Lazard, Inc. ($LAZ)

All right. Good morning. We are pleased to have with us Peter Orszag, CEO and Chairman of Lazard. Peter, thanks so much for joining us today, even though it's a slightly different format than what we had originally expected.

Yes. It's great to be with you. And I guess the upside of being on the road a lot is that I get to spend a lot of time with clients, we had a fantastic client event here in Houston last night. The downside is every once in a while, the plain strains in automobile thing breaks down, and that's unfortunately what happened. So I'm glad we're able to do this by audio. .

Problems of being busy, so I really appreciate that we could get this to work. So you're a little over 2.5 years into Lazard 2030. How is it going?

Well, I am very excited about the progress we've made and more -- even more importantly, about the road ahead. And so maybe if I -- with your indulgence, I'll just spend a couple of minutes kind of stepping back on where we are because Lazard is already a culturally and structurally different firm than it was 2.5 years ago. The emphasis that the firm has always had on delivering contextual alpha insights to our clients has only been reinforced. . And we have announced our first significant transaction in a long time, the combination with Legends that will create a new third leg of Lazard. So lots of exciting pieces. And maybe what I'd do is talk about what we've completed, what's in progress and then what the priorities are over the near and medium term. In terms of what's completed, when I came in 2.5 years ago, we wanted to refresh the board. We're really pleased with the quality of the people that we've attracted to the Board of Directors of Lazard including our Lead Director, Head of Audit, Head of the Audit Committee and also Dmitry Chevalenco from perplexity. We'll come back to AI. I'm sure in this discussion, but it's -- we thought it was important to have someone AI native on the Board and thrilled about that. The second thing that has been done is the C corp conversion, and we're also very pleased with the outcomes there, the high-quality, long-only shareholders that have entered the stock exactly what we were aiming for. I also wanted to express my appreciation to our shareholders for the votes at our Annual General Meeting, which we -- which show strong support for the path that we're on. In terms of what's in progress, I'd highlight culture people, business model and then asset management. On culture, we have made a significant set of changes to become even more commercial and collegial combination. Really pleased with the progress that we see there. You can see that in internal surveys and external surveys in the narrative around people who are joining Lazard and experiencing the culture for the first time. So really substantial change there, which I think is a leading indicator of future performance. On people, specifically in Financial Advisory, as I've said before, we judge that more than 80 of our 200 managing directors at the end of 2022. Did not meet our heightened commercial and collegial standards, and so we parted company with them. We have been promoting and hiring managing directors. The substantial ads only really began on a net basis in 2025. And so we have experienced a bit of a J-curve effect where the separations do have some revenue impact, not proportionate to the share of managing directors because they tended to be lower productivity, but still some impact and then the new people ramping take a while to get to their productivity levels. But we're tracking that carefully and very pleased with the the ramp progress that is occurring. So that's also a great indicator of the future. In terms of the FA business model, we needed to rebalance the public private balance in -- especially in North America. So we invested in restructuring liability management coverage of private capital sponsor coverage, expanded PCA team as -- which will only be further expanded with the Lazard CL new third leg of Blizzard. And we have taken the share of advisory revenue coming from private capital from 25% to 40%. That is going to go to closer to 50% with the combination with Campbell Legends. In addition to that, we wanted to this year in 2026, reinvest in our public company coverage. We're pleased with the progress that we've made on the league tables. We're also very pleased that our content clearances are skewing towards larger deals and larger fees and our comp clearances are up very significantly year-over-year. So in terms of the near term, you kind of have -- in financial advisory, you kind of have 2 overlapping forces. One is the effect of the separations and the ramping effect that I talked about. That the net drag from that is reducing, but it's still there a bit. And then the second piece is that you've got an acceleration of the momentum that we see in mandates and in new client conversations that are showing up in our content clearances and to some degree in the lead table progress. So that's a great combination for the medium term because the lag effect of the J-curve is dwindling and the momentum that we see in the underlying business is growing, which is exciting. For the very near term, we expect in financial advisory that the second quarter will be better than the first quarter by a bit and that the second half will be stronger than the first half of the year. In Asset management, we are very pleased with the new leadership team, Chris and his senior colleagues have gotten off to a very strong start. Year-to-date, including the release this morning, we have net inflows of more than $7.5 billion. We still -- we said that we expected the year to show net inflows, and we are definitely, as that number suggests tracking for that. In addition, our one but not yet funded mandate level remains strong, and we continue to be excited about the pathway ahead in asset management. And then just briefly on priorities for the next the 6 to 12 months. I'd highlight 5 of them. The first is we are committed to being the leading AI-enabled financial services firm. There's a lot of activity going on within Lazard, deploying new tools, trying them out and thinking through how the way that we work is going to change going forward. We have a project called Reimagining Lazard that is focused on how we can work differently with these new tools. The second is that Tracy Farr has said, and he's now our new CFO. He's now in the process of bringing down our -- some of our corporate and overhead costs. So we see significant opportunity to take some of the cost out of the corporate structure in particular. Third, we're focused on integrating pending approval of the Campbell transaction. So the Lazard CL unit is an area of focus. Fourth, on capital structure, we had been constrained from doing buybacks while the Campbell transaction was under discussion. But as we've said, we do intend to begin those again now that we're clear of that. And we also said that we would like to continue to delever over time. So that is another area of focus. And then finally, and most importantly, we see significant additional areas of growth, which is going to be the main focus. In Financial Advisory, including through additional lateral hires within the 10% to 15% net add target that we had suggested through becoming the pro forma leader in primary and secondary fundraising in Lazard CL through our asset management business, as I mentioned, net inflows for the year, and we see significant opportunity to continue growing there. And then finally, we see additional opportunities for growth in our wealth management business. So maybe with that, I will turn it back to you, and I apologize for going a little long.

Excellent. That was a very thorough answer, and I have a lot of follow-ups. So maybe first, starting on AI, it's a focus of the Board. How do you expect AI to impact the structure of the teams within Lazard and the firm more broadly?

Yes. It's a very exciting moment because actually what -- just for a second, what had happened is I had access to some of the cutting-edge tools, but we had not gone to production on them until about maybe approximately a month ago or a little under a month ago. So I could see all of the things that we could do with some of the cutting-edge tools, but the teams couldn't yet. As soon as we went to production on the cutting-edge tools, the world changed within Lazard because people could all of a sudden see the opportunity to do a final check on a deck before it goes to a client to have basically augment the human capital or the insights that we're able to provide. So I think -- the short answer is we see smaller deal teams going forward under each Managing Director, so the TAE or Total Associate Equivalent per MD ratio will come down in the future. Now what that does to the total number of non-MDs depends a bit on how much additional managing directors we add. And as I mentioned, we're going to be expanding. Continue expanding our managing director ranks. But -- it's a little bit of a back to the future on the team side because it used to be that teams were smaller. And then it kind of as specialization took over, team sizes got bigger, we're going to be going back to smaller team sizes enabled with these new tools. And what's exciting about that is it will provide more upward opportunity, more a faster ability to get to the next level for our non-managing directors in the future.

So it sounds like maybe smaller teams, but more teams. .

Definitely smaller teams and then there will be more teams and then the net depends on the interplay between those 2, obviously. .

Got it. All right. Let's dive a little more into the acquisition of Campbell Legends. It will give Lazard expanded private capital advisory capabilities -- what really drove the firm to make that acquisition? And what is your vision for the combined Lazard CL franchise? .

Well, as I've been saying over the past 2.5 years, we were going to be very disciplined in what we did from an inorganic perspective. This area of primary and the specialty secondary fundraising was 1 that we were very excited about strategically, which is why we've been adding people under Hoken Green, our PCA business. We like the business. We think it will continue to grow. And it's also very synergistic with the way -- other efforts at private capital coverage that we have. . It's one of the drivers that kind of in the ecosystem of getting us even better connected to the leading players in the private capital world. So strategically, we like the space. We also said that we would need to look for transactions that made sense from a capital structure and valuation perspective. Very pleased that this lines up from that perspective, too, because it does delever further, both through additional earnings and because it's an all-stock transaction and because there's actually some cash that will pick up as a result of the transaction. And obviously, we think the valuation is reasonable given the exciting opportunities that we see in the space. And then the final and most important part is the cultural point part, and we did a lot of diligence on Campbell Legends. We believe that the teams will think very well. And I have a lot of personal trust in Gordon, the leader of Campbell Legends at this point, and that matters a lot also. So super excited, very excited that we're able to create a new third leg of Lazard. And we think it's not only growth enhancing, but also diversifying in terms of the forms of revenue, and it also adds additional ways in which we get connected to private capital. So we think there will be synergies, which we did not assume in the deal, but that there will be synergies in terms of M&A referrals and other parts of the business.

So it seems like some revenue synergies. .

We believe there will definitely be revenue synergies. We just didn't assume them in our -- in the evaluation of the deal or in what we've said about it publicly. But we believe in both directions that there will be referrals from our M&A teams to the fundraising business and then referrals from the fundraising business to M&A business. .

Right. Clear. And then on MD productivity. It sounded like from your opening remarks, there might be some puts and takes on the timing. So how are you thinking about the $10 million revenue per MD target by 2028, $12.5 million by 2030. Any update on a progress report on those? .

Yes. So -- in addition to those last -- the first target was last year is $8.5 million, which we exceeded with a productivity level of $8.9 million. We are still -- we are still very confident that we will deliver those -- the $10 million and $12.5 million productivity targets that we've laid out. A lot of steps being taken to continue to shift the distribution of managing directors towards more productive uses of time and mandates. . An indicator of that is what I mentioned with our clearance is skewing increasingly towards larger and higher fee deals, that's also encouraging. Obviously, in between those -- those kind of check-in points of the 10 and the 12.5, things can move around year-to-year. For example, we added so many managing directors in 2025. And and they're ramping that will have an effect on productivity in 2026. But we think as you play that through, in 2028 and in 2030, we are progressing in line with what we expect to happen and remain confident on those targets. And lots of different steps being taken to continue to raise productivity. And as I've mentioned before, one of the other important aspect of this is that this is a key way to get additional operating leverage in the business. And so we're excited about the progress we've made and the additional progress that will come as the ramping that I've talked about kind of plays through. There's -- I've talked about this in the past, but there's kind of a mechanical effect on productivity from moving from roughly 40% of our managing directors currently in their first 3 years on the platform to a more normalized level of about 30%. So that's 1 of many factors that gives us confidence that we're going -- that we're tracking very well on the productivity targets.

And then productivity also has a mechanical impact on the comp ratio. So I just want to spend a couple of minutes on comp ratio. How are you thinking about the path towards a structurally lower comp ratio? And how much is in management's control versus dependent on industry revenue conditions?

Obviously, industry conditions can matter, but we think there's lots that we can do that is under our control. So let me just talk about 2 aspects of that. The part that's under at least partially under our control, if not fully, in some cases. The first is that operating leverage from higher productivity because it reduces the non-Managing Director share of ratio of compensation to revenue is an important driver of bringing down the comp ratio overall. . Actually, I want to mention 3 things. So that's one piece. The second piece is, as I mentioned, we envision a future, which we'll have more to say about as we go through the year that involves smaller deal teams. And those smaller deal teams, even if they're more deals -- even if they're more teams, as you mentioned, but if the deal teams themselves are smaller, that does further reduce the comp ratio again in the non-Managing Director component, because each Managing Director is generating revenue and if you have fewer associate equivalents per managing director, that will drive down the non-Managing Director piece? And then the third piece is what I mentioned before about Tracy Farr's, taking a hard look at our corporate structure and some of the overhead there. We believe that there will be some benefit to the comp ratio through those efforts also.

And on the hiring side, how is the hiring environment today for MD talent and then separately associate talent? And how do you approach hiring for the remainder of the year? .

So on the Managing Director front, it remains competitive, but we are very pleased with the talent that we're able to attract to Lazard in North America in health care, in industrial, in our private capital coverage and well, in a variety of areas and the quality of the people that we're attracting is very high. I think on the associate side, we are doing very well with our both hiring of summer associates and then full-time associates. That is a competitive market, but Lazard has definitely become much more competitive in terms of our success rate in that labor market relative to 5 or 10 years ago. So I'd say it's like with clients. It's not easy, but we are increasingly winning which is exciting. And then the final thing I'd say is the skill set that we select for as we reimagine Lazard will likely evolve at least somewhat definitely on the associate side. As we look for people who can even more quickly demonstrate judgment and in gender trust and do all the things that we think are going to be important on the kind of go-forward plan.

Let's shift gears a bit and talk about the environment for advisory. So how have client conversations on the advisory side changed this year versus the same time last year? .

I would say that we are seeing even more ambition on the strategic side in terms of the discussions that are happening. So even relative to last year at this time, people are thinking big, and I think that's because the AI revolution has continued. And so the returns to scale are more relevant or more apparent today than a year ago? And also, there is a window on the regulatory front that people see for getting large transactions through in a more accommodating, albeit also more political, but more accommodating regulatory environment, and you're another year through that window, and so the clock is ticking. What has not really changed dramatically yet, although there are lots of promises that it's about to is on the sponsor side, where I'd say just like last year, for the most part, we're still waiting for sponsors to fully return to the playing field. Many of the leaders of those firms say that, that will occur in the second half of this year. And so we're prepared to meet that moment. We are well configured and well aligned to meet that moment whenever it occurs. But I'd say to date, it hasn't yet really come to bear fully yet.

So maybe digging into the strategic part and the moment to sponsors, how much pent-up strategic activity do you think exists today? We've seen a lot of big deals announced as there's still a lot of pent-up demand?

Yes. I mean, again, go back to our comp clearances, which is kind of leading albeit noisy and perfect indicator of future announcements and future revenue. Those are skewing to larger transactions and larger fees. And I think that's an indication of the revamp Lazard, but it's also an indication of the market. There's a lot of creative thought going on in terms of -- and look, the underlying reason for that is what I just said, which is that companies see the benefits of being the leading firm, the frontier firm in each sector. And also on the divestment side, also ongoing questions about what belongs in, in which pieces of a corporate structure. So there's a lot of underlying fundamental drivers of ambition in M&A, and I think we're seeing that ambition play through on the strategic side. And at some point, whether it's in the next couple of months or thereafter, we anticipate we will also see it on the private capital side.

And which industries in particular, are seeing the highest CEO confidence and use cases to transact. .

We're seeing it pretty much across the board. So there's a lot of -- I mean, in fact, I'd have to flip it on its head and say, where are there not lots of discussions going on clearly, and this has been much remarked upon in software-related private equity, that's got pockets of challenges. But other than that, in FIG, in industrials, in health care, in tech. So it's in -- it's pretty much across the board. .

And what about AI? Is that the primary driver of activity across all these different industries? Or is it much broader than that? .

I think it's broader than that, although AI is now coming up more in most discussions. Certainly, it is -- let's put it this way, it's an important consideration, even if it's not always the key driver. And I think what it is, again, highlighting is, there is a benefit to being the leading strongest firm. And this is the phenomenon I've talked about this before, that we've seen over the past couple of decades where the firms that are at the frontier in each sector are just pulling away from everyone else. And it's at least my view that, that disparity is likely to grow with the advent of the new tools that we're seeing with artificial intelligence. And in that world, you want to be at that frontier. And so this is, again, driving a lot of the ambition around M&A, even if in each individual case, it's not the only thing that's at the top of the list in terms of considerations.

And what about geopolitical volatility, we've seen that impact deals in the last few years. And I'm wondering if now our Boards treating geopolitical volatility more as a feature of the times rather than something they can wait out. .

Yes. I do think there's some of that -- a couple of comments here. First, obviously, Lazard has always excelled at contextual alpha that is bringing the narrow business questions together with the geopolitical and regulatory and other matters that are crucial to making good business decisions today. We have only reinforced that capability with our geopolitical advisory team. And with regard to how boardrooms and C-suites are viewing things, I think you've got it basically right, which is that there is a lot of noise and a lot of distraction and a lot of uncertainty. . But at some point, you kind of reached the decision that you have to proceed regardless, and I think that's what's going on in a lot of boardrooms, which is, yes, we understand that there is a lot of geopolitical uncertainty. But -- if we kept waiting for that to get resolved, we would never do anything. We don't think it's going -- it's almost like -- maybe the right way to put it is, it makes sense to wait for uncertainty to resolve itself if there's a temporary spike in that uncertainty. If instead, there's a higher level of uncertainty, but it's going to just keep going, then there's no real point waiting because it's not like the uncertainty gets resolved. It just gets replaced with a different set of uncertain factors. And I think that's the conclusion that most boards and C-suites have reached, which is this is the new normal, and so let's just proceed with what we were going to do.

And in the U.S., what about midterm, they're coming up a few months away. Are clients thinking about them at all when making strategic decisions and are they important? Or is it more about presidential election?

I personally do not think that the midterms are going to materially affect the dealmaking environment. The regulatory approval processes are really not subject to legislative interference. So with regard to antitrust and CFIUS and other things that are important to deal making, there's not really a first order effect from what happens in the elections. One thing I do think that's going to likely occur is that assuming the Democrats take over, let's say, the house, there will be lots of investigations into what -- there will be a lot of oversight activity. And 1 thing that is definitely now coming up with our corporate clients is how companies may get caught in the middle of that. I have said in the past that -- the administration is likely to invoke the executive privilege repeatedly in response to oversight hearings. But the executive privilege does not apply to the Chief Executive Officer. And so many companies are sort of gearing themselves up for what that world may look like. But in terms of deal making, I don't think there will be a first order effect.

And Peter, you're in a unique seat in that you have experience in D.C. as CEO of Lazard, you worked in D.C. for a long time before that before coming to Lazard. So do you think that CEOs today have a fundamentally different relationship with Washington than they did maybe a decade ago? .

Completely. I mean so in any gathering of CEOs, a common notion is that they're spending a lot more time in Washington than they used to. I think that reflects the broader phenomenon that there had been, at least in theory or at least in kind of rhetoric, a cleaner separation between business and government. That line is now getting blurred increasingly. This is something that some of my Lazard coauthors and I have called discretionary state capitalism. And it means that that CEOs do you have to spend more time with policymakers than was the case in the past. I don't -- I don't see that changing for the near term. And I think most CEOs have kind of just accepted it as part of their operating tempo now. .

And what about in Europe? How is activity trending there? And any impact from the EU draft revised merger rules that you think might change a change in strategy in boardroom conversations?

Yes. First of all, I'm pleased to see that the EU is moving on those merger guidelines. I think it's 1 of the very few recommendations from the report. -- that policymakers are actually acting upon it would be good if they act on others. I would say we haven't really seen a significant effect from that yet. But I do anticipate that over time, it will make a difference. As with the other suggestions that Mr. Draghi had put forward, but -- so short answer is that still in the future in terms of impact, we're not -- we haven't yet really seen a material effect from the proposed of changes. .

And then on the sponsor side, you've been through several years of private equity firms operating through higher rates, lower exits. Are you seeing any fundamental adaptations and how sponsors are adapting their playbook? And any other comments on the sponsor environment?

The only thing -- it's sort of what I've already said, which is kind of 2 phenomenon. One is certainly in software-related spaces, while there is some activity, it is much more challenging. And our teams have pivoted a bit as that particular area will require a little bit of adjustment time. Outside of that, we are still waiting for the pickup in sponsor M&A activity that we believe will happen and that, again, the leaders of many large alternative asset managers and large sponsors, they could happen in the -- or that they expect will happen in the second half of this year. . And then third thing is, obviously, in the fundraising space, our primary and secondary fundraising is active, very active. And very excited about the combination with Campbell legends for that reason. By the way, 1 of the other things I should have said on Campbell Legends is in addition to all the other factors that I already mentioned, there also is a structural fit in terms of where they're strong, complementing where we're strong, so that together, we're not only the pro forma global leader, but we've got real strength across the board in primary and secondary in Europe, in North America, in infrastructure, in private equity, et cetera, a kind of universal offering that allows strength in each of the different components.

On the restructuring side, any change in activity there? And is the AI disruption narrative impacting activity? .

We are seeing a lot of momentum in our restructuring and liability management business. I would say AI, AI is affecting everything. I don't know that I would put it at the top of the list in this particular area yet. And the underlying trends that I think are now well understood continue a shift away from restructuring towards liability management. And our team is really benefiting from the investments that we've made in diversifying that business so that it is more balanced between debtor and creditor work and also from the investments we've made in the private capital ecosystem because, obviously, that's crucially important when the client is a private equity owner. .

And then maybe just to wrap up, -- what do you think the market still under appreciates about Lazard today both on the advisory side and on the asset management side?

Well, I think overall, the biggest thing that the market is, over time, we'll appreciate is the significant growth potential that we have ahead. If you look at what is possible in financial advisory, the trajectory we're on in asset with an additional wealth vector that's possible. The benefits of being the leader in primary and secondary fundraising and then the fact that we see a lot of opportunity to serve our clients better and to deliver better outcomes across the board through artificial intelligence and to be at the frontier of that. Obviously, we understand that we need to continue to execute against the Lazard 2030 objectives. But I think over time, the market will increasingly see the growth potential that we see and that we're particularly excited about.

Excellent. Well, with that, we're out of time. Peter, thanks so much for joining us. And I appreciate we could make this work while you're on the road. .

Yes. Thanks for your flexibility. .

All right. Thanks.