Q2 2025 Lazard Inc Earnings Call
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Operator: Good morning and welcome to Lazard's second quarter 2025 earnings conference call. This call is being recorded. Currently, all participants are in a listen-only mode. Following the 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 zero on your telephone keypad.
Good morning and welcome to lazard's second quarter 2025 earnings conference call.
This call is being recorded.
Currently all participants are in a listen-only mode.
Following the 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 0 on your telephone keypad,
Alexandra Deignan: At this time, I will turn the call over to Alexandra Deignan, Lazard's Head of Investor Relations and Treasury. Please go ahead. Thank you, Angela.
At this time, I will turn the call over to Alexandra Denman.
Alexandra Denman: Lazard's head of investor relations and Treasury.
Please go ahead.
Alexandra Deignan: Good morning and welcome to Lazard's earnings call for the second quarter and first half of 2025. I'm Alexandra Deignan, Head of Industrial Relations and Treasury. In addition to today's audio comments, we have posted our earnings release on our website.
Speaker Change: Good morning and welcome to lazard's earnings call for the second.
Alexandra Denman: 2025.
Alexander dagman: I'm Alexander dagman head of investor relations and Treasury.
Alexandra Deignan: 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. There are important factors that could cause our actual results, level of activity, performance, achievements, or other events to differ materially from those expressed or implied by the forward-looking statement.
In addition, to today's audio comments, we have posted our earnings release on our website. A replay of this call will also be available on our website later today.
Alexandra Deignan: For more information, visit www.fema.gov Lizard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update them. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's... Reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release.
Alexander dagman: Before we begin, 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, achievements, or other events 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 of these forward-looking statements and assumes, no duty to update them.
Alexander dagman: Is discussion also includes certain non-gaap Financial measures that we believe are meaningful when evaluating the company's performance.
Alexandra Deignan: Operating our call today are Peter Orszag, Lazard's Chief Executive Officer and Chairman, and Mary Anne Betsch, Lazard's Chief Financial Officer. After our prepared remarks, Peter and Mary Anne will be joined by Evan Russo, Chief Executive Officer of Asset Management, as they open the call for questions.
Alexander dagman: For a Reconciliation of these non-gaap Financial measures to the comparable. Gaap measures is provided in our earnings release and investor presentation.
Alexandra Deignan: Now I'll turn the call over.
Hosting our call today. Are Peter orszag with Arts, chief executive officer, and chairman, and Marianne, bch lazard's Chief Financial Officer. After our prepared. Remarks Peter and Marianne will be joined by Evan Russo Chief Executive Officer of asset management as they open the call for questions.
Peter Orszag: Thank you, Allie, and good morning to everyone joining today's call. We are pleased to report strong performance and results, with total firm-wide adjusted net revenue of $1.4 billion for the first half of the year. Financial advisory achieved a record first half of the year with adjusted net revenue of $861 million. The advisory revenue this year has demonstrated the geographic and product diversity of our business.
Alexander dagman: Now, I'll turn the call over to Peter.
Peter Orszag: The results represent the overall strength of Lazard's team and brand, which includes record revenue in France and Germany for the first half of the year. Our performance reflects a global business that also extends well beyond our long-standing strength in strategic M&A, with expanded connectivity to private capital and record revenue in our fundraising business year-to-date. Over the past 12 months, revenue associated with private capital has been over 40% of total financial advisory revenue, reflecting our increased emphasis on this business and hiring over time.
Speaker Change: Financial advisory achieved a record first. Half of the year with adjusted net, revenue of 861, million advisory Revenue. This year has demonstrated the geographic and product diversity of our business.
Speaker Change: Results represent the overall strength of lazard's team and brand which includes record Revenue in France, and Germany, for the first half of the year.
Speaker Change: Our performance reflects a global business that also extends, well, beyond our long-standing strength, in strategic m&a, with expanded connectivity to private capital and record Revenue in our fundraising business year to date.
Speaker Change: Over the past 12 months Revenue, associated with private Capital has been over 40% of total Financial advisory Revenue, reflecting our increased emphasis on this business and hiring over time.
Peter Orszag: Asset management continued to deliver solid results with adjusted net revenue of $533 million for the first half of the year.
Peter Orszag: As we have previously stated, we see this year as an inflection point for our asset management business. The second quarter reflects solid progress towards our goal of more balanced flows, with positive net flows in the quarter, record gross inflows for the first half of the year, and AUM increasing 10% year-to-date. This progress is a result of strong investment performance, efforts to better focus our sales and distribution on core products and strategies, and more favorable market conditions for our global strategy. Our success in driving positive net inflows has been achieved while also continuing to win new mandates, and as a result, our current one-but-not-yet-funded mandates total is even higher than the elevated level at the beginning of the year.
Speaker Change: Hit management continued to deliver solid results with adjusted. Net. Revenue of 533 million for the first half of the year.
Speaker Change: Point for our asset management business.
The second quarter reflects solid progress towards our goal of more balanced flows with positive. Net, flows in the quarter record. Gross inflows for the first half of the year and AUM increasing 10% year to date.
Speaker Change: This progress is a result of strong investment performance, efforts to better focus. Our sales and distribution on core products and strategies and more favorable market conditions for our Global strategies.
Peter Orszag: Overall, we continue to see robust client engagement across both of our businesses as corporate and investment leaders move beyond the watchful waiting mindset of the previous quarter and grow more comfortable making decisions in the current environment.
Speaker Change: Our success in driving positive. Net inflows has been achieved while also continuing to win new mandates and as a result, our current 1, but not yet, funded mandates. Total is even higher than the elevated level at the beginning of the year.
Peter Orszag: I'll share more on our outlook shortly, but first, let me turn the call over to Maryanne to provide further details on the quarters.
Speaker Change: Overall, we continue to see robust client engagement across both of our businesses as corporate and investment leaders move beyond the watchful waiting mindset of the previous quarter and grow more comfortable making decisions in the current environment.
Mary Anne Betsch: Thank you, Peter. Today we reported second quarter firm-wide adjusted net revenue of $770 million, up 12% from the same time last year. Increase in firm-wide revenue was driven by our financial advisory business. Financial advisory adjusted net revenue was a record $491 million for the second quarter, up 20% from one year ago. Our banking teams performed well across the firm, with Lazard participating in a number of marquee transactions during the second quarter. Completed transactions include CD&R's acquisition of a controlling 50% stake in Sanofi's Consumer Health Unit and Roquette Frere's acquisition of IFF Pharma Solutions. In addition, recently announced transactions include Ferraro International's agreement to acquire WK Kellogg, Assura's recommended combination with primary health properties, and L'Oreal's agreement to acquire ColorWow.
I'll share more on our Outlook shortly, but first, let me turn the call over to Marianne to provide further details on the quarter's results.
Marianne: Thank you, Peter.
Today we've reported second quarter firmwide adjusted net revenue of 770 million up. 12%, from the same time last year.
Marianne: Increase in firmwide Revenue, was driven by our financial advisory business.
Marianne: Financial advisory adjusted. Net revenue was a record 491 million for the second quarter up, 20% from 1 year ago.
Marianne: Our banking teams performed. Well, across the firm with lozar participating in a number of Marquee transactions during the second quarter,
Marianne: Completed transactions. Include cdnr acquisition of a controlling 50% stake in Santa fe's consumer, health units and roquette, fra's acquisition of ISF Pharma Solutions.
Marianne: In addition, recently announced transactions include Ferraro Internationals agreement to acquire WK Kellogg.
Mary Anne Betsch: In addition, corporate restructuring assignments include company roles with Solo Brands and Wilbur Ellis, and creditor roles involving Franchise Group, Saks Global, and Southern Water.
Marianne: Assurers recommended combination with Primary Health properties, and L'Oreal's agreement to acquire Color. Wow.
Mary Anne Betsch: We also engaged in several private equity assignments, including advising XLKKR, Hidden Harbor Partners, and IDG Capital on continuation funds, advising Main Sale Partners on the closing of its Fund 7, and advising on capital structure and executing debt raises for ZF Friedrichshafen, Next Wind, and iFit Health and Fitness.
In addition corporate restructuring, assignments include company, roles with solo Brands and Wilbur Ellis, and credit our roles involving franchise groups, Sachs Global and Southern water.
Mary Anne Betsch: Turning to asset management for the second quarter, adjusted net revenue was $268 million, up 1% compared to the second quarter last year, and up 2% on a sequential basis. Management fees for the second quarter increased 1% compared to the second quarter last year, with lower-average AUM more than offset by higher average. Average AUM for the second quarter of $239 billion was 3% lower than the second quarter of 2024 and up 3% on a sequential basis. As of June 30th, we reported AUM of $248 billion, 2% higher than June 2024 and 9% higher than March 2025.
Marianne: We also engaged in several private Equity assignments, including advising Excel KKR hidden Harbor partners and idg capital on continuation funds. Advising Mainsail Partners on the closing of its fund 7 and Advising on capital structure and executing debt raises for Z fedra shopen. Next, wind, and iFit Health and Fitness.
Marianne: Turning to asset management for the second quarter adjusted. Net revenue was 268 million up 1% compared to the second quarter last year and up 2% on a sequential basis.
Marianne: Management fees for the second quarter increase 1% compared to the second quarter last year with lower average AUM, more than offset by higher average fees.
Average AUM for the second quarter of 239 billion was 3%, lower than the second quarter of 2024 and up 3%, on a sequential basis.
Mary Anne Betsch: During the quarter, we had market appreciation of $11.9 billion, foreign exchange appreciation of $8.4 billion, and net inflows of $700 million. We see ongoing client engagement across our investment platforms, particularly with our global, international, emerging markets, and quantitative strategies. Illustrative examples of new mandates include $1 billion from a U.S. public pension into global equity advantage, $650 million win from a Nordic client for Japanese equities, $600 million from a Korean institution into emerging markets equities and $500 million into international quality growth from a large U.S. retirement provider.
Marianne: As of June 30th, we reported AUM of 248 billion 2% higher than June 2024 and 9% higher than March 2025.
Marianne: During the quarter, we had Market appreciation of 11.9 billion for an exchange appreciation of 8.4 billion and net inflows of 700 million.
Marianne: We see ongoing client engagement across our investment platforms, particularly with our Global International emerging markets and quantitative strategies.
Marianne: Illustrative examples of new mandates. Include 1 billion dollars from a US public pension into Global Equity advantage.
Marianne: 650 million win from a Nordic client for Japanese equities. 600 million from a Korean institution into Emerging Markets. Equities, and 500 million into International Quality growth from a large US, retirement provider
Mary Anne Betsch: Now turning to expenses. For the second quarter of 2025, our adjusted compensation expense was $504 million, resulting in a ratio of 65.5% compared to 66% for the second quarter one year ago. Our adjusted non-compensation expense for the second quarter was $157 million, equating to a ratio of 20.4%, compared to 21.7% for the second quarter last year. While remaining focused on expense management, we continue to invest in the business to support our long term growth, including successful recruiting efforts to expand our team of financial advisory managing directors and the build out of our ETF business and asset management.
Marianne: Now, turning to expenses for the second quarter of 2025 are adjusted. Compensation. Expense was 504 million resulting in a ratio of 65.5% compared to 66% for the second quarter 1 year ago.
Marianne: Our adjusted non-compensation expense for the second quarter was 157 million equating to a ratio of 20.4% compared to 21.7% for the second quarter last year.
Marianne: Asset Management.
Mary Anne Betsch: Shifting to taxes, our adjusted effective tax rate for the second quarter was 36.5%, compared to 14% for the second quarter of 2020. We currently expect our full year 2025 effective tax rate to be in the mid-20% range.
Marianne: Shifting to taxes are adjusted effective tax rate for the second quarter was 36.5% compared to 14% for the second quarter of 2024.
Mary Anne Betsch: Turning to capital allocation in the second quarter of 2025, we've returned $60 million to shareholders, including a quarterly dividend of $47 million.
Marianne: We currently expect our full year 2025 effective tax rate to be in the mid 20% range.
Mary Anne Betsch: In addition, yesterday we declared a quarterly dividend of $0.50 per share.
Marianne: Turning to Capital allocation. In the second quarter of 2025 we returned, 60 million dollars to shareholders including a quarterly dividend of 47 million.
Marianne: In addition yesterday, we declared a quarterly dividend of 50 cents per share.
Peter Orszag: Thank you, Mary Ann. With regard to the M&A outlook, progress will not be linear, but as long as outstanding tariff issues are resolved in line with current expectations over the coming weeks, we see a significantly improving environment for financial advisory activity. Dialogue with corporate strategics continues to broaden, corporate balance sheets are strong, and clients are adapting to shifting trade patterns. Financing markets are also generally constructive despite the risks surrounding heightened unpredictability. Technology and generative AI, the energy transition, the biotech revolution, and shifts in global supply chains remain underlying tailwinds that further support client activity. Looking ahead, we anticipate that private equity will play an increasingly active role in M&A.
Peter: Now, I'll turn the call back to Peter.
Peter: Thank you Marianne with regard to the m&a, Outlook progress will not be linear but as long as outstanding tariff issues are resolved in line with current expectations over the coming weeks, we see a significantly improving environment for financial advisory activity.
Dialogue with corporate strategic continues to broaden. Corporate balance sheets are strong and clients are adapting to shifting trade policies.
Peter: But Nancy markets are also generally constructive, despite the risks surrounding heightened unpredictability technology and generative, AI the energy transition, the biotech Revolution and shifts. In Global Supply. Chains, remain, underlying Tailwind, that further support client activity,
Peter Orszag: Lazard is well positioned to benefit reflecting our ongoing investments in our private capital coverage effort. Client engagement remains robust across our global offices, with notable activity in fundraising and liability management, supported by our ability to deliver innovative solutions across both public and private markets.
Peter: Looking ahead, we anticipate that private Equity will play an increasingly active role in m&a. Lazard is well, positioned to benefit reflecting our ongoing investments in our private Capital coverage efforts.
Peter Orszag: Finally, our talent pipeline continues to grow with senior bakers attracted to our strong culture, global presence, and the momentum behind our long term growth strategy. We've hired 14 financial advisory managing directors so far in 2025, and we remain on track this year to achieve or even exceed our 2030 objective of expanding our team of financial advisories by 10 to 15 net per year. Recent talent additions in our consumer and retail, healthcare, and power energy and infrastructure groups are already supporting our performance and resulting in new client business. Overall, an improving environment along with our expanded connectivity to private capital, our continued progress in hiring, and Lazard's unique ability to pair business advice with geopolitical insights all support ongoing business.
Peter: Client engagement remains robust across our Global offices with notable activity and fundraising and liability management supported by our ability to deliver innovative solutions across both public and private markets.
Peter: Finally, our talent pipeline continues to grow with senior Bakers attracted to our strong culture, Global presence and the momentum behind our long-term growth strategy.
Peter: We've hired 14 Financial advisory managing director so far in 2025 and we remain on track this year to achieve or even exceed our 2030 objective of expanding, our team of financial advisors by 10 to 15 net per year.
Peter: Recent Talent additions in our consumer and Retail Healthcare and power and energy, power energy, and infrastructure groups are already supporting our performance and resulting, in new client business.
Peter Orszag: Momentum in our advisory group.
Peter Orszag: Turning to asset management, our increased focus and accountability within sales and distribution, enhancements to our investment platform, and the addition of new talent over the past couple of years are delivering results with record gross inflows in the first half of the year. We anticipate our business to benefit further if investor preference continues to evolve outside of the United States, given our extensive offerings in global, international, and emerging market strategies. As I mentioned earlier, even with robust gross inflows year-to-date, successful sales efforts continue to replenish our one-but-not-yet-funded menu. During the second quarter, we also successfully launched our first active ETF product set in the U.S., which includes our Japanese equity, equity megatrends, next-gen technologies, and international dynamic equity ETFs, with additional ETFs planned for launch later this year.
Peter: Overall in improving environment, along with our expanded connectivity to private Capital, our continued progress and hiring and lazard's unique ability to pair business advice with geopolitical, insights all support ongoing business business. Momentum in our advisory business
Peter: Turning to Asset Management.
Peter: Our increased focus and accountability within sales and distribution enhancements to our investment platform. And in addition of new Talent over the past couple years are delivering results with record. Growth inflows, in the first half of the year. We anticipate our business to benefit further. If investor preference continues to evolve outside of the United States, given our extensive offerings in global international and Emerging Market. Strategies, as I mentioned earlier, even with robust growth inflows year to date. Successful sales efforts. Continue to replenish our 1 but not yet funded mandates.
Peter Orszag: Progress over time towards our long term goals is supported by our ability to deliver Lazard's premier strategies in new modalities that meet client Beyond product development, we are focused on generating alpha by leveraging leading market and research insights.
Peter: During the second quarter, we also successfully launched our first active ETF product set in the US which includes our Japanese Equity Equity. Mega Trends next-gen Technologies and international Dynamic Equity ETFs with additional ETFs planned for launch later this year.
Peter: Progressed over time towards our long-term goals is supported by our ability to deliver lazard's Premier strategies in new modalities that meet client demands.
Peter Orszag: To advance this effort, last month we announced that Eric Van Nostrand has joined Lazard Asset Management as Global Head of Markets and Chief Economist. Across the firm, our focus on helping clients navigate a complex economic and geopolitical landscape has resulted in another strong quarter and first half of the year. continue to execute against our Lazard 2030 plan with our geographic and product diversification and firm wide momentum positioning us well for a more constructive business environment.
Peter: Beyond product development. We are focused on generating Alpha by leveraging Leading market and research insights. To advance this effort last month, we announced that Eric Van. Nostrand has joined Lazard Asset Management AS Global head of markets and chief economists.
Peter: Across the firm Are focused on helping clients, navigate a complex economic and geopolitical Landscape has resulted in another strong quarter and first, half of the year, we continue to execute against our lazhar 2030 plan, with our Geographic and product diversification in firmwide momentum. Positioning us well for a more constructive business environment. Now, we'll open the call to questions.
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Devin Ryan: We'll take our first question from Devin Ryan with Citizens JMP. Your line is open, please go ahead. Great, good morning. How's everyone? These great things. Good. I want to come back to some of the commentary just on the advisory outlook and, you know, good to hear about the growth and mandates from the beginning of the year. Just want to get maybe a little bit just more texture around the trajectory of recovering that you're seeing in the business. And just whether, you know, we're back to maybe the same level of enthusiasm is where the year started, you know, it seems like we maybe lost a month or two of the actual year.
Speaker Change: Your line is open, please go ahead.
Speaker Change: Hi great. Good morning. How's everyone?
Speaker Change: It's great. Thanks.
Speaker Change: Good. Uh, you want to come back to some of the commentary just on the um, advisory Outlook. And, you know, good to hear about the growth and mandates from the beginning of the year. Um, just want to get maybe a little bit, just more texture around the
Devin Ryan: But are we kind of back on track here? Or is there still some lingering uncertainty on topics like tariffs are still weighing on sentiment in pockets? And so you would characterize it as maybe not quite as robust as you were hoping coming into the year.
Trajectory of recovering that you're seeing the business. And just whether, you know, we're back to maybe the same level of enthusiasm is where the year started, you know, seems like, we maybe lost a month or 2 of the actual year. Um, but but are we kind of back on track here or is there still some lingering uncertainty on topics, like, Paris are still Weighing on sentiment and pockets. And so, you would characterize, as maybe not quite, as robust as, as you were hoping coming into the
Peter Orszag: Three comments. The first is, before we get to the M&A market, which is what I think you're fundamentally asking about, I just want to emphasize again the efforts that we have been making to diversify our business model on the advisory side. And so we're now at a business mix that's roughly 60% M&A and 40% non-M&A, and I think that will continue to evolve over time as we continue to build out additional products and services that we can offer to clients beyond our longstanding excellence. So that's the first point. Second point is, I never thought that what I'll call the Davos consensus at the beginning of the year was realistic.
Speaker Change: Uh 3 comments, um, the first is uh, before we get to them and a market which is what I think you're fundamentally asking about, I just want to emphasize again.
Speaker Change: The efforts that we have been making to diversify our business model on the advisory side. And so we're now at uh is this mix that's roughly 60% m&a, um, and 40% non m&a and I think that will continue to evolve over time as we continue to build out additional, uh, products and services that we can offer to clients beyond our long-standing excellence in strategic m&a. So that's the first point. Second point is, uh, I don't, I never thought that what I'll call the Davos.
Peter Orszag: It was probably a bit too frothy even at the moment, so that's just an aside on the expectations at the beginning of the year.
Peter Orszag: But then third, what I would say is now I do think we're in an increasingly constructive environment. Let me just unpack why we see it that way. All along there are very strong underlying kind of tectonic plate type drivers of M&A activity, especially innovation and technology, increasing returns to scale in many businesses, and some of the other themes that I mentioned. I mentioned earlier, so those persist as big, strong tailwinds. We have gone through a period where there have been various different headwinds that have at least mitigated some of that. Partly it had to do with tariff uncertainty at the beginning of April, and as I mentioned, As long as I think that uncertainty has come in, we do need to see that get get finalized and get commemorated in deals with important trading partners as opposed to still a little bit of uncertainty about exactly how it will settle.
Speaker Change: Consensus at the beginning of the year was realistic. It was um, probably a bit too frothy even at the moment. Um so that's just an aside on uh the expectations at the beginning of the year. But then third what I would say is now I do think we're um we're in a an increasingly constructive environment. Let me just
See it that way.
Um,
Speaker Change: All along, there are very strong, underlying kind of tectonic plate type uh drivers of m&a activity, especially Innovation and Technology. Increasing returns to scale in many businesses. And then some of the other teams that I mentioned, I mentioned earlier. So, those persist, those big strong, um, Tailwind. We have gone through a period where there have been, um, various different headwinds that have, uh, at least, uh, mitigated some of that, um, partly. It had to do with tariff uncertainty, um, at the beginning of April. And as I mentioned, uh,
Speaker Change: you know, as long as I I think that uncertainty has come in, we do need to see that get uh
Peter Orszag: We could talk more about that, but I think that's more likely than not to land in a place that is consistent with what the market's currently expecting. So that. The most pronounced part of that headwind could be put to the side.
You know, get finalized and get um commemorated in uh deals with important trading partners as opposed to um still a little bit of uncertainty about exactly how it will settle. We could talk more about that, but I think that's more likely than not to land in. Uh, a place that is consistent with what the markets currently expecting. So that, um,
Peter Orszag: The second question involves the regulatory environment. Again, I think at the beginning of the year, the consensus was probably a little too wildly optimistic that there would be no regulatory reviews and, you know, anything goes. That was never going to be the case. I think we always had a pretty realistic view that the antitrust environment, for example, would be more accommodating, but not infinitely more accommodating than previously, and I think that is how it's playing out. We did, for example, see a significant acceleration in the average time to close on M&A deals in the second quarter, as one example of.
Peter Orszag: a leading indicator on potential.
Speaker Change: The most pronounced part of that headwin, um, could be put to the side. The second question involves, uh, the regulatory environment. Again, I think at the beginning of the year, the consensus was probably a little too wildly optimistic that uh there would be no regulatory reviews and you know anything goes that was never going to be the case. I think we always had a pretty realistic view that the antitrust environment. For example would be more accommodating but not infinitely more accommodating uh than previously. And I think that is how it's playing out. We did, for example, see a significant acceleration in the average, uh, time to close on, um, m&a deals in the second quarter as 1 example of
Speaker Change: The leading indicator on, um, potential. Uh,
Peter Orszag: For more information, visit www.thevenruso.com And then third is the financing situation, financing markets. Those have generally been improving. The IPO market is still not fully open, but the rest of the financing markets, I think we've seen. material improvements over the past, let's call it... You put all of that together and combine it with the fact that a lot of boards and C-suites want to respond to those underlying drivers that I mentioned at the beginning by doing something, and inorganic activity is often a very attractive thing to do, and so what I can report is we're seeing an acceleration in dialogue, and the willingness of boards and C-suites to kind of say the world may be a bit more uncertain than it was at some time in the past, but we've got to look through that and act anyway.
Speaker Change: Potential changes in that regulatory environment, that we believe will be ongoing. Um,
Speaker Change: And then third is the financing uh situation financing markets. Those have generally been improving the IPO Market is still um not you know not fully open but I the rest of the financing markets I think um
Speaker Change: we've seen material improvements over the past, let's call it, uh, you know,
Peter Orszag: So the final comment I'll say is obviously we have a very strong presence both here in the United States and in Europe. This quarter, in the first half of the year, we saw a bit more of an uptick in European activity. That may get balanced as we go through the year by an expansion in U.S. activity. Most of the comments I was just referring... tilt a bit towards the U.S. M&A.
Speaker Change: Um, final comment I'll say is, obviously we have um a very strong presence both here in the United States and in Europe. Um this uh quarter in the first half of the year, we saw a bit more of a of an uptick in European activity, um, that may get balanced as we go through the year by and you know, an expansion in US activity. Most of the comments, I was just referring I think. Tilt a bit towards the US m&a market.
Devin Ryan: Thanks Peter, excellent call, I appreciate it.
Ryan Kenny: Maybe just to switch gears to the asset management business and touch on the net inflows which we're going to see.
Ryan Kenny: It sounds like a combination of both product and distribution and you've made some good moves on establishing the right products, but on distribution specifically, can you just talk a little bit more functionally, you know, some of the things you've put in place to accelerate distribution momentum, you know, what's working there, what changes have been made, and then just interconnected question, just how that unfunded mandate backlog has trended just after the really nice June there, if there's any order of magnitude you can give there on how that's backfilling. Thank you. Sure, so on the second question, what I said was that it is higher than the elevated level at the beginning of the year.
Speaker Change: Uh, thanks Peter, excellent caller, appreciate it. Um, maybe just to switch gears to the asset management business and touch on, uh, the the net inflows which were going to see, um, you know, it sounds like a combination of both products and distribution and then you've made some good moves on establishing the right products. But on distribution specifically, can you just talk a little bit more functionally, you know, some of the things you've put in place to accelerate distribution momentum? You know, what's what's working there? What changes have been made and then just interconnected questions, just how that unfunded mandate backlog has trended. Just after the, the really nice June there. If there's any order of magnitude, you can give their on how that's backfilling. Thank you.
Peter Orszag: We have not, we're not going to get into the habit of providing a regular numerical update, but we did provide that number at the beginning of the year, so you can take that number and I just said it was higher than that. And that's a really encouraging thing to see because it suggests that the progress that we're making on flow. not eating into the feedstock, if you will, of future flows, but instead it suggests that So, there are a lot of changes that we're seeing in terms of how we're operating and what our clients are looking for that should be more sustainable.
Sure. So on the second question, um, what I said was that it is higher than the elevated level at the beginning of the year. Um, we have not we're not going to get into the habit of providing a regular, uh, numerical update, but we did provide that number at the beginning of the year, so you can, um, take that number and I just said it was higher than that. Um, and that's a really encouraging thing to see because it suggests that the progress that we're making on flows is not, you know, eating into the, the feed stock, if you will, of, of future flows. But instead it suggests, um,
Peter Orszag: With regard to what we've been doing, I'd say two things. One is there were changes in the sales and distribution teams, both in the United States and globally, that were made over the past couple of years. Sometimes it takes people time to get up the ramp in terms of effectiveness and getting used to a new platform. I think we're seeing that occur. A and then B, I mentioned more clarity and accountability. There was an exercise towards the end of last year and at the beginning of this year to set goals for the teams in terms of at a very specific product and strategy level against very specific clients, what the sales and distribution goals would look like.
Speaker Change: Changes that we're seeing in terms of how we're operating and what, uh, our clients are looking for um, that uh, should be more sustainable, um, with regard to what we've been doing. Um, I'd say 2 things 1 is, there were changes in the sales and distribution teams, um, both in the United States and and globally, um, that were made over the past couple years, sometimes it takes people time to kind of, get up the ramp in terms of, um, of Effectiveness and, you know, getting used to a new platform. And I think we're seeing that, uh, occur
Speaker Change: um,
Peter Orszag: And we've been, The final thing I'd say is we talked earlier in the year about some of the very strong investment performance that we have accomplished and the excellent investment teams that we have. What we are seeing is within those flows is a shift towards net inflows in many of the areas where we've seen excellent investment performance, so emerging market equity, global equity, quantitative equity, Japanese equity, as being some of the examples. And so it's not just that there's net inflows, but those net inflows are occurring towards many of the investment opportunities. products and strategies where we've seen excellent performance.
A and then B um I I mentioned more clarity and accountability. There was an exercise towards the end of last year and it's beginning of this year to set um goals for the teams in terms of at a very specific product. And strategy level against very specific clients. Uh, what the what the um sales and distribution goals would look like. And we've been um,
Attentive to making sure that we're hitting those goals and it's paying off. And so that's what I meant by more clarity and accountability. The, and the final thing I'd say is we talked earlier in the year about, um, some of the, the very strong investment performance that we have accomplished, um, and the excellent investment teams that we have. And what we are seeing is within those flows, is a shift towards net inflows in many of the areas where we've seen, um, excellent investment performance, so Emerging Market Equity Global Equity quantitative, uh, Equity Japanese Equity, uh, as being, some of the examples. Um, and so, it's not just that, there's net inflows but, uh, those net inflows are occurring, um, towards many of the investment, um, products and strategies where we've seen excellent performance. Um,
Peter Orszag: The second point is, most of what has occurred to date, in fact the vast bulk of what has occurred to date, has not really reflected this ongoing investor sentiment shift away from U.S. equity in particular. So if that were to continue, and I think there are probably reasons that it's likely to continue, that will be a further boost to the asset market.
Is the is the first point and the second point is um most of that what's occurred to date does not. In fact, the vast bulk of what is occurred to date, is not really reflected, um, this ongoing investor sentiment shift away from us, uh, equity in particular. So if that were to continue, and I think there are probably reasons that it, it's likely to continue. Um, that will be a further um, boost to uh, the asset management business.
Ryan Kenny: Perfect, really helpful. Thanks a bunch.
Speaker Change: Perfect really helpful. Thanks a lot.
Ryan Kenny: We'll take our next question from Ryan Kenny with Morgan Stanley. Please go ahead. Hi, good morning. I just want to square the comments on significantly improving advisory outlook, there's been some upbeat commentary, and the comp ratio is flat sequentially at 65.5%. So any thoughts around timing to hit your goal comp ratio of 60% or below? And with steel conditions quickly improving, can you get there sooner rather than later?
Ryan Kenny: We'll take our next question from Ryan. Kenny with Morgan Stanley. Please go ahead.
Kenny: Hi, good morning.
Just want to square the comments on significantly, improving advisory Outlook. There's been some upbeat commentary um and it Compares you with flat sequentially at 65 and a half percent. So any thoughts around timing to hit your goal comp ratio of 60% or below. And with deal conditions, quickly improving, can you get there sooner rather than later?
Peter Orszag: Sure, so a couple comments. First, I said significantly improving but I also said it won't be linear. We are very cautious about the quarter-to-quarter fluctuations which always happen in this business because many of the transactions are lumpy and things can move in and out, etc. So we are, we held our comp ratio flat this quarter because we think that's the best and most the comp ratio actually lands will depend not only on market, on the market and our performance against that market, but also on the hiring front, I mentioned that we will be at or potentially above the 2030 average target that we have of 10 to 15 net MDs per year.
Significantly improving, but I also said it won't be linear. We are very cautious about the quarter to quarter fluctuations, which always happen in this business because many of the, um, transactions are lumpy and things can move in and out. Um, Etc. So, um, we are we held our comp ratio flat this quarter because we think that's the best and most conservative um thing to do. Um we're the camperio actually lands will depend not only on um,
Peter Orszag: The reason we're doing that, obviously, is because we think that there will be additional revenue and productivity that comes from those hires and those investments over time. We're really excited about the quality of the people that we're attracting, but that will obviously also influence the comp ratio. With regard to when we can get back to the 60%, that is our goal. It's going to depend on market conditions along with our performance.
Kenny: Market on the market and our performance against that market. But also on the hiring front, I mentioned that we will be um at or potentially above the um 2030 average Target that we have of 10 to 15, net MDS per year. The reason we're doing that obviously is because we think that there will be additional revenue and productivity that comes from those hires and those Investments. Um over time we're really excited about the quality of the people that we're attracting and that will obviously also influence uh the comp ratio and then with regard to the um when we can get back to the 60% that is our
Peter Orszag: I'm not going to give you a specific timetable for that other than to say it remains our goal and I think it's pretty clear where we want to land. The parts that we can control involve making sure, for example, that we are Raising productivity, which affects the comp ratio because it's where a lot of the operating leverage on the financial advisory side comes from, given the roughly fixed costs associated with the non-MDs, as you raise.
our goal, it's going to depend on our our on market conditions, along with our performance. I'm not going to give you a specific uh, timetable for that other than to say, it remains our goal. And um I think it's pretty clear where we want to land. Um, the parts that we can control involve making sure for example, that we are, uh,
Peter Orszag: ProductTV that has a... At any point in the future there is going to be significant benefit in terms of non-MSD Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. And on the non-MDPs, how do you think about associate headcount? Are you right-sized to handle the volume coming your way, or do you see yourself doing more hiring there? I think we are in a good place with regard to our non-MD ranks. We actually have had... an increase in the so-called TAE, the total associate equivalent ratio to each MD.
Kenny: raising productivity, which affects the comp ratio, because it, it's where a lot of the operating leverage on the financial advisory side comes from, um, given the roughly fixed costs associated with the non MDS, as you raise,
Kenny: MD productivity that has a a significant benefit in terms of the non MD uh comp pool at least relative to the revenue. Um, making sure that we're hiring the right people, and we're very pleased about that. And then, um, making sure that we are being very, um, conscious of the trade-offs, in terms of compensation versus returns to our shareholders. So, um, more to come on, all of that. But it's, it's still early in the year and we're going to have to see how it all plays out. Uh, we are, you know, um, seeing an increasingly constructive environment. But I'm seeing it and experiencing it are 2 different things.
Speaker Change: And on the non mdps, how do you think about associate? Headcount are you right sized to handle the volume? Coming your way or do you see yourself doing more hiring there?
Kenny: um, I think we
are uh we are in a good place.
Peter Orszag: past year or two so we've got we've got capacity to meet I don't want to overstate the case because there are people obviously...
Kenny: We actually have had, um, an increase in the so-called ta the total associate, uh, equivalent ratio to each MD, um, over the past year or 2. Um, so we've got we've got capacity to meet. Um, I I don't want, I don't want to overstate the case.
Peter Orszag: work hard, but we do have capacity to meet an increasingly constructive Thank you.
Kenny: because our people obviously, uh,
Kenny: Work hard, but we do have capacity to meet um, and increasingly constructive environment.
Kenny: Great. Thank you.
Alex Bond: We'll take our next question from Alex Bond with KBW. Please go ahead. Great, thank you. Good morning, and thank you for taking the question. So just wanted to start on the M&A backdrop in Europe as it relates to the U.S. And just curious if you could provide a little bit more color as to your feeling, you know, relating to sentiment, you know, in terms of the difference between what we're seeing in Europe and the U.S. It looks like EU announcements at the industry level didn't rebound to the same degree in May, June as they did in the U.S.
Alex Bond: We'll take our next question from Alex bond with KBW. Please go ahead.
Alex Bond: So just curious as to what you're hearing in the market currently.
Peter Orszag: Sure, well first let me just start by saying one of the benefits of the increasingly diversified business model we have is that we can kind of skate or surf to where the opportunities are. In the first half of the year that was a bit disproportionate in Europe. great that we have a long-established and preeminent practice there. Most of the European activity that we're seeing is not, I may have misinterpreted your question, but it's not Europe-US activity, it's Europe-Europe or Europe-somewhere in the rest of the world. There's also significant non-M&A activity out of Europe that... that is relevant also.
Alex Bond: Great, thank you. Uh, good morning. And thank you for taking, uh, taking the questions. So, just wanted to start, um, on the m&a backdrop um, in Europe as early as to the US and and just curious if you could provide a little bit more color, um, as to your your feeling, you know, relating to sentiment, um, you know, in terms of the difference between what we're seeing in the Europe, in Europe, in Europe. And the US currently, um, it looks like EU announcements at the industry level didn't rebound to the same degree in May June as they did um, in the US. So, just curious as to what um, you're hearing in the market currently.
Alex Bond: Sure. Well first, let me just start by saying 1 of the benefits of the increasingly Diversified business model. We have is that we can kind of skate or surf to where the opportunities are in the first half of the year. That was a bit disproportionate in Europe. I think that's great, that we have, um, a long established and preeminent practice their, um, most of the European activity that we're seeing is not, um, I may have misinterpreted your question, but is not Europe us, uh, activity. It's, uh, Europe, Europe or Europe, somewhere in the rest of the world. There's also significant non m&a, activity,
Alex Bond: um, out of Europe that, um,
Peter Orszag: I would note before I turn to other dimensions of this that we're also doing a significant amount of hiring in Europe. So we just added a senior financial sponsors coverage person in the UK. We are expanding to a new office in Northern Europe. We have made other hires in London to do insurance coverage and so on. We're going to continue. We have a fantastic new debt advisory team in Germany that adds to the strength of our German team. So a lot of diversified but very highly talented people being added to our platform in Europe.
Alex Bond: That is relevant also.
Alex Bond: I would note before I turn to, um, other dimensions of this that we're also doing a significant amount of hiring in Europe, um,
Peter Orszag: With regard to, you know, where things settle for the rest of the year, which is I think That's the other part of your question. U.S. activity is, you know, coming back to what I said in terms of increasingly constructive environment, I do think that in the back half of this year, that's where you're going to probably see a disproportionate pickup relative to at least our experience year-to-date based on the dialogue that we're engaged with and where we're seeing new activity. But we also expect continued high levels of activity out of Europe. I mean, just overnight, we had the successful defense of Banco PPM against the takeover attempt from Unicredit where we were advising Banco PPM.
Alex Bond: We have made other hires in uh, London to do insurance coverage and so on we're going to continue. We have a, a fantastic new debt advisory team in Germany that adds to the strength of our German team, so a lot of, um, Diversified. Um, but very highly talented. People being added to our platform uh, to our platform in Europe, with regard to, you know, where things settle for the rest of the year, which is, I think this the, the other part of your question. Um, the US activity is where, you know, coming back to what I said in terms of increasingly constructive environment. I, I do think that in the back half of this year, that's where you're going to probably see a disproportionate, um, pickup relative to, um, at least our experience year to date, um, based on the dialogue that we're engaged with and where, um, where we're seeing, uh, new activity. But we, we also expect continued to high levels of activity. Um,
Alex Bond: There's ongoing activity. Great, no, that's helpful color.
Speaker Change: Of Europe. I mean, just uh, overnight. We had uh, the successful defense of um, Banco BPM against the um, takeover attempt from uni credit, where we were advising Paco, PPM, there's there's ongoing activity in in Europe. Uh, in addition to the US
Alex Bond: And then maybe as a follow up, just to quickly go back to the hiring pipeline, you know, you've you've announced a strong number of senior hires here, year to date, and you touched on this briefly earlier, but I'm curious as to if you've seen any, you know, shift in the market there, as we've seen activity rebound over over the last couple months, and I guess just broadly, on your outlook for for hiring through through through your end here. I don't know which way you were expecting the shift to occur, but I would just say that we are doing, we have been doing extremely well in our lateral recruiting efforts.
Speaker Change: Great. No, that's helpful color. Um, and then maybe as a follow-up just to quickly, go back to the, um, the hiring pipeline. You know, you've you've announced a strong number of senior hires here, um, year to date and, and you touched on this briefly earlier. But, um, curious as to, if you've seen any, you know, shift in the market there, as we've seen, um, activity rebound over over the last couple months, and I guess just broadly, um, on your outlook for, for hiring through through, um, through your end here.
Speaker Change: Um,
Peter Orszag: I'm very pleased with the effort that Ray McGuire, our president, has been spearheading. The quality of the people we are attracting is very high. We are winning bake-offs where bankers are considering X or Y us against a competitor. We are pleased with our win rate there while paying a low fee. competitively but not overpaying for the talent that we're attracting and I think that's because of a couple structural features around Lazard that are attractive not only the brand and our reputation for excellent content, but the Vibrating energy that a lot of people can feel about our renewed ambition towards our Lazard 2030 goals The strong culture that we have I talk about a commercial and collegial culture.
Speaker Change: I don't know which way you were expecting the shift to curve. But, uh, I I would just say that we are doing, we have been doing extremely well in our lateral recruiting efforts. I'm very pleased with um, the effort that Ray McGuire. Our president has been spearheading um, in this in this Arena. We've been, um, the quality of the people that we're attracting is very high and we are winning, um, you know, baked offs where Bankers considering X, or Y us against a competitor. We're pleased with our win rate. Um, there without while paying, um,
Speaker Change: Competitively, but not overpaying for the talents that we're attracting. And I think that's because of a couple structural features around Lazar that are attractive, not only the brand and our reputation for excellent content. But, um, the, uh, vibrating energy that a lot of people can feel about our renewed, ambition towards our lazhar 2030 goals, the strong culture that we have
Peter Orszag: That's absolutely key to it attracting top talent And the fact that we've got not only stability in our leadership and a It's a clear strategy but also a significant footprint that's been well established and long standing in both North America and Europe which is very important. Many, many sectors, so we're very pleased with how we're doing. Got it. That's helpful. Thank you, Peter.
Speaker Change: I, I talked about a commercial and collegial culture. That's absolutely key to it attracting, um, top talent.
Speaker Change: And the fact that we've got, um, not only, uh, stability in our leadership and, um, a, a clear strategy, but also a significant footprint, that's been well established in longstanding in both, North America and Europe, which is very important in in many, many sectors. Um, so we're very pleased with how we're doing. And in a
Competitive, labor market.
Speaker Change: Got it. That's helpful. Thank you, Peter.
Jim Mitchell: We'll take our next question from Jim Mitchell with Seaport Global Securities. Hey, good morning. Maybe Peter, you just getting back to the flow picture and asset management, record gross flows. Great to eke out some net inflows, but still obviously implying some pretty high gross outflows. You talked a little bit about not seeing the benefits of the shift in the environment. What what is holding people back? Why is there still relatively high attrition if the environment for non-U.S. equities is getting better and likely to continue to do so? It just seems like at least attrition should slow.
Speaker Change: We'll take our next question. From Jim Mitchell with Seaport Global Securities.
Peter Orszag: Yeah, I'd say a couple things and then maybe Evan can add a bit. Look, I'd say a few things. First, there always are gross inflows and grows out. It's not surprising that there are outflows, people's investment preferences shift, there's natural churn in the marketplace, that's all to be expected. The point of highlighting the record gross inflows is we've got lots of very attractive products and strategies for which there is significant demand, even before There's the added benefit, if you will, for us of ongoing of this investor preference shift. So that's point one. Point two is with regards to the timetables, because our business is disproportionately institutional, these things can often move, you know, at a slightly slower pace because of the processes around making institutional investment decisions.
Jim Mitchell: Hey, good morning. Um maybe Peter you just getting back to the flow picture in Asset Management record, grows flows. Um great to eke out some that inflows, but still, implying some pretty high gross outflows. Uh, you talked a little bit about, you know, not seeing the benefits of the shift in the environment. What what is holding people back? Why is there still relatively High attrition? If the environment for non-us equities is getting better and likely to continue to do? So it just seems like at least attrition should slow.
Jim Mitchell: Yeah, I'd say a couple things and then, um, maybe Evan, can add a bit. Um, look, I'd say a few things first. Um, they're always our growth inflows and grows outflows, so uh, it's not surprising that there are outflows people's uh, investor investment, preferences, shift,
Jim Mitchell: Um, there's natural churn in the marketplace. Um, that's all to be expected. Um, the point of highlighting, the record growth inflows is, we've got lots of very attractive products and strategies for which there is significant demand even before
Peter Orszag: There's not, this is not a very high-frequency kind of thing, and so it's natural to see some lags involved. But I would highlight that one of the reasons why, and you know, there may have been some skepticism among this group on the call at the beginning of the year when I highlighted that we did view this year as an inflection point, and that we, you know, had a stretch goal of flat flows for the year. I think there was a ton of skepticism, but what we could see from our discussions with institutional clients was a shift occurring.
Evan Russo: We anticipated ongoing outflows from some of the sub-advised accounts that have been occurring. That is part of the picture, and I'd note the net inflow in the second quarter was despite a very substantial outflow from a sub-advised account. So there's a shift towards those other products and strategies that I was talking about, global, quantitative, Japan, etc., and a bit away from the U.S. sub-advised, but that was part of what we anticipated. But we could see, based on the dialogue that we were having with clients, a shift in terms of what they were looking to us to provide, and that's exactly what has been occurring.
Jim Mitchell: Uh, you know, at a at a slightly slower Pace because of the processes around making institutional investment, um, decisions. Um, there's not this is not a very high frequency kind of thing and so it's natural to see some lags involved, um, but I would highlight that 1 of the reasons why and you know there there may have been some skepticism among this group on the call at the beginning of the year when I highlighted that um that we did view this year as an inflection point. Um and that we you know had a stretch goal of flat flows for the year I think there was a ton of skepticism but what we could see from our discussions with uh institutional clients was a shift occurring. Um we anticipated ongoing outflows from some of the sub advised accounts.
Jim Mitchell: that have been occurring, that that is
Jim Mitchell: Part of the picture. And I note the net inflow in the second quarter was despite a very substantial
Jim Mitchell: outflow from a sub-advised account. So there's a shift towards, uh, those other products and strategies that I've been that I was talking about global quantitative, Japan Etc, um, and a bit away from the US sub advice. But that was part of what we anticipated but we could see based on the dialogue, uh, that we were having with clients, um, a shift in terms of what they were, what they were looking to us to provide. And that's exactly what has been.
Evan Russo: We set out some ambitious objectives for the sales team, for the business as a whole, and I think we are making very, very solid progress towards doing that. I appreciate some of the skepticism earlier in the year because it only motivates performance even more. And, you know, we're very pleased with the progress that we're making, and I think it is a significant step in the right direction to see the positive net flows, but it's not altogether shocking to us because we could see it earlier in the year before we shared some of those comments with you.
Jim Mitchell: Has been occurring. So, um,
Jim Mitchell: You know, we uh, we set out some ambitious, uh, objectives for the sales team for the business as a whole. And I think um, we are making very, very solid progress towards uh, is doing that and um I uh,
Jim Mitchell: I, I appreciate some of the skepticism earlier in the year because it it only uh motivates uh, performance even more. Um,
Evan Russo: Evan, do you want to add anything? Yeah, sure. Thank you so much. Well, I think the only thing I'd add, Jim, is we're seeing broad-based success in our new flows. So, it's really broadly defined across channels, so whether it's institutional or intermediary, it's across geographies. So, we're seeing tremendous success in Asia-Pacific clientele looking to put new capital to work as well as in Europe and as well as across products, so it's not just one single product as Peter pointed out earlier, so it's across global equities and international products as well, Japan, quant, and even some in the emerging markets.
Evan Russo: So, in terms of how the reallocation, the shifting is happening, I mean, as Peter said, institutional trends take some more time, so it's still early. We're starting to see some of the early adopters, but there's definitely more green shoots and early adopters, and we're seeing definitely more interest across that reallocation trade that we've been talking about for a little bit. That started with some of the client discussions and early adopters, as we said, at the end of last year leading into this year, and that trend continues. So, so far, I think the momentum, clearly we're trending better than past years and calling out sort of the record gross flows for the first half of the year shows the momentum we're having bringing new clients as well as new mandates, bringing new mandates to the product set that we have.
Jim Mitchell: And, you know, we're very pleased with the progress that we're making, and I think it's, it is a significant step in the right direction to see, uh, the positive, net flows. But, um, it's not altogether shocking to us because we could see it earlier in the year before we shared some of those comments with you. Evan, do you want to add anything? Yeah, sure. You can summarize. Well, I think the, the only thing I'd add Jim is. Look, we're seeing broad-based uh, success in, in our new flow. So it's really, uh, broadly defined across channels. So whether it's institutional or intermediary, it's it's across geography. So we're seeing tremendous success in in Asia Pacific, uh, clientele of looking to put new capital to work as well as in Europe and as well as across products. So it's not just 1 single product that's Peter pointed out earlier. So it's across Global equities and international products as well. Japan Quant uh and even some in the Emerging Markets. So
Evan Russo: Okay, thanks. That's great color. And I apologize for the what have you done for me lately question.
Speaker Change: In terms of how the reallocation the shifting is happening. I mean, as Peter says, institutional Trends, take some more time. So it's still early. We're starting to see, uh, some of the early adopters, but there's definitely more green shoots and early adopters, and we're seeing definitely more interest across that, uh, reallocation trade that we've been talking about for a little bit that started with some of the client discussions and, and early adopters. As we said at the end of last year, leading into this year, and that Trend continues. So, so far, I think the momentum, clearly we're trending better than past years, and calling out. Sort of the, the record growth flows for the first half of the Year shows the momentum, we're having bringing new clients, as well as new mandates, bringing new mandates to the product set that we have.
Peter Orszag: Maybe just a follow up on AI. Peter, you've been I think more vocal than your peers on the potential for AI in your business. Can you kind of talk about what you see as the benefits and what progress you may already be seeing in terms of efficiency? Yeah, look, I think the next couple years are going to be transformational for both of our businesses, the technology, this is, as I look back, I'll be approaching two years in the seat in October, as I look back to the, you know, how things are gone, which is generally very, very well, I'm very pleased with the progress.
Okay. I think that's great color and I apologize for the what have you done for me lately, question, um, maybe just maybe just a follow-up uh on on AI Peter you've been I think more vocal than your peers on the potential for AI in your business can can you kind of talk about what you see as the benefits and what progress you may already be seeing in terms of efficiency?
Speaker Change: Transformational for both of our businesses.
Peter Orszag: One of the surprises has been that we anticipated AI would be advancing, but it's advanced even more rapidly than I had anticipated. That's both with regard to the tools that we have sitting inside of our firewall. That we are using to improve what we can do for clients and also improve the experience for our people. But it's also I think all of us in our own lives outside of outside of Lazard business, you can just see the remarkable advances that are occurring. Many of these tools. are commercially available.
Speaker Change: Look back. Um I'll be approaching 2 years in the seat uh in October. As I look back to um the the you know, how things are gone which is generally very very well and very pleased with the progress. Um 1 of the surprises has been that we anticipated AI would be advancing but it's Advanced even more rapidly than I had anticipated. Um then
Speaker Change: That's both with regards to the tools that we have sitting inside of our firewall, um, that we are using to improve what we can do for clients and also improve the experience for our people. But it's also, I think all of us in our own lives outside of, uh,
Peter Orszag: With regard to what we're doing, I think there's sort of basically four different parts to the way that we're thinking about AI. One is that we want to be at the absolute forefront of the technology, so to be at the cutting edge of what's available to our bankers, to our investment professionals on the asset side. So that's kind of tier one, and we've spoken about some of the tools that we have available to our bankers. We're going to continue to explore ways of, you know, the boundary is ever expanding in terms of what... possible.
Speaker Change: outside of Lazar business, you can just see the remarkable uh advances that are occurring, in many of these tools um that are commercially available um with regard to uh,
Peter Orszag: The second is, which I think is really important, is the cultural shift. So I actually just welcomed our new analysts, and I talked about being the anti-QWERTY generation, by which I mean if you look at your keyboard, it's Q-W-E-R-T-Y in terms of the letters. The reason they're aligned that way is because early typewriters did not have a QWERTY keyboard. People were typing too quickly, and so the QWERTY keyboard was literally designed to slow people down so the keys would not get stuck, and yet we still have the QWERTY keyboard because of the overwhelming power of inertia.
Speaker Change: Sort of basically 4 different parts to um the way that we're thinking about AI 1 is that we want to be at the absolute Forefront of the Technologies. So to be at The Cutting Edge of what's available to our Bankers, to our investment professionals on the asset side. Um, so that's kind of Tier 1 and we've spoken about some of the tools that we have available to our Bankers. We're going to continue to, um, explore ways of uh, you know, it's it's a the boundaries ever expanding in terms of what, what, uh possible. Um, the second is, and which I think is really important, is the cultural shift. So, uh, actually just Welcome to our new analysts and I talked about being the Antiquity, uh, Generation by which I mean, if you look at the your keyboard, it's QWERTY in terms of the letters, the reason they're aligned that way is because early typewriters, um, people did not have a credit keyboard people were typing too quickly. Uh, and so the query keyboard was literally designed to slow people down. So
Peter Orszag: And so our incoming analysts and associates are motivated to be bilingual in the kind of old way of doing things, and then the new way of doing things, so that we break the QWERTY chain of just continue to do things the same way, even if it's inefficient, even if it doesn't make any sense.
Speaker Change: To the Keys would not get stuck. And yet we still have the quittie keyboard because of the overwhelming power of inertia. And so, um, our incoming analysts and Associates are motivated to be, um, bilingual in the kind of old way of doing things, and then the new way of doing things. So that we break the Cordy chain of, uh,
Peter Orszag: Please see the complete disclaimer at https://sites.google.com The third thing is whether the degree to which we can digitize the knowledge and information that exists inside the walls of Lazard. There's amazing insight that's walking around in people's brains. The more that we can digitize that, the more that the tools will have something to work with.
Speaker Change: Uh just continuing to do things the same way, even if it's inefficient and even if it doesn't make any sense, it obviously doesn't make any sense anymore to worry about Keys uh you know the keys getting stuck except I guess if you spill something.
Speaker Change: On the keyboard. Um the third thing is whether the degree to which we can digitize the knowledge and information that exists inside the walls of Lazar. There's amazing Insight that's walking around in people's brains. Um the more that we can digitize that the more that the tools will have
Peter Orszag: And then the final thing, which is perhaps surprising or ironic or doesn't quite fit the mold, is we firmly believe that as the technology improves, the importance of human relationships, of Client Connectivity will only expand, not decline. So that involves more convening, more, you know... I am personally very excited about the opportunity to, again, I think this will be transformational for both of our businesses, and we're very, very much focused. Great, thanks.
Speaker Change: Um, something to to work with. And then the final thing which is perhaps, um, surprising or ironic or doesn't quite fit. The mold is we firmly believe that as the technology improves the importance of Human Relationships of deep client connectivity, will only expand not decline. Um, so that involves more, uh, convening more, um, you know, uh,
Speaker Change: Detailed discussions with clients that those trusted relationships are are even more important in an AI enabled World, um, than ever. So lots of different activities going on here. And, um, I I am personally very excited about the opportunity to, to again. I think this will be transformational for both of our businesses and we're we're very, very much focused on it.
Speaker Change: Great, thanks.
James Yaro: We'll take our next question from James Yaro with Goldman Sachs. Please go ahead. Thanks for taking the questions. Good morning.
Speaker Change: We'll take our next question from James yarrow, with Goldman Sachs. Please go ahead.
James Yaro: So, you mentioned, Peter, that private equity will comprise an increasing portion of M&A, but recently Strategic M&A has outperformed Sponsor M&A again this year. Could you just help us think through when the frequently and much-hyped Sponsor recovery will take off? Sure, before I do that, let me just again note that we now are, as I mentioned, I think in the prepared remarks, over 40% of our advisory revenue is coming from private capital. So even while the M&A piece of that world has been a little subdued, we have so many other touch points with private capital from fundraising to restructuring and liability management to our Lazard Capital Solutions team and so on, our fundraising business obviously.
James Yarrow: Uh, thanks for taking the questions. Um, good morning. Um, so, uh, you mentioned, uh, Peter that privacy will comprise increasing portion of m&a. But, but recently, strategic m&a has outperformed sponsor m&a. Again, uh, this year, uh, could you just help us think through when the frequently and and much hype sponsor recovery, uh, will take off?
Peter Orszag: that we are seeing a significant increase in revenue associated with private capital, even while the M&A channel part of that has been a bit subdued. So that's point one. Point two is the reason that we think there will be a pickup in M&A activity from this sector is that it's just been several years now in which LPs have had relatively low cash distributions, lower than expected, lower than they expected. So the pressure continues to mount. In the meanwhile, that pressure has helped to create an acceleration of our secondaries business within our PCA fundraising business, but nonetheless, it is still a significantly rising pressure environment.
Peter: Sure. Um, before I do that, let me just again note that we now are uh over as I mentioned. I think in the prepared remarks, um, over 40% of our advisory revenue is coming from private Capital. So even while the m&a piece of that world has been um, a little subdued. Um, we have so many other touch points with private capital from fundraising to, uh, restructuring liability management to our Lazard Capital Solutions team. Um, and so on, uh, our fundraising business obviously, uh,
Peter: That, uh, we are seeing a significant increase in Revenue associated with private Capital even while the m&a channel part of that has been a bit subdued, so that's Point 1. Um, Point 2, is the reason that we think there will be a pickup in m&a, activity from this sector is that it's just been, um, several years now in which LPS have had
Peter: Relatively Low Cash distributions lower than expected lower than they expected. So the pressure continues to mount um in the meanwhile.
Peter: that pressure, excuse me, has helped to create
Peter: An acceleration of our secondaries business within um our PCA fundraising business but uh nonetheless. It is still a significantly Rising uh
Peter Orszag: And the reason that there hasn't been more cash distributions from the M&A channel is because of some of those headwinds that I mentioned before, but those are generally resolving. Maybe not quite yet fully with regard to the IPO market, but The regulatory environment, I think, is clarifying. The tariff environment is, we hope, clarifying, and we expect that it will. So many of the things that have been kind of impeding M&A activity from private equity are resolving themselves. And then you layer on top of that the, excuse me, if something stuck my throat, I'm sorry. You layer on top of that the, Pressure from LPs and that's why we think that the environment will shift.
Peter: Kind of pressure environment. Um, and the reason that there hasn't been more cash distributions from the m&a channel uh is because of some of those uh headwinds that I mentioned before, but those are generally resolving, maybe not quite yet fully with regard to the IPO Market but uh
Peter: Regulatory environment, I think it's clarifying. The Tariff environment is, we hope clarifying. And, and we expect that it will so many of the things that have been kind of. Um, impeding m&a activity from private Equity, uh, are resolving themselves and then you layer on top of that, the excuse me, if something stuck in my throat, you layer. On top of that, the, um,
Peter Orszag: Okay, excellent. That's very, very clear.
Peter: The pressure from LTS and that's why we think that uh the environment will shift.
James Yaro: Just two quick asset management questions here. Firstly, to clarify a previous point you made, are you now committing to net zero flows? And I guess, how should we think about this over an annual basis or some other period?
Peter: Okay. Excellent. That's very, very clear. Uh,
just 2 quick Asset Management, questions here, firstly to clarify a previous point you made
James Yaro: Secondly, could you just speak to the impact of recent inflows on the asset management fee rate and the makeshift away from sub-advised mandates? Should we expect the fee rate to potentially take down from this quarter's level? And just how to think about the cadence. I know there's a lot there. Sure.
Peter: Are you now committing to Net? Zero flows. Uh, and and I guess, how should we think about this, over an annual basis, or some other period? Secondly, could you just speak to the impact of, um,
Peter Orszag: First, I don't know exactly what you mean by committing to, but we had said that flat flows was a stretch goal at the beginning of the year. I think it's still within reach as a stretch goal for the year as a whole. We will see how it plays out. But at the very least, the flow picture is significantly improved relative to 2024, despite some of the skepticism when we initially put out that stretch goal. So, I will just reinforce that we're focused less on, well, we're focused on doing the things under the surface that lead to good outcomes and you're seeing some of that played through in the results year-to-date and in the second quarter.
Peter: Recent in flows, on the asset management fee rate and the makeshift away from sub-advised. Mandates should be expected, uh, the fee rate to potentially take down from this quarter's level. And, and just how how to think about the case. I I know there's a lot there.
Peter: Sure. Uh first I don't know exactly what you mean by committing to but we had said that uh flat flows was a uh stretch goal at the beginning of the year. Um I think it's still uh Within Reach. It has a stretch goal for the year as a whole. We will see how it plays out but um at the very least the flow picture is significantly improved relative to 2024 despite
Peter: Some of the skepticism when we initially put out that stretch goal. So, uh, I will just reinforce uh, that we're focused Less on. Um,
Peter Orszag: With regard to the fee rate, actually the fee rate increased very slightly quarter-over-quarter and increased a bit more year-over-year. The sub-advised accounts, as I mentioned earlier in the year, are a significant share of AUM, a notable share of AUM. So, they're relatively low fee rate assets, which is why they're a much larger share of AUM than they are of revenue. So, mechanically, just from that alone, if you had a neutral overall flow and there was flow out of the sub-advised and flow into other products, you should expect probably at least stability and maybe even an increase in the average fee rate.
Peter: Uh, well, we're we're focused on doing the things under the surface, that lead to good outcomes. And you're seeing some of that play through, uh, in the results year to date. And in, uh, the second quarter, um, with regard to the fee rate, actually, the fee rate, um, increased very slightly quarter of a quarter and increased a bit more year-over-year. Um, the sub advised, uh, accounts. As I mentioned, uh, earlier in the year, um, are a significant share of AUM, a notable share of AUM. They're a pretty small share under 5% of our asset Revenue in total. Um, because the fee because they are large and therefore, the net, there is a natural negative relationship between the size of the Mandate and the fee rate that uh, from a single client, for example, that 1 obtains. Um, so they're relatively low fee rate uh, assets which is why they're a much larger share of AUM than they are of Revenue. So,
James Yaro: Excellent, very clear.
Peter: You know, mechanically just from that alone, if you had a, if you had a neutral overall flow and there was flow out of the sub-advised and flow into other products, you should expect probably at least stability, and maybe even an increase in the average fee rate as a result.
James Yaro: Just a quick last one on the non-comp, you know, good dot-com discipline in the quarter.
James Yaro: Could you just speak to the non-comp growth trajectory from here? Yeah, I'll take that one, James. So I had previously said that I expected mid single digit increase in non comp on a dollar basis for the year. Since then, we've seen some upward pressure a couple points from FX rates. And then we've also seen business development trending up as well as continued investments in technology. So now I'd say probably expect more like high single digit for the year.
Peter: Excellent. Very clear. Just a quick last 1 um on the non-comp uh you know good Dot and comp display in the quarter. Um could you just speak to the non-com growth trajectory from here?
Speaker Change: Yeah, I'll take that 1 James. Um, so I had previously said that I expected mid single digit increase in non-comp on a dollar basis for the year. Since then we've seen some upward pressure, a couple points from FX rates and then we've also seen Business Development trending up as well as continued investments in technology. So now I'd say probably expect more like high single digits for the year.
James Yaro: That's very clear. Thank you so much.
Peter: That's very clear. Thank you so much.
Brendan O'brien: We'll take our last question from Brendan O'Brien with Wolf Research. Please go ahead. Good morning, and thanks for taking my questions. I guess to start, you know, the commentary on the mix of the advisory line was helpful and insightful. So thank you for providing that. But I just want to get a sense as to how that mix compares today relative to last year and within those non M&A businesses. How is the contribution from those different line items evolved? So I would say relative to last year, we have a slightly higher non-M&A share. The mix is again roughly 60-40.
Speaker Change: We'll take our last question, from Braden O'Brien, with wolf research. Please go ahead.
Braden O'Brien: Good morning and thanks for taking my questions. I guess to start, you know the commentary on the mix of the advisory line was helpful and insightful. So thank you for providing that but I just wanted to get a sense as to how that mix Compares today relative to last year and within those non m&a businesses.
How is?
Braden O'Brien: The contribution from those different line, items evolved.
Braden O'Brien: so, um,
Are you last?
Braden O'Brien: we have a slightly higher, uh,
Peter Orszag: There's a couple percentage point move, not a massive, but a couple percentage point move relative to last year in that mix with the non-M&A piece ticking up a bit and the M&A piece being a slightly smaller share of the total. Within the non-M&A piece, we've seen a significant increase in restructuring and liability management, especially liability management, which is almost the entirety of it. We also, as I mentioned, we had a record first half in our PCA business, which is our fundraising business, disproportionately in the secondaries piece of that. The secondaries piece of that will be...
Braden O'Brien: The mix is again roughly uh, 6040. Um,
Peter Orszag: roughly 60, or let's call it two-thirds of the overall business, roughly speaking, in that category. We also are seeing significant growth in our capital solutions group, which, you know, is great to see. So, and I could keep going.
Peter Orszag: There's a whole bunch of different pieces to this, but backing up, we have been building out more products and services for our clients to diversify the business. So, at this point, we are increasingly well-diversified geographically, and we are well-diversified across the products that we're offering to our clients. And that's just an advisory, obviously. We also have the diversification that comes from having the asset business also. That's hopeful color.
We also, as I mentioned, uh, we had a record first half in our PCA business, which is our fundraising business. Disproportionately in the secondary piece of that, the secondary piece of that will be, you know, roughly 60, or let's call it 2/3 of the overall business. Um, roughly speaking in that, uh, category. We also are seeing um, significant growth in our Capital Solutions group, um, which uh, you know, is is great to see. So and I could keep going. There's a whole bunch of different pieces to this. But backing up, we have been building out, uh,
Braden O'Brien: products and strategy, board products, and services for our clients to diversify the business. So at this point we are increasingly well Diversified geographically. And we are well Diversified uh across
Braden O'Brien: Um, the products that we're offering to our clients, um and that's just an advisory. Obviously we also have
Braden O'Brien: um, the diversification that comes from having the asset business also,
Peter Orszag: And, you know, just drilling down on the restructuring part of the business, you know, in your comments around the M&A outlook, you, you know, indicated that conditions are improving, corporate balance sheets are strong, but obviously, at the same time, it sounds like your liability management practice, you know, continues to see strong momentum. So just trying to square those two, like the push pull between those two businesses, and you know, how you expect restructuring and liability management activity to protect throughout the rest of this year and into next. Yeah, look, what I'd say is even within a generally constructive environment, there always are companies that find themselves in trouble or sectors that find themselves more challenged.
that's helpful color. And, you know, just drilling down on the restructuring, part of the business, you know, in your comments around the, the, the m&a Outlook, you, you know, indicated that conditions are improving. Corporate balance, sheets are strong, but obviously at the same time, it sounds like your liability management, um, practice uh, you know, continues to see strong momentum, so just trying to square those 2.
Braden O'Brien: on like the push pull between those 2 businesses and you know, how you expect restructuring and liability management activity to project throughout the rest of this year and into next,
Braden O'Brien: yeah, look what
Peter Orszag: So it's not surprising that especially as we've moved towards more liability management, and that is the vast, I mean, that's, you know, the vast bulk of the activity at this point, that these things can kind of coexist. A couple other noteworthy features we've seen, you know, one thing that we've done in this business, not only did we have a leadership transition a couple years ago, but we diversified this business not only into liability management and away from just pure restructuring but also to have a balance between creditors and debtors. I would say I'm gonna maybe get this not exactly right but if you go back five or ten years the business was probably 90% or more debtor based and today it's more like 60-40 debtor creditor in that range so I've been mentioning 60-40 a lot there are lots of different ways in which we're diversifying the business almost all of the times that I mentioned 60-40 so that would be kind of you know M&A, non M&A, public company, private company not exactly but sort of U.S., Europe, now debtor-creditor, as I mentioned.
Braden O'Brien: What even within a generally constructive environment, there are always our companies that find themselves in trouble or sectors that find themselves more challenged, so it's not surprising, um, that especially as we've moved towards more liability management, uh, and that is that that I mean that's you know, uh the vast bulk uh of that activity at this point um that these things can kind of coexist.
Braden O'Brien: um,
Braden O'Brien: couple other noteworthy features we've seen, uh, you know, 1 thing that we've done in this business, not only did we have a leadership transition, a couple years ago but we, um, increasingly Diversified this business not only into liability management and away from just pure restructuring but also to have a balance between um creditors and debtors. Um, I would say I'm going to maybe get this not exactly right? But if you go back 5 or ten years, the business was probably
Braden O'Brien: 90% or more debtor um based. And today it's more like 6040 debtor um creditor in that range. So I've been mentioning 6040, a lot there are lots of different ways in which we're diversifying the business. Um, almost all of the times that I mentioned 6040, uh, so that would be kind of, you know, uh, m&a, non m&a.
A public company private company, not exactly. But sort of uh,
Peter Orszag: All of those have potential to move more towards 50-50 with lots of growth even in the 60% components. So when I say move towards 50-50, that means a larger share of a larger pie, which is why we're really excited over the next few years to see lots of opportunity ahead for growth. And that's why we're out in the marketplace attracting new talent and high-quality talent because we see so much.
Braden O'Brien: Us Europe. Now uh debt or creditor, as I mentioned, all of those have potential to move more towards 50/50 with lots of growth even in the 60% components. So when I say move towards 50/50, that means
Braden O'Brien: A larger share of a larger pie, um, which is why we're really excited over the next few years to see lots of opportunity ahead for, um, for growth. Uh, and that's why we're out in the marketplace, uh, attracting new talent and high-quality talent, because we see so much opportunity,
Operator: Great, hello, thank you for taking my question.
Speaker Change: It's a great color. Thank you for taking my questions.
Operator: This now concludes Lazard's second quarter 2025 earnings conference call.
Speaker Change: This now concludes lazard's second quarter 2025 earnings conference call.
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