Lazard, Inc. (LAZ) Earnings Call Transcript & Summary

Good morning, everybody. It's 8:00, so I think we'll get started. I'm delighted to welcome Ken Jacobs, who's CEO and Chairman of Lazard. Ken is in the 14th year in the job of CEO. He started his career in 1984 at Goldman Sachs here in New York. So close to 4 decades of experience in the advisory business. So I'm guessing that over that time, you've seen a number of cycles. So it sets you up well to talk about, I guess, the discussion for today.

So Ken, I thought we could just start off with a discussion about your strategic priorities for the business. Maybe you can talk a little bit about how those have evolved over the course of the year, what you're the most focused on as you think about next year? And maybe talk about some of the risk factors that you're thinking about when you're thinking about the outlook for next year?

Sure. So this is -- been through a lot of cycles, and every cycle is different from every other cycle and none is the same and each of them have elements that are different and such. So -- but the one certain thing about our business is that in a downturn, you want to be strategically investing. This is not a business you want to invest in as the cycle peaks because you have a period of time, it could be a year, it could be 2 or 3 years, depending on the cycle. And you want to be in a position so when the next cycle starts, you reap the benefits of your investment instead of paying peak prices at the top of a cycle and then having to experience the downturn as you put people in. So -- this is an interesting time for us. On the advisory side, it's really about people. It's an interesting business. It has a lot of great characteristics -- but one of them is, unfortunately, that it doesn't really have a lot of economies of scale. And so it's a business where if you add people, you add revenue, but if you add inferior people to your platform, you actually degrade the platform and you don't do it particularly well. So it's hard to add really great people in a very vibrant market. It's much easier as the market starts to shift. And it's also easier to keep your own people in an environment like this. So this is a great time to be building out the advisory business, and we see a lot of opportunity to do that. We've been doing it consistently through the last cycle. I think in this moment in time, there's probably some opportunities to build on that. The Asset Management business is many ways similar and actually the opportunities are even greater. The positive on the Asset Management business is unlike the Advisory business, it's a business where there are economies of scale, which means that if you do well, and you have favorable environment without adding a lot of people or expense, you can do a lot better. And that's the beautiful thing about that business. It's kind of the flywheel to Lazard. You get the brand development and building from the Advisory business -- and then you -- in the Asset Management business, when it works, you get a lot of flywheel effect from that because of the economies of scale there. And that's been a formula that not all the time, but over long -- certain periods of time and many other periods of time. We've been public it has worked well over the time, when we were private it worked really well. So in the Asset business, what we're looking at now is a world where there's just a lot of turmoil. And again, that's an environment where if you're going to invest, you want to invest in this kind of environment, and we see a lot of opportunity around that, both in terms of teams building out some of the organic capabilities we have and candidly, there are going to be some M&A opportunities, which I don't think we would have ever looked at before that we will consider now.

In terms of the products and geographies that you're focused on expanding or even the industry verticals, have those evolved over the course of the year as well?

On the Advisory side?

Yes, on the Advisory side.

Yes. So one thing we've launched recently is a geopolitical advisory business, which is never going to be a several hundred million dollar business, but it's a phenomenal connector in this environment. And we've put together an A+ team there with some capabilities around data analytics and such that we think is going to really stand out in that market. But what's really wonderful about it is it's a form of dialogue in companies at a moment in time where companies are starved for this kind of dialogue. And it's -- we've started to put this in place about 2 years ago. It's just been launched about a month or 2 ago. The reception is great. And I don't -- again, I don't think this is a huge revenue generator, but it is a big sort of what I describe as connector for us with strategics in particular, but also increasingly with a lot of financial institutions as well and financials -- and sponsors as well. In terms of the actual fee pools that exist where I think there's a lot of opportunity for us, of course, the United States still, it's still the best fee pool in the world. It's the most vibrant market. I think we've done a good job of building out our sponsor business over the last several years. It's much better than it was a few years ago. I like the mix at this point. I don't think it should be a bigger mix in terms of where we are because it runs the risk of starting to diminish the focus on strategics, which is in the public company advisory business, which has more moats around it, is a much better business in the long run, I think, for us. But it's an important business, and we've done a great job building that out. We've added some really great private credit advisory capability. I think we've hired the best team around to lead us on that. And that's really making a difference, both in terms -- in this environment, especially where it really matters. And particularly on the restructuring side, it's been a great add to that capability. In terms of industry segments, clearly, the energy transition is very important. We're I think the clear leader in many parts of that business right now, we've been doing it for well over a decade at this point. We have the leading intellectual content in that area with the papers we're putting out around levelized cost of energy and storage and things like that, that really drive a lot of its conversations with strategics, but we're building into that business even more. And then clearly, health care, biotech, biopharma generally is going to be a very big growth area over the next decade, both in the United States and in Europe. And then certain parts of the technology area, of course, are going to continue to be really busy. Those are focused. The area where we stay really active right now is in the fixed space. I'm kind of surprised by that, but it's been a really good area for us for the past couple of years, and I think we're doing a lot there right now.

Okay. So let's talk a little bit about the mindset of corporate clients. I mean, how would you characterize it today? How has it evolved over the last few months? Is the discussion predominantly about the macro and how corporate is thinking about the willingness to transact heading into '23?

The key thing is strategics. And you can talk about anybody that's an investor right now that has to allocate capital. They need to have confidence in their predictions about the future. That's a core element of making a decision about allocating capital, whether you're an investor on the buy side or you're a strategic or a financial sponsor. You have to have some confidence about your predictions in the future. And candidly, right now, no one does. It's really a very difficult environment. I'm not sure -- I mean, people are very confident about their predictions about the future a year ago, and they were wrong. So it's not always that you're right when you predict the future, but you have to have that confidence. And right now, that confidence doesn't exist. That probably means it's a pretty good investment opportunity, investment climate. But that's not -- M&A tends to be procyclical and ironically probably so does investing.

I mean what do you think breaks logjam? Because if I think about 2020 really what I guess broke logjam is the fact that the Fed started cutting rates obviously very rapidly, but then flooded the system with liquidity, and they kind of put a floor, if you like, under asset prices, that's obviously not going to happen this time around. If anything, rates are going to remain probably structurally higher for longer. So what does it take? Is it just certainty of where rates end up? Is it some sort of stability in financial markets? Or is it something else that we need to see in addition to those?

Actually, I'm going to jump in on one of the things you said, which, obviously, this isn't going to happen. Actually, I think one of the fears that we should all have is that it might happen, right? Because if the Fed steps in to provide a floor on asset prices, it's probably because there's a discontinuity in markets. And that's pretty much what the Fed has done over the last 30 or 40 years, is every time there's been a discontinuity in markets, they've stepped in to provide a floor. And in the environment we're in right now, that would probably be a really bad thing because if that happens, we're probably stuck with inflation for longer, maybe less of a recession, but a very, very complicated environment at that point. And so far, we've been pretty lucky because the Fed moves, which have been pretty dramatic relative to anything we've seen in recent years and maybe over long periods of time, haven't resulted in this kind of discontinuity. I mean we're seeing the crypto market blow up, but that doesn't appear to be systemic at this point. What we saw in the U.K. was a little bit of a precursor of something that could happen more broadly, but I think the central banks now are more aware of that and probably have taken a bunch of protective measures with that -- in that regard, but that's something to keep an eye on. On the flip side of it, what does it take? It takes a new consensus, candidly and I'm not sure -- there are a lot of elements to that. One is where is inflation headed? And are we confident that inflation is on a trajectory to get back to a point where the Fed -- where we're confident that the Fed is going to stop tightening, that's one dynamic. The second dynamic is going to be around how deep and broad is the recession going to be if there is going to be a recession. And where is it going to be located, which industries and such. And then the third is what's the dynamic of this economy because it looks like it's a little bit different than what we're used to. It appears to be the layoffs are coming before the recession. It isn't really strong yet, but you're seeing tech companies, as an example, obviously, some of the financial service companies starting to lay off people before the recession. Now I actually think those industries are in recession. So that probably is not anomalous, but it is different from what we're used to seeing. The consumer, up until probably Christmas was in pretty good shape, but it looks like the readout from retail is a disaster right now. I mean it's a little early to say that, but it doesn't look good at all. So I think we're in an environment where until this settles down, inflation, therefore, how much does the Fed have to cut rates more, where are we on the recession, how deep, how long? And then also what kind of economy is this? And where is the locus of the change coming from? I think those have to sort themselves through.

So I think one of the other things which the market is assuming and again, it may be one of these where they're wrong, is that interest rates are going to be structurally higher for a protracted period of time. I think some of the tail risks around rates maybe have been taken off the table. But if we just assume that rates stay in this region of, let's call it, 4% to 5% mean -- what does it mean for the business compared to what we were accustomed to over the last decade?

Valuations adjust. I mean we live with those kind of rates in the knots and we're used to them in the '90s. It's not -- the rates themselves are absolutely, yes, they're higher than where they are relatively, they're much higher than where they are. But we've had these rates before and valuations adjust, and cap structures adjust. It's just right now, I don't think people have settled on that yet. They don't have that kind of confidence of their predictions. You look at it the 30 -- the 10-year, and it's 3.5%, 3.6% or whatever the hell it was yesterday, but then you're sitting with what? 7%, 8% inflation right now. Sure, the bet on that is you're going to be down to 2% or 3% inflation, but we're sitting at 6% or 7%. How do you make that bet right now? It just isn't something where I think people have a lot of confidence on -- and I think that's the piece that we have to get through.

Okay. So maybe we can talk about what you're seeing geographically, are there any material differences emerging between the U.S., Europe, maybe even Asia? And then the other thing I'd be interested in hearing your view on is obviously, look, this massive appreciation of U.S. dollar relative to other currencies. What does that mean? Is that actually starting to drive the strategic dialogue? Or is that just another one of these factors that are put in the mix and people are trying to figure out is this permanent or not?

Well, let me actually take that one and just talk about Lazard with that for a minute. I think it's really something that is pretty meaningful for us. So against the euro, back to 2016, [ '27 ], there's been more or less a 40% depreciation. I think it topped out around $1.40 or so before Trump was elected. Today, it's hovering around parity. The sterling was probably around $1.55, $1.60 it's today about $1.20 or so. For us, this has been an enormous headwind for the last 5 or 6 years because we have an Asset Management business where basically, we raise money in mostly dollars and we invest virtually all of it, certainly the higher fee part of it outside of the United States. And so when you have currency working against you and you have -- that means markets aren't quite performing as well. That's an enormous headwind. Candidly, I think we have a better chance now of more recovery of the euro and a weaker dollar than we do another 40% decline. And so if you look at PPP right now, it's sort of [ $1.25, $1.30 ] against the euro. And that sort of feels like an interesting dynamic for us over the next 3 or 4 years. And I'm not predicting a turn in the dollar today, but over 3 or 4 years, you can imagine that dynamic playing out. That's an enormous tailwind for Lazard. On the Asset Management side and also on the Advisory side, even relative to some of our peers. So just a point on that. Now coming back to strategics and what's the impact of currency and such, you know what, you can play that either side. The conventional wisdom is that the strong currency will drive buyers into the weak currency. But I don't think it matters if a business is borrowing money to do an acquisition, they tend to borrow in the market where they're buying. And so they tend to offset that risk. There are odd circumstances where they don't. So I think that on balance, probably you'll see a little bit more focus on buying non-dollar assets by U.S. acquirers. But I think there are equally strong reasons why you're going to see German companies, in particular, and some other European companies really affected by the higher gas prices, taking advantage of the IRA, the Inflation Reduction Act and a lot of the incentives in there to purchase in the United States and to build more plant, property and equipment and infrastructure in the U.S. over the next couple of years.

And then just in terms of underlying activity in Europe versus U.S. versus Asia, how is that tracking? Anything -- I guess the question is, has anything surprised you?

I've been surprised all year long by the level of activity that we've had relative to the market environment. As you see, I mean we're -- now some of this is all old news. When you have completions today, it's things that started 6, 9, 12 months ago. But the first 9 months, we had record year in Advisory, which shocked me candidly, given how much things were starting in the overall environment to start to slow towards the end of last year, not even before the invasion. So I've been a little surprised by that. That said, there's no question that we, like everyone else, have seen a slowdown in activity over the course of this summer and into the fall. My guess is that we have a very tough comp against fourth quarter last year, which was a spectacular quarter. And we've seen -- like everything, when things are good, they're always a little bit better when things are bad, they're always a little bit worse. And in an environment like this, you tend to get a little bit of slippage and every now and then there's a regulatory deal that falls out. We had one this quarter. But generally speaking, I've been kind of a little surprised at how well at least for us, activity, when I look into the first part of next year, has kind of held up. And I'm not predicting a good year next year. I think I'd be crazy to do that, listening to what my peers said yesterday. But we operate in a lot of different places and a lot of different markets, and we have a lot of different ways of making money and people are pretty scrappy and could continue to be surprised early next year. We'll see. It's going to be a -- it's a very complicated environment. And then in terms of kind of parsing where activity is, look, as others have said, there's a lot of dialogue at strategics. I don't think -- there are things happening right now, I would say, I'm personally busier than I expect to be at this moment in time in this kind of environment. But I'd say that for all the reasons I said before, it's kind of hard to pull the trigger if you can't predict the future or you don't have a confidence about your prediction in the future. But for strategic, this is going to be a good environment. They're in the business. They're not going anywhere. Financing is available for investment-grade companies. There's a repricing that's going on in the market that allowed -- that enables deals to get done. I think in the technology sector, in particular, we're going to see activity because of that. And so I think in the strategic area, it won't be '17 or '16 where you got these big strategic deals going on, but I think there'll be a fair amount of activity in '23 as long as people have some confidence in their ability to predict their industry. I think the sponsor arena is going to be tougher because until we see the noninvestment-grade markets open up, it's going to be very difficult to raise financing for deals level on pricing. I think what we saw KKR do last week with the insurance broker in Europe where they did a 100% equity deal. I think you'll see a little bit of that where people are buying businesses, which they know are the first to be able to be financed when markets open, they price it for that. They're probably doing a little back leverage at the top level to kind of make the returns work for them. But that, I think we'll see a little bit of and they won't be the biggest deals, but that will be a little bit of activity there.

Yes, if you can just expand a little bit more on financial responses because, I guess, look, they're in the business of doing business.

Yes. Absolutely.

And I appreciate financing conditions already -- so I'm kind of curious, what do you think the financing markets look like today? How do you think they -- when they do eventually normalize, how do they differ relative from past, obviously financing conditions will...

I think the spread on investment grade will be a lot wider to start with. Absolute rates will be in the high single digits. I mean there'll even be, probably deals [ taken ] with double digit. We've already seen that. I think the equity component in deals goes up a little bit and the returns are going to be whatever they demand in terms of returns, but that just means that the pricing is going to be lower. And the market will -- at some point, will accept that. Usually, it takes about as little as 6 months, probably a year to clear the pricing from people's past expectations. And so we're getting closer to that now.

Okay. And then just in terms of mid-cap versus larger-cap deals. I know you've been building out your practice, especially in the U.S., are you seeing any nuances just given the fact that I would be financing small [ deal ].

Well I always -- I categorize it more as private and public, okay? I think mid-cap is -- there's mid-cap public in there and Europe Mid-cap is a very different size than the U.S. mid-cap, so we think of it as more private and public. On privates, which is mostly sponsor-driven, I think we're just going to have to wait and see the financing markets come back there. It's -- the thing about sponsors are they're just imminently very creative. And so ALC sponsored spins were -- you'll get a sponsor to come in and take a percentage of a company that's going into the public markets, you're going to see more deals like the Emerson deal where someone takes 60% and gives back seller paper to keep the other -- and keeps the other 40% and rides the upside a little bit. There's going to be a lot of creativity around this, but all of that is sort of a bridge to the more normalized environment.

So let's talk about the restructuring environment, which hopefully will be a little bit more positive than the M&A environment.

I'm not that negative on the M&A environment. I just think we could see a period of time where -- right now, I think most of our peers or -- most of my peers yesterday said that there's nothing going on. I'm not quite sure that's exactly our experience. But I would say it's going to be a slower environment, but this stuff can pick up pretty quickly. If the markets -- if the financing markets settle, it could pick up pretty quickly.

I mean I know this is a very difficult question to answer. But if you look at the run rate of M&A activity in the second half of the year, I mean, what do you think it takes for it to reset lower? Does it take another exogenous shock or could it just reset lower just because of the ongoing uncertainty?

The level of the second half?

Yes.

I'm not sure, it is at much lower than that.

You think you can announce that?

Probably about the base right now.

Okay. Yes. Okay. So [ let's talk ] about restructuring. I mean how has that changed over the last few months? Is it still predominantly liability management mandates? Or are you actually starting to see more traditional restructuring mandates? And as you look at that pipeline heading into next year, how has it evolved over the...

Well, I think the whole practice has changed a little bit because it's gone from, you show up, restructure and go into bankruptcy. It's a whole process now of liability management, if you can deal with it out of court through liability management and you never have to make it to bankruptcy court, fantastic. If it proceeds to the next step, there you go. I suppose you could argue the liability management part of this is another fee opportunity in a quicker way than a typical bankruptcy is. I think there's things and yangs on that. The good thing for us is we've built out a creditor capability. This is the first cycle where I think we're going to have real creditor business. We've never really focused as much on that as we have in this cycle, and that's a good thing. We're busy. I mean, I think everybody is busy. We're busy, and I expect it will get busier. It's not going to be like '08, where it's a crescendo all at once. It's going to be more gradual because this is happening slower. The only thing that could kind of accelerate that right now is, as an example, a really bad Christmas, what happens with the retailers. I mean, that could turn out to be a little like the end of '19, where there's a lot of that -- and into the early part of '20 where there's a lot of activity because of that. But it's going to be -- it will be probably a longer cycle, a little slower to build, but it will be a healthy unfortunately, a good cycle for restructuring.

And then the covenant-light structure, a lot of the debt that was issued, how does that change the nature of the restructuring cycle from the creditor's side?

Well, part of it is it's a timing issue. So if you're several years before, then the covenant stuff probably you don't discuss it all that much. The problem is, is that you have this wall of financing coming up in '24, '25, which a lot of people have spoken about. And I think that that's where the -- it almost doesn't matter at that point. the wall of financing, having to refinance is what's going to drive a lot of this and a lot of these discussions.

And then what would you say -- look, restructuring is very much a black box, I think, to investors. What do you think differentiates yourself in terms of the restructuring practice? So if you go in a new pitch for one of these higher profile mandates, what do you think it boils down to in the end into whether you're awarded the mandate or not? I mean, is it expertise in that industry? Is it the relationship with the company?

Well, the way we've excelled in this business for the close to 30, 40 years, we've been in it is that we have always matched restructuring and industry expertise together. It's just been the cornerstone of our practice is that we have always -- our restructuring team, it's a good-sized team, but the amount of restructuring experience in Lazard is far greater than the restructuring team. And it has just gotten very used to, and it's been built into the DNA of the firm that every assignment that we pitch is a industry team and a restructuring team together. And the industry team can easily, in many cases, pick up the restructuring assignment and run with it to provide the capacity to go get the next restructuring assignment. So that's been a core part of our franchise. And I would say our ability to disproportionately win on the debtor side has really been driven by that over a long period of time. And also on the debtor side, the element of the debtor side that's very important is you really have to be good in a boardroom. You have to be good in court ultimately if it gets to bankruptcy, and that's an art. But you really have to be good in the boardroom because the boardroom is a complicated place in debtor assignments. And that's just Lazard's expertise. Boardroom is where we really excel.

So let's talk a little bit about the Asset Management business. So I guess the good news is the fee rate has actually stabilized. So maybe you can talk a little bit about what's driving that, what your expectation is in terms of the fee rate because there's obviously been some significant mix changes, I guess, over a period of time so maybe you can talk about your expectations for the fee rate heading into next year?

Yes. So it's always dangerous to say this. But the challenge in our business, because we have so much product outside of the United States, has less been indexation than it has been growth versus value or growth versus value and quality. So if you sort of look at the dynamic of the markets where we have a lot of our products, so international, emerging markets, listed infrastructure. Those are 3 of our biggest products. They all have good fee rates associated with them. They tend to be in markets where indexation, ETFs haven't had as much effect on the decisions of the ultimate asset providers. And that's helped us sustain fee rate. Now we're under pressure. Everybody is under pressure, fewer managers for specific mandates. But also in those areas, we're probably 1 of the top 5 or 6 managers. And so consequently, we haven't been cut out of many of these competitions. The challenge for us has been, first, not a lot of money has been allocated in those areas over the last 5 or 6 years. And second, the bent, like everything in the market, was where you grew in those markets, and we tend to be a value quality manager, very fundamental in orientation. And that has been -- that has hurt us. And so we -- what's happened in this sense is the outflows have abated in the higher-margin products at this point. And the reason the fee rate was under some pressure is you saw the outflows, particularly as an example in EM in the beginning, going down -- the flow is going out, and that was a high-margin product and just against everything else, it just would drive down fee. So it's kind of an interesting dynamic for us right now. And as I said before, if you get any tailwind on exchange rate, the leverage on that in our business is pretty significant.

And then just in terms of flows in the aggregate for the business as you think about next year on, are there some new products you're particularly excited about?

Yes. I mean, look, we have reasonably good performance across a range of products right now. I mean there are a few places where we'd like to do a little bit better. But in some of our really larger products, EM as an example as [ how it is ] and EM is EM, it may not be the most popular product out there, but Lazard is known for that. And so if there's going to be allocation in EM, we're going to do well. And our performance in EM, credit to James, he stuck with it through all this tough time, and the performance is now quite good. Listed infrastructure is very good. That's a good place to be right now. And then we've got a whole slew of new products that have done pretty well. A lot of the quant and thematic products have really outperformed, and that's an area we're very excited about right now. Lower fee, but very interesting because it gives us a real great product mix for the wealth channel, which is somewhere where we've been pretty absent for until now.

Okay. So maybe we can talk a little bit about the recruitment market and maybe talk a little bit about the operating margin as well. And you said at the beginning and talked about the need to invest in the business over the long term. And I think everybody understands that and probably agrees with that. How would you characterize the recruitment market today? And obviously, this is going to be a very challenging year on Wall Street. There's obviously some of your larger peers that are having some issues, again, especially in Europe. I mean, what's your expectation in terms of the pipeline, the talent...

Yes. Well, the first thing to say is the best recruitment is retention, right? I mean your own people, if you're growing them yourself, which we do, and you put so much effort into building a pipeline of great talent, the key thing is retention. That's your best -- that's your most important recruitment tool is not having to replace people who are leaving. And that has really improved dramatically over the course of the last 1.5 years or so. I mean we didn't really have as much turnover as some of the -- some of our peers did -- I'm not entirely sure why we've looked at it. We have all our theories about it. But I think we got a little lucky on that. We had a burst in the beginning, and then we did a few things to kind of tone things down and it worked. And so we didn't have as much turnover as some of our peers have had. We've done a good job, I think, in terms of thinking about the whole workplace, work life balance, all these things that actually, in the long run, drive retention in our industry. And so that's the most important feature of this environment is that pressure has diminished. The second part of it is the ability to pick up talent yes, in these kind of environments, it's always easier, it's always less expensive. The challenges is just making sure you're picking up quality talent. One of the changes in this market is after the financial crisis in '08, '09, there was an enormous talent migration from the European investment banks to the independents, particularly the newer independents. That migration is over. There just isn't the same talent at those firms that existed before. So going to those places to get talent is just not that helpful right now. So to get talent, you're competing against firms that actually are pretty good at retaining people. So Goldman, Morgan Stanley, JPMorgan, the independents themselves. And so it's a little bit harder in this environment to get talent. Now for us, I think that's -- it's too bad, it would be nice if it were easier. But the reality is, is that we have a long and very successful track record of growing our own people and turning them from analysts into partners. And that's really important.

And then on the compensation margin, and I appreciate the revenue picture, it's one of the most important ingredients into that and some uncertainty. But maybe you could just talk about that, both nearer term and longer term and how you're balancing that versus the need to invest...

So -- it's a great question. I always answer it at this conference the same way. It's fourth quarter. Fourth quarter is always crazy. You never really know exactly where it's coming out until the very end. And so I'm always -- loath to predict exactly what happens with regard to comp. We decided at the end of the fourth quarter, and it's based on what happens in the fourth quarter relative to the rest of the year. And most importantly, it's also based on what happens on the rest of the street, which we look at very carefully over that period of time. So that's part one. As far as long term, I think the picture for us probably stays the same. I mean the variable this year that's unusual is I think the contribution of our Asset Management business to overall revenues this year is probably the lowest it's been since '07 or '08 just because of the market meltdown, just the meltdown in market, and so that obviously puts some pressure on comp. But my guess is that goes back into -- that will go back into a more normal range next year, and that will relieve some of the pressure from that. And just given the sharp drop in revenues in the -- throughout the asset management industry, I think that's going to put pressure for the first time in a long time on every asset manager's comp ratio because there's been a pretty dramatic downturn. You just can't make up for it every step of the way.

So there's a couple of minutes left. Let me see if there's any questions from the audience.

Yes. I knew John would give me one.

You guys had -- you underperformed the industry in 2021, but you significantly outperformed in '22 is sort of the inverse of what everyone else did. Why do you think that is?

Well, part of the outperformance this year came from Europe. So we had -- I mean we may end up with record years in Europe this year, which is actually stunning, even on a dollar basis. I'm not sure we'll quite get there, but we could, through 9 months it felt that way. And I think that was a reflection of just how well our teams have worked in Europe and how much better our business is in Europe today than it was 5 years ago. That's one part. London and Paris, we're just kicking it, kicked it last year and into the first part of this year. And things have slowed down, but still I think market positions are really good. We didn't see that much [ function ] yet from Germany, but we put a phenomenal team in place in Germany right now. So I think we're going to get the benefit of that. So that's part of it. Part of it is just the breadth of the business. It is -- we're just fully built out across industries. We have a lot of capabilities in areas that are not sort of counted in [ biologic ]. And so consequently, there's just sort of seems to be more hits that way. And knock on wood, I mean, I hope that continues. And Lazard tends to -- it's a funny place. We tend to do a little bit worse when things are great and a little bit better when things are bad. And I think that's just -- it's just like that all the time. And I could come up with a thousand reasons, but I don't think any of them really are explanatory entirely.

I think there's one more question. In the back. Yes.

It seems like the management are very -- between yesterday talking to all the boutiques. It seems like management are very comfortable with comp pressure really kind of coming through and not pushing back on it. I was wondering why you think the managements aren't kind of reassessing this and saying maybe things don't necessarily snap back and the pie is smaller going forward?

I was a little surprised by that as well. I think that people are just being a little cautious. I think there's going to be more discipline this year than probably people are letting on to right now. I just think that sitting in a public forum and talking about that and while you've got your sales force, your -- all your employees listening, makes it a little bit of a challenge sometimes. But look, Wall Street adjusts, it's a painful environment. People do layoffs, the big firms very aggressive generally about layoffs. It just -- this cycle is kind of a funny one because I think until about 3 or 4 weeks ago, I mean, this last kind of print on wages and this level of concern right now. There was sort of a sense that the consumer was still strong, maybe this won't be that bad, maybe it will snap back pretty quickly. I think reality is starting to set in. And my guess is by the time we get finished with this, they'll be more disciplined. But we'll see.

Okay. I think with that, we're out of time. So Ken, thank you so much for joining us.

My pleasure.

And hope we will see you again next year.

Good. Thank you.