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

Then get started. Next up. And for the first time, I think, after taking his seat, we have very delighted to sort of welcome Peter Orszag, CEO and Chairman, Lazard. So Peter, first of all, thank you so much for being here.

Great to be with you.

And maybe just to kick it off, Peter, like I've talked about you as not your typical investment banking CEO. You have an amazing sort of background, trained as an economist, worked in the White House formerly and now at Lazard. Just talk to us in terms of when you look through the lens of your experiences, like how -- what brought you to Lazard and just kind of what's shaping sort of your approach, and we can dig into some of these strategic initiatives you laid out.

Sure. Lazard has always apologize for my voice. Lazard has always exemplified what I've taken to calling contextual alpha. So the alpha part is you do the analysis kind of narrow lens. Contextual alpha takes into account all the other factors, regulatory, macro, et cetera, that are actually going to be super important for whether either an M&A idea or an investment idea on the asset side turns out to be a good idea or not. And if you go back to Felix Rohatyn and other icons of Lazard, that was what they were known for. And so that was what really attracted me to a place like Lazard because my background had combined business, government and some academic pieces, and that's where contextual alpha really comes together. I think it's interesting, it's more important today than even when Felix Rohatyn was at his peak because the interaction between business and government is more -- is closer today than it was 20 or 30 years ago.

And maybe I think when you think about contextual alpha or the macro sort of outlook means you were in Davos not too long ago, means I see you jogging with Jonathan Gray on LinkedIn. So you talk to a lot of important people. Just give us a temperature check on the U.S. economy, what the conversations are like when you talked about like C-suites and the corporate boardrooms.

Well, look, I think the U.S. economy actually looks pretty strong right now, but there's a but, but looks pretty good. The but part is it's really focused on 2 key pillars. the AI investment boom and then high-income consumers. And the high-income consumers are consuming in part because of the equity returns to the AI boom. So the U.S. economy looks good, but I'd say it's strong but fragile if those 2 things can kind of coexist. The other piece of that, that's interesting is C-suites are definitely seeing this moment as an opportunity to get scale and to think about large transactions that maybe 3 or 4 years ago would have been seen as being impossible to get through the regulatory process. So there is a window here where the regulatory environment in the United States is more accommodating. It's also more political, but it is more accommodating than it was under the biggest bad crowd. And that is leading to a lot of ambition. And then I think the third feature of the landscape, which has gone massively underappreciated is the degree to which corporate performance has just become dramatically disparate. So the frontier firm in each sector has pulled away from others. Let me give you a statistic on that. If you look at return on invested capital 20 years ago, the 95th percentile firm in the U.S. had a return on invested capital that was 10x the 10th percentile. Today, that ratio is 25x. So the 95th percentile has gone like this. The 10th percentile firm has basically gone sideways at a pretty low return on invested capital. And what's interesting about that is 2 things that -- 2 consequences. One, it creates a massive incentive for the frontier firm or the frontier firms to be buying other firms. And in fact, there's a whole bunch of academic research that has gone unnoticed in the broader world from Nick Bloom at Stanford and others suggesting huge benefits from an economic perspective to mergers and acquisitions of the type of the kind of better managed firm buying the median firm and then uplifting its performance. Nick Bloom, again, who is a leading professor, suggests gains of as much as 15% of GDP from M&A activity, which is a huge number. And secondly, that all of that M&A can be coexisting, and this is different than in the past, with an elevated level of restructuring and liability management because when corporate performance goes like that, you've got big incentives for the leading firms to be buying other firms. But then the firms that are at the 10th percentile or the 15th percentile in each sector are still struggling, and they need restructuring and liability management.

Got it. One last just in terms of big picture stuff. I mean we've seen obviously some dislocation in the markets over the last week. It began with software stocks, I think hit insurance brokers yesterday. Just talk to us around AI disruption risk. Like how much of that is a talking point when your bankers are talking to corporates? And does any of what's played out in the last week temper your expectations on what 2026 may look like for capital markets?

Sure. So on the first point, look, AI is omnipresent in almost all of these discussions. Every executive is wondering what its impact will be both on the revenue side and on the cost side, depending on what part of the market you're in. At Lazard, we are very much focused on taking advantage of these new technologies to become more efficient, more productive, more value-added for our clients. It's why we brought Dmitry Shevelenko, the Deputy of Perplexity onto our Board. I think we are the only Wall Street firm that has an AI native on our Board. That is a huge help to us as we try to look around the corner and see what's coming. There is this raging debate, I call it the Yann LeCun debate about whether the LLMs, in particular, are going to kind of get to flat of the curve and stop improving. That's obviously Yann's view. We haven't seen it yet. I mean every new iteration of a new tool seems to be a significant improvement over the last one, at least in our experience. And so we'll see how long this goes. But I think that uncertainty about whether it will kind of top off or keep going is at the heart of this very -- the extreme sensitivity that many sectors have to the AI exposure because it's a big unanswered question of how much better the tools will continue to get.

Got it. And I want to spend some time about how Lazard is using AI. But maybe let's just go back. I think you became CEO in 2023. You have a strategy around Lazard 2030. Just unpack that a little bit for us in terms of what does that entail as we think about growth, return profile of the company.

Yes. Look, we -- the whole goal of Lazard 2030 was to up our ambition, play to win together and produce attractive returns for our shareholders. So a couple of different pieces. At the corporate level, we did a C-Corp conversion. And that increased our attractiveness to new investors. We're really pleased. If you look at the share of long only that have come into the stock that has gone up substantially. And I think part of that is the C-Corp conversion because many of them did not want to hold a partnership structure. And then part of it is as we continue to execute against Lazard 2030, the show-me story becomes -- there are more proof points, and you're seeing that at the corporate level. We also revamped the Board with -- I'm very pleased with the new additions that we have to the Board of Directors at Lazard. So a lot going on at the corporate level. Then on the 2 businesses, the first thing to start with was the culture and to make sure that on both sides of the business, we were playing to win -- playing to win together. I talked about being commercial and collegial. The thing that I am the most impressed by with regard to the last 2 and a little bit of years is how quickly that cultural transformation has occurred. We've done a lot of work on that. And I think Lazard today is a transformed culture and that commercial and collegial attitude is pervasive. So -- and that comes across in our internal surveys. It comes across in the fact that we've been increasingly attracting top talent and so on. That organizational health, I think, leads to performance. And then with regard to the performance in both businesses, part of what happens when you're undertaking a transformation like this is a bit of a J-curve where in order to move forward, you have to go through a period of change. What I'm really pleased by is we have been able to grow, maybe not as rapidly as we'd like, but grow through the J part of the down part of the J-curve. And now looking forward, we think having done a lot of that transformation under the surface on both sides of the business, we've got very, very promising prospects ahead. So on the advisory side, tons of opportunity for us to gain market share, both in North America and in Europe, expanding in the Middle East. And on the asset side of the business, a more focused story, a more focused platform, meeting investors where we think there's a lot of demand. So quant and systematic emerging market equity, customized solutions and others. And we have said we -- when we reported a few weeks ago, we had $13 billion of won but not yet funded mandates that we were projecting net positive flows for the year. We had our January release out this morning. I think you're going to see continued positive momentum on the asset side of the business. We've got new leadership. So there's a lot happening. I'm sure we're going to unpack a bunch of this. But the big part of the story is, I think, first 2-some years, a ton of work on the culture and a ton of work under the surface on transformation that should increasingly pay off in a more visible way over time going forward. So we're excited about the pathway forward.

And before we get into the businesses, the culture, I think, Lazard, I think, is a very proud culture going back, what, 177, 178 years, right? There's another LinkedIn post of Peter talking about the photographs on one side and then the digital stuff on the other in the hallway at your offices.

Respecting tradition embracing the future.

So just -- so how do you do that? So talk to us about what was the Lazard culture? What's intact? And where did you have to sort of make some changes.

So I think the great part of it, look, we come into this with a lot of natural advantages. We're the only independent advisory firm that is deeply local, both in North America and Europe in a way. Those are the 2 big businesses on the advisory side. The brand is, I believe, the best in the business. And the culture was always focused on excellence on behalf of your clients. So that almost -- and that contextual alpha piece was always part of the -- was in that or in the DNA of the place. So a lot of really great building blocks to work with. The part that probably needed a bit of work definitely in perception, maybe a little bit in reality was the sense that Lazard was a tough place to work, that it was not as collegial and collaborative as it could have been. And in our recruiting discussions, especially in Europe, but also in North America, that would come up. Why do I want to go to a place that people are fighting with one another. So that has gone. I like to think about Lazard as being a place -- this will never happen because I don't believe in nepotism, but where I would want my own kids to work in terms of a professional experience. That's kind of my North Star in terms of making decisions, would I want my own kids to be working here. And I think we have actually now created a culture that has retained that excellence, retain that emphasis on contextual alpha, but now has that commercial and collegial spirit combo that allows us to fight to win together. And we're seeing that in the positive feedback from our recruiting efforts. So maybe 3 years ago, when I would try to close a new hire, this part of the culture would be the first thing that would come up. And we have to spend all this time convincing people that we've made a lot of progress, and we're making a lot of progress. Now it's at the very end of the candidates' diligence, like just wanted to check, Lazard of years ago is no longer true. And so it's a much different thing. And the best part of that is the people that are joining from other firms reaffirm how much progress we've made and what a great place to work Lazard is now. I really do believe that it is core to our future that the sense of both momentum and that it's a collegial place hunting together is crucial. And one final thing because there's been a little bit of confusion on this. When I talk about collegial, that doesn't just mean everyone's nice people. Some of the people that we had a park company with were very nice people, but they weren't productive. And I remember very well someone coming to me and say, I'm not going to name the person, but let's call them Joey. "How can you get rid of Joey, he's such a great guy, and he's a culture carrier." And I said, that is not the culture we want to be carrying. The point here is not someone that everyone wants to have beers with, but rather almost a seal team in which everyone is fighting for the same objective, but together in a really effective way. And so I think we've got now those pillars of commercial and collegial, and it will increasingly pay off in results. And that's the real test.

So maybe I guess the 2 businesses, let's start with advisory first. You've talked about banker productivity, that seems to be on the hiring you mentioned. Just talk to us in terms of the top 3 priorities when you think about the advisory business relative to whoever you view as the best-in-class competitor.

Sure. So let me just level set for a second and then talk about the go-forward priorities. So on the advisory side, we've done a huge amount of transformation. Out of 200 managing directors at the end of 2022, we acquired a company with 80 of them. We have more than replaced them. And so the go forward now involves as we add managing directors, we're no longer that lagged impact was partially just filling back in the people that we had needed to upgrade. Now we're just adding muscle. And so that's point one. Point two is we saw a substantial opportunity to raise productivity per managing director. That gives -- that is the key driver of operating leverage in the advisory business. We've raised productivity relative to 2023 already by $2.5 million per managing director. We see a lot more opportunity to do that going forward. One thing that happened in 2025 is we had anticipated that we would be -- I've said we're going to be adding 10 to 15 net managing directors. So hires plus promotions minus departures a year, we hit that in 2024. We will more than hit that in 2025. But we had an exceptional number of really high-quality people that were eager to join Lazard in 2025. So we went well above the 10 to 15 range in 2025. We thought that, that was a -- these were all good investments to be making. The result of that is we've got a kind of hidden productivity enhancer because we've been adding so many people, as that hiring normalizes to the 10% to 15% range, the share of our managing directors that are new to the platform will decline from about 40% today to about 30%. That's worth about $1 million per managing director even with no further effort on all the other things we're doing to raise productivity. So anyway, that's a little bit of the backdrop on advisory. What are the priorities now? We continue to hire in North America. We have -- I mean, as an example, we'll announce over the next 2 weeks, 2 new senior managing directors in health care services, more coming there. We've obviously added a lot in industrials and see upside potential there. Across North America, from health care to industrials to consumer retail, to sports media and entertainment, power and energy, you'll see a lot of activity and more hiring. One priority for us in North America in 2026 is we had to reequilibrate our balance of business between public company and private company work because the private company work is a revenue engine. We've done a lot of that. We now see the opportunity for us to rebalance back to large-cap public company work also. And so one priority that I've assigned to the new leadership in North America of Tim Donahue and Ray McGuire is to make sure that on the league tables in North America, we do better than we did in 2025. That was one. Everything has been going very well, but there are always things you can improve on. That would be one area that I think we could do better on. We'll also be expanding further in Europe and the Middle East. So a lot more to come on the advisory side.

Got it.

And by the way, sorry, and including in non-M&A activity, too. We're very excited about our PCA fundraising business. We see a lot of opportunity for growth in that business. And our restructuring and liability management team has also been really hitting its stride, and we see more upside there. So in the non-M&A piece, we also see a significant amount of growth.

And maybe, Peter, spend a few minutes on the sponsor franchise. Historically, not a huge focus. You build that up. Just give us a sense of kind of where that fits into the mix within the advisory business.

Yes. That's really what I was talking about in terms of the revenue engine because the flow business that comes off of private capital connectivity provides a base and then you can take the large cap public company work, which is lumpier and kind of a bit more volatile and build on top of it. If you go back a decade or so, the share of -- even 5 years, the share of advisory revenue at Lazard that was associated with private capital was around 1/5 to 1/4, let's call it, 25%. It's now 40% of our advisory business. We have line of sight to how we're going to build that out to 50% of a larger pie because we'll also be reinvesting in the public company work, as I mentioned. And that's everything from restructuring and liability management, our fundraising business, our Lazard Capital Solutions business. We've got a whole variety of different ways of interacting with private capital. We have upped our game very substantially in sponsor coverage. You mentioned the LinkedIn run with Jon Gray, but obviously, we've got connectivity and improved coverage at a large number of both alternative asset managers and more focused private equity sponsors. This has been a big part of the cultural change also is to recognize that there are huge fee pools associated with private capital and that we need to be able to play in both pools.

Got it. And do you think the franchise is in place in terms of headcount, the right talent to monetize that?

We are monetizing it, you can see it. But the reason, again, I'm so excited about the growth potential is we have a lot more growth that can happen there. And then we also -- coming back to the historic Lazard brand and the traction that we're increasingly getting, which is under the surface, not visible yet, but will pay off over time with large-cap public companies also. I see significant upside kind of on both sides of that.

And maybe one more on the advisory. You mentioned the presence in Europe, right? That's a differentiator for Lazard. Just give us a sense of, one, where the franchise is, what's going on in Europe? Like are you seeing signs of energy where just domestically activity has been picking up. There's been a lot of discussion about local investments, spending on defense, et cetera.

Look, I think the most important thing about European companies is most of their business is not in Europe. So a lot of the companies that are clients of Lazard that are headquartered in Europe are global businesses in health care, in energy, in consumer, et cetera. So the reason that you're still seeing a lot of strength out of our European franchise despite a macro backdrop that might seem more challenging there is those 2 things are not perfectly correlated. Most of the European companies are looking at opportunities across the globe. They appreciate the deep local roots that Lazard has in their home country, but more importantly, the ability to look across the globe and help them with wherever the opportunities may be. So I would just kind of separate the European macro backdrop from the performance of European companies. And I'd like to cite a statistic coming back to that spread on corporate performance. If you look at European companies, public companies based on their return on invested capital, the 95th percentile European company ranked by ROIC is -- has a return on invested capital equivalent to the 92nd percentile U.S. company. So I think in the popular perception, there's this view that the whole distribution of European companies is just performing worse than U.S. companies. There's a little gap, 95th versus 92nd. That's not a huge gap. It underscores there are a lot of fantastic European companies. And that's kind of at the heart of our European franchise.

Got it. I guess maybe just pivoting to the asset management -- just give us why are you in that business, like it's been a business that's faced a lot of secular headwinds over the last decade. Just give us a sense of why Lazard in that business? And what are you focused on?

Sure. So the business has 2 pieces, the traditional asset management piece and then a wealth management piece, especially in Paris on the wealth management piece. On the traditional asset management business, what we have done over the past year or 2 is really focus on areas where we feel confident that the theory of active management makes sense, that there is some theory of the case for why alpha generation should occur even in public markets with active management. And I think there are lots of areas where you can make that case with conviction. So good examples are our quant and systematic platforms and strategies, products and strategies. I think people don't appreciate the degree to which Lazard actually has a significant amount of strength in quant systematic, and that's also where we're seeing a significant amount of our inflows. So we could maybe talk more about that. Emerging market equity is another good example where there's more sand in the wheels in public markets and having that local market expertise can be very, very beneficial. And obviously, we're seeing strong investment performance there. Many of our customized solutions, a good example is our global listed infrastructure product, also generating very good investment performance, and there's a strong theory of the case. So there, we think the Lazard brand and our deep local roots and then the content and the differentiated insight that Lazard people can bring to bear explains why there is so much investor interest and the net positive flows that we're talking about kind of reinforce that. And then on the wealth management side, look, I think the Lazard brand has a lot of upside in wealth management. Obviously, we have a great business in Paris. We see other geographies where that could be attractive. And I think the content that Lazard generates, the type of insight that a C-suite or a Board will want about the geopolitical environment, for example, carries over to Chief Investment Officers on the asset side, and it definitely carries over to ultra-high net worth family offices or families on the wealth side. So there's not just the brand, but the content piece that we believe we can kind of bring to bear.

I did want to spend a few minutes on the quant piece and the wealth management, but you do have new leadership for that business. Chris Hogbin came in, I think, towards the end of the last year. He's moved pretty fast. Just give us a sense of what his mandate is, what do you expect out of him?

He's fantastic. I've said this before, but when we decided that it would be useful to have a change in leadership, we got feedback from the headhunter we used that the single best person would be Chris Hogbin, but you never get him, and I'm really pleased that he's now part of Lazard. He's off to a fantastic start. But in addition to Chris, we've got very strong leadership in the form of Eric Van Nostrand, who is our new Chief Investment Officer in Asset and then Rosalie Berman, who's the new Chief Operating Officer. So a cohesive team a lot of excitement, walking the halls, you can feel the kind of excitement. It helps that we're -- we've got a lot of investor interest and very strong investment performance, obviously, but walking the floors, you feel this pent-up sense of energy. And I think the new leadership team is a big part of that.

Maybe the 2 pieces there. In terms of the wealth management, right, there's a huge focus on ultra-high net worth global family offices. Just talk to us, is it more about just consistently hiring private bankers? Are there inorganic opportunities within that business that can would be attractive?

I think there -- again, one of Chris' mandates is how we're going to expand the wealth management business. So you'll hear more from him at some point this year in terms of the go-forward plan. But we see a lot of opportunities in a kind of Goldilocks type of way, both for clients and for RIA/wealth management professionals that Lazard is big enough in terms of being global and having an array of content and other things that are crucial to the wealth management business, but also small enough to feel bespoke, both for the professionals involved and for the clients. So that balance is what we will be looking to preserve. But we see a lot of upside potential in a variety of geographies beyond that reserve, more to come from Chris. And the final thing I'd say on wealth management is the brand is so powerful in that space. I've had people come up to me in geographies where we don't offer wealth management saying, could Lazard manage my money for me? And we'd like to be able to meet that demand in a very Lazard way.

So more to come there.

More to come.

And on the quant side, you mentioned...

But I should say, obviously, we're aware of where the competitive pressures are, and we're only going to be expanding where we see a lane for us and a right to win. So I also want to just reinforce that we're cognizant of the fact that it's a crowded space and the different geographies have different dynamics. But we do see vectors for us to play to win.

Just maybe a second on the quant side, you mentioned underappreciated, which I think is true based on even our conversation with investors. Just talk to us in terms of what is next for that business? Are there strategies to accelerate the growth in terms of assets there on the quant?

Yes. And they are doing great, both on an investment performance perspective and in terms of winning new mandates. I really like the way that we go about -- our quant team is not pure black box. It's a combination of quant and then we'll have a bit of a fundamental overlay to it also. And so that kind of man and machine combo, I think, is what explains our outperformance, and it's what's really appealing to a lot of investors. So the great thing is that basic technology can be deployed basically in all the markets in which we operate. So not just in North America but across the globe, and we're seeing demand for that take off. I would also highlight because it's relevant to some of the areas of growth that we see that we've offered more than a half dozen active ETFs now in the U.S. More to come on that, too. And so what's exciting about that is all of these products and strategies that have worked with institutional investors in the past can now be opened up a bit more to retail investors in a modality that is tax efficient and it has the liquidity benefits that investors are looking for. So we see more opportunity there also. And those ETFs, the launches have gone very well, and we're seeing the kind of AUM growth that we'd like to see in those products.

So just a bigger picture question. We wrestle with this all the time. I think investing in boutique M&A advisory firms is a very sort of boom and bust kind of a setup for public market investors. When you think about the business, like how do you sort of mitigate that volatility inherent in the business? And when you look at some of the targets laid out for 2030, what does that assume? Is it just all blue sky scenarios? Like what underpins getting to that point and being sustainable?

So a couple of points. First, Lazard's business is, I think, the most diversified of any of the independent advisory firms, not only because we have the asset business, but just leave that aside, also because we're geographically diverse and product and strategy diverse. So we are moving towards a world in which our advisory business is evolving towards 50-50 M&A, non-M&A, 50-50 public company, private company, maybe not quite 50-50 North America, rest of the world, but that possibility too. You've got all of these sources of diversification inside of the advisory business. And then obviously, on the asset side, as we continue to execute and you see net positive flows and investment performance, I think the concern that some investors have had, which is, yes, I understand that, that's a stabilizing force. But if it's stable and declining, that's not really attractive. Now that we have a focused strategy where we see not only stability, but net positive flows, that diversification in asset management is no longer an anchor. It can be an extra buoyant force for the pathway forward. And we understand that we need to continue to show that the net positive flows occur, but that's what we're focused on the asset side. With regard to 2030, look, -- the great thing about Lazard is you've got this remarkable brand, this focus on excellence, but there still is, despite significant TSR since I took over on October 1, 2023, not that I track it or anything, lots of upside potential because of the way that we see other asset management firms and independent advisory firms trading. We see a lot of upside potential in our stock price as we continue to execute. And I think as investors see those proof points. So we're focused on executing, and we think the share price will increasingly reflect that execution over time.

We have a few minutes left. Two things I wanted to hit upon capital allocation and the impact of AI. So just on capital allocation, anything you plan to do differently going forward? You have a new CFO who's with us. What's the plan there?

Well, first, one thing I'd note about Tracy Farr, who's here with us is before we get to capital allocation, one of his priorities, and you'll hear more from him later this year, is to take some of our corporate functions and look for increased efficiencies there. So I think you should expect more from us on that topic. We do think there are opportunities for us now that we've done the C-Corp conversion, now that we're clear about the pathway forward and now that AI is becoming increasingly relevant to many of those functions for us to improve efficiency there. On the capital allocation front, when I came in, I did say -- so this is nothing new, and it's not new under Tracy, that our historical prioritization of buybacks would be a lower priority. So we do intend to offset dilution from our deferred compensation scheme or package to the maximum extent we can. But after that, we're not -- the additional buybacks beyond that point are not as high a priority as they were historically for Lazard. Instead, the 2 other priorities would be to look for inorganic opportunities at the right price with the right culture that add to growth to either business, and I can talk about the characteristics. We've been very disciplined about looking. We have not jumped at opportunities where we would be overpaying. We're not going to do that. And if we can't find the right match, the other opportunities for us to build up cash and/or delever kind of in that order. And we'll obviously weigh those against additional buybacks, but I've said that those are lower priorities than they were in the past.

I guess since you mentioned around AI. So one, just give us a sense of how we should think about the noncomp expense side of it? And then what role is AI going to play to improve productivity? And what does it mean for...

We are really excited about this. So Lazard has been really focused on bringing a wide array of tools inside of our firewall. We think that this will allow our bankers to be more effective and investment professionals on behalf of our clients. And there's a lot that, including in 2026, we believe will be occurring. I use the tools all the time for daily briefings, preparing for client meetings. I actually have an AI avatar that I've interviewed. It can now speak every language in a way that I can't. And that's mostly for fun, but is also an illustration of the capabilities. Our CRM, I think, is even more effective now that it's AI infused and you're able to interact with it through one of our LLMs and not just directly through the CRM itself and so on and so on and so on. The collective intelligence at Lazard that is embodied in our bankers is remarkable. And what we're trying to do is make the frictions of obtaining that knowledge from across the firm even lower by using AI. And that also will allow our bankers to focus on the in-person context and in-person relationships. So I think what you should expect is deal teams that are smaller in the future 2 or 3 years out. So the non-managing director or the managing director ratios will probably change. That gives more upward mobility to our analyst associates and VPs, but then also more in-person convening and connectivity because we believe that's going to be the differentiator that we're not all going to walk around with recording devices on our lapeles or on our clothing and therefore, the AI tools are always going to be missing some of the context that you can only get from an in-person discussion.

And with that, we're on the top of our time. So thank you so much, Peter.

Thank you for having me.