Q4 2022 Lazard Ltd Earnings Call
Please standby your program is about to begin.
[music].
Good morning, and welcome to Lazard full year and fourth quarter 2022 earnings Conference call. This call is being recorded currently all participants are in a listen only mode.
Following their remarks, we will conduct a question and answer session.
Instructions will be provided at that time, if anyone should require assistance during the call. Please press the star key followed by the zero on your telephone keypad at this time I will turn the call over to Alexandra Degen Lazard head of Investor Relations and corporate sustainability. Please go ahead.
Thank you Raj and good morning, and welcome to Lazard earnings call for the fourth quarter and full year 2022, I'm Alexandra Deignan head of Investor Relations and corporate sustainability.
In addition to today's audio comments, we've posted our earnings release and an investor presentation on our website a replay of this call will also be available on our website later today.
Before we begin let me remind you that we may make forward looking statements about our business and performance.
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 Lazard assumes no responsibility for the accuracy or completeness. These forward looking statements and assumes no dude.
Need to update these forward looking statements.
Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures. The comparable GAAP measure is provided in our earnings release and Investor presentation.
Hosting our call today are Kenneth Jacobs, <unk>, Chairman and Chief Executive Officer, and Marianne batch Chief Financial Officer, Maryanne will start the discussion with an overview of our financial results and Ken will provide his perspective on the outlook for our business after that Ken and Maryann will be joined by Peter or Sac Chief Executive Officer.
Financial Advisory Evan Russo Chief Executive Officer of asset management as they open the call for questions. If you are currently on the call. Please make sure. Your line is on mute.
I'll now turn the call over to Maryann.
Thanks, Sally and good morning, everyone.
Today, we reported fourth quarter 2022, operating revenue of $671 million or 31% decrease from record revenue of 968 million in the fourth quarter of 2021.
Operating revenue for full year, 2022 was $2 $8 billion, 12% lower than full year, 2020 one.
For context. This represents the second highest annual operating revenue and Lazard history. Following the firm's record operating revenue in 2020 one.
In financial Advisory, we reported fourth quarter revenue of $404 million down 34% from last year's fourth quarter.
For the full year operating revenue was $1 7 billion, 7% lower than record revenue in 2021.
Despite the challenging market conditions of 2022 robust strategic M&A activity drove financial advisory to our record first nine months with activity slowing during the final months of the year.
The pace of announcements and completions moderated amid rising macroeconomic uncertainty our client engagement remains active across geographies.
And restructuring our discussions with clients are increasing as a result of rising interest rates and demand for liability management and we are currently engaged on a number of assignments in both the U S and Europe .
In asset management fourth quarter operating revenue was $259 million, 25% lower than the fourth quarter of 2020 one.
Annual operating revenue was $1 1 billion, 17% lower than 2021, primarily reflecting lower average assets under management and lower incentive fees.
Management fees and other revenue was 245 million for the fourth quarter.
18% lower than the prior year period, reflecting a 21% decrease in assets under management year over year, partly offset by a slight increase in the average fee rate.
Management fees and other revenue was $1 billion for full year, 2020 two a 15% decrease from the prior year.
2022 was a year of significant market volatility geopolitical tensions and quantitative tightening, which manifested in lower valuations across asset classes globally.
Although market showed signs of improvement in the fourth quarter investors reallocated portfolios at yearend to Derisk assets and increase liquidity.
The strength of the U S. Dollar was also a sustained headwind for our asset management business as approximately two thirds of our AUR is held in non U S dollar denominated assets.
As of December 31st 2022, we reported <unk> of $216 billion up 9% from September 30th.
This increase was driven by market appreciation of $14 $4 billion.
Foreign currency appreciation of $7 7 billion and net outflows of $3 7 billion.
Net outflows in the fourth quarter moderated significantly from the $6 7 billion in net outflows during the fourth quarter of 2021.
Average AUM for the fourth quarter was $211 billion, a decrease of 23% from a year earlier.
On a sequential basis average AUM was essentially flat compared to the third quarter of 2022, reflecting stabilizing market conditions and the weaker U S dollar.
As of January 27th our AUM was approximately $230 billion driven by market appreciation of 11 billion foreign currency appreciation of 2 billion and net inflows of $200 million.
Now turning to expenses, we accrued compensation and benefits expense and a 59.8% full year adjusted ratio in 2022.
Compared to 58, 5% in 2021.
The 2022 ratio primarily reflects lower than anticipated advisory revenues in the fourth quarter.
Along with investments to expand our businesses and to ensure we are well positioned to capitalize on market conditions when they improve.
Our adjusted non compensation expense for 2022 was $518 million, 10% higher than the prior year, reflecting the impact of increased travel and investments in technology.
Our effective tax rate for full year 2022 as adjusted was 25, 7% versus 23, 9% in 2021.
The year over year increase was primarily due to the geographic mix of our earnings.
We expect our annual effective tax rate in 2020 three to be in the mid 20% range.
We generated strong cash flow in 2022, returning a record $936 million to shareholders, including $182 million in dividends and $692 million in share repurchases.
Additionally, yesterday, we declared a quarterly dividend of <unk> 50 cents per share.
During the fourth quarter, we bought back two 4 million shares at an average price of $32 91 per share.
During the full year 2022, we repurchased a record 19 7 million shares at an average price of $35 17 per share.
Our weighted average share count as of the fourth quarter was 97 million shares a reduction of 14% from the prior year quarter.
Our total outstanding share repurchase authorization as of December 31 was $302 million.
Ken will now provide his perspective on our performance and outlook. Thank you maryann, while the global macro tough macroeconomic environment remains uncertain conditions are generally better today than many were anticipating six months ago.
<unk> enters 2023, having a definitely navigated the volatility of the past year, the diversity and breadth of our business allowed us to weather the worst of these conditions and achieved the second best annual operating revenue in our history. However.
However, the global slowdown in M&A activity in this.
And announcements in the second half of 2022 caught up with us in the fourth quarter and is likely to continue to impact our financial advisory performance through the first half of 2023.
Although the near term outlook remains uncertain, we are cautiously optimistic regarding an improvement in the macroeconomic environment going into the second half of this year based on several factors.
Google inflation remains elevated recent recent data indicate that price increases are beginning to moderate.
Central banks are slowing the pace of rate hikes, which may mean, a shortening of the current tightening cycle.
Equity markets have rallied spreads have tightened and volatility has receded unemployment is generally holding steady around the world and most develop developed economies are maintaining GDP growth.
And since the beginning of the year. We've noted an increase in M&A dialogue, while market sentiment seems to be improving we also took advantage of last year's downturn to make strategic investments.
In our financial Advisory business. These investments included adding senior financial advisory hires in the U S Europe , and the middle East broadening our private credit and infrastructure advisory capabilities launching our new geopolitical advisory group and expanding our venture and growth banking group into the U S. Because of these investments and others.
Over the past year as the M&A environment picks up we are well positioned.
To capitalize on the recovery and gain market share turning to our asset management business.
There has been a notable improvement in the overall climate for asset management since the end of the third quarter.
Assets under management are up approximately 16% since Q3 2022 positively impacting both revenue and the business is operating leverage going forward looking at performance approximately two thirds of our composite strategies with benchmarks are outperforming on a one year and three year basis the weakening.
In the U S. Dollar is also providing a benefit as long standing headwind for our business is abating.
Mid this improving outlook, we remain focused on our asset management clients, many of whom are reallocating portfolios in the wake of last year's repricing of risk.
Mr. Sentiment also continues its shift towards the research driven fundamental investment style, and which Lazard has global breadth and expertise our asset management business has momentum behind it and is well positioned for 2023 with a diverse array of innovative strategies and custom solutions to meet the investing needs of a.
Estimated client base.
Finally, 2023 marks the 175th anniversary of Lazard as founding for.
For the better part of two centuries, our firm has thrived by staying focused on our core businesses and guiding principles striving for excellence empowering our people and engaging with clients.
<unk> continues to strategically invest in people and technology maintain discipline around expenses.
Liver profitable growth and shareholder value and remains focused on serving our clients to open the call to questions. Thank you.
Yeah.
We have a question at this time. Please press star one on your telephone keypad. If your question has been answered you may remove yourself from the queue by pressing star too. So others can hear your questions. Clearly we ask that you pick up your handset for best sound quality, we'll take our first question from men in gasoline from Morgan Stanley .
Yeah.
Hey, good morning.
Morning.
I wanted to focus on the asset management side, it looks like another strong quarter on the fee rate here.
And I know you noted earlier that thought that this was from a from a mix shift.
So is this is this the right rate to assume going forward or are there any other puts and takes there.
Hey, Manav, it's Kevin I'll, I'll I'll kick that off.
We've seen as you've seen over the last couple of quarters. The fee rate is starting to tick back up as we've said in the past the bulk of that is driven by the asset mix a little bit more on the vehicle side. This time as well we saw some vehicle mix have a positive impact for us we saw more coming into funds a little bit lesson from some of the sub advised and some of the.
SMA is that we have in our business also as we pointed out over the last couple of quarters. Some of the larger outflows that we had were in lower fee mandates. So that would as you as you pointed out sort of lead us to a starting run rate that is probably a little bit higher than it was a year ago. So I think in general yes. It seems to be the outlook seems to be more stable than certainly.
The past few years, where we're seeing it more contracting on a more steady pace and now it seems to have leveled off a little bit I think it'll be a little bit bumpy still I mean, there's going to be quarter to quarter movement. Because all these flows sort of do play into it the mix has a huge impact of it and so as markets move around you are going to continue to see that jump around a bit but generally it feels a lot better.
And then it's been over the last several years.
Great. Thanks, Evan and then maybe just a big picture question on the strategy and the asset management space.
What is the environment like for lift outs, what is your capacity and willingness to do them and any general updates are in your strategy as we look ahead to 'twenty three.
Yeah sure. So when you think about the market last year certainly the volatility has played a huge role in the way a lot of the team is certainly smaller firms have been thinking about their own strategies and whether or not they can go at it alone to shift more towards larger institutional clients thinking about having less managers in your portfolio.
All of that plays into the idea that there's a lot of these smaller firms and certainly smaller teams.
From smaller firms that are looking for homes on bigger platforms and certainly they're focused on ones that have global distribution, which was a significant benefit for us given the breadth and depth of our distribution capabilities, the breadth and depth of our research. So we are certainly sought after by many of these teams.
Constantly reviewing what's out there from both a strategic acquisition and a lift out scenario sort of bringing teams onto the platform. We've done that selectively over the last couple of years I would say from the market environment, you're asking how it feels today relative to the last couple of years I would say the pace given the volatility of markets over the last year has certainly.
Picked up in terms of the number of conversations.
There are a number of firms that are looking to join larger platforms. So I would expect that to continue over the course of the year.
Great. Thank you.
Yes.
Our next question comes from Devin Ryan from J M P Securities.
Hey, good morning.
Hey, I guess first of all I'll start on.
The move in the dollar so for Lazard, that's a bigger deal than some of your peers until like to just maybe remind us kind of the order of magnitude.
Benefit of the weakening dollar on both advisory and asset management, and then just kind of bigger picture, how that's driving strategic dialogue with clients as well just given that the mark shift we've seen here recently.
Break it into two parts <unk> do you want to take the impact on the asset management business and I'll cover the advisory and the claims side.
So devin as we pointed out in past calls our asset management business is certainly weighted towards non U S. Dollar AUM approximately two thirds or so of our AUM is in securities that are non U S. Dollar and so that translation impact has had a big impact on our general.
<unk> as a firm over the last several years and even last year. The FX that we call out was in a $9 billion negative just that translation impact of our security. So it certainly is a positive as you've seen just in the last.
Four months, So Q3, Q4, plus a January where you've seen a significant turnaround on the FX side with the weakening dollar. So that plays in just both on the translation of a U M. It also speaks to the way in which the investor sentiment and general investor sentiment or allocation of portfolios has been changing a little bit.
Theres been a big focus on U S dollar investments U S centric investments and people shifting portfolio as to where the growth has been and where market appreciation has been which has been more U S focused than international global and certainly.
Over the last several years, so as that starts to tilt and as people start to think about an environment, where you may have several years of a not only a weakening U S dollar, but certainly not a strengthening U S. Dollar if that starts to abate as we just called out that would certainly be a positive for our business and that that generally will work for.
From both the focus of investors thinking about allocating their portfolios as well as the translation of AUM back into our business as well.
And on the advisory side.
Two things to comment on first the advisory business itself less impacted one way or the other we tend to have a lot of our costs in a local currency, where the revenues are so so not as much impact.
And in terms of clients.
Look again.
Over time, I don't think that a small shifts in currency make that much difference in terms of cross border activity. When you have a large shift maybe theres a unique positioning of our company. Its cash flows the way it can be financed that would help but generally speaking if someone's buying an asset in a different.
Geography, they will finance it accordingly, and so.
One way or the other it hasn't had as much impact as I think many observers think it does.
Okay great.
Follow up question on the growth of the firm. So the advisory MD head Count I think is up about 30% over the last three years.
Cracked a lot of managing directors have joined the firm. So you guys have been I think more active over the last year 345 years in recruiting that you had been for some period of time. So maybe just talk a bit about just given the lags that occur when you bring somebody in external or even promote somebody to kind of hitting full run rate of potential like.
How this kind of shift is set you up maybe for growth moving forward and then just also just expectations for continuation of bringing in senior talent just given the more accelerated pace we've seen.
Peter you want to take this one.
Sure so.
On the on the ramp or Onboarding. It typically does take.
You know somewhere between a year or two sometimes three for people to become fully productive that can stretch out to for in some cases it depends on the sector and the person obviously and the internal promotions are a bit different than the laterals that I think you should be thinking about at least a year or two.
To become fully productive. So you are right that we've got this pipeline of managing directors that we've been adding them.
And in private debt in the.
The middle East in Germany, and elsewhere that will be coming kind of fully online in the months and years ahead.
And then with regard to the opportunities, we still do see significant opportunities for us to be picking up.
Additional people and wallet share.
And in fact, the hiring environment may become more attractive so we need to balance the the fact that we're in a.
We need to balance the fact that there is a significant amount of opportunity out there in terms of people that are available against just being responsible on costs in the way they can't already emphasized.
Yes.
Great. Thanks, so much I'll leave it there.
Yes.
Our next question comes from Brennan Hawken from UBS.
Hi, Brennan.
Hey, good morning, Ken and Marianne how are you so.
Wanted to ask a follow up Ken on your tone around advisory that's certainly sounded optimistic.
And seems like an improvement from the tone that we heard from December when there were a bunch of updates with conferences, so would love to explore that a little bit and get a sense about whether or not it's just dialogue in the past we've heard that there's been a bit of a hesitance around.
Pulling the trigger on deals are you sensing that that Hesitance is abating or is it more that the dialogue is ramping and once there is some improved clarity than what where do we see it followed through.
Yeah, Great question, and I think you're right their husband and a bit of an improvement in sentiment from where we were at in the middle of our beginning to middle of fourth quarter. So.
So a couple of things to note.
0.2, these a lot.
Equity credit conditions equity prices credit conditions sentiment and then usually there's a catalyst.
I think I'll use the same.
Old story here.
On equity conditions, obviously values.
Evaluations or are probably more reasonable than they were prior to the downturn early last year from the envision credit conditions are clearly improving and tight spreads have tightened since the beginning of the year.
I think yesterday's announcement by the fed more importantly, the reaction of the market to it because I think there may be a disconnect there were a little bit.
Has been constructive.
And when you look at credit conditions, and you think about where rates are today historically, there is still pretty low.
Kipp appeared to most periods of time.
And such and then finally on sentiment I think generally speaking our people.
Most observers would concede that today things are just better off than what they would have guessed it would be six months ago and I think that helps around sentiment I think also the fact that the GDP numbers, both here and in Europe have been better than what's expected, we have China coming online second half of this year.
So generally speaking I think the overall environment and sentiment in the boardroom is probably starting to improve.
That is a pre condition for activity with.
With bad credit conditions in and and Unconstructive sentiment, you're not gonna get M&A activity now we have all three factors yellow if not you know heading in a couple of cases towards something that looks resembles green.
I think you're likely to see start to see some pickup in activity and then the catalysts on this I think they continue to be very similar to what they were prior to the downturn in the energy transition is going to be an enormous catalyst for activity in the.
In the M&A space I think we're going to continue to see enormous pressure on re shoring into the U S, which again will lead to some M&A activity, but quite a bit of infrastructure investment around many of these projects.
You still have some restructuring activity, which I think will continue over the next couple of years. So it may not get to the level that we've seen in previous cycles I don't think it will but it may last longer.
And such so I think overall, we're seeing pick up in dialogue.
We're seeing obviously an increased rate of activism, which usually events results in corporate events and with credit conditions, improving those corporate events can take place.
And so that's likely to lead to some pick up in announcements as the year progresses. So that's kind of the asset to the advisory side out of that asset management, I think just improving markets and the shift towards where we sit in the spectrum of investing and the fact that the dollar is weaker really portends a better environment for.
It's probably a better environment for us than we've seen in several years.
Excellent. Thank you for that detailed run down Ken that's that's appreciated.
And also.
For the.
The asset management update through Jan 27.
Kevin I believe you're on usually the end of the month can be pretty active for flows given your institutional orientation. So any insights into whether that plus $200 million in flows is going to hold and we would see a positive month or how should we be thinking about that.
Yeah Brennan as you say that the last couple of days you can always see some movement and some of that we don't actually see right away, sometimes take a couple of days post quarter end until you get all the the specific movement on some of the models in rats and other things that we manage so it does take a couple of extra days post quarter end, but so far it feels it feels like a good it feels.
A good month for us from a flow perspective.
I would say, it's very similar to what Ken mentioned earlier, we started to see that moderation.
The more balance in our flow story in November or December had its usual.
Quarter and year end type Reallocations, we also with the volatility in the markets and the sort of the shift up we had less people wanting to put money to work and to allocate as we got into this year, we're continuing to see good activity levels a lot of interest in the types of products that we specialize in or a deep research the fundamental investing that we do the market certainly is.
Moving a little bit away from the more growth and momentum and more towards relative value and that that space. The quality space, which is where we have a lot of focus and we're seeing good good activity levels from clients lots of interest and a whole host of our products across all of our platforms and so so far it feels it feels more.
<unk> as we said towards year end and I think that trend is continuing as we got into the beginning of this year as well.
Great Thanks for that.
Okay.
Our next question comes from James <unk> from Goldman Sachs.
Hi, Good morning, Hey, good morning.
So I just wanted to touch on the.
On your European M&A business, you were obviously very clear on the broader advisory backdrop and the outlook there, but given your unique perspective on Europe . How is your are you know the outlook for European M&A changed.
Well I was pretty surprised by our performance in Europe last year, because we ended up having in spite of everything I think record years in Europe .
On our advisory business and so given.
Given the events of Europe , and the slowdown in the economies in Europe and all the fear I was pleasantly surprised by that so I'm sitting here today kind of pinching myself.
Clearly the first half of the year is gonna be.
Slower than.
Last year.
Just given the pace of announcements in the second half of last year, but I'd say, it's pretty even right now in terms of the U S. In Europe and in terms of dialogues and so we may see the same kind of pick up as the year progresses in Europe as we've seen in the U S. If these dialogues turn into announcements so we'll see.
I wouldn't differentiate too much between my comments about the M&A market generally.
I'm thinking there are big differences between Europe , and the U S at the moment.
That's very clear and then sort of related one you know obviously financing markets have begun to reopen maybe you could speak to the specific impact. This is having on your business or maybe it's too early and then have there been differences in and you know the impact of financing markets reopening across Europe .
The U S or is it sort of more similar well.
Well look I think the as I said before this is a precursor to M&A activity.
These events all have to happen unique constructive equity markets or valuations in equity markets, you need a more favorable credit conditions and improving sentiment for M&A to start to evolve it tends to be pretty pro cyclical.
So I think right now the fact that credit conditions are improving and they are clearly improving in the U S as well as.
Is sustained and that's really the key thing I mean, we're in a we're in a more positive environment right now than we've been in over the last year I think generally speaking the consensus is that things are better than anyone anticipated they would be at this point.
If you look back six months if this market stays if this kind of sentiment stays intact. That's a that's a good sign for our advisory business as the year progresses.
Okay. Thank you so much.
Our next question comes from Matt Moon from K B W.
Hi, Matt.
Hi, guys good morning.
So just one on the restructuring cycle I think theres been some some optimism that the cycle could be relatively elevated for a prolonged period of time and it sounds like from your prepared remarks at the stock remains.
Just wanted to take a pulse on that sentiment today, I mean, I think there's some kind of shifts and expectations since the start of the year and particularly for heightened expectations for software I think so.
Just wanted to get your updated thoughts there, particularly as we see lazard on a lot of mandates.
Simply the news.
Yeah, I think our view on this is probably a little bit more nuanced in the following way I'd say that our the restructuring cycle here is gonna be liquidity driven.
More than it is anything else that is a lot of the financings have been pushed were pushed out are there kind of covenant light. So I think that the transactions that we're gonna see more if we're going to be more liquidity driven.
And so from our perspective this cycle may last longer.
Because of that but it may not get to the heights that we've seen in previous cycles, but we'll see.
That's premise to impart on the improving.
Outlooks for GDP in both here and in Europe .
But you know again, a lot depends on how that unfolds, but that's our hunter at the moment.
Great and then shifting gears to asset manage them.
As recently announced the hire of Jennifer I'm from Blackrock for the asset management business I'm, just curious I mean, if you could kind of speak to the rationale of the higher especially since you've been at the helm for for that business for over a quarter now kind of a just love to hear what do you expect for her to bring to the table for Lazard.
She will be additive to the leadership capabilities.
And then just you know I appreciate.
Any updates there you have it.
I was just curious if you could drill down a little further into kind of the products are you seeing both strengths as well as weaknesses as it relates to that $200 million inflows, we've seen so far year to date.
Yeah, So Ken.
Ken mentioned look we seek to continue to focus on investing in talent when we find great people and I think this is just a continuation that we've obviously have a tremendous focus on continuing to strengthen the team we have and add to it frankly to take advantage of what we're seeing in the marketplace today.
In many ways.
Making senior hires and distributions is not surprising for US right. We're continue we've been expanding our distribution network, our global distribution across all of our channels over the last several years, it's been a strategic focus for us to continue to broaden and strengthen and deepen in every channel. We have you know adding <unk>.
Jen to this team is just the continuation of that and continues to show the focus that we've got to make sure that we're capturing all the potential value off the great performance of so many of our funds is as we said you know more than two thirds of our funds have been outperforming on a one and three year basis. It is a great opportunity for us to be out there, we're seeing a lot of interest in.
And so many of our products and I think just continuing to strengthen and deepen those relationships and just continue to build out a broader team and augment the great work that's been done for so long by so many of our other teams is just it's just a great addition to the team I don't think there's anything more than that just a continuation of all the things that we're doing to strengthen that focus are.
Focus on distribution will continue we're going to continue to build out and strengthen and deepen that team. There's just a lot of places that we have opportunities for it's been a strategic area for us it'll continue to be under under my realm as well.
I'm very excited to continue that strength and to work with gender she joins us here.
This early part of this year.
In terms of the flows I would say, it's been fairly broad I'd say the areas of strength, we continue to see strength in Q Q4. It was a lot driven by fixed income quant some of our local strategies U S equities and others saw some very some very nice flows at the beginning of this year continues on that strength, where we are.
Turning to see it more broad based even the <unk> space is seeing a lot of quant searches a lot of quality searches that were participating in working with clients for new mandates.
That are that are coming online over the first six months of this year. So I would say, it's not any one specific area its been a spread out over most of our platforms and it continues to feel like it's been strengthening and it's across the board I'd say, particularly our quant business continues to be very very active in this environment.
<unk> continues to play well in the spaces that they are in and a lot of that is driven by just the great performance of so many of the teams I think you're starting to feel as I mentioned moving away from markets that were a momentum and growth in sort of getting back to fundamentals are across the board. The way, we invest I think youre starting to see that.
Performance because the markets are becoming more rational. These are the types where areas where you can truly see the benefit of the Lazard platform and the great people that work here that produce great returns and so I think it's all sort of coming together and markets are starting to move in our direction and I think investors sentiment and allocations are moving into that area.
And we're just going to continue to go out there and try to capture as much of it as we possibly can.
Great I appreciate the color.
Our next question comes from Jim Mitchell from Seaport Global.
Hey, Jim.
Hey, good morning.
We talked a little you talked a little bit about Ken about you know.
Starting some new groups like geopolitical advisory, we've talked a little bit about restructuring, but maybe taking a step back and thinking about your non M&A businesses more broadly is there any way you can kind of help us think through the size contribution from those businesses and how you think are the are they a little bit less volatile than MF.
Can they help you kind of get through the slower M&A period in a in a reasonably.
Good way, how do we think about those businesses near term and over the long term.
Peter you want to take that one.
Sure.
I think that they are less volatile in the sense that they're less lumpy. There often many of these businesses tend to be more retainer based fee structures, rather than a deal or a success based fee structures and for that reason they are less lumpy.
With regard to their size look we're I mean geopolitical is a great example, we just launched it a few months ago. So it is in the growth stage and we're really pleased with the initial feed.
Feedback from clients and the mandates that were exploring and winning but.
It's early days and so you shouldn't expect something after a few months to be a significant share of revenue. Obviously, what we're excited about is building that out over time so.
Sure.
Broadly speaking.
You're spot on in terms of.
The objective, which is to obtain not only.
Additional sources of fees and revenue, but things that have different volatility characteristics and then the other thing I'd note is and geopolitical is a great example of this anything that expands our network gets us into boardrooms and C. Suites can have spillover spillovers that a good way into our M&A business also and so.
Another objective for many of these new things that we're trying.
Okay fair enough.
I think sort of some of your more established non M&A businesses, whether it's the advisory sovereign advisory private capital all those things how are you thinking about those in this environment.
It really varies by bye bye.
By the individual business, so the sovereign business.
He is busy and the big question there it almost goes back to the restructuring question that Ken answered them.
With regard to corporate.
Which is are we going to see a waves over the next year or two of countries that have significant debt restructuring there.
Certainly as a class of countries that looking forward, where that is is possible in the TCA business. That's.
That's very tied as you know too.
To private equity and so the trends there for example are quite different than in the sovereign world. So we do have a bunch of established businesses to your point that the trends tend to be different in aggregate. We are pleased that they provide.
Some offset or some.
The diversification away from just the core M&A businesses.
Okay.
Se restructuring business PCA shareholder advisory and these new ads are a pretty significant part of our overall revenues in financial advisory business and it's been you know.
Okay. Thanks, that's helpful and maybe just as a follow up a quickie on the buyback you guys were very aggressive buying your shares last year, how do we think about the pace in 2023.
Alright, and you want to take that sure I'll take that one. So obviously you know a very good year for buybacks in 2022 got down below a 100 million shares outstanding which was an important milestone.
Wood and the price that you know the average price that we've been able to buy them back at has been really attractive. So I think looking forward as we see higher prices and lower volumes I would expect that to moderate and I'm. You know I would also just mention that we continue to plan to buy back shares to offset dilution from.
Compensation and <unk> and.
You know us use excess cash return excess cash to shareholders based on the prices that we see in the attractiveness of the value.
Okay, great. Thanks for taking my questions.
Yeah.
And our last question comes from Steven Chu back from Wolfe Research.
Hi, Good morning, Thanks for squeezing me in here I had a couple on expenses. The first is just on the comp ratio can you noted the challenging setup for first half 'twenty three advisory revenues.
Which was really an extension of some of the pressures that you saw in the fourth quarter, just given the upward pressure on comp that we saw in the most recent quarter the lower jumping off point for the first half how should we think about the comp trajectory versus the 60% accrual that we saw this past year and can you speak also to what drove the divergence in <unk>.
Warded versus adjusted comp in 'twenty two.
Great questions I'm spot on look on the comp ratio.
Going into 2023 first we don't set it until first quarter.
Here I'd, just make the note, which I've been pretty consistent and outspoken on is is that when revenues go down got.
Compensation becomes more challenge.
Cap ratio has become more challenging because you sort of that fixed charges against declining revenues and we saw that in the fourth quarter to the extent that we see a drop in revenue in the first half of next year.
That also poses a challenge.
Lip side is you guys can tell Ah Ah our compensation practices by the deferral rates that we show in the earnings release and you can also see it in what we do on awarded compensation.
The disconnect or the slight separation between awarded and and gap. There's really you're really just reflects the investments. We've made in the course of the in the business over the course of the last year and and the fact that we're trying to keep them in place depending on how this cycle unfolds.
So this is gonna be like for all of our peers are going to be an interesting first half when it comes to thinking about our projections for ratios for the year and a lot of it ultimately will depend on how the year unfolds.
No. Thanks for that color and just for my follow up because you were talking about some of the investments that you're making in the business you've been making a lot of investments on the technology side.
We've certainly seen that translate into some level of elevated non comp inflation can you talk about your ability to bend the cost curve on the non comp side, how should we think about.
Non comp inflation as we look out to 'twenty three.
So non comp inflation. This year when you cut through it was a function of a couple of things I mean first rent we got a couple of new.
Facilities in Paris, and we're also taking a new offices in London. So there's a little bit of elevation, that's going to come from that long overdue and in both cases and such.
The second component clearly was Jenny obviously much more travel in a post pandemic world and Unfortunately, a lot of inflation in travel expenses I think some of that inflation will abate over the course of this year, if inflation continues to abate across the economy, but let's wait and see what happens there.
We're very focused on that and then third of course as I T. I think there is a there was a quite a buildup in expense over the course of the last year several years too modernize some of the things we were doing on the advisory side asset management side, and then importantly on info SEC.
I think at this point, we're probably through most of those investments and I think you'll start to see that abate over the next couple of years or so and obviously.
This was over the last several years, a very tough environment for for people in that area and I think we're finding many of those pressures abating as well so that should help your over the course of the next year or so so this is something needless to say, we're very focused on and I expect there'll be some progress on that.
Very helpful color, Ken Thanks for taking my questions.
Sure. Thank you.
This now concludes the Lazard conference call.
Hang up have a great day.
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