you'd expect it to be more muted towards the middle of this year.

Over time as you've seen just in the last two or three years incentive fees are becoming a bigger portion of of the sort of the fee structure that we had and a little bit more in terms of the total revenue Ross the asset management business. So it's hard to predict quarter to quarter, but I think if you look at it over a reasonably a reasonable period over you know a four.

Our eight quarter period, you'll just start to see that continue to be a part of the revenue picture in asset management.

Okay. That's really helpful. And then as you think about restructuring, we obviously have the data for that business performed during the 2008 recession and it obviously performed extraordinarily well back then but obviously it's evolved since since you know 15 years ago. So if we did enter a deep recession. This time around to what extent do you.

Thank you your restructuring business could perhaps offset a decline in M&A and are there other more counter cyclical revenues. We should also be thinking about the could offset that decline.

Yeah, Great question so.

I don't think there's any reason to believe that in a cycle like we had in Oviedo in diet and I'm not predicting that by.

By any stretch.

That we wouldn't see the same kind of buffeting.

Our revenues are supported the revenues in the advisory business by the by the restructuring business. So I think that that's intact one of the unique aspects of our restructuring business at Lazard is that we have a lot of flexibility in moving people from one part of the business to the other it's not dependent entirely upon just the.

Shrink team, it's really very much integrated with the industry groups and the geographies to ensure that when we need to flex to accommodate a change in cycle. We can do that and that's something that we've done over numerous cycles and it's sort of built into the DNA of the place. So that's kind of 0.1 0.2 is we've got obviously other revenue streams.

Around fund raising a shareholder advisory and capital markets Advisory, which all I think in some ways are not truly counter cyclical in the same way that restructuring is but do have some countercyclical aspects to them, which I think would help.

In a.

In an environment, where you saw a sudden decline in M&A activity.

Okay. Thanks for taking my questions.

Sure.

And we can now take our next question from Michael Brown of K BW Pease go ahead.

Great Good morning, everyone.

Good morning, Mike.

So I guess I just wanted to start with the announced management changes and I guess the other element. There that you guys are looking externally for a CFO . So.

Ken just given the strong internal talent at Lazard can you speak to why you guys are committed to.

Looking externally and then can you just give us a view into what the key strengths are that you are looking for in your next CFO .

Well look I mean, it's not necessarily going to be outcome that its external but we're including in our.

Our search and external element to it so that that's the part I'd like to correct first.

Second is.

Look we have a over the course of the last decade the systems the.

The capabilities of the finance group at Lazard through the efforts of our first method Mackay and obviously over the last five years really of Evan have really improved dramatically.

And with that I think that the type of leadership, we need probably has evolved a little bit with it as well. So I think that's you know as always the mix is going to be obviously someone that's got.

The core qualifications to be CFO .

And and then at the same time someone that can operate within the the atmosphere of Lazard, which is a challenging highly intellectual highly demanding place. So you know we find the right person on the outside great. We've also got some internal candidates as well.

Okay I apologize for the for.

No it's okay correcting that.

And I just wanted to dig in a little bit on the.

Advisory activity in Europe , It certainly a real positive to hear that you guys are seeing really strong.

D V. There are certainly impressive given given.

The turmoil.

Occurring over in Europe could.

Could you just dive into that a little bit deeper, though where are the key strengths in terms of sectors are countries and which elements as you look at the market and the challenges facing the content out there, which element of the of the market could really come under pressure.

Sure as you think about the balance of 2022 here.

Peter you want to take that one.

Sure. Thanks, Ken so.

First just in terms of what we're seeing what I would highlight is how distributed is so it's not just our historical strength our points of strength in London, and Paris, but in countries like Italy, and Spain, we're seeing a lot of activity so pretty much across the board on the continent.

With regard to sectors I would say the same thing.

And this is actually true globally at this point, it's fairly well distributed.

Distribution across Fig Industrials health care Tech.

Power and energy.

At CME so it.

It is not one place that is generating activity, it's fairly widely distributed.

Set of activities instead.

And then with regard to the outlook I guess I'd go back to some comments that were made earlier, which is our activity levels, including in Europe remain.

But higher than last year.

But as you go out a little bit over time, there's a next theres next stages, perhaps some uncertainties surrounding our not only the Russian invasion of Ukraine, but also its after effects and.

Situation in China with regard to a zero COVID-19 policy and supply chain.

But if you go out one layer beyond that you're back to the underlying drivers that can spoke about earlier involving technology energy transfer transition and infrastructure. So all in all and at least so far we see cautious optimism is warranted, including specifically with regard to our.

Our European business.

Okay. Thank you for all that Peter.

Thanks, Ken and congrats I've been looking forward to hearing more about the plans for asset management.

Thanks, Mike Thank you.

We can now take our final question from Jeff Harte with Piper Sandler. Please go ahead.

Good morning, guys nice quarter.

Thank you for questions left for me most of the kind of been hit but one going back to the incentive fee strength can you give us any more color about the sources of that I'm kind of specifically thinking one in the first quarter.

Given the price the risk off price declines late in the quarter and what appears where I'm guessing our seed capital losses from the corporate line, but then also in general kind of since we saw incentive fees really kind of spike up in <unk> 'twenty.

Yeah, So Jeff I mean, a seed capital it doesn't flow through the incentive line, that's going to go through the corporate line item, which you saw this quarter. So that that that's what you will see the impact of the seed capital portfolio I'd say in general it's really what we said look there's a handful of strategies a lot of them related to our European.

Equities multi asset fixed income businesses that was the biggest driver, but really a host of smaller part smaller components of that that contributed to the incentive fees. This quarter. So I mean, if you go back we had a pretty strong incentive fees in Q1 of last year as well and so a lot of that has to do they're all different shapes sizes and forms so it.

Hard for me to give you really the actual color as to what drives in any specific corner, but it has to do some combination of either our market success, which which you'll see where performance you know significant outperformance in certain bonds can drive pretty substantial incentive fees in those structures that we have incentive fee opportunities.

So theres not necessarily you know.

A couple of specific strategies or regions kind of responsible for most of it.

Yeah, I would say that the biggest component of it was the European equities fixed income and multi asset so really more focused on our European strategy.

As I said, a host of other strategies participated as well. So I don't want to say is all of that it really is not the largest component of what was probably 15 or so different strategies that participated in some level of incentive fees this quarter.

Okay and just.

The backdrop commentary I mean for M&A still still fairly constructive it is good to hear I.

I may have missed it but if I didnt can you describe kind of where your pipeline slash backlog is sitting today, maybe relative to where it was at the beginning of the year, even though the program a year back.

We don't usually discuss pipeline and backlog, specifically, we usually refer to sort of activity levels I'd kind of characterize it in the following way.

Last year, we sort of accelerated level of announcements over the course of the year that obviously resulted in a higher level of completions in the fourth quarter into the first quarter of this year. We continue to have a pretty substantial number of announced deals outstanding.

As you can probably see in the public data, we had a strong quarter in the first quarter relative to the market for announcements everywhere again, you can see that in the public data.

And I think as Peter and I have been referred to it in the comments activity levels. So that is what we're seeing in the business watching looking at what people are doing how busy they are kind of metrics that we look at to measure activity is at historic levels right now.

I qualify that by saying that you know, we're very sensitive to the environment are the three factors you'd M&A that we tend to focus on.

Financing valuation and continents.

All are probably more fragile than they were last year at this time, but that said when you look at the financing markets. The high yield markets are challenged.

Clearly, but a lot of the of vacuum there has been filled by the private credit markets. So far both in the U S to not the same extent, but to a similar extent in Europe .

Interest rates are still well higher at historic still near historic lows.

And and such in terms of valuation you've seen the frothy or part of the market that is places where valuations were excessive relative to earnings.

Oh really contract that has tended to be in the tech and the biopharma sectors I think that no sector. So it'll probably be more difficult at least in the near term to arrive at a.

Appoint a consensus between buyers and sellers, but for the rest of the market at least so far we haven't seen the kind of valuation movements.

Movement that lead to that inability to arrive at a consensus to buy between buyers and sellers. So for the moment at least with it for now it appears like its still constructive on confidence levels or animal spirits, or however, you want to describe it.

Clearly there was some pull back in the earlier part of February it's better now clearly there's a lot of dry powder in private equity that is still being put to work and as long as the financing market constructive that probably remains the case, but again if earnings start to decelerate broadly across the economy, we saw.

Start to see real concerns around resection, and such that's gonna I think at some level.

Have.

They have some impact on on confidence levels and very importantly, when you think out longer term here. There are some really strong catalysts that are driving M&A activity that we've referred to it's technology. It's the energy transition. It's the amount of capital that's been dedicated to private equity.

And and also I think the impact of infrastructure funds generally speaking across a range of sectors. These days and so I think those are all constructive issues, but at the same time, we're in a volatile environment.

Okay, great. Thank you.

This now concludes Lazard earnings conference call.

Yeah.

Okay.

Yeah.

Okay.

[music].

Yeah.

[music].